As part of a research series begun in 2009, Panorama Consulting just released data related to key challenges associated with ERP implementations in small- and mid-sized companies. To conduct the research, Panorama used a web-based survey with 215 respondents. Eighty-six percent of the respondents have revenues under $1 billion.
The research describes an apparent pattern of lower project cost combined with longer project duration since 2012. Although project costs have declined, percentage cost overruns have remained stable within a relatively narrow range. We need to see data over more years to distinguish patterns from normal year-to-year variation.
Panorama's report summary states that ERP buyers are becoming more realistic when planning their projects. If correct, then this is obviously a positive pattern.
Lower cost on projects that take longer means that buyers are not rushing their deployments, but hopefully taking the time to do it right.
To gain buy-in from stakeholders, internal champions and external salespeople may underplay the time, cost, and effort required to implement an ERP solution. But, whitewashing costs will create mismatched expectations that can cause problems downstream.
While realism may present challenges for internal champions trying to sell a project to the organization, providing the business with realistic expectations about project cost, duration, and schedule is the real foundation for success.
The data shows that 57 percent of respondents called their implementation outcome a success; 36 percent said they didn't know, and 7 percent said their implementation was a failure. These numbers are in line with other research related to success and failure on enterprise software projects.
Although the chart appears visually to indicate a positive state of affairs, these numbers are dismal. Is there another area of business, outside IT, in which a 57 percent success rate be considered acceptable? Similarly, it is extraordinary that fully 36 percent of respondents do not even know whether their implementations yield sufficient benefit or not.
This confusion around the business value of ERP implementations is perhaps the greatest challenge to ERP software vendors. If over one-third of buyers' state uncertainty about the success of their project, it means the ERP industry is not doing its job.
The Panorama report shows that 54 percent of respondents are satisfied or very satisfied with their ERP vendor. This number indicates that customers believe their vendors provide adequate service and are responsive to their needs. However, there is clearly substantial room for improvement.
Although the report covers aspects of ERP, such as cloud adoption and reasons customers choose to undertake a project, the question of ERP success is most important. The figures show that 43% of projects provide an inconclusive benefit or are outright failures.
To improve this situation, here are my recommendations to software vendors, consulting firms, and enterprise buyers.
For ERP software vendors, there is a tremendous opportunity to focus on tangible customer outcomes as a point of competitive differentiation. Making specific commitments is difficult, however, because results with ERP rely on actions taken by the software vendor, system integrator, and buyer. I have written extensively about this triad relationship under the term Devils Triangle.
We should never confuse vendor responsiveness with helping customers achieve clear and defined positive outcomes from the implementation. Customer satisfaction with the implementation itself is entirely distinct from whether the buyer met business goals and ROI expectations, as measured six months or a year later. ERP vendors have a long way to go to ensure that customers meet those bottom-line objectives.
As I talk with ERP buyers, fear and reluctance to embark on such projects arise from the cost and pain of implementation coupled with uncertainty about the results. Vendors must do a better job helping customers realize measurable benefits from their ERP investment.
For consulting firms and system integrators, there is also a clear message. These folks play a crucial role in the ERP implementation cycle. In a real sense, they are the glue that links the software vendor to customer ROI. Therefore, smart SIs are taking steps to align their work to achieving specific customer results.
The competitive nature of consulting presents a challenge to system integrators. To submit a winning proposal, many firms offer an unrealistically low bid that does not reflect full project costs or time. This sleight of hand contributes to mismatched expectations and can cause significant customer dissatisfaction if the project runs late or over-budget. Even experienced buyers can fall prey to lowball bids that look great on paper but cannot ever be achieved.
The best consulting companies do the upfront work necessary to present honest estimates; however, many failed projects are rife with expensive and unplanned change orders caused by dubious contracts.
ERP buyers play a crucial role in the outcome of implementation projects; customers should understand these points:
Most important, define project goals before starting the implementation. Work with both the software vendor and consulting firm to determine realistic outcomes and appropriate timeframes.
Determine concrete measures of success before your implementation begins. Ask the vendor and consulting firm for advice before you sign the contract. Remember, success is elusive when the desired outcomes are vague and ill-defined.
When evaluating consulting proposals, consider the full project scope. Lowball bids may seem cost-effective but can become a nightmare if change orders make the project more expensive than planned. Be sure to determine whether the low-bid vendor is only offering a partial solution, without disclosing that fact to you. Once a project is underway, it is costly and difficult to replace an existing consulting company, so be careful with those low bids.
Even when it is impossible to scope a project completely upfront, the consulting firm should clearly highlight areas of uncertainty that may cause delays and cost overruns.
Never forgot that ERP is fundamentally about business process improvement and agility rather than just improving efficiency. Therefore, be sure to allocate sufficient time and resources for training and change management. Do this. I mean it.
ERP is now table stakes for many organizations. Follow these guidelines to ensure your implementation experience is positive and does not turn into an IT nightmare.
Disclosure: Panorama Consulting is one of my advisory services clients