ERP contradictions in 2014: Smaller projects, more delays

New research concludes ERP budgets are shrinking but project length and delays have increased. Why the contradictory data?
Written by Michael Krigsman, Contributor

For the last four years, Panorama Consulting Solutions has conducted an annual survey (registration required) of ERP buyers, to gauge project success and customer satisfaction among ERP buyers.

The 2014 results paint an interesting, and somewhat paradoxical, picture of ERP projects and buyer satisfaction. Although most projects run late and over-budget, with buyers reporting less benefit than in the past, most respondents consider their project successful.

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The following table shows a year-by-year summary comparison of core survey results from 2010 to the present:

Panorama ERP survey 2014 data summary by year

The summary reveals the following key points:

  • In 2013, projects significantly decreased in size, relative to past years, although implementation times are more or less unchanged
  • Cost overruns have remained relatively constant over the last few years
  • Duration overruns are increasing, which is interesting since overall project costs have declined
  • An increasing number of respondents report reduced level of benefit from their ERP system

Therefore, we see smaller projects, lasting longer, with increasing delays, and reduced benefit. How can we explain these apparently contradictory results?

The report states that "organizational issues" were the primary contributor to time overruns, with more than half of respondents spending between 0-25 percent of their budget on change management. While this explanation makes sense, it does not fully explain why less costly projects in 2013 took longer to run, and delivered lower benefit, than those in prior years.

The research attributes lower project budgets to smaller companies implementing ERP:

The main driver of smaller costs is that more small- to mid-size companies are implementing ERP software compared to years past, which is evident when you look at the cost as a percent of revenue numbers.

In fact, as shown in the following diagram, almost 70 percent of the respondents work for companies with under $300 million in revenue:

ERP research 2014, respondent size

To explain why smaller projects take longer, but deliver less benefit, we should consider two additional factors that are specific to smaller companies implementing ERP:

  1. Smaller organizations are generally less experienced with ERP, than larger ones, so their projects may take more time and be run less efficiently
  2. Smaller buyers may perhaps spread their implementation over a longer time horizon, to manage the rate at which the project consumes cash

The influence of cloud probably also helps explain what's going on. Although only 22-percent of respondents implemented cloud ERP, many (but not all) of those organizations did anticipate, or realize, cost savings:

cloud ERP cost savings

Aside from specific cost savings, relative to on-premise implementations, most companies tend to run cloud projects on a more iterative basis than on-premise efforts. These projects roll out features slowly over time, which could explain why smaller projects took longer than reported in the past.

The study also shows that 77 percent of respondents implemented ERP in two or more locations, although Panorama did not gather these numbers in previous years. With two-tier ERP, in which remote offices implement a cloud product to connect with the main system at headquarters, costs would remain relatively low while overall project durations (including both the main and remote locations) would likely increase.

Advice to the CIO and CFO

The research leads to three clear lessons for any company planning an ERP implementation:

1. Be realistic. ERP is complicated to implement, especially for smaller organizations without significant implementation experience. Regardless of what your system integrator may claim, the project will take longer, and be more expensive, than planned. That's actually okay, if your business case is clear and can withstand the reduced ROI associated with delays and possible unplanned increases in implementation cost.

2. ERP is a long-term investment. Be sure to distinguish between short-term implementation costs and longer-term expected benefit. The pain of implementation only matters in relation to the longer term benefit the company will receive. As with any investment, separate long- and short-term costs and expected results.

3. Don't underestimate change management. The real benefit of ERP often lies in process improvement rather than in new technology alone. For this reason, be aware that process change can create significant impediments during an ERP implementation. Plan for change and anticipate the likelihood of bumps along the way.

ERP is critically important to many organizations and the statistics should not scare off potential buyers. However, as with any technology, success depends on applying the right skills to the problem. Unless you implement ERP on a regular basis, which includes virtually no companies apart from the largest, then get qualified partners to assist. Hold their feet to the fire of meeting goals, but also listen to their advice.

Those are key points needed for a smooth implementation!

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