One Key Reason Why 72% of ERP System Implementations Fail
Our 2010 ERP Report, of which the first installment was published last month, outlines several metrics that are of interest to most CIOs, COOs, and other executives about to embark on an ERP system implementation. Although the numbers improved relative to our 2008 study of hundreds of ERP initiatives across the globe, the data still shows that most ERP software implementations fail.
But first, how do we define implementation failure? People talk about failures all the time, whether it’s related to companies filing lawsuits against software vendors, pulling the plug on troubled implementations, or in some extreme cases, filing for bankruptcy due to their failed implementation (think Shane Co. in early 2009).
Aside from extreme cases such as these, there is a spectrum of implementation challenges that can result in varying degrees of failure. In short, we consider an ERP implementation to be a failure if one or more of the following occurs:
- Takes longer to implement than expected
- Costs more than expected
- Fails to deliver at least half of the expected business benefits
In our most recent study, which is technology-agnostic and one of the most thorough studies conducted in the ERP space, we found that there is a 72% likelihood that one or more of these three things will happen. There is a 31% chance that two or more of these things will occur.
If we assume that these are three valid failure points, then there are a number of things companies can do to avoid one of these three outcomes, most of which are outlined in our report. Perhaps the quickest and most direct way to ensure these things don’t happen is to have realistic expectations to begin with. A realistic view of what an ERP implementation will cost and the business benefits that can be realized will go a long way toward avoiding these failure points. It is important to augment software vendor sales hype with a realistic view from independent and objective sources that fully understand ERP and your business.
Want to learn more about our 2010 ERP Report? View the brief video presentation below, which provides an overview of these and other findings from our study.
Do You Think the Customization Level of ERP Systems has a Strong Impact on the Realized Benefits?
No single ERP solution is going to meet 100% of a company’s requirements. However, software customization can undermine the potential success of an ERP implementation. High customization levels are usually associated with high business costs and risks, which to some extent affect the realized benefits.
Take a moment to answer our weekly ERP poll and then check back to see how your response aligns with that of the average visitor.
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Five Tips for a Successful CRM Software Selection
As with all enterprise software initiatives, the Customer Relationship Management (CRM) software selection process can be tricky. There are plenty of solutions to choose from, multiple delivery options, and large amounts of software vendor hype. In addition, companies such as Salesforce.com, Microsoft Dynamics, NetSuite, and Oracle are aggressively pursuing the market with competing messages.
CRM evaluations should include elements inherent in effective ERP software selection processes. For example, a CRM software selection process should include the following steps:
- Clearly define business requirements
- Evaluate the technical fit of potential options
- Assess vendor viability
- Evaluate functional fit via a scripted demo process
- Develop a business case
- Negotiate with vendors
- Create a realistic implementation plan
In addition to the above, there are five factors that are somewhat unique to CRM software evaluation processes:
- Evaluate how you might extend CRM to ERP. It’s short-sighted to choose a CRM system without defining a plan for integrating with other key functions such as order entry, product configuration, inventory management, and financials. If your longer-term plan is to implement other enterprise software modules, it is important to have a sense of which will be the right fit beyond CRM so you don’t back yourself into a corner later on.
- Clearly understand your business and technical integration needs. CRM can be powerful software with tangible benefits, but some of these benefits may be undermined if processes and data are not integrated with other enterprise modules. For example, sales reps need to see inventory levels and order status and to determine available-to-promise dates based on available capacity and production plans. Another example is the finance department, which may want to see how product costs compare with sales pricing models. Needs such as these may be met via integration with additional enterprise software modules or business intelligence and reporting solutions.
- Don’t forget that it’s about the people, not the technology. The beauty (and the curse) of CRM is that there are plenty of viable options with sophisticated functionality in the marketplace. Whether it’s software as a service (SaaS) deployment models, cool bells and whistles, or other sexy functionality, it can be easy to get caught up in the technology. However, it’s important to remember that as with any enterprise solution, CRM is more about people and processes than the technology itself. It is key to find and implement a CRM solution that is a good fit for your business, processes, and organization.
