The Commoditization of ERP Systems: Same Old Song and Dance?
It’s been a long time since ERP systems started becoming too complex, too costly and too risky for implementing organizations. But even though its been roughly ten years since the well-publicized Hershey’s ERP failure and a number of Y2K-related implementation debacles, it often feels as if organizations still aren’t any smarter about ERP implementation now than they were a decade ago. In fact, each of our annual ERP Reports dating back to 2008 reveal the same general message: most projects take longer than expected, cost more than expected and fail to deliver expected business benefits.
The irony is that while Panorama and other firms’ research shows that ERP failure rates are still alarmingly high, the market is changing in ways that suggest that ERP is becoming commoditized. Software as a service (SaaS) ERP software, cloud computing, implementation accelerators, and other tools are constantly emerging, offering the long-awaited allure of simplified ERP initiatives. Hype suggests that these tools will soon make traditional, on-premise ERP systems obsolete, at least as we know them know.
To be sure, there is a clear market trend demonstrating increased acceptance of SaaS ERP and other more modern ERP technologies. For example, according to our 2012 ERP Report, 16 percent of ERP implementations completed in 2011 were SaaS or cloud-based, up from 6 percent in 2010. However, this increased adoption of SaaS and cloud computing has not translated to either lower ERP risk and cost or higher business benefit realization. This begs the question: if ERP software is becoming a commodity, then why are ERP failure rates still just as high as they were 10 years ago?
1. The mid-market is still learning about ERP software
Larger, more stable companies have had 20 years or more to adjust to the complexities and risks of ERP systems. Mid-market companies, on the other hand, are just now working through the stark reality that ERP implementations are a lot harder than they expected. Their business processes need re-engineering, their organizations need to change, and their entire physical and organizational infrastructure often needs upgrading, all of which can increase cost and risk. In addition, mid-market companies are typically on more aggressive growth paths, which results in a sort of moving target that strains their enterprise system initiatives.
2. The failed promises of SaaS and cloud ERP systems
While SaaS and cloud ERP systems may be simpler than on-premise ERP from a pure technological perspective, they don’t do much to simplify or mitigate the risk of implementations. Whether you’re leveraging SAP ECC or Salesforce CRM, organizations still need to reengineer their business processes, change roles and responsibilities and train employees on new processes and systems. These implementation activities are the real drivers of implementation time, cost, benefits and risk. As of 2012, ERP vendors still have not found an effective way to automate these more critical, non-technological implementation activities.
3. The urban myth of best-practices and “off the shelf” ERP software
Executives at most organizations we work with love the appeal of industry terms like “best practices,” “vanilla” and “off-the-shelf software,” but those concepts sound better in the boardroom than they do when it comes to operational reality. Even in more mature industries and among larger organizations, companies are constantly evolving to find their niches and competitive advantages, so the mystical concept of software best practices that help a business run more efficiently is misguided at best. While ERP vendors may continue to use these ideas to sell their software, it is important to remember that your organization most likely offers somewhat unique products and services, serves customers differently than the competition and strives for lower supply chain costs than its industry peers. The good news is that these differences are probably why your organization is still in business. The bad news is that what may be best practice or standard configuration for your ERP software may not be what’s truly best for your business.
So if ERP software is not a commodity, then does that mean that your implementation is doomed to fail? Not at all. In fact, just the opposite is true: organizations that focus on business process re-engineering before selecting and implementing ERP systems best suited to automate those processes are much more likely to succeed, while those that don’t are more destined to fail. In addition, successful companies dedicate time and resources to other critical ERP implementation success factors such as organizational change management and dedicated project management.
While ERP software technology may be evolving into more of a commodity, the actual implementations are not. The best way to “commoditize” your implementation to eliminate risk and unpredictability is to leverage proven implementation methodologies and tools that focus on both the business and technical aspects of the implementation. Although it doesn’t receive nearly as much industry hype as cool new technologies, these implementation frameworks are what will ultimately decide whether or not your project is successful.
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