ERP Trivia - Every Why Should Have Its Wherefore Part 1: ERP Trends

Part 1: ERP Trends
P.J. Jakovljevic - August 25, 2001

Executive Summary 

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.

About this note:
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.

Event Summary 

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.

While 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.

Cost 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.

Not 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.

Among 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.

Whys and Wherefores 

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:

• Food Producer Files $20m Lawsuit Against Oracle
  
  
• Business Software Firms Sued Over Implementation - Lawsuits Bring ERP Problems to Light
  
  
• Hershey's Halloween Nightmare All Too Common for Supply Chain Implementations
  
  
• PeopleSoft Programs Cause Headaches at Number of Universities
  
  
• SAP Users Speak Out on Credit and Collections Shortcomings
  
  
• Nike Blames i2 For Finish In Losers Bracket
  
  
• Texas Instruments Tells War Stories At i2 Planet
  
  
• How Supply Chain Projects Morph Into Black Holes

Although 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.

On 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.

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" 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.

Another 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 views.

Affected 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.

As experience 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 performance.

This 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.