- Understand the tradeoffs of SaaS vs. on premise CRM delivery models. Before jumping straight on the SaaS bandwagon, it is important to carefully consider the pros, cons, and tradeoffs of different deployment models. As we outlined in our 2010 ERP Report, SaaS implementations are typically implemented in less time and at a lower initial cost, but average business benefits realized and likelihood of going over budget are also higher. It is important to determine which CRM delivery option is best for your business.
- Set realistic expectations for implementation cost and duration. One of the most common reasons for CRM failure is not allocating sufficient time and resources to the implementation. Whether you are implementing CRM to 1 or 100 users, there are key project activities that need to be factored into your implementation plan. Business process design, training, and conference room pilots are just a few examples of key implementation activities that need to be included when budgeting the time and resources required.
These key steps will ensure you begin on the right path toward a successful CRM evaluation and selection. Read more about actual CRM and other enterprise software results from over 1,600 organizations in our 2010 ERP Report.
Three Reasons Not to Cancel Your ERP Software Maintenance
Large ERP software vendors are taking a beating in the marketplace. Fortune 1000 companies are slashing their enterprise software budgets, Software as a Service (SaaS) is threatening traditional business models, and indulgent spending on ERP software solutions are a thing of the past. To add insult to injury, there has been a backlash against long-term and high-cost ERP maintenance contracts.
Companies typically spend 15-20% of their software license fees on maintenance and support each year. In fact, according to a recent survey on our web-site, 69% of companies spend at least 15% per year for ERP support and maintenance (view the current ERP poll results). On the other hand, 8% indicate that they are no longer paying support for their systems. Given the 10- to 15-year average lifespan of ERP investments, license costs are often eclipsed by maintenance costs in the long-term. So it’s understandable that companies would want to reduce these costs.
However, there are some risks to consider before canceling your ERP software maintenance contract. Here are three reasons to think carefully before canceling your ERP maintenance contract:
- Inability to upgrade your software. Once you cancel your maintenance contract, your organization will generally be ineligible for automatic upgrades. ERP vendors spend significant sums of money on R&D to improve their software functionality incorporating best practices from their client bases, so there may be opportunity costs and lost business benefits associated with canceling your maintenance.
- Business operations become frozen in time. Because upgrades and support stop when the maintenance contract is canceled, it becomes very unlikely that you will change the system to keep up with the evolution of your organization. As a result, your business needs are likely to become misaligned with the functionality of the software. This misalignment may accelerate the need to completely replace your ERP system, which can be more costly than the savings from reducing annual maintenance.
- Proliferation of workarounds outside the system. Because of the first two reasons, users are more likely to become frustrated with the system and start adopting their own business processes and workarounds outside the ERP system. This will generally decrease user satisfaction with the system and undermine business benefits. Companies generally make significant investments in enterprise software implementations to take steps forward, so regressing backwards can damage your overall return on investment.
However, this is not to say that companies should blindly pay high costs for annual maintenance. These annual contracts are a high-profit area for ERP vendors, so these costs and terms should be negotiated accordingly. In addition, it is important to negotiate service level agreements (SLAs) to hold your ERP vendor accountable for the duration of the contract. Both negotiation tactics should be incorporated into your ERP selection process.
What do you think? Take one of our weekly polls on the topic or view the results regarding ERP software maintenance.
Loading ... Loading ... Loading ...Don’t Let a $2M ERP Implementation Tell You How to Run Your $100M Company
I had an interesting discussion with a prospective client the other day about the pros and cons of customization during an ERP implementation. As we outlined in a recent blog, most companies customize their enterprise software to a certain degree, which can elevate implementation cost, duration, and business risk.
