ERP Life Cycle
Initial investment in acquiring and implementing an ERP system is substantial in terms of both human efforts and financial resources. After, successful implementation, the system goes to maintenance mode and organizations start getting value out of their investment. After a prolonged period, due to changes in business and technological paradigm, it becomes more and more difficult and expensive to maintain and extend the system. The process of reimplementation and beginning of a new cycle starts.
ERP life cycle Phases
ERP life cycles, which encompass entire 10 to 20 years of effective operating life, are often confused with ERP Implementation Life Cycle. Some of the phases of ERP life cycle is shown in following diagram.
- ERP Roll out: The initial roll out of an ERP system itself consists of various phases commencing with Request for Proposal (RFP) and vendor selecton and ending with go live and hand holding phase. Some important matter concerning this phase,as given below, will have direct bearing on subsequent phases of ERP lifecycle:
- Degree of matching of vanila ERP product to current business need and extent of customization done, particularly source code customization.
- Commitment of the vendor for future development and their financial health
- Support issues including License fees and escalation thereof.
- Optimization: After the system is live and rolled out, there will be a period of turmoil. Due to lack of understanding, a lot pf confusion will prevail amongst users. There will be teething problems and some software bugs will invariably appear. With retraining, some tweaking of the system and assistance from a responsive help desk, this phase should be over within six months to one year and the system should start stabilzing.
- Maintenance: This is the longest period of life cycle, when the organization start realizing value of their investment. Users will get familiar and start owning the system. Some changes will be continuing such as new reports, different workflows, some localisation on taxes etc. Maintenance will be covered by service level agreement, entailing payment of license fee to the vendor. For a complicated system, there may be a third party vendor, helping maintenance at site. The license fee, due to provision of escalation, gets escalated at regular intervals and after some years, adversely effects Total Cost of Ownership (TCO).
- Extending Values: This phase overlap with the phase of maintenance. New or changed business processes necessiate minor or moderate changes in the system. There may be extensive changes under scenario such as i) implementing a new accounting system e.g. International Finance Reporting standard (IFRS) ii) A new regulatory requirement like Sarbanes=Oxley iii) Margers and acquisations/ restructuring.iv) Extending the system with add on poducts suchy as Customer Relationship Management and Business Intelligence (BI). Sometime the cost changes may be prohibitive, particularly for systems where a lot of customization has been done during implementation phase.
Parallel to business changes, technological changes also occur. New release and versions appear for underlaying technologiocal platforms like Operating System and Data Base. ERP vendors release patches and versions of their producdts at regular intervals which needed to be incorporated in the existing system. This usually involves minor or modeate efforts. But, problem arises where many softwae objects were customized during implementation. Retrofitting these objects for making them compatiable with later versions, may turn out to be a major migration exercise involving exorbitant cost and effort.
- Decaying Performance: For an enterprise, business need and technological requirement, continue to evolve. Cost, Complexity and difficulty to modify and update the existing system mount. Fixing existing system is no more viable and provides diminishing return. Alternatives are investigated and decision of reimplementation is taken.
- Reimplementation: Similar to Roll Out phase as mentioned above. However, the organizations are better organized now. Initial process will be carried out more professionally. It is likely that they will adopt more of a vanilla version with minimum need of customization, so that the next cycle gives a better Return on Investment (ROI).