IT = I’m Tired
Not long ago, IT may have stood for Innovative Technology. Today’s economic climate has caused a shift: budgets became constricted, dollars were redirected, and much of the collective investment that would have previously been thrown at innovation was thwarted by cost-cutting initiatives geared toward maintaining both existing enterprise applications as well as the status quo. As a result, the functionality of enterprise resource planning (ERP) systems such as Oracle’s E-Business Suite (EBS) suffered due to management’s focus on the present (time to results – regardless of the quality) rather than on the future (time to value). When initially implementing, there wasn’t time to plan for future requirements, and the business world was more focused on performance of individual units rather than on enterprise consistency. Quick fixes involving spreadsheets and custom code were preferred over lengthier, more beneficial projects in light of the shorter time to results. Modernization took a logical back seat to keeping businesses afloat; it was more of an instinctual operational change than a conscious executive decision.
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In a sense, such a stagnant outlook on business operations is right in line with the way E-Business Suite was designed. After the original EBS implementation, there’s not much about the way it was initially configured that the user is able to change in order to support ongoing business changes and growth. That kind of rigidness almost coaxes IT professionals to opt for customizations or embarking on major projects to implement new systems (i.e. data warehouse, business intelligence systems, or even entirely new and different back office systems) in hopes of obtaining the results that the business needs, if only for a short time. That being said, all EBS installations have a finite life regardless of how smart a company is about integrating change with ERP, and recent studies show that CIOs may be turning back to innovative thinking and recognizing the benefits of retiring ERP systems that simply no longer support their business.
A new strategy
The applications that were implemented to streamline operations expire alongside their related business processes, and a slew of inefficient applications that don’t support the current business turns a once-golden ERP system into an expensive line item. Though not many companies are thinking of retiring their ERP systems, they are viewing them as the sunk costs that need to be reduced by eliminating the number of custom IT solutions that are deployed, standardizing their enterprise applications to promote scalable business growth, and minimizing their investment in applications that have reached their end-of-life.
An effective lifecycle strategy for E-Business Suite applications and those of other ERP systems is becoming a core component of today’s savvy CIOs by providing a mechanism for IT organizations to continue to cut operational costs without hindering innovation and forward thinking. Dollars can be spent on new projects that increase visibility and competitive advantage rather than on supporting and maintaining workarounds that enterprises agree to be unnecessary, burdensome, and void of business value. The top priority for CIOs in 2011 is to rationalize the application portfolio to increase productivity, improve flexibility and adaptability, and better align IT with the business. [1]
The ERP Lifecycle
There are 5 stages to an ERP Lifecycle:
- Initial Implementation: Basic decisions are made on how to configure the applications to meet the current business requirements.
- Stabilized Operations: Business processes are designed to take advantage of the functionality of the ERP system.
- Synthesized Organizational Components: The ERP system becomes the backbone of the organization. Data is shared between the ERP system and other enterprise systems, and also across different locations and business units.
- Pattern-Based Strategies: The ERP system contributes to initiating strategic changes. The Applications provide a global view of the organization. Transactional data is used to predict future patterns, drive results, and maintain a competitive advantage.
- 3-Rs (Rationalization, Remodeling, and Retirement): The 3-R stage allows the organization to continually realign their application portfolio to the ongoing needs and changes of the business.
Once EBS is implemented, it needs to continually go through the other stages in the ERP Lifecycle in order to continue to add value. If EBS no longer supports the business, it becomes necessary to supplement the functionality with customizations, spreadsheets, and other systems that add to the cost. Then comes the hard part – either the CIO overestimates on the applications requirements and ends up paying way too much for technology that sits on the shelf, or underestimates and gets the IT team wrapped up in multiple staged rollouts, continually adding additional functionality. Either scenario results in extraneous spending and a bad return on the entire EBS investment. In the rare case that the CIO gets it exactly right, application relevance deteriorates shortly after the go-live as the business changes.
