To Upgrade, or Not: A Pressing Dilemma

With only three years remaining until the extended support end date for Microsoft Dynamics AX 2012 R3 (and less than two years for AX 2012 and AX 2012 R2), it comes as no surprise that many organizations currently using AX 2012 are actively debating whether or not they should move their ERP system to the latest version – Microsoft Dynamics 365 for Finance and Operations (as it has recently been divided into two separate applications, Dynamics 365 for Supply Chain Management and Dynamics 365 for Finance, for convenience in this article we will collectively refer to these systems as simply Dynamics 365 or D365).

Traditionally, an upgrade to a new version of AX was a rather ‘straightforward’ project: the end-user company needed to get from point A (the current version of AX) to point B (the new version), and the cost and the amount of time required for the upgrade were the primary (and in most cases, the only) factors taken into account. And although D365 and its predecessors are similar in many ways, the sheer number of fundamental differences – from deployment and licensing options to extended functionalities, integration capabilities, UI changes, a different model for upgrades, etc. – makes the move to D365 look almost like a new implementation of a new product where a lot more needs to be considered in addition to the above-mentioned cost and time criteria.

While some companies bite the bullet and upgrade to D365, other organizations – especially those who use newer versions of AX and only recently (2-3 years ago) finished their rollouts – are somewhat unmotivated to upgrade as they are dreading to experience the whole thing again with all the disruptions and costs ERP projects bring. And the upgrade cost will be especially high for smaller companies and those with lots of customizations of their AX systems.

Below we will not discuss the various advantages of D365 (and there are, undoubtedly, many of them), but rather look at three additional decisions AX end-user companies tend to consider when weighing their options.

1. Cloud vs. On-premise

With D365 initially planned as a cloud-only system, the key discussion point for many organizations upon its release was how significant would the impact of the new hosting environment be on their business if they do decide to upgrade, and those companies that were not ready for the cloud simply opted against the move. D365 can now be run on premises, same as earlier versions of AX, thus resolving, at first glance, the dilemma for those companies who want to host their ERP on their own (or their partner’s) infrastructure. However, there are sacrifices to be made as some of D365’s new perks and features, including advanced analytics and machine learning tools, automatic updates, Office 365 and SharePoint integration, etc., are available only in the cloud version.

There are multiple reasons why organizations decide against cloud deployments – from local data regulations, which in some countries prohibit storing business and customer data in the cloud, to their unwillingness to be totally dependent on the internet connection (that might be unstable in certain locations where the company operates). Or it could be that a business has already invested a lot of time and money over the years in building their own secure on-premise ecosystem and wants to leverage these investments rather than make them obsolete. There are also additional motives related to the ownership of data, control over updates, storage costs, etc., so for some companies the cloud-driven model is simply not an option in the short or medium term. Such companies, therefore, need to carefully analyze the significance of those benefits that the on-premise D365, stripped down of some of its ‘tasty’ features and services, will bring to their business and decide whether the upgrade actually makes sense for them. Those companies, who are not burdened with the cloud-related issues and welcome the move to this new model, also need to make sure that they fully understand the impact of the cloud-based D365 on their business and all the risks and trade-offs (not just the benefits) the switch will bring.

2. Stabilization vs. Upgrade

Those companies who have already upgraded talk about the anticipated gains in functionality and efficiency that come with being on D365. But what if your current version of AX meets most (if not all) of your present-day business requirements? Such companies see the move from AX to D365 as being too expensive and too premature for them at this point in time, so they might choose to upgrade (if needed) and stabilize on the latest version of AX (AX 2012 R3) and then wait for the process of upgrading to D365 to become more affordable and streamlined. This strategy certainly makes sense in the short run but there are risks associated with it. By running your company on an older version, you will be missing out on valuable insights and intelligence into your business performance and customers, thus putting you at a disadvantage to your competitors who might be already on the most recent version of their ERP (not necessarily MS Dynamics but another ERP with similar cloud-based analytics capabilities). And the longer you delay the upgrade, the tougher it will become for you to optimally run the old system and ensure that it meets new emerging needs, such as integration with your other software systems.

3. Re-implementation vs. Upgrade

OK, let’s say that after weighing all the pros and cons you have decided to switch to D365. But then there is another decision for AX end-users to make: whether to upgrade or to re-implement their ERP. The relatively quick and easy upgrade path to D365 can only be taken if you are currently running AX 2012 R3 or R2. So if you are on an older version of Dynamics, then instead of going through a chain of code upgrades and data migrations you might choose the road of re-implementation. This will also make sense if your existing processes have significantly changed over the years so require to be re-mapped. Or if the amount of customizations that you have in your current version of AX make the cost of taking those customizations on an upgrade path too high. So these things need to be looked at and taken into account.

As we can see, there are different options available and tough decisions to be made. One must remember that no two businesses are the same, so succumbing to the ‘hype’ and upgrading just because there is a new version out there is not a wise strategy. In our experience we have come across companies who are happily using their heavily customized AX 2009 and not planning to upgrade even to AX 2012 in the foreseeable future since their current system fully satisfies their needs. So our advice here is to not make any rush decisions, but rather take a step back, look at the big picture and develop a clear ERP roadmap that is in line with you corporate and digital transformation strategies. Some questions you can ask yourself here may be: What are the critical gaps in my current ERP, and are they addressed in the new version? What features of the new version does my business really need? Do I need a cloud-based ERP, or is an on-premises system sufficient? How severe will the impact of staying on the old system be on the business in terms of potentially lost opportunities and revenues? What training will need to be provided to users if the company goes ahead with the upgrade? And so on.

The last question gets often neglected since the look and feel of D365 is similar to other widely used Microsoft products, e.g. Office 365, so one may assume that staff training and change management will be quick and simple, but it is not the case (especially for those companies who are upgrading from older versions of Dynamics). Paying enough attention to workforce training and organizational change management is a key success factor for any ERP implementation (see our other post “How to Plan for a Successful ERP Implementation and Avoid the Pitfalls”), and the upgrade to D365 will also require investments in these areas in order to reduce business disruption during and after the switch.

ERP upgrades do not happen every day or even every year, so given the range of choices and how important it is for your business to pick the right one, you might want to consider bringing in an experienced and trusted consulting partner, like Industry Consulting Service (ICS), to guide you through the upgrade process. ICS has spent more than 11 years implementing Dynamics solutions and has completed well over 70 successful ERP projects around the world. Our experienced consultants will help you avoid many expensive mistakes, make the whole upgrade process as smooth and hassle-free as possible and support you every step of the way during and after the transition. So if you are considering an upgrade to D365, get in touch with us today!