'Joy' Of Enterprise Systems Implementations
- July 8, 2002
Part 1: Inexorable Statistics
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 mass audience owing to exorbitant subscription fees, has
recently been confirmed in a more tangible manner. Namely, many major
companies are still having difficulty achieving effective enterprise resource
planning (ERP) systems even after a full year of implementation, according
to the report titled ERP Trends (Research Report 1292-01-RR)
and released several months ago by The Conference Board, the premier
business membership and research network worldwide, which links executives
from different companies, industries, and countries. The general feeling
is that the situation can be mirrored across the entire enterprise applications
is a four-part note. Part One summarizes a report titled ERP Trends by
The Conference Board. Parts Two and Three will comment on the major key
success factors (KSF's) for enterprise applications projects and on the
causes of enterprise systems implementation failures. Part Four contains
User Recommendations based on this information.
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 case 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.
has long been an open secret that a large number of ERP (and other enterprise
applications) implementations do not live up to their expectations. The
market has recently been abuzz with scantily rewarding CRM deployments,
see Why CRM Is So Hard and What To Do About It (article ID 48.887.69.1605).
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. This was particularly true in cases of Nike
and Hershey, where the leading supply chain management (SCM) and customer
relationship management (CRM) vendors were also implicated in malfunctioning
of the best-of-breed solution. The result was a free for all' finger
pointing rage. 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 mere a product
of media's attention to only the bad news.
the 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. Although the report does not mention
it specifically, the general feeling is that the percentage of failed
implementations is higher in the higher-end of the market.
targeting the lower-end of the market, given a smaller and consequently
more manageable customer base and sharper focus, have over time delivered
a well-attuned offering to smaller enterprises. This is illustrated in
narrower horizontal and deeper vertical functionality, incremental piecemeal
deployment to address burning priorities first, and best-practice industry
templates, all easing implementations efforts. Also, smaller business
can typically bypass business process reengineering (BPR) effort and gain
more immediate benefits just by mere information sharing and process efficiency,
particularly when an application was implemented with an effort to eliminate,
modify and/or improve inefficient business practices. Finally, in case
of failure, the sheer lower magnitude in terms of financial and other
consequences would not be of interest to the press and/or would be less
the fact 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". 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 opposite
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.
sides would in some cases agree that, in order to meet stringent project
deadlines, many concessions and compromises have been mutually made without
due communications to all the parties, which have resulted with corporate
executives frustration and disillusion with expected objectives and benefits.
experience teaches us, the truth is always somewhere in the middle. Commenting
the findings of the above report should help us highlight some most common
reasons for business applications poor post-implementation performance.
concludes Part One of a four-part report. Parts Two and Three comment
on the major key success factors (KSF's) for enterprise applications projects
and on the causes of enterprise systems implementation failures. Part
Four contains User Recommendations based on this information.