CIO — As ERP implementations falter and fail, many people think the answer is more training. They're wrong. Read ROI; learn how training differs from education; find out why it's better to keep the training in-house; understand why CIOs should be cautious of industry average. Unless you've been as out of touch as the Mars Polar Lander, you're doubtlessly aware that the ERP industry hasn't been performing like the marvel it was first made out to be.
First came the ERP vendors' pre-Y2K plunging sales revenues and falling stock values. Second came the realisation that all that hard work implementing an ERP system didn't actually guarantee business benefits - or even a positive payback. Take Meta Group's damning finding, for instance: The average ERP implementation takes 23 months, has a total cost of ownership of $US 15 million, and rewards (so to speak) the business with an average negative net present value of $US 1.5 million. And the news gets worse.
An alarmingly long list of top-drawer integrators hfave fallen flat on their faces. Compared to these disasters, merely spending a lot of money on an ERP implementation that achieves very little is a consummation devoutly to be wished.
Pennsylvania-based Hershey Foods, for example, issued two profit warnings in as many months in the run-up to last Christmas. Why? Massive distribution problems following a flawed implementation of SAP's R/3 ERP system, which affected shipments to stores in the peak Halloween and pre-Christmas sales periods. In a booming stock market, Hershey shares ended the year down 27 percent from their year's high.
And Hershey wasn't alone in its misery. In November 1999, white goods manufacturer Whirlpool also blamed shipping delays on difficulties associated with its SAP R/3 implementation. Like Hershey, Whirlpool's share price dived south on the news, falling from well over $US 70 to below $US 60. While these two have (so far) been the highest-profile implementation debacles, companies as diverse as Arizona-based trash processor Allied Waste Industries; Delaware-based high-tech fabric maker W L Gore & Associates; and industrial supplies distributor W W Grainger of Illinois, have all reported serious difficulties.
And if "serious difficulties" sounds bad, rest assured it can get much, much worse. After Texas-based pharmaceutical distributor FoxMeyer Drug actually collapsed following an SAP R/3 implementation, its bankruptcy trustees filed a $US 500 million lawsuit in 1998 against the German ERP giant, and another $US 500 million suit against co-implementer Andersen Consulting. (Both cases were unresolved at the time of writing.) So what's going on? The good news -- if that's the right word -- is that most experts agree that such failures are not systemic. "Very rarely are there instances when it's the ERP system itself -- the actual software -- that fails," says Jim Shepherd, senior vice president of research at AMR Research (US). Public pronouncements by both SAP and Hershey, he notes, have acknowledged that the software does what it is supposed to and that no big fixes or patches are planned. What's more, he adds, the prudent observer will differentiate between real implementation failures and not-so-real failures. "Blaming the failure on a system implementation has become a convenient excuse for companies that have missed their quarter-end [earnings] target."
