Companies Still Challenged by ERP Implementations
The bad news: According to a Panorama Consulting study based on ERP implementations completed in 2011, 54 percent of companies said their ERP projects took longer than expected and 56 percent spent more than expected. The good news: That's an improvement over last year's study.
ERP is among the most dreaded of all enterprise software implementations. Its bad reputation is at least partly based on high-profile lawsuits, such as one in which pet food maker Sunshine Mills was awarded $61.3 million in damages after suing Ross Systems over a failed ERP implementation. (Ross Systems parent CDC Software later entered into a settlement of $9 million with Sunshine Mills.)
The rep is further bolstered by statistics like those presented in a recent webinar by Panorama Consulting, during which Panorama President Eric Kimberling recapped his company’s research involving 250 ERP implementations completed in 2011. (Slides from the presentation and an audio replay are available to those who register to become members of Panorama’s site. Membership is free.)
Panorama found most companies are still challenged by their ERP implementations and enjoy mixed success. Fifty-four percent of companies surveyed by Panorama reported their ERP projects took longer than expected, while 56 percent said their projects cost more than expected. Half of all companies derived fewer business benefits than expected. So it’s clear, Kimberling said, that “companies still haven’t mastered the art or the science of ERP implementation.”
Still, he was encouraged that these numbers have improved since Panorama’s study of ERP projects completed in 2010. In that study, for example, 70 percent of ERP projects took longer than expected. In addition, Kimberling said, 2011 saw a “slight drop” in projects that cost more than expected.
Six percent of companies said they gained no benefits from their ERP projects. These “unfortunate few” may have been forced into implementing new systems when support for legacy technology was discontinued, Kimberling speculated during the presentation.
The benefit cited most often by respondents was enhanced availability of information, mentioned by 75 percent of companies in Panorama’s study. This was followed by increased interaction between business units or functions, mentioned by 60 percent of respondents. There was a fairly dramatic drop in the numbers of companies citing other benefits. Thirty-eight percent reported improved lead times, while improved customer interaction and reduced operating expenses were each cited by 35 percent.
Kimberling pointed out that many of these benefits were “qualitative, but not yet quantified.” Thirty-three percent of companies said they had not yet attained any measurable benefits, a metric Kimberling called “disturbing.” Two percent of respondents admitted they lacked a business case for their projects. “I’d argue you should not implement ERP if you don’t know you will achieve and cannot measure some business benefit,” he said.
In a bit of slightly better news, just 29 percent of companies said they hadn’t recouped the costs of an ERP project. Based on information gathered in this and other Panorama studies, Kimberling said the average time to attain return on investment is three years. “So even though companies are not achieving as much as they expect from their ERP projects, they are getting decent ROI for the most part,” he said.
Kimberling named three primary reasons companies do not recoup costs from ERP projects: They don’t understand what the business benefits should be. They don’t have a business case and thus don’t set targets for measurement. Implementation is incomplete and/or user adoption is so poor, they don’t attain any benefits.
As to why 43 percent of companies exceed their expected budgets, Kimberling mentioned a lack of project controls and unrealistic expectations. They also tend to focus on software-related costs while neglecting the costs associated with managing organizational change, Kimberling said.
That’s a mistake given the “tremendous pain” it causes many companies, he said. A whopping 63 percent of companies found process and organizational change adjustment during ERP projects “difficult” or “very difficult.” Only 15 percent said it was “easy” or “very easy.”
“Companies often don’t understand what they need to do to manage change,” Kimberling said. “Certainly not enough companies do it well. That’s why we’re in business.”