Five Hidden Truths About Digital Transformations

Written By: Eric Kimberling
Date: November 25, 2021

If you're embarking on a digital transformation, there are five hidden secrets you need to know about. What are they and how can we identify them? Here is everything you need to know.

The digital transformation space provides a lot of opportunity for technical advancements, improvements, and overall transformations to your business. But there is a dark underbelly of the digital transformation space. We at Third Stage are completely independent, technology-agnostic, we don't sell software, we don't care what software people do or don't buy, we're able to provide an unbiases view of what some of those secrets are.

1. Cloud Is Not Necessarily Better

First and foremost, there is a common perception in the industry that cloud is better than on-premises, or that cloud will somehow save you time, money, and provide better capabilities. However, not necessarily true.
We see a lot of organizations that embark on cloud deployments that end up costing them more in the long term. This is partial because the subscription fees are higher when you look at those on an annual basis, and those subscription fees never go away.

In turn, you're paying a higher annual fee, even though you may not be paying as much money up-front as you would with an on-premises solution. Total costs may be higher, even when you factor in things like hardware and infrastructure savings that you no longer need.

Keep in mind, it's not just about cost, there's also the functionality and the maturity of cloud systems. When you compare some of the current cloud systems to the on-premises counterparts, those have been around for decades. These established solutions invested R&D dollars and functionality enhancements over a long time period.

Now suddenly, these same software vendors are trying to shift all of their functionality that took them decades to build, over to the cloud. The reality is, they just aren't there yet, especially when you look outside of core areas like financials, inventory management, warehouse management, and more.

When you evaluate aspects such as advanced manufacturing, advance planning, demand forecasting, whatever the case may be, when you're looking outside of core, basic ERP functionality, we oftentimes find that the cloud systems just aren't as mature as the on-premise counterparts.

None of this is to suggest that you avoid the cloud, but rather to say if you're going to move to a cloud solution, be sure that you understand that there are cost, functional, and maturity implications.

At the end of the day, you don't necessarily need to move to the cloud. Many software vendors are still providing on-premises offerings, or at the very least, they're providing on-premises offerings you can host in the cloud, so the key here is just to make sure you understand what your options are before committing to any one vendor.

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2. Single ERP Isn’t Always Better

Another common misconception in the digital transformation space is that having one single ERP system is better than having multiple systems. While this may have been true 10 or 20 years ago when architecture and integration was a lot more complex than it is today, it's simply no longer the case. There are a lot of different options in the marketplace, and oftentimes, you find that the best-of-breed solutions are more powerful and a better functional fit than when compared to a single ERP system.

It's important to look at your options and understand that best-of-breed isn't the end of the world. If you find that you have a core ERP system that maybe handles 70% of your needs, you may find that it makes sense to go plug some of the gaps of that cloud system with best-of-breed solutions.

Now, this is especially important in light of the previous point I made about cloud systems not being as mature as the on-premise solutions. If you're deploying an SAP S/4HANA, Microsoft Dynamics 365, or Oracle ERP Cloud, you're more likely to find deficiencies in those systems that might necessitate a best-of-breed solution to fill some of the gaps.

This is where organizations and software vendors such as Salesforce and Workday, as two examples on the CRM and the human capital management side of things. They really carved out a niche for themselves by providing CRM and HCM capabilities better than big ERP vendors could.

At the end of the day, there's always going to be software vendors out there that are trying to pick away at the big ERP vendors, and software vendors that are trying to do things better than one single ERP system can. Just remember that no one single ERP system can be everything to everyone, not only in terms of different industries and different companies, but also within your organization.

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3. COTS Software Isn’t Always Better

Another common misconception in the space is that commercial off-the-shelf software is somehow better than developed software. You certainly want to leverage commercial off-the-shelf software where it makes sense, and in many cases, there's plenty of off-the-shelf software out there that can handle their needs. If you're a larger or a more complex organization, then you could certainly look at custom-developed software or bolt-on applications that you develop to fill in some of the gaps with your off-the-shelf systems.