However, this person had an interesting counter-point. Despite the potential risks and downsides of customization, there are upsides as well. Companies with true competitive advantages in their industry are likely to have one or more key business functions that are not addressed by leading ERP software vendors. The added costs may be immaterial compared to the potential upside, especially for a larger high-volume company. Therefore, customization can become somewhat of a necessary evil.
However, there are a few caveats to this perspective. First, as with any indulgence, customization can be acceptable only in moderation. ERP implementation failures often over-customize to accommodate an endless array of user requests, so it is important to have strong project governance and controls in place to ensure you are only customizing functionality that is absolutely necessary.
Second, don’t let customization be an excuse to choose the wrong software. An effective ERP selection process should weed out the software solutions that are not a good fit for your operational needs, which will minimize your need to customize the software.
Finally, customization should not be a surrogate for leveraging the best-practices embedded in your ERP solution. If the functionality in question is not a core competency or competitive differentiator (think G/L or procurement), then carefully consider the processes that are built into the software. It may be difficult to change your business to fit the software, but it may be the lesser of two evils in such instances.
Just how does customization affect ERP implementation results, such as cost, duration, and overall satisfaction? Read our 2010 ERP Report to learn more about the results of over 1,000 organizations across the globe.
What Level of Business Benefits Are You Achieving from Your Current Enterprise Software System?
Part of Panorama’s core service offering is organizational change management and ERP benefits realization. Our benefits realization process includes a rigorous financial analysis to support the planning, validation and realization of benefits associated with a strategic systems investment. It is a focal point of our ERP implementation and OCM projects.
While we aggressively monitor ERP benefits with our clients, we are now opening this same question up for websites visitors to weigh in on the subject. Take a moment to answer our weekly ERP poll and then check back to see how your response aligns with that of the average visitor.
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ERP Solution Spotlight: Oracle eBusiness, JD Edwards, and Peoplesoft
We regularly work with a number of leading ERP software solutions including SAP, Microsoft Dynamics ERP, and Oracle’s ERP solutions. As we’ve outlined in other blogs and research, each software solution has its strengths, weaknesses, and tradeoffs.
Oracle’s product suite, which includes eBusiness, JD Edwards, and Peoplesoft, is number two in the ERP market in terms of market share and install base. In addition to our client experience with Oracle, we also recently compared the product to other leading enterprise software packages as part of our 2008 benchmark study of over 1,300 ERP implementations across the globe. More recent data from our 2010 ERP Report will be made available in the coming weeks.
In the meantime, some of the findings we discovered from our experience and research include:
- Oracle is installed by 28% of organizations that use an ERP software solution.
- Its product line is evaluated, selected, and implemented in an average of 18.6 months, below the overall average of 20 months for other solutions.
- Oracle implementations have the highest level of predictability of all ERP software vendors in our study.
- The average initial cost to implement Oracle is approximately 25% less than SAP, its primary competitor in the marketplace. Expressed as a percentage of annual revenue, Oracle’s total cost of ownership is nearly 50% less than SAP.
- Oracle software solutions tied for first in executive satisfaction (76%).
However, in addition to the above strengths, there are two key tradeoffs to consider when evaluating Oracle as a potential option:
- Oracle products are implemented with a total cost of ownership of $12.6 million or 10.6% of annual revenue, both of which are significantly higher than the overall averages of $8.5 million and 9%.
- eBusiness Suite, JD Edwards, and Peoplesoft as an aggregate had the lowest level of employee satisfaction of solutions in our study.
The point is not to suggest that Oracle’s products are better or inferior to other enterprise software solutions, but rather to provide one data point as part of a robust ERP software selection process. While this provides useful information on the surface, it is also important to consider business requirements that are unique to your business, understand the key functional and technical differentiators, and assess the overall fit with your organizational and operational needs.
Learn more about how Oracle stacks up to other leading ERP software solutions by viewing the below video presentation.
