2010 ERP Report: ERP Implementation Costs and Durations Declined Last Year, but So Did Business Benefits Realized

In our 2010 ERP Report, published earlier today, we outline some interesting findings from nearly 1,600 ERP implementations across the globe. In the study, conducted between December 2005 and December 2009, we found that the average ERP implementation takes less time and money than it did a year ago, but it also delivers less business benefits than expected.

In addition to comparing more recent data with metrics from our historic research, the current study examined areas that had not been analyzed in previous reports. For example, this year’s study captures more information about delivery models (e.g. on-premise vs. Software as a Service), more detail surrounding benefits realized, and more detailed budgetary information.

The 2010 ERP Report Highlights Five Key Findings from the Four-Year Study

  1. ERP implementations take longer than expected: The average total implementation time is 18.4 months.
  2. Total cost of ownership is higher than expected: $6.2 million, or 6.9% of annual revenue.
  3. Most enterprise software implementations under-deliver business benefits: Only 59% realize at least half of the expected benefits.
  4. Software as a Service (SaaS) implementations take less time than on-premise ERP, but deliver less benefits: 6.2% vs. 6.9% cost as a percentage of sales, and nearly 50% less likely to deliver expected business benefits.
  5. Companies do not effectively manage the organizational changes of ERP: Most implementing organizations are grappling with significant organizational changes in parallel with ERP initiatives, but have a poor ability to manage this change.

While this report is the first in a series with additional detail to be published throughout 2010, it provides a summary with some interesting lessons of what to expect from enterprise software initiatives. For example, here are a few lessons from the data:

  • It is no coincidence that implementation durations and budgets are declining in tandem with benefits realized. Many companies are short-cutting project activities that are critical to implementation success.
  • Implementation durations are fairly stable and predictable throughout the 4-year study. While total cost of ownership decreased fairly significantly last year, the average implementation duration only decreased a small amount.
  • Companies still have unrealistic expectations. SaaS, implementation accelerators, pre-configured solutions, and out-of-the-box implementations may be touted by software vendors as the silver bullet to an easy implementation, but companies are still more likely to go over budget and take longer than expected.
  • Finally, and perhaps most importantly, enterprise software initiatives are not easy. Given the economic uncertainty and turbulence of the past year, companies are still finding it difficult to deliver a tangible ROI. Organizations that do deliver measurable business value are doing it right the first time and avoiding seemingly easier shortcuts.

We are glad to see ERP implementation durations and budgets on the decline. However, it is discouraging to see companies struggling more to achieve business benefits. Let’s hope that 2010 is the year that implementing organizations find a way to get the best of both worlds.

Want to read more from our study? Read the first installment of our 2010 ERP Report here.

About Eric Kimberling

After 15 years of ERP consulting at large firms including PricewaterhouseCoopers and SchlumbergerSema, Eric realized the need for an independent consulting firm that really understands ERP. He began his career as an ERP organizational change management consultant and eventually broadened his background to include implementation project management and software selection. Eric’s background includes extensive ERP software selection, ERP organizational change and ERP implementation project management experience. Throughout his career, Eric has helped dozens of high-profile and global companies with their ERP selections and implementations, including Kodak, Samsonite, Coors, Duke Energy and Lucent Technologies. In addition to his extensive ERP experience, Eric has also helped clients with business process reengineering, merger and acquisition integration, strategic planning and Six Sigma initiatives. Eric holds an MBA from Daniels College of Business at the University of Denver.

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