This is my second article in response to pieces by Thomas Wailgum at CIO.com (you can read the first one here). In Thomas’ latest piece, entitled Why CFOs and CEOs Hate IT: ERP, he touches on an area of which I have lengthy experience, ERP.
I spent the first eight years of my career working for a a software house, whose central product was in what we now call the ERP space. The big boys at Oracle Financials (then without PeopleSoft and J.D. Edwards in-train) were one of our main rivals and I had the pleasure of being involved in several bids where the little guys prevailed against their more renowned competition.
Later in my career, I was a player in a global selection process involving Oracle, PeopleSoft (then a separate company) and SAP and in laying the foundations for a US/European PeopleSoft implementation. Many years later again, after I had recorded a number of successes in another of my core areas, business intelligence, I was asked to add Financial IT once more to my portfolio. In this capacity, I oversaw the implementation of (by this time) Oracle PeopleSoft Financials in Denmark, Italy and then Australia, Hong Kong, Labuan and Singapore.
So, in one way or another, ERP and I have been around the block a few times. Given this, I could identify with some of Thomas’ observations. Many of these can be summed up in the phrase “an ERP system is for life, not just for Christmas.” Here are a few of Thomas’ thoughts:
A typical company in the CFO survey will spend an average of $1.2 million each year (each year!) to maintain, modify and update its ERP system.
ERP systems have become a noose around companies’ necks which tighten as the business changes every year, each customization gets made to the system and costs continue to spiral upward.
In some ways, ERP implementation is just like any other IT project and is difficult to get right for exactly the same reasons. But, as Thomas points out, some things that make ERP stand out are the massive initial outlays, the continuing cost of modifying what you originally thought you needed and the sheer size and complexity of most modern ERP systems.
You can think of your average ERP system from one of the large vendors as analogous to Microsoft Word. Because Word has to appeal to a lot of different users, with different needs and specialisms, it is chock-full of every single feature that anyone could ever need. However, no single person ever uses more than a fraction of these. I think of myself as a reasonably advanced Word user, but I would bet that I utilise no more than 10% of its capabilities. All of the functionality can make it tough for an entry-level user to employ Word in a basic way to do basic things (or if we are talking about Word 2007, it makes it tough for even an expert user to figure out how to do stuff). The same criticism can be applied to ERP systems. Because they include so much functionality for different companies in different industries, it can sometimes be difficult to configure them to do something as simple as entering and paying an invoice. Difficult that is without an army of consultants.
The way to avoid complexities and to get ERP implemented on time and budget is to ignore its broader capabilities and deploy as plain vanilla a version as you can get away with. Flexibility and the ability to customise might be very seductive at sales time, but they are the worst enemy of implementation and are certain to chew up resource, time and money. Instead the secret is to focus on the ways in which Finance in your organisation is the same as it most other organisations. Once you have this sorted out and a basically successful system in place, you can then think about bells and whistles. Of course by this time, you will probably be focused on upgrading to the latest version of your ERP system, but let’s put this unpleasant thought to one side for the purposes of this discussion.
But this begs another question, which Thomas covers more eloquently that I could. Plain vanilla ERP implementations, where you essentially adapt what your organisation does to the system’s standard functionality, mean that:
[…] employees who actually have to use the ERP system day in, day out will not only dislike the fact that you’re changing their technology interface, but now you’re going to allow the technology system to dictate to them how they should perform their job, with the new business processes.
However, even if we can suppress this second inconvenient truth about ERP, a further one arises – the area is indeed hydra-like. If the best practice for ERP implementations is to customise them as little as possible – shortening projects, reducing costs and simplifying upgrades – then why is there such a large price tag for all of the bells and whistles that it is impractical to actually use?
As Mr Wailgum says in closing:
But, perhaps, [CEOs and CFOs] have been making these decisions without knowing all the facts about the long-term costs associated with ERP systems, that the upfront “sticker price” is almost meaningless.
Which brings us right back to why CFOs and CEOs hate IT.
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Peter,
Nice Post! I believe part of the problem is that when purchasing an ERP system organizations do not realize they are purchasing a system that will become the way they do their business. Many feel they have their business processes, wanting to keep those separate; then there is this new IT system that they have to figure out how to use with thier business processes. They view them as competing instead of complimenting (or replacing).
This goes back to who owns the project? Do you have an IT project or a Business project that involves IT? More here:
http://itbusinessalignment.wordpress.com/2009/01/20/it-project-or-business-project/
Glenn
Hi Glenn,
I think that there are particular issues when it comes to ERP, these relate to the traditional tensions between Finance and IT. I explored these with fellow IT practitioners and finance managers in a webinar a while back, which can be viewed here.
It’s a bit long, but you can use the drop-down at the bottom of the right-hand side to skip to later bits. If you skip to slide 19 using this the Q&A session is actually quite illuminating.
Peter
Hi Peter,
I have a very similar carrer path as yours, and have witnessed during years the impact on ERP implementation. And as CFO and CEO I became frustrated about it. It all comes to be able to manage expectations, as for years it was the sole proposition on the table. Hope with the development of SOA we will be able to address the didactorial process of ERP.
Hi Fibol,
Thanks for your comment – I hope that SOA can indeed break up some of the monoliths. I suppose we will have to wait and see.
Peter
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My bet is that, *eventually*, SOA and BPM will *replace* ERP, that it will be *free* and that industry organizations will likely lead the effort (not IT vendors).
With standardized XML schemas for datatypes, web services that can be *generated* and freely downloadable business process models, you just won’t need to *buy* an ERP.
The datatypes need to remain static. The models and the UI can and *should* be customized easily and to the heart’s content.
