5 Top Reasons for an ERP Upgrade

Upgrading an ERP system is an extraordinary undertaking. Contrary to conventional thinking, we don't recommend an ERP upgrade unless the circumstances demand it. Stick around till the end of this blog for a free download that will help you discover if an ERP upgrade is right for YOU!

Upgrading an ERP software system is an extraordinary undertaking. Contrary to conventional thinking, we don't recommend an ERP upgrade unless the circumstances demand it. On our podcast above, we discussed the five most common reasons why companies upgrade their ERP system, with a look at how to know if the time is right for your company to upgrade their financials or ERP system. We advise companies to only consider an upgrade if they are experiencing one of these issues.

What is an ERP upgrade, exactly?

When we discuss ERP system upgrades, we are talking about two very specific types of ERP upgrades:

The first type of upgrade we discuss is the more literal kind. Say, for example, you're running version 10 of a particular software package, and you want to upgrade to 11.2, the newest version. You’re still using the same application, and the same vendor — it's just a different version. These updates, especially in cloud-based applications, tend to happen rather frequently, and often without you even knowing it.

The second type of upgrade is when you want to move to a better system, just like you might upgrade from an apartment to a house, or from a Toyota to a Lexus. So if you are responsible for software systems in your business, and you feel the time is right to upgrade to a better system, that is the type of ERP upgrade we are going to explore here in more detail.

Five reasons for an ERP upgrade

1. Growth

As mentioned in the podcast, there are five major reasons why companies want to upgrade an ERP system.

The first reason is growth — and there are four growth indicators to look at in determining if your company might need to upgrade its ERP system.

  • More Business Transactions: When a business is experiencing a significant change, there is more data that comes through that needs to be tracked. There are more sales, more fulfillment transactions, more employees, more projects, more of all the things that need to be tracked by people in management positions.
  • New Products and Services: As a business continues to grow, their model may also expand or shift, which we have seen happen in many of our clients. They may start to add additional services to their portfolio to build a stronger value proposition.
  • Selling to New Markets: Growth often leads to expansion. Where a business may be focused on a certain geographic region in the U.S. to begin with, growth may create opportunities to build business in additional regions, or even develop territories outside the U.S. Expansion often creates the need to incorporate new business requirements including new tax rates, new number formatting conventions, or multiple languages — all features that your current ERP system may not be designed to handle.
  • New Business Line: This is more than just a new product or service. A new business line is a completely different product or service, with a different customer base, different manufacturers, different processes, and more. With a new business line, you would need an adequate ERP system to handle all the different aspects.

Anytime your company is experiencing rapid growth, it might be a good time to evaluate your ERP system and select a software application that can aid in the growth of your business.

2. Mergers and Acquisitions

Many of the clients that we serve are mid-sized businesses ranging from well-funded early stage startups all the way up to companies with $600 million in revenue. Within this area of the market, we see a lot of changes, especially when it comes to mergers and acquisitions. If there is a new investor group coming in and looking at a business, you may need to upgrade your ERP system to support their needs and preferences. The same thing holds if a smaller organization gets bought by a larger organization, the acquired firm is probably going to have to be merged into the ERP system used by the parent company.

3. Legacy Technology

When discussing ERP upgrades with many of our clients, legacy technology is something we run into often. A legacy system is usually a custom-built application that an organization has used for years or even decades. Company leadership never wanted to upgrade to a newer version, let alone a new brand of software, for fear of losing their customizations. In the older on-premise software deployments, the cost of replacing those custom features were immense so it was always easier for companies to just leave them as is. The problem with this strategy is that there are not many vendors available to support this type of customized software, so upgrading to a widely supported ERP system can often save a company in several different ways.

Another common problem we see in companies who depend on legacy software technology is not only a lack of outside ERP software vendors that support the application, but within the company, there are usually only a handful of employees that know how the application runs and works. When those individuals leave or retire, there is usually nobody that can replace them. Proactively upgrading your ERP system may be a beneficial (and necessary) decision for your organization if you find yourself in this type of situation.

Finally, the legacy technology may not do what it supposed to do anymore or what you need it to do anymore. Processes change over time, businesses shift over time, and the application might not be able to track exactly what you need now, or in the future, even though it was perfect for what you needed in the past. If your legacy software isn’t doing what you need it to do, it may be time to upgrade to an application that can do exactly what you need.

