New ERP research: quantifying failure and growth

New ERP research: quantifying failure and growth

Summary: AMR Research has released an exciting new report (yes, I've become a geek) describing the 2008 ERP market. Among topics covered by the report are market growth; percentage of license revenue relative to other implementation costs; and analysis of unused, yet purchased, licenses.

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AMR Research has released an exciting new report (yes, I've become a geek) describing the 2008 ERP market. Among topics covered by the report are market growth; percentage of license revenue relative to other implementation costs; and analysis of unused, yet purchased, licenses.

The curse of shelfware

As an IT failures guy, I'm most interested in the shelfware stats, so let's start there. As the following illustration indicates, 22% of purchased ERP licenses are not being used, in U.S.-based companies:

New ERP research: growth and failure quantified

This number suggests that a significant percentage of ERP license budgets are being wasted. Chronic, unused licenses means users are not adopting the software according to plan, clearly marking failure according to my definition of IT project success:

  1. The finished software meets planned scope and specifications, with a reasonable level of quality
  2. The project is completed more or less on time and within budget
  3. The software solves the business problem for which it was intended
  4. Users adopt the software according to plan

Fellow ZDNet blogger and Enterprise Irregular colleague, Dennis Howlett, disagrees that unused licenses represent failure. In a sharply-worded Twitter, he said:

I don't see it as an IT failure, more one of overselling. Different issue altogether.

With all due respect to Dennis, in my opinion this statistic represents common, garden-variety IT project failure. Nothing special to see here, so move along.

Unsurprising allocations

The following illustration shows ERP budget allocations, breaking down project components relative to overall implementation-related costs:

New ERP research: growth and failure quantified

The 4-5 to 1 ratio of license to overall project cost is in line with common industry expectations. It's great to see solid research validating a common rule of thumb.

ERP 2008 market growth

Finally, we come to main focus of the report, which is ERP market growth in 2008. According to AMR:

Survey data indicates that for large companies with 1,000 or more employees, ERP budgets will have an average growth of 5.4% in 2008. When compared to last year’s projection for budget increases of 12.3% for firms of all sizes, the current 2008 projection is a reasonable scale for large enterprises — many of which have already standardized an ERP package for core financials and are now expanding that footprint to include other functionality, such as manufacturing operations support and CRM.

Take a look at the graphic illustrating this data:

New ERP research: growth and failure quantified

Although the ERP market is slowing, the old lady isn't dead yet. Given the substantial investment in ERP systems across the worldwide corporate landscape, ERP is not going away anytime soon.

[Note: All illustrations are (c) AMR Research].

Topics: Enterprise Software, Software

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4 comments
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  • Let's get this straight...

    A project is completed on time and under budget. It fully meets the business requirements. However, if the company doesn't hire according to a number assumed by the project plan or, heaven forbid they have to lay off personell thus reducing the number of licenses required, that represents a failure of the implementation. Wow. Considering how this country has been bleeding jobs overseas, you'd be very hard-pressed to find a single ERP implementation of consequence that you would consider anything but a failure. Based on my experience in actually doing ERP implementations, you'd have to consider fully 95% of all implementations failures. Companies tend to buy licenses looking as optimistically as possible towards the future, since they tend to get the best discounts up front when they're already laying out a lot of cash. Maybe you'd consider it a success if they pay twice as much for licenses 6 months down the road. Most companies wouldn't.
    jasonp@...
  • 22% license waste in US companies

    In Europe, as shown by the stats, the overage numbers are less than half what they are in the US. Why is that? It represents poor planning on the part of companies in this country.

    Also, I don't understand the connection between license overages and outsourcing.
    mkrigsman@...
  • Licensing Complexity and the fear

    of being caught out in a legal battle over licensing drives many companies (especially large companies) to over licence. This is becoming a more common practice as many companies fear the dreaded licence enforcement agencies knocking at their door.

    If software companies took out the complex licence models they used and brough in clear pricing structures then these situations would not arise, but they wont because that is not in their interest to do so.
    ben.rattigan
  • Understated

    Amen to Jason's observations about incompleted projects. What this post finally brings to light is something I try to share with anyone who'll listen: a customer list from a vendor is useless. When working inside of companies, I'd warn vendors not to show a slide with all their clients. I'd learned early in my career that Boeing, for instance, bought one copy of everything (they had deep R&D pockets). They're welcomed to share the details of specific implementations (e.g. case studies) as long as they also provide contact info to someone from the team (so I can validate the 'real story' on my own).
    Rotkapchen