2014 ERP Report: What is the Current State of Global ERP Implementations?

Today we released our 2014 ERP Report, our highly anticipated annual benchmark study of hundreds of ERP implementations across the globe. Since Panorama began publishing this report in 2007, it has been quoted by hundreds of prominent media outlets and industry analysts as the most comprehensive and objective view of the industry. It also highlights some of Panorama’s industry-leading thought leadership and expertise, which is the primary reason why clients across the globe hire us to make their ERP implementations more successful.

This year’s report tells many of the same stories we have seen over the years, while also shedding light on some interesting and emerging trends in the market. The analysis includes data from organizations of all sizes and industries across the globe, including manufacturing, distribution, construction, healthcare and the public sector. The report itself provides much more detail than I can summarize in a brief blog but here are some of the interesting highlights:

The good news: organizations seem to have better rationale for implementing ERP systems. During the past several years of research and implementation experience with clients, we found that most organizations did not have clear reasons for implementing new ERP systems. “Because we have to” was the most common reason we saw in our past research and experience, showing that most organizations replaced their systems when vendors stopped supporting the product, the organization fell behind on upgrades or the organization simply could not scale their organizations without a new system. This year, we found more compelling and rational reasons for replacing ERP systems, including the need to improve business performance, integrate across multiple locations and better serve customers. These more tangible justifications for the project are encouraging because it provides organizations with a clear direction when selecting and implementing new ERP software.

The bad news: ERP implementations still take too long and cost too much. One of the most consistent data points we see in our research year after year relates to implementation duration and cost. The bottom line is that ever since we started our annual study, we find that most organizations take more time and spend more money than expected on their ERP implementations. This year, for example, we found that 63% of implementations went over budget, while the average implementation took nearly four months longer to implement than expected (the average duration is 16.3 months; very consistent with past years’ results). As we looked deeper into the data, we also saw that the primary reasons for these cost and time overruns were related to non-technical issues, such as increased scope, organizational issues and unrealistic expectations to begin with. Overall, the average total cost of an ERP implementation is $2.8 million, or approximately 4.6% of the implementing companys’ annual revenue.

The interesting news: cloud ERP lost momentum. This is the fourth year that we have tracked adoption of cloud and SaaS ERP options and the first year that the number has actually declined from the previous year. Among the most recent wave of ERP implementations worldwide, 15% are using a cloud-based solution of some sort, whether it be a pure subscription, SaaS-based model or a third-party hosted solution. This number is down from 26% the last time we published the metric, which had grown from 6% two years prior to that. We are not certain if this data point is an anomaly that will reverse next year but it is enough to suggest that there are still potential obstacles and concerns hindering the adoption of cloud ERP solutions.

More interesting news: organizational change management is the key to ERP implementation success (or failure). When we dove into the data to understand why organizations blew past their budgets and expected timeframes, we found that organizational change management issues were the #1 reason for implementation success or failure. More specifically, 20% of organizations said that their top problem was either related to organizational issues or training – more so than technical issues, changes to scope, resource constraints or any other variable. It is also interesting to note that 83% of organizations used ERP consultants to help with various stages of their ERP implementation but sorely underinvested in critical organizational change management activities. The bottom line could not be clearer: of all the things you can do to make your project succeed, organizational change management is the most important factor.

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While our 2014 ERP Report suggests that ERP implementations still result in mixed and underwhelming results, it also points to some encouraging trends. First of all, organizations are finding a clearer purpose and direction for their implementations. Secondly – and most importantly – there are clear best practices separating ERP successes from the failures, which we can all apply to our implementations.

Learn more by downloading our 2014 ERP Report. Once you have downloaded and reviewed the report, please share your thoughts below. What data did you find interesting in the report? What did you see that we didn’t mention?

 

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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