A company’s ERP application should be created/customized by END USERS with about a day & half of training to get started and not by rip off artists that charge $300/hour for a “functional” (lol) consultant and $200/hour “ABAP” programmer. BTW, is ABAP programmer and oxymoron?
ERP is IT run by MBAs. Hence, the disaster. Hence, the billions upon billions squandered on tables & columns with funny names, code written programming language from the dark ages, embedded & opaque business processes and end-user interface from hell.
Thanks for your input LOL – it sounds like you have some experience in the area. For me ERP back when it was plain old Accounting Systems made a lot more sense. The implementations of my old company‘s products took a relatively short time and people started to get value early on*.
Then things started to get complicated and maybe over-engineered. Maybe SOA will help to provide some simplicity – but equally it could just make things more complex yet – the jury is out on that one.
Peter
* I have no idea what their software is like now, nor how long implementations take. Also I should stress that I have no affiliation with them whatsoever, lest people thought otherwise.
I agree. There is nothing wrong with plain old Accounting Systems.
Hey, maybe all we need a QuickBooks “Enterprise Edition.” (ha ha).
We have to be careful not to “blame the victim.” ERP ought to be sufficiently configurable to meet the honest-to-goodness requirements of the business.
Hi Peter
Thanks for your thoughts.I think as Fibol and SOL have mentioned the pay-as-per-use model looks like the way forward.And especially so for the Small and Medium scale (SME) companies – and that too in the emerging markets- this model might be the most attractive model.I still remember reading Thomas Davenport’s article many years ago that ERP succeeds when you foucus on the “E” – the Enterprise!
Regards
Nilay , Mumbai,India
Dr.Nilay Yajnik
Professor of Information Systems
NMIMS University , Mumbai , India
Email:nilayy@nmims.edu
nilayyajnik@hotmail.com
Nilay,
Thank you for your comments. I was thinking the other day that I don’t know the origin of the ERP phrase. Presumably it was dreamt up to differentiate the broader-based systems spreading their tentacles into areas such as supply-chains from the narrower accounting ones from which they sprang. No idea who first coined the term though – I always thought that it was a poor description of the area.
Peter
I have around 11 years of experience IT (ERP)and worked with Americans, Germans, French and Asian with the IT Vendor as well the Client.
I am ex-employee of Big 4.
I agree that the CFOs and CEOs are infuriated by ERP (IT).
One thing I would like to tell here is that the Tool( ERP – SAP or ORACLE) are not that bad as they are presented when things go wrong.
The whole problem is that there is no Clarity & Co-ordination among the IT Vendor (Implementation Partner – who is doing the implementation or application support after the implementation or doing the upgrade) and Customer who is implementing.
A Car Sales Personnel knows what he is lying about but not an IT Sales Personnel.
For getting a Contract / Purchase Order for ERP (IT) Implementation / Upgrade / Support the IT Vendors show 100% commitment and they (It Vendors) will be ready to move earth and sky in order to get the order or prove he is worth to get the order and they get their Top Management Commitment also.
Unfortunately we do not find the same commitment not even 20% during the ERP (IT) Project. If anything goes wrong it is only blame game.
The expectations are to be set right by the ERP (IT)Product / Service Vendor. Let the Customer know what is possible and what is not possible. IT Service Vendor should opt for a real time domain / ERP (IT) experienced team, realistic approach and time lines for the implementation of the required scope.
On day one of Go-Live Users (Customer) should bask in the comfort of the ERP but should not feel the pain in the neck.
Customers also pat their back for getting the ERP Implementation / Upgrade / Support service for less one thing they do not understand is that if you pay peanuts you get monkeys.
Customers can negotiate on the products (sap or oracle or ms dynamics)and hardware costs but should not go out of the way in negotiating the service costs because regardless what it is the tangible items (product or hardware) remains the same but in case of service it will not be. One more thing is that when you buy a Merc or BMW you have to get it serviced at Authorized service center not at local service station unless you know the service center very well.
If you go to Merc / BMW service center and ask for less expensive price they do it but instead of a required 110 point check they will do a 30 point check.
These are few of the things one should take care before / after evaluation / implementation / upgrade / support of ERP (IT).
Then definitely you will get there.
The products are not a failure in a whole they may jut lag few / some things that does not mean they are failure. It is the Implementation Partners that are making the products fail.
If the product would have been a failure it will failure everywhere and will not be successful in some places (which it is now).
You buy a car and you do not get a good driver and you learn from a bad driver to drive your Merc / BMW then please do not blame Merc / BMW for that. Same hold good for ERP products as well. Even a Merc / BMW will not keep a customer 100% satisfied but still they are one of the known brands across the globe.
There is almost 60 % of ERP implementations are failures. it would have been 100% if the ERP product is a pain in the neck.
IT works on logic we need right people to do that. If you get that it will definitely work well.
Btw there is only 20 to 30% of cream in IT the rest are average or just pushing on.
Thank you
Pavan
IT Manager
Pavan,
Thank you for taking the time to comment co comprehensively.
Let me take some time to digest the points that you have made and respond.
All the best
Peter
Hi Thomas
I was just waiting for your take on my view (what I have written).
Appreciate your input.
Thank you
Pavan
Hi Peter
Appreciate your comments on what I have written.
Thank you
Pavan Kumar
IT Manager
Pavan,
Sorry for the delay – my experience of ERP implementations (both doing them from scratch and turning round ones that have gone astray) chimes with yours.
A common theme – and one that you have identified – is over-promising at sales time and then under-delivering.
I liked you car analogy – I took a similar approach in my article A bad workman blames his [Business Intelligence] tools. I think the same conclusion applies, in the same way that there are few bad BI tools but many bad BI projects, there are few bad ERP systems, but many ERP implementations that fail to deliver the anticipated value.
The reasons for these problems lies with the people involved, both internal and external.
Peter