ERP on a budget: Is it possible?

For mid-sized businesses the notion of ERP and budgets is an oxymoron, but it doesn't have to be that way if companies document all costs, consider SaaS and customize less. That was part of the message from Robert Anderson, an analyst at Gartner.
Written by Larry Dignan, Contributor

For mid-sized businesses the notion of ERP and budgets is an oxymoron, but it doesn't have to be that way if companies document all costs, consider SaaS and customize less.

That was part of the message from Robert Anderson, an analyst at Gartner. Anderson speaking at the Gartner Symposium/ITxpo in Orlando Tuesday.

The title of the talk, "ERP on a budget," drew a sizeable 8 a.m. crowd. If you read the tea leaves that can only mean one thing: Enterprise resource planning (ERP) implementations are still painful."You control your ERP budget or it will control you," says Anderson.

To wit. According to a Gartner survey of small and mid-sized businesses:

  • 60 percent claim they got expected benefits, but only 50 percent measured results;
  • 40 percent of ERP projects produced a significant ROI;
  • Average cost of implementation for SMBs is 2.5 times software license cost at retail. Anderson says that's actually good news: A few years ago it was 5 times to 7 times;
  • Average cost of ERP upgrade for SMB is between $300,000 to $1 million;
  • 35 percent of respondents estimate that unwanted applications consume between 5 percent and 15 percent of their IT budgets.

Anderson says the ERP landscape has become muddled. Why? Implementing ERP is completely different today than it was in 1998. Why? In 1998, you could install over nine months and take years to get a return over 4 years. Today, you've got 2 years for a return max. In 1998, you could relax after an implementation knowing you had years of use ahead. Today, you have to keep up with business.

So can you do ERP on a budget? It's possible, but maintaining a budget depends on the company. It also depends on returns. Delivering an ERP system on time and on budget doesn't make sense if no one at the company uses it.Here are some notable items from Anderson's talk:

Have a plan to create a budget. Put that plan on one page that encompasses a period of years. Anderson cribbed what one of these plans look like from the state of Iowa and cooked up a 5 year plan into a graphic.

Be tough, but don't screw your vendor. Cheaper doesn't mean you'll get a return. If a vendor has no profit margins, relations will be strained over the years you're using an ERP system. That said you can't be a pansy. Negotiate only what you are going to use today; make sure the vendor will stand behind the software; address in contracts what happens in a vendor acquisition; detail how disputes will be resolved and don't short change training. Also have a plan for upgrades and work out the costs over time.

No midsized business should play around with best of breed. More applications means more expense. This approach should be carried across the company. The goal: Consolidate instances across the entire business. Here's one of Anderson's charts.


Customize less and configure more. Anderson says customization should be kept to a minimum. "Only do the essential things that affect how your customer views you," says Anderson. "You don't have to reengineer everything. Just pinpoint those fine things that make all the difference." Anderson says that ERP vendors are increasingly offering capabilities that apply to specific verticals. "You can get a lot more vertical support from vendors today than you could in the last buying cycle," says Anderson. "It may be a vertical specific vendor. It doesn't have to be SAP or Oracle. Tier two players may be a perfect match."

Anderson was also asked about whether going with a tier two vendor was a risk given the merger and acquisition landscape. He says that the concerns are valid, but not totally worrisome. If a vertical specific vendor was acquired by a big dog such as SAP or Oracle chances are good that support will be extended. Why? The big dogs just love those recurring maintenance fees.

Consider SAAS. Anderson says that for midsized business for "moderately complex applications." "If you're a lean IT shop and you don't want to be in the business of IT that it may make sense for you to use SaaS even if TCO is more," says Anderson. "The benefit is you don't have to manage upgrades. It's not for everyone, but it's certainly something to look at."

Here's a look at Anderson's figures. Phil Wainewright also has more SaaS.


Use service oriented architecture. Anderson argues that the ERP game has become one of keeping up with change. With SOA you can replace what you have in parts. The goal: Avoid these massive ERP upgrades. Joe McKendrick has more on SOA.

Use metrics to measure an ERP system throughout its life. These metrics should cover returns, governance and other ongoing maintenance costs. In other words, ERP projects never die. "ERP projects are the gift that keeps giving. They never die. Realize that these projects adapt over time," says Anderson.

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