SAP B1 blog

The rigid corset of grown ERP systems

A monolithic ERP system is a tightly coupled, self-contained application. Historically, such systems were often developed as stand-alone solutions for individual departments and later integrated via manual or error-prone interfaces connected to other legacy systems. As a result, this structure leads to a rigid, cumbersome IT landscape that no longer meets today's digitalisation requirements. Modern company management, on the other hand, requires more agility, flexibility and therefore the ability to react quickly to market changes.

In order to develop well-founded modernisation strategies, it is essential to understand the specific problems and structural weaknesses of these evolved system landscapes. Only on this basis can companies embark on a sustainable path that secures their long-term competitiveness.

Problem analysis: Why monolithic ERPs become a brake on innovation

Identifying the weaknesses of outdated ERP systems is a matter of strategic urgency, as these systems are often not only inefficient, but also become an active obstacle to growth and innovation. They tie up valuable resources, slow down processes and thus prevent the introduction of new business models, which directly undermines a company's competitiveness. As a result, the key challenges faced by SMEs are diverse and far-reaching.

• High maintenance and operating costs:  High Maintenance costs are one of the biggest challenges for many companies. These costs often swallow up the lion's share of the IT budget, which is then lacking for strategic innovations. Added to this are the high support costs incurred for legacy systems whose technology is no longer up to date.

• Lack of flexibility and agility: Monolithic architectures are difficult to adapt to new business requirements or changing market conditions. The need for more agility and flexibility is therefore a key driver for modernisation. After all, standardised 08/15 processes that are dictated by rigid systems rarely generate real added value or unique selling points in competition.

• Outdated technology and functional gaps: Many legacy systems are technologically outdated and therefore offer inadequate functionalities. As a result, functional gaps often have to be closed by manual workarounds or additional isolated solutions, which in turn further increases complexity and inefficiency.

• Integration problems and data silos: The connection of several different systems via error-prone interfaces leads to the so-called „multiplatform problem“. As a result, data is not consistently available, and inconsistencies and isolated Data silos in the individual departments. This in turn prevents a holistic view of the company and therefore makes data-based decisions more difficult.

• Restricted mobile access: The ability to access ERP data and functions on the move and from any location is also a key reason for companies to modernise. Traditional monolithic systems often lack this capability altogether, which can reduce productivity, especially for field staff or employees working on the shop floor. Warehouse logistics, is severely restricted.

ERP system from brake pad to innovation driver

Despite these serious disadvantages, there are established strategic approaches to successfully modernising and transforming the ERP system from a brake pad to a driver of innovation.

Strategic solutions for modernisation

There is no universal silver bullet for modernising a monolithic ERP system. Rather, the choice of the right Strategy depends on individual factors such as the company context, the existing IT landscape, the willingness to take risks and the available budget. In principle, however, there are three main strategies available to companies

Incremental modernisation through decomposition

Instead of a risky „big bang“ migration, in which the entire system is replaced at once, incremental modernisation enables the monolith to be replaced step by step. This is because this approach significantly reduces the project risk.

• That Strangler-Fig pattern (strangler fig pattern) is a proven approach for this process. Named after the strangler fig that slowly entwines a host tree and eventually replaces it, individual system functions are gradually rewritten and outsourced as independent services. In this way, the functional scope of the legacy system is gradually reduced until it can ultimately be decommissioned completely.
  
• One method for implementing this pattern is „decomposition by business capability“. In this process, new Microservices developed along established business functions such as sales, marketing or customer service. Consequently, this approach ensures that the new architecture is closely aligned with the business model.

The following table summarises the main advantages and disadvantages of this approach:

advantages	Disadvantages
Reduces the risk associated with large migrations.	Requires a deep understanding of the entire business to correctly identify functions.
Leads to a stable, future-proof microservices architecture.	Increased complexity in the coordination of teams and services, especially with circular dependencies between the new microservices.
Development teams work in a cross-functional and value-orientated manner.	Aligning the teams with the exact functions of the end users can be difficult.

Switch to cloud and SaaS ERP solutions

The trend towards the use of cloud-The trend towards cloud-based ERP solutions is unmistakable, although a pure „everything in the cloud“ strategy is rare. Instead, this hybrid strategy enables companies to approach the cloud cautiously by retaining the existing on-premises ERP core and expanding it with new, flexible cloud functions in order to combine the advantages of both worlds.

The main reasons for introducing a cloud strategy :

1. Shorter implementation time:  faster commissioning compared to on-premises installations is a decisive advantage.
2. Possibility of transferring existing processes: The option of transferring established and proven processes to the cloud
3. Reduction of IT costs:  The reduction in operating and maintenance costs is the primary driver.
4. Mobile and location-independent access: The ability to access data and functions at any time and from anywhere

Risks and typical pitfalls in ERP modernisation

ERP implementation projects are highly complex and therefore the risk of incorrect implementation is considerable. In fact, failure can not only lead to budget overruns, but can also severely disrupt operations. Consequently, proactive and structured risk management is not an optional extra, but rather a critical success factor. The risks can be divided into general project risks and strategy-specific pitfalls.

