Friday, January 30

BIG E.R.P → R.I.P ?

No long winded pre-amble for you this time. Just the facts:
  • 93% of ERP implementations take longer than expected
  • Only 35% of ERP projects are completed on or under budget
  • Only 21% realise at least half of the business benefits they expected
  • Only 13% of those interviewed are very satisfied with the results
  • 57% of systems suffered operational stoppages after implementation

Now, don't get me wrong, I have no axe to grind against big ERP projects. We know that big systems projects, particularly those designed to replace mature legacy systems, all share similar failure rates and can cause equal levels of
stress. But it's the ERP projects that grab the headlines because they carry with them the real possibility of killing the operational side of a business. You know, the boring stuff like making sure there is enough inventory, collecting cash in a timely fashion and paying the staff. Think I'm exaggerating? Well here is just the latest tale of woe: SAP project costs cited in jeweler's bankruptcy filing

What frustrates me is that these failures, whether in the absolute or relative sense, give the vendor-side of the business a bad name. During the nineties there was a swing of the pendulum from a build to a buy mentality and package software vendors became large and very successful. But selling a complete package solution means you must start from the position that the existing system is 'legacy' and should be replaced - how else can you justify the multi-million dollar price tag of new package? Who ever actually measures the functional overlap to determine whether, say, 70% of the new functionality is actually just a re-implementation of what was already there? For instance, there hasn't been much innovation in the area of double-entry bookkeeping in recent years so you can argue that many of the fundamentals must still apply. I am arguing that too many babies are being thrown out with the proverbial bath water and it's time to stop and think differently about the value and role of legacy systems.

My experience at LANSA has been a real eye-opener in terms of what is possible to achieve by sweating the existing assets rather than spending millions on a new system. I was reminded of this fact when reading the latest edition of the LANSA Review magazine. Inside you will find an excellent Showcase article entitled 'Making Money and Saving Money with LANSA'. I don't mean for this post to be a blatant advert for my employer but I honestly know of no other vendor that can tell so many real stories - from different industries and countries around the world - that demonstrate just how much extra business value and longevity can be squeezed from existing systems.

There is never a good time to experience a big project failure, but there are times of exuberance when you can chalk it up to experience and move on to the next big idea. But however you choose to describe the perilous state of the global economy, I think you must agree that few companies currently have the wherewithal to absorb such a massive failure - particularly in already fragile industries like retail, manufacturing and financial services. This new reality means that even the mighty SAP is feeling the pinch. They have reported lower than expected earnings, instigated their first large reduction-in-force and effectively withdrawn guidance for 2009. Ouch.

The good times may one day roll again for the big package software vendors. In the mean time I urge you to think different and take a more creative approach this year. You might place the pendulum somewhere between extend and selectively replace for a while rather than watching it swing violently between build vs. buy. That kind of sanity is welcome during good times and bad.


David Shirey said...

Most ERP 'failures' or 'disapointments' are due to poor management. A company that does not clean up their routings and bills will not have good results coming out of the ERP. Similarly, if you refuse to safeguard your warehouses, then your inventory values will be suspect. Most of the time when people initiate a big ERP project, like a switch to SAP, it is not so much to gain new functionality as it is to gain time and political capital. Once you identify the problem as being 'your system', criticism of the management team stops if they put together a plan to implement a 'better' ERP, especially if they go with SAP and Oracle. After all, they are trying to bring in a world class suite, right? And if they go with one of the big boys they have also bought themselves 3 - 5 years minimum before anyone can see that the same old problems are reoccuring. And by that time some of the team will have left and can be blamed for screwing up the implementation. Big ERP may slow down but the political reason for it existing will never disappear and neither will it. We can only hope, as you have indicated that the pendelum will swing the other way and extend rather than replace becomes fashionable again.

rachel said...

its important for the providers of ERP to make sure it is effective and useful and this calls for strategic planning right from the construction to its implementation which should best suit the enterprise.this calls for a good secure system too. very nice blog.keep it coming
successful ERP implementation