Headache or salvation: changing your core software system

Date: 2016.04.21

 Author Kestutis Skrodenis 

It is much easier for businesses to decide on investing in IT systems, which gives a quick return. For example, implementing a new front-end system to support a new sales channel; or moving to a paperless process with a new document-management system; or utilizing a new CRM system to support cross-selling opportunities. As you see, the systems I’ve mentioned are not core systems, and they are relatively easier, cheaper and quicker to implement compared to core back-office software system replacement. Core-system replacement requires a lot more effort, and impacts on every department in the company and every process in your organization.

My practical experience comes from replacing core systems in the financial sector (asset-finance and leasing companies). In this blog I’m going to summarize this practical experience, focusing on the reasons for core ERP software replacement.

Psychologists have discovered that our minds are ruled by two different systems competing for control – the rational mind and the emotional mind. For example, the rational mind wants to change something at work; the emotional mind loves the comfort of the existing routine.

However, some reasons take you out of the comfort zone. You can see below several reasons influencing companies to replace the core business-management system (from what our customers have told us, in no particular order):

  • Increase transaction-processing capacity.

We see this reason in growing companies using an outdated leasing-software platform that is not scalable enough and has reached its performance limits.

  • Enable the introduction of new products and services to the market.

This relates to the lack of specialists familiar with the legacy platform and able to develop application enhancements, or, to the limitations of the software platform itself; i.e. impossibility of adding new functions. In general, businesses wish to gain more agility and flexibility.

  • Enable process automation.

The move from manual to automated systems has several objectives: a) to reduce cost per transaction, as the number of customers grows but operating costs stay nearly the same, b) to minimize human error and thus decrease related operating risks.

  • Improve compliance.

The financial-services sector is regulated, and often it is not easy to comply with statutory requirements. On the other hand, companies have internal policies, and the core system plays a key role in following them. In practice, we see cases where the legacy application does not have the required features, or – much worse – the legacy system architecture does not fit with compliance requirements (a typical example is a lease-management system loosely related to the General Ledger and Financial Accounting system, which leads to poor data quality or even inconsistency).

  • Have adequate system support.

If the legacy system is no longer supported, the operating risk is increased and auditors may mention this in their opinion. There are two typical scenarios – either a) the software vendor is out of business, or b) in-house developed software is too costly to support or too dependent on a single person (what if the local IT guru leaves the company?)

  • Harmonize business processes.

This need usually comes after mergers and acquisitions. The aim is to align the business processes of subsidiaries within the group, and core-system replacement gives a good opportunity for doing that.

As we see from the above list, several reasons relate to the technology platform and the others relate to business applications, in particular – flexibility to adapt to changing business needs. If you have to replace the core system, one of the questions you will ask is “How long will it last? When will we have to go through this costly process again?” There are a few things you can do to extend the life cycle of your core leasing-management software system.

Let’s take a look at the complete life cycle of a core IT system, thinking of these five stages:
1) Software selection
2) Implementation (configuration and roll-out)
3) Optimization
4) Maintaining value
5) Declining value

You can extend the life of your software system by maintaining its value (stage 4, which can last 10 years or more). Do platform upgrades, do application upgrades, add/enhance functionalities as per business requirements. You must stay up-to-date with the technology platform and have flexibility to tailor your business applications.

In the Software selection stage (no.1), you should not only ask questions about current features, but also pay attention to the system development road map and support availability over the long term (you don’t want to be dependent on a single service provider; see how many alternatives you will have).

In the Implementation phase (no.2) you get all your “must have” functions, as per current requirements, but you should take a step further and in the Optimization stage (no.3) implement your wish-list items (those which possibly didn’t fit into the Implementation scope, or new ideas that emerged as you got your hands on a new business-management software system).

To summarize:
1) If you find reasons to replace your core management software system – do it in time. It won’t get easier if you wait.
2) Maintain the value of your lease-management system; do regular upgrades, so you don’t have to go through the demanding replacement process again in the near future (in the perspective of a minimum of 10 years).