General project risks

Identify the following general risk areas:

• Organisational risks: These include a lack of qualified personnel for the project or unforeseen staff shortages that jeopardise the progress of the project.
• Technical risks: A typical technical risk is the incompatibility of the new system with the existing IT infrastructure, which can lead to unforeseen integration problems.
• Scheduling and capacity risks: A frequent source of error is underestimating the actual effort involved, which leads to considerable project delays and resource bottlenecks.
• Cost and benefit risks: Budget overruns are a classic project risk. Equally dangerous is the risk that the expected benefits of the investment will not be realised in the end. 
• Human or psychological risks: This includes employee resistance to new processes, which often arises from fear of change or a lack of involvement and can undermine the success of the entire project.

Strategy-specific pitfalls

Specific challenges arise depending on the modernisation path chosen:

• With Cloud/SaaS-ERP: The use of standardised cloud solutions harbours the risk of losing process-related unique selling points that represent a competitive advantage.
• With Open Source ERP: The biggest disadvantage is the lack of manufacturer support. This requires a deep internal technical understanding for troubleshooting and further development. There is also the risk of „hidden costs“ that can arise due to unforeseen development and debugging work.
• For incremental modernisation: A key difficulty initially lies in correctly identifying the business functions for the decomposition. In addition, coordinating the development teams can be complex, especially if there are circular dependencies between the new services.

Procedure model in five phases

A successful ERP implementation requires a structured, phased approach in order to master the high level of complexity and thus avoid incorrect implementations. This five-phase model therefore offers a generic and tried-and-tested guide that helps companies to manage the entire project life cycle from preparation to operation

1. Project preparation

    ◦ Target: The foundations for the entire project are laid in this initial phase. The aim is to set out the framework, define clear objectives and lay the foundations for successful implementation.

    ◦ Tasks:

• Putting together a powerful project team
• Definition of project goals according to the SMART approach        
• Organisation of an official kick-off meeting for all participants
• Definition of the technical requirements for the infrastructure
• Systematic risk assessment and creation of a risk matrix
• Creation of a detailed project schedule

2. Business Blueprint

    ◦ Target: This phase is the centrepiece of the conceptual design. Here, the business processes that are to be mapped in the new system are analysed and documented in detail. The result is an exact specification of the requirements.

    ◦ Tasks:

• Process analysis and definition (as-is analysis of existing processes)
• System analysis for the design of the future IT landscape
• Data analysis to ensure data quality and planning of data cleansing
• Detailed definition of requirements and creation of the specification sheet
• Carrying out an initial, well-founded cost analysis

3. Implementation (realisation)

    ◦ Target: The system is technically implemented, configured and customised to the company-specific requirements defined in the business blueprint.

    ◦ Tasks:

• Creation of the implementation design (technical specifications)
• Customisation of the system through development and Customization
• Parallel installation and configuration of the subsequent real system
• Implementation of a comprehensive security concept
• Final and detailed planning of the go-live

4. Test phase

    ◦ Target: Ensuring the functionality, stability and user-friendliness of the new system under realistic conditions before it goes into productive use.

    ◦ Tasks:

• Carrying out the test operation with migrated master data
• Organisation of a trial operation (often as parallel operation of old and new system for error identification)
• Planning and implementation of comprehensive employee training programmes

5. operations and go-live

    ◦ Target: The new system is put into production (often as a „big bang“) and transferred to ongoing operations. At the same time, processes for maintenance and continuous improvement are established.

    ◦ Tasks:

• Realisation of the final go-live
• Establishment of professional IT service management (e.g. according to ITIL)
• Organisation of maintenance and support for ongoing operations
• Official project completion and final documentation

Consistent adherence to this structured approach is crucial in order to control project risks and ensure the success of the modernisation initiative.

Strategic recommendations

For SMEs, the modernisation of monolithic ERP systems is less a question of „if“ and more a question of „how“. In fact, the transformation from rigid, costly legacy systems to flexible ones is a real challenge, agile platforms are essential in order to remain competitive in an increasingly digitalised world.

As outlined, companies have various strategic options available to them: on the one hand, low-risk incremental modernisation, and on the other, the switch to scalable cloud and cloud-based solutions. SaaS-solutions or the implementation of customisable open source systems. The right choice is not a purely technical decision, but depends largely on the individual company objectives, the existing process landscape, risk tolerance and the available financial and human resources.

In conclusion, it can be said that the success of an ERP modernisation depends less on the chosen technology and more on a disciplined, phased approach. A structured model, such as the one outlined here, creates the necessary transparency and control to manage such a complex project. A thorough planning and analysis phase (the business blueprint) is therefore particularly important. Only if the requirements and processes are clearly defined from the outset can risks be minimised, costs controlled and the strategic benefits of the investment maximised.