ERP Software End-Users Can’t Get No Satisfaction
In our just published 2010 ERP Report, we evaluate actual data from 1,600 ERP implementations across the globe. One of the more interesting metrics buried in the study relates to end-user and executive satisfaction.
Among companies that have recently implemented enterprise software initiatives, we found that an underwhelming number are at least somewhat satisfied with the end result. According to the study, 32% of executives are dissatisfied with their ERP software. Perhaps not surprisingly, end-users are even more dissatisfied (39%) with their enterprise software solutions.
Because companies invest such large amounts of time and money in their ERP software (as outlined in more detail in the report), it is surprising that there is only a 2 out of 3 chance that they’ll like what they end up with. This data underscores some of the key contributors to ERP software satisfaction:
- Companies too often pick the wrong software. Many companies in the study underestimate the need for a thorough ERP software selection process. As a result, organizations often choose and implement solutions that are not good fits for their unique business requirements. It is simply not possible to be satisfied with software that doesn’t fit your needs.
- Executive expectations are often misaligned with ERP implementations. The fact that executives are too often dissatisfied with their enterprise software investments, even though they are typically infrequent users of the system, suggests that their needs are not being met in providing more visibility and transparency to their organizations. Reporting and business intelligence, which are usually afterthoughts delayed until the last weeks of an implementation, often determine executive satisfaction.
- ERP implementations too often go over budget and miss milestones. When an executive sees that his or her organization has just sunk an average of 6.9% of annual revenue in their ERP software, it better be worth it. Implementations generally take longer and cost more than expected, and executives will only be satisfied when they see clear and tangible paybacks on those investments.
- Employees are often left behind. Best-in-class enterprise software initiatives include effective organizational change management activities to ensure employees are comfortable, efficient, and productive in the new system. However, companies that neglect this important activity are more likely to have dissatisfied employees. This issue is even more pronounced in today’s climate of layoffs, uncertainty, and declining employee morale.
Companies that effectively address the above areas are more likely to complete their ERP implementations on time and under budget and, more importantly, are also more likely to have satisfied executives and end-users. Read more detail in our 2010 ERP Report.
What is a Reasonable Amount for ERP Software Annual Maintenance?
We continue our series in ERP software maintenance polls, by asking website visitors to sound off on what really qualifies as a reasonable annual maintenance fee. Take a moment to vote and then check back to review the poll’s overall results. Responses to this poll and other recent polls are available in our resource center.
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Managing Your Distribution Software After Go Live
If you have ever been intimately involved with the acquisition of new distribution software, you know what it’s like to experience the thrill of purchasing and implementing the new software package. It’s both exciting and confusing all at the same time.
While the day of go-live may be a huge step in a long battle, it is by no means a final step. It seems that many project teams use the go-live date as their single milestone and key measurement of success. This is a mistake, because going live is just one piece of the distribution software puzzle.
While a solid project plan and good end-user training schedule can mitigate many of the risks that organizations face at the time of cutover, there must be additional reinforcement after the distribution software is in use. An example of this is the “superuser”.
The superuser should be leveraged to provide general support and answer process and system related questions. Immediately after go-live, about 80% of user issues are related to lack of understanding, so a superuser should be the first level of support. Utilizing an organization’s superuser will help limit frustration and increase initial project success.
The need for superusers does not disappear once the organization passes through the initial post go-live period. Employees change roles and turnover occurs, therefore, new employees and reassigned employees will need training. The superuser is a perfect candidate for these ongoing training needs.
Finally, understand that functional use at go-live is only a start to obtaining full ROI. Once the team is comfortable with the new distribution software, it is time to further investigate functional usage and training. Whether you continue to train your superuser or the entire team on more in-depth functionality, ongoing training is a must. Ongoing training and increased functionality usage will go a long way in making sure your organization obtains the maximum benefits from your purchase.
By clearly defining your go-live and on-going support processes as part of your overall distribution software project, you will better leverage your software technology to realize the full scope of business benefits and ROI.
