Paul Farrell, vice president of products at Oracle NetSuite, made an interesting comparison between icebergs and market ERPs, in a text published on the Oracle NetSuite website.
According to Farrel, there is a virtual armada of icebergs out there today, taking the form of legacy ERP providers. These ERP icebergs exhibit many of the same characteristics as their Arctic counterparts, the icebergs.
They are ancient and have been frozen for decades; what you see is not what you get, most of the iceberg is hidden; they continue to shrink and eventually disappear; they remain a danger to anything that gets too close.
Companies evaluating ERP platforms need to be very careful about the ERP iceberg.
Older ERP systems may seem attractive until you get closer and discover they are the same products from long ago, now with a thin, modern veneer, just with a different appearance.
In reality, the companies behind them are slowly disintegrating as their lack of focus, innovation, and relevance to the modern enterprise weaken their businesses day by day.
The problem for many of these iceberg companies is that they've spent years buying customer bases and products, and they've grown too large in the market.
However, we know that most of these products are based on very old technologies that cannot be modernized, either because it is impossible or because of the cost involved in making these changes.
These legacy ERP companies have large customer bases that pay increasingly higher maintenance fees and receive little in return, often yielding an empty promise that they will be able to switch "perfectly" to a new product at some point in the future.
Most of the time, this new product is just another old product with a different facade or a different story that does less than the existing product, but will cost as much to change as buying a completely new solution.
However, in many cases, customers will hear "Product X is now available in the cloud," when in reality it is the same product X located in a hosting center, likely accessed through a terminal server.
Furthermore, existing products are underdeveloped and have fewer specialists to support them.
Is this a telltale sign of an iceberg ERP company?
Often, the client's internal team knows far more about the product than the manufacturer's own support team.
Let's do a simple exercise: take a look at the website of a typical iceberg company. On the surface, it sells products ranging from printing and packaging to retail, manufacturing, and distribution.
However, most of these solutions are complete ERP solutions, including Finance, Order Processing, Inventory, and SCM. They all run on different technologies and platforms, ranging from Windows and SQL Server, .NET and Progress to Unix and Cobol.
On the surface, it appears to be an $800 million company. However, even the most cursory glance at the website reveals that it comprises a large number of completely different solutions, diluting the focus, resources, and maintenance costs that customers are paying for.
This is the visible part of the iceberg.
Looking beneath the surface at their websites and user group sites, you discover that there are over 40 other ERP solutions with clients who pay for maintenance.
All with different technologies, all with their own inventory, order processing, reporting, etc. technologies that need to be supported and maintained.
A client might think they'll be working with a billion-dollar company focused on their industry, when in reality they're buying a product that generates a fraction of that revenue with a small development, consulting, and support team.
Keeping up with the massive changes in technology and business models happening in the market today will present significant challenges.
Others, although larger, are even more fragmented, selling more than 60 products on the market.
And what lies beneath the surface is impressive.Regardless of the products, just looking at the more than 26 companies acquired, not counting the many companies that those businesses acquired.
Compare that to companies like NetSuite, which was approaching one billion dollars in revenue when it was acquired by Oracle and is dedicated to improving a single solution, the Oracle NetSuite ERP.
A Oracle NetSuite It is one of the few companies in which all of the more than 40.000 organizations that Those using your product are at the exact same launch..
Unlike other enterprise systems on the market, Oracle NetSuite was designed from the ground up as a cloud-based ERP system — engineered to easily manage our customers' businesses in an agile and simple way.
The benefits of a 100% cloud-based system are numerous, but when we think about system updates, we know they are fast, regular, and efficient because they were incorporated into the system's original design.
Oracle NetSuite updates are designed to prevent any disruption to our customers' businesses and eliminate the unpredictable and high costs involved.
All Oracle NetSuite updates are announced in advance by the manufacturer, automated, and performed twice a year, meaning the end user is not negatively impacted by the updates.
When evaluating iceberg companies through the additional lens of where the solution is hosted, the danger becomes exponentially worse.
The vast majority of products were sold "on the spot." This means that the customer determines when they will upgrade to the latest version, service pack, patch, or hotfix.
Once on stable ground with this type of product, customers don't want to risk problems when adopting new releases from ERP system manufacturers.
Therefore, these ERP systems tend to have clients with multiple versions, making support difficult, especially if they have also customized the solution.
The two main reasons why companies don't update their locally implemented ERP systems are: updates involve high investments and can even lead to business interruptions.
We know that the high costs involved in upgrading ERP systems are generally related to the need to allocate highly specialized IT teams, payments for new licenses, implementation, and/or upgrades.
The visible part of the iceberg gets even smaller.
For many, the latest version of the product, with limited investment in new features, has very few real customers using it.
The vast majority of customers who pay for maintenance are on products that are not being developed or on older versions of the product that are not being maintained.
To continue with the iceberg metaphor to its titanic conclusion, there are only enough lifeboats for the few customers in the latest products and versions; the vast majority of customers who pay fees are treading on icy water wondering why they paid for their passage.
Unfortunately, we know that most of the revenue from system maintenance is not used to support or retain the customers who pay for it.
Like their Arctic counterparts, ERP icebergs also slowly melt and disintegrate.
Many of these companies are now owned by private equity organizations focused on driving profits.
With large customer bases that pay for maintenance, the easiest way to drive profitability is to drastically reduce all costs, which is usually done through offshoring, that is, relocating processes from one sector to another, with the aim of reducing expenses or reducing the number of experienced and expensive personnel.
The sheer number of different technologies and products, combined with cost reductions, means that solutions are becoming less competitive, generating less and less new revenue, which ultimately means more costs need to be cut, continuing the spiral.
Senior management in iceberg companies tends to be more detached from the products and customers they serve, as there are so many different products and sectors to understand.
One day they're focused on the cloud with Product 1 in discrete manufacturing. The next day, it's on-premise with Product 2 in retail.
This leads to confused direction and a group of leaders who don't really know their products or markets.
Iceberg business leaders tend to focus on the easiest thing to focus on and control, which are the company's direct and indirect expenses.
What's happening in today's market is that the spread of true cloud technologies is heating up the waters around them, making legacy systems even more obsolete.
According to Farrell, if you feel "attracted" to or have already been affected by an iceberg company, you should ask yourself the following questions before making any kind of ERP purchase:
- How many developers, support staff, and consultants are working exclusively on my product, and how many developers are working on new features?
- What is the average time that the support professionals allocated to this solution are at the company? (They are outsourcing my support staff who will know less about the product than I do.)
- What is the revenue generated by the system, and how much of that is revenue from new customers? (What is the size of my product; is it just a company worth 5, 10, 20, 50, 90, or 200 million?)
- How many clients are using the latest version of my system?
Ultimately, the safest thing to do is stay far away from iceberg ERPs.
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