4. Regulatory Considerations

The next reason for an ERP upgrade is because of regulatory changes, which is a great reason to upgrade your software. We see this occur a lot on the accounting side, as we see very complex accounting and revenue recognition rules coming out more often than before. For example, when the Sarbanes-Oxley act passed in 2002, there were many companies with existing applications that couldn’t provide the controls that were required. Most often, the regulatory reasons for upgrading an ERP system stem from weak controls and weak functionality and not being able to control risks involved. Therefore, regulatory reasons are an excellent reason for an upgrade.

5. New Leadership

The final instance in which your company may consider upgrading the ERP system is when there is new leadership. For example, a new CEO or CFO is hired to bring the organization to the next level, either through organic means, through acquiring other organizations, or just through better operations. They may want better visibility into the business or may want to automate more of the processes, or they may want to use a specific solution that they used in the past. While this isn’t a guarantee like the other instances we discussed, it is something to keep in mind that a new leadership position or team may want to upgrade the company’s ERP system.

We’ve covered the top reasons a company may undergo an ERP system upgrade: growth, mergers and acquisitions, legacy technology, regulatory reasons, and in some instances, new leadership — and our decades of experience tells us that if you are not experiencing one of these five conditions, an upgrade may not be necessary or warranted.


We don’t recommend undertaking an ERP system upgrade unless a business or an organization is being impacted by one of the key factors outlined in this article. We are available to discuss specific scenarios.

How to Know If You Need an ERP Upgrade - Free Download

Juliette Welch: Good afternoon everyone. Thanks for joining for today's call: When Do I Need to Upgrade my ERP?

Shawn Windle is our speaker for today.

Shawn is the Founder and Managing Principal of ERP Advisors Group based in Denver, Colorado. ERP Advisors Group is one of the country's top independent enterprise software advisory firms.

Shawn advises mid to large sized businesses on selecting and implementing business applications from enterprise resource planning, customer relationship management, human capital management, business intelligence, and other enterprise applications which equate to millions of dollars in software deals each year across many industries.

There are only a few people in the world with the practical experience Shawn has gained with helping hundreds of clients across many industries with selecting and implementing a wide variety of enterprise software solutions.

On today's call, Shawn will discuss the four most common reasons why companies upgrade their ERP system and when to know if your company needs to upgrade their financials and/or ERP system.

Unless your company is undergoing one of these specific issues, we advise companies to not change their ERP if they don't have to.

Let me introduce Shawn Windle.

Shawn Windle: Thanks Juliette. So, this is Shawn Windle with ERP Advisors Group.

Thank you for joining today.

And so, the title of our call is one of my favorite topics to talk about is: When Do You Need to Upgrade Your ERP?

It's one of my favorite topics because we get it a lot and the answer is not exactly what you would expect it to be. And we'll talk about the why here in a little bit.

So, I'm going to start off today by talking about what does it actually mean to upgrade my ERP and that even means different things now, especially in this software as a service cloud-based technology environment that we're in now.

So, let me define what upgrading means.

So, there's really two different definitions of upgrade.

The first one is more of a literal definition of upgrading your software package.

So, let's say that you're running on Epicor 10, and you want to upgrade to Epicor 11 when it's available, so you're in the same application basically. Well, not really, but I'll get to that in a minute.

But you're basically going from an existing application version with the same vendor to the next version with the same vendor.

That's more of the literal definition of upgrading where you're going from one version to a higher version of the same application.

Now, a more general definition of upgrading is just like upgrading your house, going from a smaller house to a bigger house, or upgrading your car from a lower car to something that is higher end or upgrading really anything in life where you're basically taking your existing condition and you're making it better.

And that's the definition that we're going to go with right now.

So, what I mean is imagine that you are responsible for the software for your organization, and you feel like you need to change it. Why would you need to upgrade it or change it? That's the vein that we're going to go along, which is basically, why would you change your software? Not even necessarily when do you upgrade the version of software that you're on.

