According to recent research, almost half of all software development projects are challenged: they run over-budget, miss deadlines, and so on. With this in mind, I read Larry Dignan's blog post, "ERP on a budget: Is it possible?" with great interest. Larry is ZDNet's Executive Editor, and he presents several tips for keeping implementation projects within budget. In answering the question, Larry concludes:
So can you do ERP on a budget? It’s possible, but maintaining a budget depends on the company. It also depends on returns.
As a complement to Larry's analysis, here's an approach for examining the relationship dynamics driving ERP success and failure. Let's call it the ERP devil's triangle, since three groups are involved: the ERP buyer, consulting partner, and software vendor. Virtually every ERP failure (and success) can be analyzed by looking at how project participants managed fundamental tensions among these groups.
Software buyers want to spend the least amount of money possible. This is natural, but some buyers take cost-savings to an extreme, which is shortsighted. As Larry Dignan says:
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.
Managing the devil's triangle really begins during the vendor selection process. Successful ERP buyers understand that their organization's technical, political, and functional requirements must be considered when selecting software and consulting vendors. ERP purchases should be evaluated as major capital expenditures, with the buyer focusing on specific functional requirements, business fit, ROI, and so on.
Implementation Consultant (system integrator)
In private moments, many third-party consultants dream of long projects, where billable hours and customer purchase orders flow like water. This kind of "annuity consulting" is never good for the ERP buyer. Almost by definition, when projects exceed their schedule and budget, the extra dollars go into the consultant's pocket. Some forward-thinking consulting companies now offer so-called packaged services to help alleviate this conflict of interest.
ERP software vendors maximize their revenue by attempting to charge full list price on software licenses, while trying to lock buyers into long-term support and maintenance contracts. Failed projects do not enhance the license revenue of software vendors. However, when the software vendor supplies consulting resources, slipped budgets and schedules add to the vendor's bottom line, exactly as described above in the discussion on implementation consultants.
The ERP buyer-seller-consultant relationship may extend for years, as the system is implemented, upgraded, and enhanced over time. Success is almost assured when the three groups are aligned, working together in a spirit of cooperation and mutual benefit. Conversely, implementations fail when these devil's triangle relationships become distorted by greed, inexperience, or arrogance, with one or more parties attempting to take advantage of the other.
To help make sense of these relationships, I asked Mike Prosceno, SAP's Vice President of Communications, for comment. Here's what he said:
Truth be told, the vast majority of ERP implementations are very successful.
ERP implementations, or any major software deployments for that matter, involve transforming processes of the business. The most significant effort is not around the software itself -- it's around business process transformation, which can impact the organization as a whole.
Success comes only when all parties are aligned and working toward common objectives, since all parties share a common interest in project success. To ensure everyone is aligned and pulling in the same direction, strong executive sponsorship and project leadership must drive change management activities.
Other important success factors include defining a clear project plan from the beginning, to eliminate scope creep, which contributes to some failures. Software training and education are also important to a successful implementation. Another key point is the need to communicate internally, within the organization, helping employees understand why change is necessary and how the change impacts them. Finally, the project leadership team should be constructed to represent all parties involved in the implementation.
While challenges may exist, project leadership can mitigate risks with a strong plan that remains focused on the buyer's goals and objectives.
Successful ERP implementations arise when devil's triangle relationships are properly aligned. While sometimes difficult to achieve, this goal can be accomplished.