New technologies, new customer requirements, shorter market cycles, data and platform economies and the success of digital business models are proof of how unfavorable traditional organizational structures have become. However, some top executives are still not prioritizing digital transformation and change management despite mounting evidence that it is the only sustainable way forward.
Corporate strategies, product development and IT landscapes have one thing in common: they all need to change. Radical changes are necessary, without going easy on tried-and-tested structures and processes.
To not alienate employees, managers, customers and partners, change management and empathy are crucial. Especially when it comes to ERP modernization or switching from ERP/ECC 6.0 to S/4 Hana, the profoundness of the change is not to be underestimated. ERP transformation is not only a technological migration, after all.
Switching to cloud computing means changing processes and structures – at least it should. With a purely technological migration, companies will not be able to tackle the challenge of digitalization.
Traditional ERP structures cannot provide the agility and flexibility necessary to succeed in the future platform economy. The fastest solution would be to get rid of antiquated structures once and for all – but in reality, it’s not that easy.
Pulling the plug is not an option
While startups are able to leverage a greenfield approach, companies from the old economy have to tackle digital transformation with their often nearly unmanageable IT landscape, making change management even more crucial.
Problem is that most IT processes are aligned with corporate requirements, not customer experience. For example, many e-business solutions accommodate unmanageable, complex IT landscapes and not easy, customer-oriented processes. Even though they should be, customer experience and user centricity are often not the focus.
Startups and internet companies like Amazon or Google have been able to build their business and operating models with agility, flexibility, customer centricity and data analytics in mind. Their business processes are closely connected; through APIs and microservices, third-party platform providers can connect seamlessly to their IT systems. Furthermore, they have vast amounts of data at their disposal just waiting to be analyzed.
They do not suffer from antiquated processes or legacy systems as their IT landscape has always been flexible, agile and highly scalable.
Unmanageable ERP landscapes
According to a recent study by Luenendonk, Arvato Systems, Kobaltblau, and Warth & Klein Grant Thornton, most mid-sized companies are operating more than ten different ERP systems. That’s not a problem per se. However, each ERP system has been customized and is therefore only aligned with highly specific processes or departments.
Thanks to the customizing trend of recent years, especially in the SAP environment, standard solutions have mutated into complex individual applications. Companies usually don’t try to optimize or change them, out of fear that the whole system will crash.
CIOs are feeling the pressure to modernize IT landscapes and create digital business models. Process automation, e-business and business apps are just a few of specific departments’ requirements. Digital products and new business models require more focus on customer experience.
Even though CIOs have been trying to make top management aware of the urgency of digital transformation, they often do not get the necessary budget. Transformation is expensive, and some top managers still hope that digitalization is only a fad that will pass eventually.
As a result, many companies are struggling to modernize their IT landscapes now, as they have just gotten more complex and heterogeneous over the last few years.
IT modernization crucial
The majority of respondents of aforementioned Luenendonk study indicated that they were planning to modernize their ERP landscape and optimize their processes for the digital age.
Even though respondents reached a consensus on how important modernization has become, they disagreed on what was the best strategy.
Some interviewed CIOs said that they want to consolidate their ERP systems or that they have already done so. Others stated that they did not consider consolidation, as they will migrate to the cloud or S/4 Hana.
On the topic of cloud, 65 percent of respondents indicated that they would prefer cloud migration, while 16 percent said that their preference depends on the ERP application. Especially large and mid-sized companies are following a “Cloud First” strategy in their EPR modernization projects.
Change management and digitalization go hand in hand
Customer experience and customer centricity are two major reasons why digital and data-based business models succeed. Both of these factors depend on IT landscapes based on APIs and microservices.
Companies from the old economy do not have the advantage of a greenfield approach. For some SAP migration projects pulling the plug of a legacy ERP system will suffice, but greenfield is not an option for all company processes.
The ERP market will change drastically over the next few years, as complex customizing projects will become far and few between. Otherwise, companies will not benefit from cloud deployments.
External support and new strategic partnerships are important building blocks of digital transformation. This development will shape the market as well, as the lack of IT experts with cloud know-how and the pressure to advance digital transformation are complicating projects.