A legacy ERP system is older enterprise software that is largely no longer being enhanced. Legacy ERP systems were often based on older technology like PIC, Progress or even DOS. Their original user interfaces were character-based, though many received facelifts over the years, often using Windows clients to provide some degree of modern UI look and feel. Most also have some sort of bolt-on business intelligence tool for improved reporting and analytics.
Legacy ERP systems typically have rich, industry-specific business functionality, which is often how they came to be legacy systems in the first place. Their creators kept writing application code to meet the needs of existing customers and never invested in re-platforming the system on modern technology.
At some point, the original ERP vendor reached a point in the product lifecycle where they could no longer convince prospects to accept the rich functionality as a viable tradeoff for the outdated technology. This made continuing to invest in selling the system unprofitable and left the owners with no strategy for the business other than to sell the product and its installed base to a larger software company with forward focused ERP technology.
What Happens to an ERP Solution When it’s Sold to a Larger Software Company?
In the years between 2000 and 2010, it was commonplace for legacy system founders to sell their businesses to larger software companies. It was a sound exit strategy for the founders and they found ready buyers in the larger enterprise software companies. The number of independent legacy ERP vendors shrank by hundreds during this era.
The larger companies saw the legacy installed base as a ready source of reliable cash flow from maintenance fees and as a captive market to sell their newer technology. The thinking was that the legacy customers would quietly and quickly upgrade to the new parent’s go-forward system.
The acquiring company’s business plan was to cut the sales, marketing, support and development resources out of the legacy system’s operating infrastructure, then turn the support revenue stream into pure profit. They would typically keep one or two key development and support personnel to keep the system on life support, then raise or hold maintenance fees and cut out all other the costs. With this strategy, profit margins on legacy systems often exceeded 75 percent.
Problems moving from the legacy system to the new owner’s modern ERP solution
As it turned out, legacy customers did not always jump so quickly to the new owner’s modern ERP solution. There were several reasons the migration did not go as smooth as planned.
- The first reason was that there was really no commonalty between the old system and the new system the customer was being asked to migrate to. From a training and implementation perspective, you really were just starting over.
- Second, the new systems lacked the deep, industry-specific functionality of the older system. The customer had to give up a lot of finely-tuned business processes to use the new system.
- Third, many of the new systems’ developers overreached on the underlying system programming languages, middleware and databases. This resulted in technical complexity that manifested itself in slow performance. Finally, many of the acquiring companies got greedy with support fees, significantly increasing them shortly after acquisition and alienating the legacy customer base.
To counter these missteps, many of the acquiring companies offered like-for-like no cost license exchanges. However, when customers got to the end of the sales process, the cost of was not like-for-like and the additional cost of re-implementation was so large that customers began to look at what other providers would charge for a new system. They often found that they could buy an entirely new system, from a different vendor, with better business fit and for less money, than what the new owners were asking. Today, it is entirely typical to see a company that has decided to move away from its legacy system, enter the marketplace and evaluate multiple vendors.
Enhanced functionality for legacy ERP systems pushed to back burner
The roll-up of legacy ERP systems has mostly played out and the desirable legacy ERP companies have largely been acquired. In some cases, they have been bought and sold more than once. More commonly, what we see in the marketplace today, is the larger ERP companies buying third-party technology to fill holes in their product line. Extended functionality such as business intelligence, CRM, MES and WMS are being scooped up and then attempted to integrate into the parent company’s core system.
For the most part, the acquiring companies have learned their lesson about dramatically raising support prices, but they still shortcut the integrations of the companion technologies and reduce staff and service levels. The bolt-ons gradually assume the status of “not invented here or didn’t work out like we planned” and are pushed to the back burner while yet another acquisition assumes a role as front stage darling—until the next big thing comes along.
Solutions for those running legacy ERP systems
Several early ERP system companies did have the foresight to re-platform their systems and did not buy into acquisition cycle. Today, these companies enjoy rich, industry-specific functionality and the modern technology that enables advanced features like mobile apps and touch screen user interfaces.They are often the best choice for small and mid-market companies that require deep functionality and fast system performance.
If you are running a legacy ERP system it’s time to take a look outside the legacy box and see what those support dollars could buy you in the modern ERP marketplace.
- Real-time production monitoring
- Lightning fast performance
- Cloud and hosting options
- Warehouse management
- Support for regulatory compliance and tracking
- And most of all a system that is evolving and growing with your business needs
IQMS is one of those early ERP companies that did have the foresight to re-platform and add advanced ERP functionality. Contact us to learn more about our manufacturing ERP solution that will give you greater enterprise visibility, improved communications and more efficient use of your resources.