New business models and FASB’s new revenue recognition guidelines pose a threat to existing ERP systems. Some companies have achieved business improvement from their ERP systems. However, many companies are quickly realizing that the key benefits, once leveraged from their Enterprise Resource Planning (ERP) system, are now unavailable due to the increasing complexities stated above.
ERP customization was the go-to play for companies that have reached the limits of their existing ERP system. This option was an attractive workaround because the customization allowed ERP providers to develop exactly what companies needed at that moment. The vendor only needed to customize just a portion of the ERP system to meet the requirements of the organization. A tailored ERP system was a good option in regards to organizational processes as companies were able to continue use of their existing ERP system and keep the same workflows in place.
Over the years, many companies ended up over-customizing their ERP system which lead to complications down the line. The level of customization played an important role in influencing the level of benefits gained from the ERP systems. Let’s take a deeper dive into the long term effects of heavy ERP system customization.
The long term effects of heavy ERP Customization
- ERP customization is a never-ending investment
After making a huge sum of money in selling the ERP system, ERP vendors then charge another huge sum for customizations to the existing system to try and get it to function for the organization. If companies take this route, they should plan for a never-ending investment. Any time a business changes, these customizations will have to be updated and this task is tricky. Also by doing all of these customizations, and charging companies for it, they make it nearly impossible for companies to leave. In many cases, it becomes difficult and costly even to upgrade to a new version of the system. This is known as Vendor and Version lock-in.
- ERP customization leads to Vendor Lock-in
Vendor Lock-in is a nightmare for companies. One of the biggest fears amongst IT leaders is to be stuck with a particular ERP provider that doesn’t meet their needs. Vendor Lock-in binds companies to their particular ERP vendor, as modifications make it difficult, if not impossible, to switch to a different solution. The process of ditching the existing ERP vendor and implementing a new ERP system is cumbersome, costly, and risky. Vendor Lock-in is a serious problem and a common practice amongst ERP solution providers.
- ERP customization create strategic disadvantages and inefficient systems
Being locked into their current ERP system can lead to inefficient business processes which take a significant toll on efficiency and accuracy. An inadequate ERP system can even slow down a company's productivity. Organizations reach the point where their outdated ERP system is causing more problems than it is solving. Being locked into an inadequate ERP system can lead to inefficient business processes. This can take a significant toll on a company’s efficiency, accuracy and productivity.
We understand companies don’t want to just ditch their existing ERP system that they've invested in. But how can companies break the lock and find a solution that works for their organization?
An alternative approach to customizing your ERP System
It may mean re-directing efforts toward bolt-on solutions which can be a more cost-efficient solution. Replacing the customizations with a productized module can result in a lower total cost of ownership with a far better result. ERP augmentation software allows companies to reap the full benefits of their existing ERP system. This type of approach provides an alternative solution that compliments their existing ERP and financial systems.
SOFTRAX ERP augmentation software is compatible with leading ERP platforms and integrates seamlessly, stabilizing implementation costs. Companies return to a productized environment quickly and minimize disruption to their existing ERP system. With SOFTRAX ERP augmentation software organizations won't be locked into an integration with any one application or package. Learn more about SOFTRAX ERP augmentation software.
If you’re preparing to respond to the new revenue recognition guidelines from the FASB and IASB, a good place to start is our newly-released “Guide to ERP Augmentation for Improved Billing and Revenue Recognition.” You can download a copy by clicking on the link below.
Stay tuned for our blog post series “Analyzing ERP Options” which takes a deep dive into each of the four options.Subscribe to the Softrax revenue recognition blog today and stay up to date on future posts.