And the reason for that is going from one version up to the next version, the more newer version, is really a very different — it's a very different scenario now than it used to be even five to ten years ago because again, as I said earlier as applications are more — they're more living in the cloud, they reside in the cloud, upgrades basically happen and you don't even know it usually.

There's some applications in the professional service automation space like Mavenlink or financial applications like NetSuite, where they are in the cloud and they upgrade those applications very frequently, sometimes more frequently than you even know about.

Now again, there's bigger upgrades that happen, and they will tell you about that and will make sure that you know to do your regression testing on your existing application.

But upgrading from a current version or an older version to a newer version in the cloud is really irrelevant because it just happens automatically, which is a huge benefit of the cloud which is actually a topic we talked about one of our earlier discussions a couple months ago is the cloud-based software.

So, now I really do want to get into the real reasons why you need to change or make your existing ERP better and like Juliette said in our intro and I think our intro — even on the website — said we really do not advise companies to change software or upgrade software unless they really have to.

It can be a very difficult exercise to do it.

That being said, there's about — the last numbers I saw were in the $40 billion range between software and services spent on ERP, enterprise resource planning software, for mid-sized businesses in North America every year. So, there's a lot of money that goes into software. There's a lot of new vendors. And there's a lot of folks that are changing their software.

So, while it's risky and while it's challenging, the reality is you just have to do it sometimes.

So, this is really what I'm excited to share with you guys is these are the four reasons — and I would challenge anybody on the call to get in touch with us through the website to let us know if there's some other reason that you've run into.

But in our experience of combined about 150 years between our key people, our principles, and our solutions, our senior consultants and myself — I make up about 125 years of experience. Just kidding. But really, amongst all of us when we really sat down and looked at this, why do companies — when do they need to upgrade? These four reasons came out, so let me tell you what those are.

So, the first reason that you're going to need to upgrade is growth.

So, when a business is going through significant change and there's more business transactions to track, meaning there's just more flow of sales that are coming through — there's more sales, there's more fulfillment transactions that are coming through, there's more employees that are coming through, there's just more data that comes with business transactions increasing more and more and more, there's more projects that you're running.

That information does need to be tracked because you have people that are in a position of management, and they can't see what's happening in the business as much because there's so much data that's flowing.

So, more business transactions going through the organization is an indication of growth.

That's a great reason to do it.

A couple more growth indicators too that we look at — there's four total, the first being the more business transactions to track but the second one under growth is that you're offering new products and new services.

So, we were just at a client’s last week that's a security integration company. They sell installations of security equipment, panels, access control cameras, monitoring devices, all kinds of things to corporations — Fortune 500's and down.

And with that business what’s turned out to happen is their model is shifting to also offer a lot of additional services on top of that installation such that their goal is really to offer more value-added services than the installations.

So, their business is changing drastically. They're not just day projects, field services go out and help if you had a problem, no, they're doing more proactive managed services going forward. So, that growth is leading them to look into new software.

So, the third indication of growth that we see is that organizations are selling to new markets.

So, whereas before maybe focused on a certain geographic region in the US, or maybe even just the US and the requirements were what they were now as you go into additional jurisdictions outside of the US even, or even international to Europe or Africa or Asia, there's whole new sets of requirements that come in to support those markets that your current application probably doesn't support unless you bought bigger earlier on.

And that can be anything from number formatting to language, but it's also business processes are run differently in the UK than they are in the US for instance on procurement.

This is a reason why we don't normally recommend choosing European-based applications for the United States business processes because organizations like Unit4 have — their one of the top ERP companies in the entire world and their processes are baked into the app a little bit different than the US. If you're going abroad, it's something to really look at, as maybe an application that has more experience with new markets.

Now the fourth Indicator of growth is maybe you bring on a completely new business line.

So, we've run into this before with retailers where they've focused on pharmaceutical — it's a specific category of cosmetic products that are very focused around beauty products. There's a much better name to say that than beauty products — it’s like biopharmaceuticals, something.

But in that industry, the products that this organization was offering were very focused on holistic ingredients — 100% natural — very much targeted towards like a WholeFoods a public which is who they ended up selling through.

Well, they decided to bring in a whole new business line up around some other health and beauty products that weren't necessarily like a cosmetic or a beauty product is more of a hard good. And that was a completely different thing for them.

