2013 ERP research: Compelling advice for the CFO

2013 ERP research: Compelling advice for the CFO

Summary: New research offers important lessons for chief financial officers when buying and implementing enterprise technology.

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New research on the success of ERP implementations reveals mixed results. Although respondents are satisfied with their choice of software, the survey shows most ERP projects run over budget and buyers are do not fully receive expected benefits. Nonetheless, few respondents characterized their ERP project as a failure.

For chief financial officers, the survey offers compelling insights and is worth reading carefully.

Read more from the Beyond IT Failures blog

System integrator, Panorama Consulting Solutions, conducted the research survey during the four-month period of September, 2012 to January, 2013. The results are based on data from 172 respondents who completed a survey on the Panorama website. Seventy-one percent reported revenues of $300 million or less and 21 percent of respondent companies had revenues of $1 billion or higher.

Cost, duration, and benefit summary. Although project duration and cost fluctuate from one year to the next, three points stand out about the current data:

  • Over 50 percent of projects experienced cost overruns 
  • Over 60 percent experienced schedule overruns
  • Fully 60 percent of respondents received under half of the expected benefit from their ERP implementation

This chart summarizes the top-level results:

ERP cost time benefit summary

Although these numbers are bad, they are consistent with failure rates reported in other studies and enterprise software domains such as CRM.

The following table reports Panorama data for the last four years:

ERP data summary

Implementation budget, schedule, and realizing benefits. According to the survey, 53 percent of ERP projects exceeded their budget:

ERP implementation costs

Regarding schedule, 61 percent of respondent ERP projects went beyond planned time duration:

ERP project schedule

The survey shows a significant problem with respect to realizing benefits from the ERP implementation:

  • 27 percent of respondents realized less than a third of anticipated project benefits
  • 11 percent realize no benefit at all from their ERP implementation
  • 22 percent achieved between a third and one-half their expected benefit 

In other words, fully 60 percent of the ERP projects in the survey realized less than half their desired benefit. By any reasonable measure, these projects are problematic:

ERP benefits realization

ERP success and customer satisfaction. The survey makes a distinction between "implementation outcome" and "customer satisfaction." As the following chart shows, only 10 percent of the respondents called the ERP implementation a failure, meaning 90 percent either did not know or believed their project to be successful:

ERP implementation outcome

At the same time, various measures related to ERP software, vendors, and implementation results showed poor satisfaction:

  • Implementation service of vendor: 40 percent satisfaction
  • Implementation service of third-party: 25 percent satisfaction
  • Ability to meet business needs: 49 percent satisfaction
  • Employee adoption: 35 percent satisfaction
  • Overall implementation experience: 44 percent satisfaction

ERP vendor selection. As the following graph shows, the primary candidates for ERP software were SAP, Oracle, Microsoft, Epicor, and Infor:

ERP vendor selection

The cloud question. Despite the hype, only 14 percent of respondents are using ERP delivered as Software as a Service (SaaS). Although the best cloud vendors can deliver superior security and reliability than most internal IT departments, market momentum to ERP in the cloud is not there yet, as the following diagram illustrates:

cloud ERP vs. on-premise

Payback period. The survey reports an average payback period of 25 months (down from 32 months in 2009). The graph below shows that over half the respondents did not recoup their costs or were unsure:

ERP payback period

When reading this data, bear in mind that respondents who have not completed an implementation will naturally report no payback — after all, the software is not yet operational. More troubling is the 25 percent who are unsure of their ERP payback period. One wonders whether these people had a clear set of goals and business when starting their project.

Key points for the Chief Financial Officer

The survey data presents a contradictory view of ERP success and failure. Although most ERP implementations run late, over-budget, and do not deliver planned results, only 10 percent of respondents called their ERP implementation a failure. At the same time, 60 percent called their ERP project a success and 30 percent expressed neutrality on the success / failure issue. These numbers indicate that buyers' expectations are too low — it is indeed unfortunate these numbers are so low.

Important lessons. Implementing an ERP system is always complex because the deployment drives changes to both data and processes that extend across departmental boundaries inside the organization.

Market analyst and ZDNet contributor, Brian Sommer, offers the following advice to chief financial officers considering new investments in enterprise technology:

Software projects aren't just technical endeavors. They're also political, financial, emotional, structural, strategic, process and people-centric initiatives. Ignoring any one of these dimensions is done at the project manager's peril.

Regarding process changes and application software, the stakes have definitely increased in the last few years as wave after wave of disruptive technologies have swept across the IT landscape. Just try to imagine any business process that isn't affected by social, mobile or cloud technologies. Ditto for big data, analytics and in-memory processing technology.

