Last updated: ERP modernization: The enterprise adapts and evolves

ERP modernization: The enterprise adapts and evolves


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At a conference some time ago, a speaker shared an interesting anecdote about the persistence of familiar processes. His wife makes a traditional roast beef dinner every Sunday, always cutting one-third off the roast and cooking it alongside the larger piece. When he asked why she cooked it that way, she told him it was how her mother taught her.

So they asked her mom why she always cut a third off the main piece of meat, and she said it was the way her mother taught her. Finally, they asked grandma, who said, “Well, my oven’s too small.”

Old ways of working die hard, don’t they? This same story plays out when it comes to business processes and ERP modernization. For example, in our work with banks and insurance firms, we see many still operating as big, brittle “black boxes” of legacy ERP systems, automation, people and paper, manual handoffs, and outdated infrastructure.

No one really understands how work gets done – or why it gets done that way. Heads of departments are afraid that even a small process change in another line of business could have catastrophic effects on their downstream processes.

ERP modernization: From brittle to agile

Outdated, on-premise ERP systems, which can make process change and customization incredibly difficult, perpetuate this monolithic mindset where everyone just accepts that “this is just how we do things,” even when customers are frustrated and unhappy.

All of this creates a kind of process brittleness that can foster active resistance to change and innovation at a time when companies need to embrace it.

The world – and customers today – demand it:

  1. Regulatory change is constant.
  2. Disruption is always just around the corner, whether caused by war, climate change, uncontrolled inflation, or the next new competitor or supply chain debacle.
  3. And customer expectations across the entire customer journey just keep growing.

What’s needed is an agile, customer-focused mindset that’s always looking ahead and asking questions like, “What do we need our processes to do for us tomorrow?” and “How can we create a differentiating experience that’s meaningful and valued by our customers today and in the future?”

This kind of mindset demands action, which requires an equally agile cloud ERP – a flexible infrastructure that can support and enable process changes or transformations quickly and easily.

This is the winning combination because it lets you harness the power of focus to identify and realize meaningful change for your customers.

Applying the 80-20 rule

A rule of thumb often used in ERP programs is that approximately 80% of business capabilities and processes are non-differentiating.

So, if you’re deploying SAP S/4HANA Cloud, you can just deploy and run these best practice–based processes as is. The other 20% represents your opportunity to innovate and differentiate from a customer perspective. This is where you focus your process differentiation efforts.

The hard part of ERP modernization, of course, is figuring out which processes represent your differentiating 20%. The answer is unique to your business.

All airlines technically get customers from point A to point B, for example. But cost-conscious Frontier customers come for the consistent, no-frills experience they can afford. For customers of Singapore Air, price is a non-issue: they come for a luxury experience defined by exceptional service, food, amenities, and comfort. The differentiating 20% of processes for these two airlines in the same industry could be radically different.

Always ready for what’s next with cloud ERP

And remember: your cloud ERP needs to make continuous change sustainable. Your differentiating processes will evolve as your business and customers change. So, it’s vital that your ERP modernization enables customizations in a standards-based way so that upgrades aren’t impeded.

One SAP customer – a global clothing manufacturer and retailer – had an outdated ERP that hadn’t been upgraded in 10 years because of pervasive, hard-coded customizations. When they moved to SAP S/4HANA Cloud, they found just two processes that were truly differentiating for them. So that’s where they focused their efforts.

Today, they’re an agile, flexible company ready to respond to whatever opportunities or challenges come their way.

They’ve innovated where it matters most to customers – and their last cloud ERP upgrade took just 18 minutes.

Now that’s how it should be done!

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