Upgrading an enterprise resource planning (ERP) system is one of the most significant decisions IT leaders make.
It is often an expensive process that can cost as much as $500 million, take several years, and determine crucial elements of the business operating model for the next decade. In this summary article, McKinsey reveals how tech companies approach changes to their system landscape and the benefits CIOs can derive from understanding their strategies.
The Platform Play: The Approach of Digital-Native Companies
Tech companies value speed, flexibility, and scale to create value for their businesses. This means they make technology decisions that maximize freedom and independence for their developers by reducing system dependencies and complexities. Digital-native companies deliver that independence by organizing their tech around modular products and platforms that run as a service. This approach enables teams to make the best decisions for the product or platform they manage.
ERP-Centered Thinking Vs. Modern Platform Organisation
The first lesson to learn from digital natives is that they set strategy first and design their platform architecture second. With the strategy clear, they identify “products” that can drive the strategy, such as customer journeys, and then identify the platforms needed to deliver those products. For each of those platforms, companies set up a team that is in charge of the platform’s outcome and performance and will ultimately also decide if it uses functionality that already exists in the ERP system.
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The Benefits of a Product and Platform Approach
This product and platform approach underscores two clear principles: first, treat the ERP system as a sum of capabilities rather than a monolithic stack, and second, the product drives the decision about what parts of the ERP system to use, not the other way around. Taking the step toward a product and platform operating model is significant and requires a mindset shift for most IT organizations. However, this approach can reduce dependencies, spending, and risk while providing faster results.
Conclusion
By focusing ERP upgrade efforts on the modules within the system rather than on the entire system and by understanding what matters for driving business value, CIOs can reduce dependencies, spend less, get more, cut back risk, and do it faster. Companies should shift their mindset from ERP-centred thinking to a modern platform organization to optimize their ERP systems’ capabilities
Read The ERP platform play: Cheaper, faster, better by McKinsey.
