More than half of companies that implement ERP (enterprise resource planning) systems end up garnering no more than 30 per cent of the business benefits they expected, according to a new study released by systems integrator Panorama Consulting Group.
Some 72 per cent of the 1,600 organizations surveyed said they were “fairly satisfied” with their ERP package. But this can be misleading, according to the study: “Some executives are just happy to complete projects, protect the company from risk and give little thought to whether or not the company is better off with the new software or whether or not they’re getting as much out of the system as possible.”
Panorama’s report breaks down ERP offerings into three tiers, with large vendors like SAP, Oracle and Microsoft occupying Tier I; companies such as Lawson, Infor and Sage in Tier II; and smaller players including Compiere, NetSuite and Syspro in Tier III.
More than 35 per cent of respondents overall said their projects took longer than expected; just 21.5 per cent reported shorter-than-anticipated project times. Forty-three per cent said the projects were completed on schedule.
Thirty percent of Tier I projects had time overruns, compared to 18 per cent for Tier II and 5 per cent for Tier III.
51.4 per cent of projects overall ended up going over budget, with 40 per cent meeting expected costs. Only 8.6 percent came in at a lower price tag than planned.
Fifty-three per cent of Tier I implementations had excess costs, compared to 33 per cent for Tier II and 59 per cent for Tier III.
Overall, the study’s findings are likely familiar music to followers of the ERP space, which has long been filled with stories of lawsuits filed by disgruntled customers, wild cost overruns and failed projects.
ERP customers can avoid surprises by taking time to pin down the implementation’s true total cost of ownership, much of which has nothing to do with software licenses. Three-quarters of a project’s budget tends to go toward implementation, hardware upgrades, customization and other needs, according to Panorama.
Customers should also develop a comprehensive implementation plan, as well as “identify pockets of resistance within the company and determine the organizational change management needed to make the project successful,” Panorama said.
Altimeter Group analyst Ray Wang largely echoed that advice.
“People do not invest enough in change management,” he said. The length of ERP projects can exacerbate dissatisfaction, he added. “They put in the system, but people’s requirements may have changed so much since they did the vendor selection.”
These factors illustrate why SaaS (software as a service) is making inroads into traditional ERP, thanks to quicker implementations and easier upgrades, according to Wang.
“It doesn’t mean you go SaaS all the way, but there are things that are much better with SaaS,” such as human resources applications, which require frequent updates to reflect legislative and regulatory changes, he said.