Legacy ERP modernization is a vital aspect of digital transformation.

The enterprise resource planning (ERP) system is at the heart of any company’s operations. But without timely updates, it can become a roadblock for routine procedures, scaling, and embracing new opportunities. Too many companies underestimate the importance of legacy ERP system modernization and continue using software that outlived its lifespan. It can result in poor performance, lack of visibility, high maintenance costs, security issues, and even financial meltdown.

Yet, modernizing a legacy ERP system is no easy feat. It is a costly and skill-intensive task.

Gartner predicts that by 2023, companies will choose remote over on-site teams to handle 65% of large enterprise ERP deployments. It is only logical to select an experienced remote partner like Acropolium that knows how to revitalize legacy software and can help you face the future with up-to-date ERP solutions.

So how to replace legacy ERP software? And what are the signs it’s time to modernize it? Read on to discover the answers.

What is a legacy ERP system?

Legacy ERP systems can be a barrier to meeting companies' business goals.

A legacy ERP system is a software app that relies on outdated technologies and fails to meet new business requirements. Lagging behind, this system provides irrelevant insights and gives little to no visibility into future opportunities and risks.

An IDC survey states that 35.4% of the small and medium-sized enterprises name legacy applications as a top technology barrier to meeting their business goals. How to check that you are not one of them? Here are six surefire signs that you need to modernize or replace your legacy ERP system.

  • Manual data entry. Accenture found that 51% of ERP systems require manual effort to access data, and 33% need custom API development to extract it. Lack of end-to-end automation and data exchange lowers your team’s productivity. The risk of errors and duplication grows.
  • Lack of visibility. Legacy ERP systems do not support real-time data sharing. It can affect your analytics capabilities and slow down decision-making processes. The lack of the latest data might also lead to a bad customer experience.
  • Lack of scalability. Old ERP solutions cannot handle expanding operations. They just weren’t built for agile business pivots. If every new process needs tiresome workarounds or manual interventions, it’s a clear sign to modernize your legacy ERP system.
  • Performance issues. Legacy ERP systems gradually slow down and underperform. It all starts with a long response time and data storage and retrieval delays. Next follows employee frustration and poor productivity.
  • Security holes. Frequent downtime, data losses, lack of updates, and system delays are can’t-miss signs of an outdated ERP solution. These issues pose serious security challenges and result in data breaches. They inflict regulatory penalties, too.
  • High maintenance cost. You need to change or modernize your legacy ERP system once it starts to eat into your IT resources and dumps too many manual tasks on you. It’s hard to integrate new apps into an obsolete system. Let’s not forget the money your company wastes on renting facilities to house the hardware with legacy ERP software and pay electricity bills.

These signs show that your ERP investment is no longer profitable. The legacy system only creates roadblocks that keep your business from growing. Here’s how.

Why legacy ERP systems stand in the way of modern businesses

Modernizing your legacy ERP system is important to avoid security issues.

Outdated software affects your company’s productivity, day-to-day operations, and strategic planning. Delays or the lack of automation are obvious consequences, but others come to the surface only once a serious problem happens. These hidden issues include skill and knowledge gaps in maintaining your legacy ERP system.

Here is a rundown of other problems linked to using obsolete ERP platforms:

Regulatory, audit, or compliance challenges

Legacy ERP apps offer few details about user activity and personal data, including who, when, and where accessed it. The lack of detailed user activity logs means hours of manual analysis, long preparations for audit requests, and regulatory non-compliance risks.

Limited integration with external systems

Legacy ERP systems can no longer integrate with newer products. They might need endless workarounds, patches, and custom code writing. It turns integration efforts into cost- and time-consuming endeavors with no guarantee that integrated software will work as expected.

A good example here is Lidl, a German supermarket giant. The company scrapped a seven-year-old project to move away from its outdated in-house inventory system.

The problem lay with Lidl’s record-keeping and the resistance to change it—the company always reported their inventories at their cost, not at selling prices as most companies do. It triggered a cascade of implementation problems to customize the system. The company spent a whopping €500 million only to see its project fail.

Workarounds and lost productivity

When your ERP software is old, workarounds become its second name. Your staff wastes time hoarding valuable information in multiple spreadsheets or standalone apps. And then they waste it some more to copy it to your ERP system.

Target Canada, a large Canadian retailer, is the telling case. The company wanted to import data from its legacy ERP systems to its brand-new infrastructure. But they made a fatal decision to enter all the data manually. As a result, the company’s supply chain collapsed as about 70% of fresh data was riddled with errors.

Operational impacts

Obsolete systems are often written using outdated programming languages like ABAP for SAP and PL/SQL for Oracle. They also include custom code, often with multiple patches and redesigns and without proper documentation. Maintaining and managing such legacy ERP systems drains your company’s budget.

For example, in 2019, the US federal government spent more than 80% of the total IT budget (over $64 billion) operating and maintaining aging legacy systems. It created grave efficiency, cybersecurity, and mission risks.

