ERP Trivia - Every Why Should Have Its Wherefore Part 1: ERP Trends
Written By: Predrag Jakovljevic
Published On: August 2001
ERP Trivia - Every Why Should Have Its Wherefore
1: ERP Trends
What has long been a general feeling based on rumors, news headlines and
some casual survey reports hidden within analyst houses' vaults and largely
inaccessible to the mass audience owing to exorbitant subscription fees,
has recently been confirmed in a more tangible manner. Namely, many major
companies are having difficulty achieving effective enterprise resource
planning (ERP) even after a full year of implementation, according to
the report titled ERP Trends (Research Report
1292-01-RR) and released at the end of June by The Conference
Board, the premier business membership and research network worldwide,
which links executives from different companies, industries, and countries.
This is a three-part note. Part One summarizes a report titled ERP
Trends by The Conference Board. Part Two comments on the major
key success factors for ERP projects and on the causes of ERP implementation
failures. Part Three contains User Recommendations based on this information.
Approximately 40% of participants in The Conference Board survey reportedly
failed to achieve their business case even a year after having implemented
ERP. When benefits were achieved, it took six months longer than expected.
This lag was often due to the pressure to "go live" prematurely, resulting
in substantial post-implementation efforts to identify and measure shortcomings
and deficiencies. Most companies are discovering that a quantifiable business
need is a prerequisite for a high level of satisfaction with ERP initiatives.
Many ERP initiatives are still systems-driven and these are more likely
to fail than those that are business led. In addition to a quantifiable
business case, businesses are finding that active business leadership
in all project phases is another determinant of a high level of ERP satisfaction
and it decreases the likelihood of failure.
24% of survey participants reported no dip in productivity following implementation,
75% experienced a moderate to severe "productivity dip." Although 25%
of companies surveyed had dips lasting up to one year, most dips generally
lasted less than six months. Leading companies are increasingly using
a "center of excellence" or "competency center" model to manage the maintenance
and support of their ERP environments. This model is used because ERP
maintenance and support encompasses not only technical support, but also
the governance of business process models and business practices across
business lines and business functions.
continues to be a concern for many companies. Implementation costs were
found to be, on average, 25% over budget. Companies also underestimated
support costs for the year following initial implementation by an average
of 20%. In comparing the costs involved in supporting their pre- and post-ERP
environments, more companies saw their support costs increase than decrease.
The most difficult support tasks were the incorporation of business work
process changes, software product upgrades, support of gap solutions,
and the addition of new functionality.
all ERP projects even make it to completion. 20% of survey participants
stated that they had terminated ERP projects, citing both business (mergers,
strategy changes, cost/value propositions) and product (stability, functionality)
reasons. The majority of users, who completed an implementation, indicated
that they were "somewhat" or "very" satisfied with the implementation
results of their ERP initiatives. They were most satisfied with the mature,
core ERP functions, such as finance and accounting, procurement, order
management, and planning and manufacturing, and satisfaction with these
functions increased as the degree of integration increased.
companies that have, or are planning to add, e-commerce capabilities,
70% are pursuing more than one strategy, and only 20% are relying exclusively
on their ERP vendor's offerings. Although SAP continues to be the dominant
ERP vendor, 28% of the 117 companies surveyed use two or more vendors,
with a single core vendor and one or more for specialized functionality
such as human resources or purchasing. While more than 75% of the companies
have been actively using their systems for a year or more, they are learning
that there is really no "hard-stop" implementation end point: ERP systems
adapt and change as they permeate the business.
It has long been an open secret that a large number of ERP (or any other
enterprise applications for that matter) implementations do not live up
to their expectations. In a great part, this general feeling is attributed
to bad publicity due to many high-profile companies (e.g., FoxMeyer,
Hershey Foods, Whirlpool, PetsMart, Sobey's,
Allied Waste Industries, W. L. Gore & Associates,
W. W. Grainger, Nike, etc.) having reported their troubled
implementations, some of which have been analyzed on this site, as follows:
SAP brings complexity to mind, the bad news has not spared its direct
competitors either. What has generally not been known for sure though
was the more exact percentage of failed implementations. Vendors and consultants,
on one hand, would argue that these were mere individual cases out of
thousands of implementations, and that the bad perception is merely a
product of media's attention to only the bad news.
other hand, many believed that the situation has even been worse than
some may have thought as most of these problems typically never make
it to the headlines because either a more convenient and less embarrassing
justification exists or the company cannot reliably trace the problem
back to the software or implementation.
remains that implementation problems are real and are often a major
cause of short revenues and missed earnings. As a matter of fact, a
number of consulting practices have even created a new business by redirecting
their consultants to projects aimed at resolving major post-implementation
"blues" and thereby saving them from layoffs for the time being. The
idea of ERP revamping is the same, although each renowned consulting
firm will sell their "unique" methodology disguised under the catchy
names like "The Enterprise Effectiveness", or "The Second Wave". The
Conference Board report finally gives a quantifiable idea
of the magnitude of underachieving implementations.
enigma yet to be fully resolved are the true and the most common culprits
of failures that have made many companies become disillusioned with
multiple-year implementation schedules, budget-breaking costs and promised
benefits that never do occur. Again, there have been the two extremely
companies claim to be victims of vendors' and/or integrators' dishonest
hyping and overselling of their products' capabilities (while downplaying
implementation risks and costs) and of bug-ridden software. Vendors
and their integrators, on the other hand, cite some valid points in
their defense (e.g., lack of clients' commitment, poor planning, inherited
implementation problems, data capturing errors, an overwhelmingly ambitious
but under-funded implementation effort, etc.), and claim to have become
a convenient excuse for failures caused by clients' mismanagement.
teaches us, the truth is always somewhere in the middle. Commenting
on the findings of the above report should help us highlight some of
the most common reasons for business applications poor post-implementation
concludes Part One of a three-part report. Part Two comments on the
major key success factors for ERP projects and on the causes of ERP
implementation failures. Part Three contains User Recommendations based
on this information.