This article first appeared in Digital Edge, The Edge Malaysia Weekly on July 5, 2021 - July 11, 2021

The Covid-19 pandemic has forced companies to change the way they do business and accelerated digital transformation but many organisations are still encumbered by having to spend the bulk of their IT resources to maintain legacy enterprise resource planning (ERP) systems, says Andrew Seow, regional general manager for Southeast Asia and Greater China at Rimini Street.

While these systems in their prime have helped companies improve productivity and perform critical day-to-day functions, they now take up investments needed for digital transformation, he adds.

Rimini Street provides software support to companies all over the world — the majority of which operate legacy systems that have been in use for decades. SAP and Oracle are the main software suites for which Rimini Street provides support, in addition to IBM, Microsoft and Salesforce, among others.

With the pandemic showing no sign of abating, he says, businesses stand to benefit from ERP modernisation that offers new capabilities and opportunities as the business management solution often forms the basis for robust and sustainable digital transformation strategies.

To stay competitive, industry pundits have been urging businesses to move their core ERP systems, which are mostly installed on site, onto a modern cloud infrastructure for agility and flexibility. This involves lifting and shifting the application to a public or hybrid cloud infrastructure-as-a-service platform.

“An organisation’s key priorities should shift towards utilising technology as a transformative tool to achieve its business objectives. More than ever, successful IT teams are focusing on growing the business, improving margins and expanding globally through strategies such as improving customer experience and enabling new business models.

“Organisations spend much of their IT budgets on current back-office systems, leaving little for driving business transformation and new digital initiatives. Ensuring a robust, secure ERP platform for business operations is table stakes for the IT team, but current systems and the accompanying legacy vendor business models are now consuming the vast majority of IT resources, preventing needed investments in digital transformation,” says Seow.

According to a study by Dell, even companies in the Fortune 5000 list are still operating in legacy environments built 20, 30 or even 40 years ago. The report added that a typical corporation spends between 60% and 80% of its IT budget simply to maintain existing mainframe systems and applications. “And these legacy systems don’t only absorb resources, they can also hamstring a company and keep it from moving forward,” the report states.

Seow concurs: “With an agile innovation approach, organisations can innovate far more quickly by optimising core IT systems to liberate resources — people, money and time — so that they can reinvest them in initiatives and technologies that most directly and rapidly impact their business.

“The alternative, waiting for new ERP platforms from legacy vendors and then spending vast sums on a system whose efficiency is unproven, can put them behind in the race to competitive advantage in a digital world.”

To stay ahead, businesses must be prepared to throw out old rules and review models through new lenses, he adds.

“Businesses find it hard to go digital as many of the technologies out there are not in their prime and CIOs (chief information officers) are confused about what to do. Should they go all-in with one vendor, or take a best-of-breed approach? Do I want the flexibility in the future to change course or get locked in with one provider? The second reason [businesses find it difficult to go digital] is that many can’t afford it based on their IT budgets,” says Seow.

However, companies can no longer afford to be held hostage to these expensive and dated IT models that gobble up a big chunk of the IT budget, he stresses.

“They have to free up their budget to invest in the right technologies that drive innovation to become disruptors. The days of CIOs being strictly technologists are long over. The best CIOs are revenue generators. They are business people who leverage technology to create new business models,” asserts Seow.

Industry analysts frequently recommend managing mature ERP applications in collaboration with new digital investments like cloud, social, mobile, IoT (Internet of Things) and analytics in a hybrid IT configuration, says Seow.

“A hybrid IT approach is the best of both worlds, combining the robust foundation of core ERP applications integrated with the innovative digital technologies that organisations need today to create a competitive advantage.”

One of the biggest draws of cloud technology is its elasticity and scalability, says Jason Yuen, partner and cybersecurity leader at Ernst & Young Consulting Sdn Bhd (EY).

“This can allow companies to get onto ERP systems quickly and avoid long implementation cycles as well as quickly scale their requirements in terms of users and functionality. Cloud ERP systems are also natively designed to be operated online and provide anywhere access,” he says. 

However, they are not without challenges. Unlike an on-premise ERP model, a cloud-based system limits an organisation’s ability to fully customise its requirements. In addition, while subscription costs may initially be lower, organisations should also consider detailed longer-term — say five to 10 years — cost of ownership. 

Just before the coronavirus crisis brought the world to a halt, research and advisory company Gartner stated that demand from the third-party software support market will grow by a whopping 200% — from US$351 million in 2019 to US$1.05 billion by 2023.

“Over the past decade, expectations that vendors such as Infor, Microsoft, Oracle and SAP will end mainstream support for their traditional ERP solutions have been slowly pushing companies to adopt next-generation ERP,” says Seow. 

However, many organisations prefer to leverage their existing ERP platforms that they have spent years customising and that work perfectly for their business needs, instead of spending time, money and internal resources on an upgrade or migration just to stay on the vendor’s roadmap unnecessarily.

With IT departments gradually moving various applications and infrastructure to the cloud, Rimini Street helps organisations think strategically about their investments in the cloud to make the strategic move to a hybrid environment, says Seow.

National automobile company Proton Holdings Bhd, for example, had switched to Rimini Street for support of its enterprise software applications and saw an immediate reduction of 50% in its annual support costs last year.

The company’s services replace traditional vendor support and enable licencees of Oracle, SAP, IBM, Microsoft and other enterprise software to save up to 90% on total software support costs.

“This enables organisations to stay on their robust back-office systems of record, and at the same time enables them to invest their significant support savings in strategic initiatives that help move the business forward,” says Seow.

As far as security is concerned, Yuen believes both cloud and legacy ERP models can be effectively secure provided that the right people are employed and suitable processes and technologies are implemented.

“What is important to note is that cloud technology has different and additional risk considerations, including data residency, multi-tenancy and vendor lock-in,” he says.

According to SearchCloudComputing, an online site run by Nasdaq-listed Tech Target, data residency refers to the physical or geographic location of an organisation’s data or information. It also refers to the legal or regulatory requirements imposed on data based on the country or region in which it resides.

Why does this matter? By using cloud computing, which allows businesses to deliver hosted services over the internet, users are often unaware of their data’s physical location, as cloud providers store data globally across different data centre locations.

Multi-tenancy, on the other hand, refers to a software architecture in which a single instance of software runs on a server and serves multiple tenants, according to Wikipedia. A tenant is a group of users who share a common access with specific privileges to the software.

Vendor lock-in (also known as proprietary lock-in or customer lock-in), according to Wikipedia, makes a customer dependent on a vendor for products and services, unable to use another vendor, without substantial switching costs.

“Often, we view on-premise solutions to be safer, primarily due to the fear of giving up control. However, one of the biggest factors limiting an organisation’s ability to secure systems will be its [inability] to attract and retain security talent. Without the right people in the right numbers, organisations will not be able to effectively manage security,” Yuen says. 

In terms of cost, the scale of cloud service providers offers a competitive advantage when it comes to cybersecurity, he says. “This is because there is a possibility that resilient security capabilities may not be efficiently managed in-house.

“One example is security monitoring and incident response, where the effort and resources to establish and sustain a leading security operations centre would not be practical for many organisations.”

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