Commercial off-the-shelf software vendors, of course, would tell you, "Absolutely don't do that, that's a terrible idea," because they want you to buy their software. The reality is that whatever your needs are, you need to make sure you find the right software and the right technology that fits that, whether it's off-the-shelf, whether it's custom-developed or not.

Now, one option you have here that's sort of a hybrid solution that takes the best of both worlds is looking for off-the-shelf software that leverages low-code technologies. This can be a way to change the software and customize it without fully changing the source code of the technology. In turn, it can be a nice balance between off-the-shelf software that might be a little less flexible, versus completely custom-developed software.

4. Tech is Ahead of Organizational Capabilities

Another secret of the digital transformation space is that technology is, for the most part, far ahead of what most organizations can consume, and what they can realistically leverage. If you look at some of the advanced emerging technologies that are coming out today, it's very cool stuff. In five or 10 years, it's probably going to become mainstream, but in the meantime, I'd say 80% or 90% of organizations that we work with aren't ready to consume that type of technology yet.

Now, it isn't necessarily just because they aren't ready in terms of skillsets, but it's also the fact they just are trying to get the fundamental technology landscape up to date first. Many of our clients have systems that they've been running on for 20 or 30 years, and to make a jump from an old green screen mainframe-based system to artificial intelligence, for example, that's a massive leap that most organizations just simply can't consume in any reasonable amount of time.

What is important to recognize is not to just dismiss all these emerging technologies, but to recognize that that is part of the future. You certainly want to understand what your software vendor's capabilities are in some of these areas, even if you're not ready to consume that specific technology, but also recognize that you don't necessarily need or want to deploy that technology all up-front, all at once.

It can be a lot more effective to make more incremental changes, especially if you're a more risk-averse organization, or if you're just technologically well behind the curve. You don't need to jump straight to the coolest new technology, you can start with a base foundation to build from so that in five or ten years, you can start to leverage some of these emerging technologies and take advantage of them.

It is important to fully recognize that most technology you see, especially when you see demos with all the cool bells and whistles, most of the time, that technology is far ahead of what your organization is going to be able to realistically consume in any short-term period.

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5. Implementations Are Expensive

The fifth point I'll point out here is that implementations cost way too much. Organizations spend far too much money for too little value delivered on those implementations, and there's a whole host of reasons why this is.
Quite frankly, the biggest one is that so many digital transformations fail. They turn into a sinkhole, a money pit, of just endless cost that doesn't necessarily deliver value but takes away from it. Organizations are trying to consume too much at once, so they're trying to buy and implement a bunch of software that they're never going to use, and that’s part of the problem.

The other part of the problem is that oftentimes, system integrators are incentivized to create a sort of learned helplessness, where you're going to pay them more money to do all the work for you, which creates questions in that you suddenly aren't building those internal competencies that you need to be successful.

There are two dynamics to watch for: overpaying for the software itself, the implementation, and not having the right-sized amount of implementation support. There are several ways to get around this. For example, that's a service that Third Stage offers, is helping clients understand how they can better navigate and effectively manage their system integrators to maximize value. We are always here to help.


For more best practices in how to make your digital transformation successful, I've included a couple of resources below that I think will help you in your journey. One is our 2021 Digital Transformation Report, which covers a number of best practices for digital transformations in general. It also provides several independent rankings and reviews of different types of enterprise technologies.

A second resource for you to use is How to Manage Your System Integrator, and that is a guide to help you manage your system integrator and make sure that you're getting the most value managing them at the lowest cost possible, so you're not falling into some of the traps that we've talked about here today.

I hope you found this information useful and if you have questions regarding these top 5 hidden truths list about your digital transformation, please don’t hesitate to reach out to me directly. I am happy to be an informal sounding board as you move through your digital transformation journey.

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Eric Kimberling

Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.

Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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