But is this the CIO’s fault? It can’t be – it is the nature of business. As a business grows, it changes. Processes, requirements, and strategies change, and while computers are smart they can’t keep up with human and organizational change and development. All the head of IT can do is react, and reacting to enterprise needs involves surveying the current IT landscape, determining which functionality is required by the business and adding new components to support the business changes. As changes continue to occur and the number of spreadsheets, modifications, new applications, and inconsistent data increases, it becomes harder to stage a project for terminating the organic growth and resulting chaos in the organization. Lack of convincing business cases and coherent strategies, poorly defined architectural alignment, and inconsistent and unreliable application intelligence can significantly hinder any effort to bring order to chaos within the IT landscape. CIOs can apply multiple strategies to rationalize their applications, including sustaining, extending, remediating, re-platforming, migrating, replacing, consolidating, and retiring. The question is which strategy is the best for a given situation that results in timely, realized ROI to support near-term business goals. [2]
Understanding the complexity
A collaborative research effort carried out by HP and Capgemini identified the following key reasons [3] for IT application landscape complexity:
- Mergers and acquisitions result in many redundant systems with duplicate functionality.
- Custom legacy applications are becoming obsolete and are difficult to maintain, support, and integrate into the new, modern IT infrastructure.
- Companies continue to support applications that no longer deliver full business value and do not support current business processes.
- Most organizations have a data-retention and archiving policy, but in reality the majority of companies are not willing to archive application data for fear of violating industry and government retention requirements.
Major business changes like mergers, acquisitions, and divestitures unavoidably bring with them systems with duplicate functionality. After an acquisition, multiple systems are often maintained side-by-side for years creating duplicated efforts and complicating data governance, stewardship, and standards. When the acquired system differs from that used by the acquiring company, a strategic archiving and decommissioning plan allows the retention and integration of at least partial transactional history, but designing and implementing this kind of strategy is the exception, not the rule.
In the case of a merger between two companies that run E-Business Suite, there are now innovative software tools from a third party that enable a total business consolidation of the two application landscapes, resulting in a single instance of E-Business Suite that incorporates the unique functionality of each system (while marrying the commonalities between them), eliminates any data duplication that is present as a result of the union, and provides the business with a streamlined application landscape in minimal time.
Tools are also available to remodel an existing instance of E-Business Suite, allowing changes to the existing configuration to re-align the EBS to the changed business. The ability to change an existing ERP system means that the enterprise can retire external applications, spreadsheets, and modifications that were necessary to accommodate and support the changes in the business that have occurred since the original implementation.
Why are the 3 Rs so hard?
Rationalizing, remodeling, and retiring an ERP system may be a major undertaking for an organization. There are a number of obstacles and barriers that are difficult to overcome include:
- Budgetary constraints have pre-allocated capital for maintaining different systems, and there’s no money left to fund a 3 R initiative.
- The ROI of each of the 3 Rs may not be realized immediately, so it may be easier to justify and get buy-in for other expenditures that get results faster.
- Depending on a company’s ingrained culture, a 3 R project may be uncomfortable for the business users who are accustomed to their spreadsheets, independent, supplemental applications, and customizations and their perceived control over their data.
- Different departments may bring different requirements and specifications to the table extending the length of the decision-making process.
If the 3 Rs are not viewed as a priority to keep the ERP system agile enough to become a strategic asset to a constantly changing business, nothing is likely to happen, and EBS may need to be retired and replaced because it is no longer adding value.
Take-away
IT executives need to think about how to extend the life and value of the E-Business suite, making it a strategic asset. Through Rationalizing external or redundant applications, Remodeling the existing E-Business suite, and Retiring spreadsheets and customized applications, you can significantly reduce the complexity of the IT landscape, extend the life of your ERP, and reduce the total cost of ownership of your applications. Considering that the Application Lifecycle can add value to your E-Business Suite, make your business agile by supporting it with systems that can be changed over time, and prepare your ERP for future growth so that it doesn’t need to be retired along with your old legacy applications.