Wasted opportunities

Outdated ERP software solutions do not provide a holistic view of your company’s operations. It leads to patchy cross-team collaboration and communication. Sticking to an obsolete tech stack, you also lose your chance to leverage the power of new technologies like AI and ML.

Too many companies realize they need to replace their legacy ERP system only after the software impairs their operations and drives their customers away. In that case, the company spends double, as it still needs to invest in maintaining its legacy system while developing a new one.

Benefits of replacing a legacy ERP system

Modernizing a legacy ERP may bring your company quite a few substantial benefits.

Modernizing a legacy ERP system is often about leaving your comfort zone. That’s why many companies find it hard to take a step toward revamping their flaw-ridden obsolete ERP solutions.

Yet, the value your business can get by replacing an obsolete ERP solution outweighs any savings from maintaining it. Here’s how.

  • Big data opportunities. By updating the legacy ERP system, you will be able to smartly use the big data that your company has stored over the years. You will get a full picture of your processes using AI and ML technologies and leverage business intelligence and analytics grounded on big data.
  • Business agility. A shift to a modern ERP system prepares your business for ever-changing business requirements. You can quickly scale up whenever your organization expands. Keeping up with the latest technological advances, your company gains a competitive edge and becomes more resilient.
  • Cost savings. Modernizing a legacy ERP system may need substantial investments, but in the long run, it lowers capital expenses. You can save costs by turning to pay-as-you-go cloud-based offerings and SaaS databases options. It is a handy way to automate simple, repetitive tasks, cut errors, and reduce manual labor.
  • Data centralization and accessibility. Keeping your ERP data in the cloud helps your employees and stakeholders access it from any internet-connected device safely and easily.
  • Security and compliance. Moving to a modern cloud-based ERP system is a path toward better data security and penetration resistance. Cloud providers take care of regulatory compliance for you.

Implementing a new ERP solution needs careful planning and change management. It also takes a significant financial and time investment. These efforts may not seem worthwhile at first, so companies turn instead to an upgrade—a less disruptive approach. But you should be aware of roadblocks that may come along the way.

Challenges your business might face modernizing a legacy ERP system

A legacy ERP system may be a weak foundation for future upgrades.

An outdated technology stack is a weak foundation for future upgrades. A legacy ERP system may contain countless custom code lines, patches, and workarounds. The removal of one element can bring everything crashing down.

Here are the challenges you may bump into should you decide to modernize a legacy ERP system:

  • Time of transition. Obsolete system modernization is a massive undertaking that could take months. It’s hard to provide any kind of estimate as the code might have a lot of hidden pitfalls.
  • Modernization expences. The costs to upgrade the system built and supported for years can exceed the business value in the short run.
  • Quality of the source code. The code of a legacy ERP system might resemble a house of cards. Some of its pieces may be no longer relevant but still serve as a building block for other features. One hasty step can ruin the whole process.
  • Risk management. Legacy ERP system modernization often needs to involve third parties in backstage activities. Without a risk management plan, a company can face the risk of a data breach.

Successful software modernization needs a solid strategy, skillful developers, and great attention to detail. Check out these top five approaches to tackle this task.

Five approaches to legacy ERP system modernization

Depending on its state, you may choose to modernize or completely replace your legacy ERP system.

Whether you plan to make incremental improvements or completely replace your legacy ERP, you will likely use one or several of the following approaches, known as “the five Rs.”

Rehost

Rehosting is a legacy ERP system modernization approach when you upgrade only the software backend and the hardware storing the ERP data. It’s a typical case since many legacy ERP systems use on-premise infrastructure. To maintain its stable performance, they constantly invest in hardware and pay hefty electricity bills.

Moving the ERP system from an in-house server room to the cloud can help your company gain more processing power, flexibility, and fast and easy access to data for a reasonable price. The recent Vantage Market Research expects the demand for cloud-based ERP systems to grow by 17.10% each year. Real-time access and analysis of massive data are two major drivers of cloud adoption.

Refactor

Refactoring helps revitalize the legacy ERP system and clean it up. This approach is about restructuring and optimizing existing code without changing its external behavior.

Refactoring pays down technical debt and removes redundant functionalities. It quickly enhances your ERP processes and data flows. It may also include re-coding some portion of an existing ERP app to improve workflows and remove patches.

Rearchitect

This approach is about altering the code to move to a new application architecture⁠ — from monolithic to microservices. Third-party integrations are made to add the missing features. You redevelop your legacy app while keeping the business processing intact.

Rearchitecting is a lengthy and expensive process, yet it can solve many business issues and extend the life of your legacy ERP system.

Rebuild

Rebuilding allows you to redesign or rewrite the whole application or its components from scratch while preserving the original scope and specifications. Just like refactoring, it aims to optimize existing business processes. When rebuilding its ERP system, the company may also decide to add new tools and features to leverage the capabilities of modern technology.

Replace

Building a brand-new solution is often a choice when your legacy ERP system components are ineffective, no longer meet your business requirements, and restrict your company’s growth. A replacement strategy requires you to carefully assess your company’s internal needs, gaps, and inter-dependencies around the legacy system. Step number two would be developing new criteria and judging available software options against them.