Today's CFO must balance the demands of two competing forces: the extraordinary wave of innovation (and the process changes these bring) against the regulatory, control-driven forces who want every process, every exception, and device to be documented, controlled and secured. In recent years, CFOs have spent tens of billions of dollars (or more) with audit firms to document the control points and risks within their existing ERP solutions.

The costs, a result of regulations and legislation (e.g., SarbOx) in a post-Enron world, were staggering for many firms. After all that expense, companies may find their processes 'locked-down' and unchangeable which is unfortunate as these same companies may be forgoing phenomenal opportunities to adjust and improve business processes with some of the newer, cloud-enabled, social data driven, mobile-connected, video-powered products and ERP extensions available today.

Can we trust the survey? The Panorama Consulting research offers a useful benchmark for understanding ERP success, failure, and drivers of value. Because Panorama has run similar reports for the last several years, the data presents a consistent picture over time. In addition, the results are in line with similar studies run by other companies.

Nonetheless, the survey does have several deficiencies: 

  • Since 71 percent of respondents work for companies with revenues of $300 million or under, this is primarily a small business survey. We cannot assume that large organizations would show the same results.
  • The survey population was only 172 respondents; a larger sample size would be desirable
  • The editorial content in the report seems slanted toward services that Panorama sells to clients

Despite these issues, the data seems solid and I recommend you trust the numbers.

Final thoughts. The most important measure of project success and failure enterprise buyer's perception and opinion. Since only 10 percent called their implementation a failure, we must accept that number as the failure rate reported in this survey. However, the survey as a whole makes clear that genuine ERP success is elusive, at least among this group of respondents.

ERP can bring significant benefit but implementation requires careful attention to both business planning and technology activities. For this reason, achieving project success and business value demand that CFO and CIO work together as a collaborative unit.

Therefore, it is essential to create this partnership and show your entire organization that the business and technology teams can communicate, collaborate, and share knowledge on a systematic and consistent basis. This collaboration is the true underlying strategy for gaining maximum value from ERP or any other enterprise initiative. 

Also read:

Topics: CXO, Enterprise Software, NextGen CIO

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4 comments
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  • Good advice

    Good advice. Read an informative thought leadership whitepaper on ERP selection and implementation that readers will find very interesting @ bit.ly/zSEOXf
    Jayashree Sundaramurthy
  • CFOs need to beyond payback period to determine real value

    Payback period may not be the best measure of benefit of a new enterprise system.

    Perhaps the motivation for new ERP implementations may be to achieve beneficial outcomes for the business such as:
    * A specific target for reducing time to market of standard manufactured products

    * A specific target for decreasing the percentage of product rework or rejects

    * Increase sales time spent with likely prospects and decrease time with low probability prospects

    * Protect market share or expand market share

    Beneficial outcomes are more about opportunity, or strengthening position. Sometimes the beneficial outcome requires time to acheive from using the new system.

    Often times, a specific benefit will create other beneficial outcomes. For example, decreasing product rejects not only reduces waste, but it might improve customer satisfaction because products are better quality. Payback is simply about how long it takes to cover cost.

    Of course, companies need to decide the value of these beneficial outcomes. And then determine if the benefit to the company is worth the cost.
    elizab
  • Exploring the real reasons

    I think too little time is spent on understanding the real "why" of the ERP project. These real reasons are then often not pulled through into the project success criteria as vendors often cannot or will not accept project responsibility for how the organization realizes benefits after the conclusion of the project. The core reason for ERP project endeavors are rarely to maintain market position - mostly it is about growing the business and improving the profitability by increasing revenue, reducing operational cost, improving customer service at lower cost - or something like that. This leads to differentiation in the market place from a customer experience perspective, hence larger customer numbers spending larger portions of their budget on your company. As Elizab states - a lot of "soft" benefits that are difficult to add to the Success Criteria of a project.

    The organization/client should take ownership of the benefit realization and not the software vendor. The software vendor and execution partner really only need to get the software in as specified by the client - on time, on budget and according to expectation.
    Heinpr
  • ERP success starts with having the right expectations

    Thanks Michael. Great insight as always!

    An ERP implementation is the implementation of a business solution.
    http://gbeaubouef.wordpress.com/2010/11/16/erp-business-solution/

    A key reason why ERP implementations are over budget is that they have not been estimated appropriately.
    http://gbeaubouef.wordpress.com/2012/07/04/building-erp-estimates/

    I humbly submit the above approaches will go a long way to establish realistic expectations.

    Best Regards
    Brett
    beaubouef