So, whereas they used outsourced manufacturers to do their chemical mixing, their contract manufacturers to make the product form on the cosmetic side. On the hard good side, they actually could do that assembly, they could receive some items from China, they put them together themselves, they boxed them up, they packaged them, and sent them.

So, it was a whole new business line that they had to bring in new software to support that kind of growth.

So, as I said, growth, great reason to change software, great reason to upgrade your ERP. So, what are the other three?

Well, the next one is M&A activity, so mergers and acquisition, which we see a lot, especially in this space that we tend to service which is mid-sized businesses which are really anywhere from very early-stage startups, very well-funded early-stage startups all the way through the maybe $5 to $600 million in revenue.

There's a lot of changes that happen within that area of the market right now. There's many things that are happening, and so when there's a lot of M&A activity, we do see that organizations may need to upgrade their software to either support what the new investor group is looking for or even certainly, if somebody — there's a strategic buyer and the small organization gets bought, they're probably going to upgrade into what the holding company has.

So, that's a really good reason to switch software.

The next reason for a specific reason why you would want to change your ERP software is legacy technology.

So, we run into this a lot again in our market space where there's organizations that have existed for sometimes decades on applications that maybe were either custom built or maybe it's an old version of an application that they never upgraded because they were afraid to lose their customizations, right?

And you upgrade an old, on-premise software market — or on-premise software deployment — you'll lose your customizations. You basically have to rewrite them so a lot of companies just got onto an app, they built it out, and it was fine and they just left it.

Maybe they did a little bit of reports or whatever over the years, but it's basically become a legacy technology. Not too many people know it. It's not very well supported, maybe there's a couple developers that you have to employ to keep track of it. That's how you know you have legacy technology.

So, in that instance, it might be that the application is no longer supported by anybody.

We've had some clients recently that we've had that circumstance where a fire department had written an application that was on a very widely used database application development framework 25 years ago that now nobody knows, so there's nobody to support this.

So, that's definitely a great reason to look at upgrading.

And another thing, when we talked about under legacy technology is — I mentioned this — it can tend to depend upon legacy support resources.

So, what that means is you only have a couple people that know the application that runs the entire organization.

It could be $50 million, could be $500 million in revenue or 500 employees or a thousand employees and the entire operation runs because one or two people are able to care and feed for the application.

And that's a risk, for sure. That's a great reason to look at upgrading your technology.

Even if the app works okay and it meets the needs of the business, a more proactive savvy leader will look at that and say, whoa, these folks are — maybe they're even approaching retirement age.

We always talk about what happens if somebody hits the lottery.

If somebody hits the lottery, they're probably going to do a nice transition. It will be quick, but it'll be a nice transition.

The alternative to that is they get hit by a bus. I try to be a little bit more positive than that, but that is the worst case scenario.

We actually years ago had a client where the really key person was literally walking downtown Denver and got hit by a bus and ended up in the hospital. Fortunately, they weren't that hurt. But you really have to be careful when you say that because it does happen.

But if you have these really key support resource folks that are literally taken out, that's not good.

So great reason to upgrade for that.

And the last thing under legacy technology — of course we had no longer supported dependent on legacy support resources — but the last thing is, it doesn't do what it's supposed to do anymore.

So, the application was put in place to automate your manufacturing process, let's say, and over time your manufacturing process changed from maybe a job shop where you're building a lot of stuff for folks out in the field to now more of a standard off-the-shelf more make-to-stock model.

And the app doesn't really support what that model looks like — more volume, less SKUs, more focused on tracking actual costs versus standard costs because your manufacturing processes more standardized, so the app just doesn't do that. It wasn't made to do that and the business shifted.

So, that's another indicator under legacy technology that we look for.

Now, the next area that is a great reason to change software — upgrade your software is regulatory reasons.

So right now we see this, especially on the accounting side — I'm an inactive CPA, so I can say this.

CPAs have a tendency to create regulations with the interest of protecting the public, but also sometimes it seems like it's in the interest of further generating additional accounting and advisory services. So, you see a lot of very complex accounting rules that are coming out around leasing and how leases are managed on the books to show them as liabilities as well as even revenue recognition rules are changing.