To pursue a replacement approach, the difference a new ERP system will make must be significant enough to justify the time and effort needed to build it.

Now that you know the approaches you can use to modernize your legacy ERP system, let’s shed some light on how to select the best fit that would cater to your business needs.

How to choose the right approach?

Modernization of your legacy ERP software should reflect your business goals.

Modernization of your legacy ERP software isn’t only about upgrading your old tech stack. It’s a complex process that should also reflect your business priorities and short- and long-term goals.

To choose the right approach, you should consider the following factors:

Current ERP system state

Assess your legacy ERP system to get a clear picture of its drawbacks and constraints for your business and customers.

For example, if the problem lies in cumbersome and costly on-premise data storage, rehosting will be enough. But if your company struggles with inefficient processes and workflows, rebuilding or replacing would show better results.

Business risks

Every modernization approach involves certain risks, as they disrupt existing business processes. Refactoring and rehosting are the least risky as they focus on optimizing infrastructure and ERP procedures. But a quick upgrade isn’t always an option. Rearchitecting, rebuilding, and replacing are more disruptive approaches that require a much higher risk tolerance.

Budget and time constraints

Companies need first to evaluate whether they can afford the cost of a particular legacy ERP system modernization approach. Rehosting is the quickest option if you are limited in time but want a serious performance boost. Refactoring is also a quick way toward better compatibility and lower maintenance costs.

Each approach has its benefits and limitations. The right tech partner can help you navigate those waters and choose the most efficient way to modernize your ERP system to meet your goals. Below we gathered the examples of how successful partnerships helped companies change or replace their legacy systems.

Legacy ERP system modernization cases and company experience

Legacy ERP systems can still serve your business if modernized right.

Modernizing a legacy ERP system can be a costly and tedious task, especially if you haven’t touched it since the day it was built. Yet, companies that fail to modernize their ERP systems in good time lag behind and can be even driven out of the market by their competitors.

A 169-year-old company with a dated ERP system

Levi Strauss & Co. started its ERP system transformation in 2018 with a dedicated team made up of business and technical talent. Their main objective was to build a globally aligned process, introduce automation, and move their infrastructure to a cloud-based environment.

The clothing company began its migration to the cloud in 2019, with the first major deployment in late 2020 and the second one in late 2021. Now the modernized ERP system:

  • Provides real-time insights into the company’s transactional systems
  • Mitigates supply chain problems
  • Allows forecasting and strategic planning

Harmit Singh, chief financial officer at Levi Strauss & Co., said in his interview with CNBC: “The investment in technology is often intimidating. Returns are not overnight, making it hard to justify the cost.” But it is all worth it.

Modernization for the sake of smooth scaling and development

Acropolium is not a rookie when it comes to modernizing legacy systems. One of the latest examples is a massive enterprise construction management software with a range of modules and features. The client wanted to optimize and modernize certain software segments using new technologies to provide smooth scaling and implement extra features.

Our successful cooperation resulted in:

  • Migration of several main modules to new technologies
  • Documentation of all sub-systems: now, the work of the distributed team is 73% more efficient
  • Modernization of the frontend

Although the company had an in-house development team, it decided to hire an experienced partner, Acropolium, to help it tackle the modernization challenges. And it worked.

Conclusion

Relying on legacy ERP systems is like steering your old leaky ship into the open water—you never know whether it will survive even the weakest storm. In today’s highly digitalized business world, legacy ERP system modernization is the only way for the company to stay afloat and maintain a competitive edge.

You can upgrade or fully replace your ERP system—it depends on how long it has been in place and how well it scales and copes with your business demands. Any of these approaches will push you out of your comfort zone. But with the right partner, modernization can still be stress-free and smooth.

Acropolium can get you covered and help you explore the options on how to modernize your legacy ERP system. Contact us, and our team of experts will be happy to help your business stay ahead of the curve.

FAQ

When should I update my legacy ERP system?

You need to modernize or replace your legacy ERP system when you notice the following signs:

  • You enter or copy data manually
  • ERP system does not provide you with real-time data insights
  • You need to create workarounds each time you introduce a new process
  • The system has a long response time and data storage and retrieval delays

How to modernize a legacy ERP system?

You can perform legacy ERP system modernization by choosing one of the following approaches: rehosting, refactoring, rearchitecting, rebuilding, or replacing. You can also mix several of them to achieve the best results.

Is it better to maintain or reengineer a legacy ERP system?

To choose the right approach, you should consider the current state of your legacy ERP system, your business objectives and risks, and, of course, your budget and time constraints.

Rehosting and refactoring will do if you want to get a performance boost, lower maintenance costs, and better compatibility. But these two approaches won’t work if your company struggles with inefficient processes and workflows. In this case, only rebuilding or replacing can make a change.

Does your company have experience with updating legacy ERP systems?

Yes, we do. With 23 years on the market, Acropolium has helped dozens of companies optimize and modernize their legacy ERP solutions. Please check our portfolio to see how we did it.