Many legacy ERP products like Sage, Epicor, Oracle, and Microsoft Dynamics require expensive maintenance fees ranging from 16-24% of the full product price. What is included in that yearly fee? Support and the right to future software releases are generally included in these fees. However, most legacy ERP systems have been customized, which translates into a centralized support representative who does not know how your system is configured or setup. Generally, a company either must maintain expertise on staff or maintain a relationship with a third-party implementer. In most cases, the third-party implementer is going to charge for support assistance.
The maintenance fee also guarantees the organization a right to future releases of the software. This has traditionally been a positive aspect of maintenance fees. However, if the software vendor is no longer delivering new features and functionality for that product to help the business, why would you ever upgrade? An organization may be forced to upgrade due to technology enhancements such as new laptops with Windows 10 or a Windows Server version that is no longer supported. Lots of businesses pay for expensive upgrades due to technological changes yet receive no benefits from the investment. For many of the Legacy ERP systems, the cost of an upgrade is as much or more expensive than implementing a new flexible cloud based system.
So why should an organization pay legacy maintenance fees to a vendor when no benefit is being derived from the payment? It shouldn’t. As a consulting firm, we have sold and supported many legacy systems in our 20 years of business. If an ERP vendor is not moving towards a public cloud approach with built in data redundancy, disaster recovery and upgrades, then the solution is likely to milk its customers dry via maintenance fees while delivering very few new benefits to its customers.
Recently there was an article from one of my favorite technical analysts (Brian Sommer) regarding IT Technical Debt in Legacy ERP solutions. IT Technical Debt is the cost and time associated with bringing an application to its current version or state. For Legacy ERP, this can be a substantial challenge involving multiple departments including IT, Finance, and Operations. These endeavors are costly and generally realize very little benefit. The article compares IT Technical Debt to what Brian calls Cloud Functionality Debt (CFD). CFD is the debt an organization has by not adopting new features as they are created from Cloud ERP vendors. With Cloud ERP solutions, new features are delivered with every release to ensure the application is kept on the latest version multiple times per year. Organizations should be evaluating the new features and functionality within their system to ensure it is used to the greatest potential.
In looking at the business case for comparing these two “debts”, it certainly seems that businesses would rather have the ability to adopt new functionality which is introduced from a cloud based vendor versus paying extensively for updates every few years which may or may not deliver any value. Brian brings up that vendors and implementers like the cloud functionality debt as it is an opportunity for new consulting engagements. In my experience, deploying new features in Cloud ERP is much less expensive than upgrades (especially when the legacy product is highly customized). While upgrades can be a good revenue stream for software implementers, these necessary projects are not fun for implementers either, when there are few benefits gained. As a business partner, our focus is delivering value and new functionality to our clients. Upgrades that provide neither of those things are not the basis for our business.
In summation, it is time for businesses to evaluate their future and understand the value that a true cloud system can deliver. Many legacy vendors are touting “cloud” these days, but, generally it is just a hosting or managed services agreement. Some considerations when legacy vendors move to the cloud center around interoperability of systems, integrations with other products and general usability concerns which are not always addressed. At Kraft, we represent NetSuite ERP, the world’s largest Cloud ERP vendor. We believe in deploying solutions which allow our customers to focus on their business and we support them as they evolve. Contact us to chat and learn how we can partner together for your business future.