So, you see actually a lot of software vendors repositioning their products around, hey, we can help you with these things.

But it really is true that when there are regulatory changes you have to look at when upgrading your software in some instances.

Certainly when Sarbanes-Oxley came out we worked with an international organization multi-site throughout the world and their existing application just really couldn't provide the internal controls that were required for Sarbanes-Oxley compliance as a public company that they needed to fulfill. And it was a significant issue where they had material risks for several years and their stock price was shot, it went way down.

The board’s looking at the CEO and CFO was actually like, woah, this is a big deal and when we did the needs analysis for them to help them figure out what to do.

We said, well, look the existing software solution you have isn't bad and it's actually quite pervasive in your industry; however, the way it was implemented, it's a bit like having a playground where you got a bunch of people in there playing and you can't get them out, like you just can't do it.

Like you can lockout users and you can do this and you can do that, but basically the folks that were maintaining the software had provided access to so many other people that there was no way that they could cut off control except to cut off control, but yet you had so many users and subject matter experts in that application in the organization that they could just change it.

They could just, okay, you cut off the control. You stop that person from coming in. Okay, well, I'll just restart it and it's not like it's a — this is really important on the regulatory point — really important. It's not as if you have employees that are looking to backdoor into an application to steal money or do some fraud things or protect them from having fictitious vendors. I mean that does happen for sure, there's no question about it. But very rarely does it happen.

But the bulk of the regulatory reasons for changing and upgrading your system are that you have an environment around your current application that just has weak controls. It has weak functionality around being able to meet the leasing requirements are around the recurring revenue requirements, and so while it could be done, the people that you have and that know that application might not have the capability to either implement it, or if they do, they'll change it.

So, that's why we see clients that will upgrade like the international organization I described earlier to a brand-new app and basically nobody knows it except for the administrators who report directly to the CFO or whoever is responsible — the controller for controlling risks.

So, regulatory changes are a very good reason to upgrade.

So, the four that we've talked about so far are growth, M&A activity, legacy technology, and regulatory.

Now, if you've been on any of our earlier calls, I would like to throw in a little bonus just for hanging out to the end of the call, which I always appreciate you all doing.

And there is one other instance that is a great reason to look at upgrading and notice I say to look at and that doesn't necessarily mean to do it. But one other thing to keep in mind is new leadership.

So, what that means is you have a new CFO or you have a new CEO that's been hired to take an organization to the next level, whether that means organic growth, whether that means acquiring other organizations or means being acquired.

They can come in, and they can have a different view of how the business should be run. They might want more visibility into the business than what existed today or before them. They may also want to automate more of the processes that were manual. May also want to mandate a specific technology solution that they've used in the past.

So, that fifth bonus reason that we suggest that you look at upgrading is definitely in a new leadership environment.

That doesn't mean it is a guarantee. Like the other four are almost like you're going to have to change software honestly.

You know those are things that are so material. That you there's a 95% chance if you're thinking upgrading is the right thing to do, then do it.

The new leadership though is something just to keep in the back of your mind.

We have an organization we're working with right now that's basically a services firm throughout the country, and they're bringing in the new leadership team, and the CFO has just said, look, we have a lot of problems on payroll in HR, and I'm done having those problems, these need to be resolved.

So, ERP Advisors, tell us if these problems are systemic or related to our systems — our business applications — which part of them are. And then help me understand what I should do for a new application. So, I mean, we advise clients across all these areas.

And of course, if you have any questions, you can always let us know, but at the end of the day, as I said, the four most common reasons why companies upgrade are growth, M&A activity, legacy technology, and regulatory changes. And like I said, the fifth one that you need to keep an eye on is new leadership.

So, appreciate your time today.

Thank you.

Juliette: Thank you, Shawn. It's always great information.

Thank you for joining us for today's call, please let us know if we can answer any questions you have. And if you'd like a summary of today's talk, be sure to email us and we can send that out to you.

Our next call is Tuesday, November 14th: Can a botched ERP implementation be salvaged?

In this next edition of The ERP Advisor find out how even the most delayed and over budget implementation can be salvaged so that you can get your company past the finish line to go live with the new system you set out to have.

Please go to our website erpadvisorsgroup.com for more details and to register. Thank you again for joining us.