The Keys to a Successful Digital Transformation (2024)

has been repeating essentially the same statistic since the 1990’s – that “70% of Digital Transformations FAIL”. Not only am I tired of hearing it, I honestly don’t think it’s true. Or if it is, then we’ve got a BIG problem. Either way, that’s quite an admission from one of the biggest and most respected management consulting and digital transformation advisory firms in the world, right? Scary.

After hearing this statistic for years, I came upon a hilarious and cathartic presentation by a gentleman called the “Secret CFO” which is called “ERP War Crimes”. Here’s the link to the full presentation:

They say laughter is the best medicine. If so, then this is a tonic that will induce belly laughs to calm your gut if you're queasy from failure stats. Better than Pepto Bismol!

The Secret CFO starts his presentation with this slide quoting McKinsey:

I agree. Why IS this so hard? Shouldn't we know better? So, I wrote my first article on this topic, which is called “Top 5 Keys to Digital Transformation SUCCESS”, with some wisdom and wit from the Secret CFO sprinkled in.

There are essentially 3 “pillars” for digital transformation success: 1) People, 2) Processes, and 3) Technology, with people and processes being relatively more important to SUCCESS in my view. Because my first post was focused on People and Processes, though, in this “sequel” I decided to focus on the Technology pillar.

1. Use Master Data Management and Data Migration Acceleration Strategies

The Secret CFO also talks about the importance of data architecture and big data, as well as the fact that it depends on clean data. He says that for a transformation to succeed, more quality time should be spent on Master Data Management (MDM). Here is his (hilarious) quote:

Although I might not drop the “s bomb”, I agree with him that master data cleanliness is super important. Unfortunately, data in older on-premise ERPs or other systems is notoriously “dirty”. This old adage is true for system implementations, no matter what type; Garbage In, Garbage Out. As these systems proliferate - ERP, HRM, CRM, or whatever – the same data across multiple systems (e.g., on-prem, cloud) gets incorrect in some systems to the point where there’s no longer one “source of truth”.

That’s where MDM comes in. MDM is a technology-enabled discipline describing how businesses utilize IT tools and solutions to govern, manage, use, and share their data. As businesses scale and grow, the number of applications and systems used across the board will also grow. These additional databases cause a “fracture” in information as they create multiple versions of the same data, and there’s no way of pinpointing which version is outdated, incorrect, or incomplete.

To resolve this problem, MDM ensures the uniformity, accuracy, stewardship, consistency, and accountability of the shared Master Data assets. In short, MDM enables all the employees in a business to stay aligned.

I thought this explainer video was excellent as it takes a deep dive into what Master Data is, and how it fits into Master Data Management.

Data migration and data architecture should be focused on uploading the cleaned-up master data records to the cloud via the table loads and scripts. This includes – for instance - customers, suppliers, addresses, items/parts, employees and so on. Then the open orders (e.g., sales orders, purchase orders) can be loaded.

Generally, I recommend NEVER migrating transactional history such as purchase orders or general ledger transactions into the source ERPs unless it’s mandated. Instead, I would put transactional and historical data into a data lake or data warehouse where you can use BI like Microsoft Power BI, OneStream Software, Anvizent, or Infor Birst Analytics to produce reports and dashboards from a single source of truth. That’s the ticket!

2. Avoid Customizations If Possible, Build Apps for the Rest

One of the keys to the Secret CFO’s advice is to avoid customizations. He says:

Well, here I must disagree with my witty compadre and say that even if you’ve chosen the most expensive and robust cloud ERP system, fancy CRM, beautiful BI, and so on - you’re STILL going to have to customize your ERP. Because most companies have an older on-premise ERP system already, or more than one, they’re by definition customized. Probably HEAVILY customized.

In the past, customizations were done to plug functionality gaps or provide reporting options such as printing to Excel. A modern cloud ERP has probably filled a lot of those functionality gaps, so those customized "sessions" can be left behind, and typically BI software can replace customized ERP reports.

To help with weeding out customizations, I wrote up a “5-step program” to “kick a nasty customization habit” that has a theme from the movie “Thank You For Smoking”. It’s an addiction, right? Well, there’s a cure.

As described in the article, customizations that you can’t avoid will leave custom code that gets in the way of upgrading to the latest version. And it doesn’t help when the ERP vendor rewrites the code, sometimes millions of lines, and forces everyone to move to a new cloud version that has less functionality and imposes a subscription model that’s actually more expensive over time.

In this case, instead of an upgrade, you’re likely facing more of a reimplementation where a switch in ERP systems might be considered.

Not to pick on SAP, but this has happened with the older on-premise SAP ECC versions - which most of the customers are still on. If customers are going to stay with SAP, and that’s an “if”, they need to move to SAP S/4HANA by 2027.

Many SAP ECC, SAP Business, and R/3 customers took years to go live in the first place and many more to customize to current levels. Imagine being told that you must migrate the whole shooting match in 3 years or less! Ugh.

So, a large portion of SAP or other ERP customers will find themselves at an impasse. What can be done to build back in customizations that are needed for business differentiation or automation of business processes?

One way is to build “custom extensions” using the ERP vendor’s tools. For example, when converting SAP Business or ECC to S/4HANA, you could use SAP Business Technology Platform (BTP) or related tools. Here is an explanation from SAP itself about how to use BTP to customize S/4HANA.

However, this process is difficult, time-consuming, and expensive to rebuild all the remaining customized sessions in the cloud ERP.

So, how do you get rid of on-premise customizations while keeping and modernizing the functionality that differentiates you from your competitors?

3. Use Composable ERP to Phase in the Cloud

Fortunately, a slick way to handle on-premise customizations is to design “composable ERP” applications that essentially replace the functionality of the customizations by creating modern applications in the cloud. Then the on-premise ERPs can be left in place, at least in the short term. Not too shabby!

