Advice and Information for Finance Professionals

Why Obsolete Technology Costs More Than You Think

Steve Cox

Not too long ago, business leaders liked to say that the only constant in their world was change. That’s still true, but managing change is no longer the biggest business challenge. Today, the challenge is moving faster and more confidently while managing change.

Technology-driven disruption now happens at breakneck speed compared with the recent past. Businesses must sprint to keep up with fast-changing variables, but they also must respond strategically when threats or opportunities emerge. Everyone is in a never-ending race to gain an advantage in productivity, profits, and market share. A key part of being in the lead is ensuring the business isn’t running on obsolete technology.

A New Focus on Cloud Benefits for the Back Office

Battling obsolescence in products, services, and sales channels has always been a part of business. Companies that don’t change quickly enough become irrelevant as competitors scoop up market share with in-demand features or price points.

But what about obsolescence in back-office business systems? Could it knock a company out of the race?

Business leaders are starting to realize that outdated business systems pose a bigger risk than they used to. These systems have always been expensive to maintain and disruptive to upgrade, but these aren’t the only reasons to replace on-premises applications with cloud solutions.

In a recent survey of 400 finance and IT leaders, “staying current on technology” was the top benefit of ERP in the cloud—cited by an overwhelming 81% of respondents. A strong majority of companies (63%) achieved the cost-savings benefits they expected from eliminating hardware and software ownership, but the 8-in-10 endorsement of the cloud elevates the value of SaaS applications to a new level.

The survey results are reported in our ERP Top Trends Report, which comments:

“The ability to keep up with the unprecedented pace of business change—implementing the latest best practices and innovation on a regular basis—is fairly new for the back office. This is an entirely new phenomenon, in which innovation is rolled out to the finance function several times a year by a cloud provider.”

It's as if cloud ERP keeps you refreshed as you race, so that you don’t have to stop to rest and rehydrate. Clearly, business leaders see this as an advantage: 76% said they have plans to use ERP in the cloud.

Learn the ERP top trends you need to know. Download the report.

But what if your company is not headed in this direction? Building a business case could require quantifying the risks of business system obsolescence, which can be a challenging task—but not an impossible one.

IT and Business Leaders: Examine Technology Obsolescence Together

Assessing the risk of technology obsolescence requires a broad effort to examine complex processes, according to KPMG, which has published a guide on assessing technology obsolescence. The guide encourages business and IT leaders to work together because it would be too difficult for either group to do it alone:

“Many executives are unsure, or even unaware, of the risk obsolescence presents to their technology portfolios. Their uncertainty stems from not having the right data, operating with inconsistent definitions, and dealing with conflicting points of view on need, priority, value, and risk, as many legacy applications have large variation in age and correctness of their documentation.”

Ultimately, every company is unique and should therefore design its own assessment method for obsolescence, but KPMG offers a three-pronged baseline as an example that worked well with one of its clients:

  1. Analyze and map all components supporting a business process to provide a truer view of end-to-end system performance and cost.
  1. Frame technical obsolescence by its operational and financial impacts.
  1. Use a common language to communicate the risk.

Also, it is important to consider the fast-moving advanced technologies that are shaping the future of business: intelligent automation, predictive analytics, blockchain, and machine learning. Finance applications that incorporate these game-changing—and increasingly essential—technologies are only available in the cloud. This is because the cloud model of regular updates is the only way to ensure that the systems keep up with the rapid pace of technology evolution.

Why CFOs Should Champion the End of Technology Obsolescence

Many CFOs have embraced the role of change agent and are moving ERP to the cloud to realign back-office systems with the speed and needs of the business. Big gains in productivity and speed can come from consolidating multiple ERP systems into one cloud-based system, and of course TCO is lower for SaaS versus on-premises software. But the most important consideration is the opportunity to never lose ground with obsolete technology again. With this burden lifted, any company can pick up speed against competitors and gain advantage in the race for productivity, profitability, and market share.

Find out why 81 percent of respondents value the innovation that comes with ERP cloud. Get the report.

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