Usually, over a 5 to 20-year horizon of implementing a big on-premise ERP, companies tend to feel pretty good about what they’ve built. As the Secret CFO says:

In other words, assuming your existing system is working relatively well, there are customized sessions and unique processes that were built over possibly decades. So, you don’t want to throw out the whole baby (on-premise ERP) with the bathwater (cloud ERP replacement).

Using “composable applications” is something a big fan of. It’s a way to keep that “seriously, I AM special” functionality and not slow down the cloud upgrade process because they can happen concurrently!

In fact, I'm really enthused about the prospect of using Vanenburg's Rappit Composable ERP development tool to assist in ERP implementations and upgrades! Companies seeking faster "time-to-value" for their in-house developed applications can benefit from their cloud-native application development on Google Cloud.

The most exciting thing to me is that during a digital transformation that includes a migration to a cloud ERP system, the on-premise ERP can be left in place during the migration. Then modern, responsive-themed applications can be built on top of the on-premise systems that focus on stripping off customizations and moving them to the cloud.

In other words, you can keep the “hard yards of process change” and “lock in place” processes that are already working...plus build new ones! Sweet.

You can explore the benefits of accelerated application development with Rappit firsthand in this post. Enjoy.

Note that this is possible regardless of whether you have ERP systems from SAP, Oracle, Microsoft, Infor, or a combination! 😎

Don’t worry, I’ll be posting a lot more about this shortly! Maybe Jan will invite me to the Vanenburg Castle after reading this…that would be nice. (Hint hint) 😊

4. Leverage iPaaS and Integration Strategy

Invariably any company of any size, particularly medium $100 million in revenue to $1 billion) and large ($1 billion +) will have multiple ERP, CRM, Supply Chain, and many other types of systems.

The Secret CFO has this to say about integration and data.

The trick is that the multi-dimensional database is typically spread across many different ERPs and a mixture of on-premise and cloud systems with different versions that need to be integrated. Consequently, any company embarking on a digital transformation will need a strategy for integration and the best, most modern option is integration Platform as a Service or iPaaS.

Here is a video from Solutions Review that gives a nice overview of the iPaaS technology.

An iPaaS is a cloud-based platform that facilitates the integration of various applications, systems, and data sources within an organization or across different organizations. It provides a unified environment for developing, managing, and monitoring integrations; allowing businesses to streamline their processes and enable a secure data flow between disparate systems.

For a deeper dive, here is an article I wrote that explains iPaaS in much more detail and also goes into the advantages of iPaaS over more traditional connection methods such as SOAP and APIs.

I’ll be writing more on this topic with Erik and my friends at Yenlo in upcoming posts.

5. Incorporate AI and Workflows from the Start

AI is transforming the way ERP and other enterprise systems work, and it’s changing at an accelerated rate. It’s almost become a fact of life that AI, generative AI, and large language models (LLMs) in particular, are augmenting and frequently surpassing what humans can do in traditional systems.

Like ERP systems, though, for AI to work well and “learn” properly, it needs to have good data to ward off all kinds of problems like bias, “illusions” and so on. As the Secret CFO says:

Although I don’t relish the idea of being called a “sh*t shoveler”, I must admit that my witty friend has a point. I believe that the objective of digital transformation SHOULD be to achieve business transformation using digital and technology tools. It’s to sift the turd from the raisins – so to speak. 😊

And if that’s the objective, then the other 4 keys to digital transformation SUCCESS that we discussed today – use MDM, avoid customizations, use composable ERP, and use iPaaS – all need to be used together to prepare for expanding generative AI and LLMs in ERP. With a data lake, clean master data, composable applications replacing on-premise customizations, and an integrated platform of applications on the cloud, generative AI and LLMs can be unleashed!

Here’s a post that explains how AI is transforming ERP and what the future of AI and ERP will look like. In fact, this change is already happening. It’s clear that today’s digital transformations, to succeed without limits, must embrace AI and weave it into most if not all processes that are being rewritten with modern digital transformations.

The use cases for AI in ERP are everywhere. For instance, here’s an example from Infor in a demonstration of their Coleman AI which works with the Infor CloudSuite ERP systems.

Other examples of AI and machine learning include the 3-way matching of invoices, optical character recognition (OCR), and other technologies that should be considered for digital transformation SUCCESS.

For conversations about Generative AI and all things enterprise software, reach out to top analyst Jon Reed at diginomica. diginomica produces volumes of the best technology content on the web, so check out their website here: https://diginomica.com/ .

Conclusion

Well, I’ve talked your ear off. I’d like to give you a chance to comment. What other thoughts would you add to my analysis and Top 5 lists? What do you think of the Secret CFO’s “ERP War Crimes”? I hope this has been useful to you and enjoyable as well!

My company PCG | PREDICTABLE BUSINESS AND DIGITAL TRANSFORMATION ( https://pcgservices.com/ ) is an ERP and Business Transformation Advisory firm specializing in implementations of and upgrades to the vertical industry ERP systems from Infor called the Infor CloudSuites. Here is an article explaining the CloudSuites that contains demo videos and a variety of links.

If you are considering SAP S/4HANA you might want to see this head-to-head comparison “SAP S/4HANA vs Infor CloudSuite – Which is Better?” If you're a manufacturer who is being forced to convert from SAP ECC to S/4HANA, then this article could turn your head as Infor can be an option in manufacturing plants or whole divisions - even if SAP ECC is being used at corporate! This scenario is sometimes called a "two-tier" ERP strategy. Give it some thought, anyway. 😊

Please don’t forget to say hi in the comments below, send me a DM on LinkedIn at Dan Aldridge, ERP Software Expert or email me at [email protected]. Thanks for reading my article and please comment + repost if you like it!!