Prologue: The Scream

Upgrading software from one version to the next appears like a small step?after all, you’re not ripping the stuff out and replacing it, you’re just improving it a little bit?but Nextel Senior Vice President and CIO Dick LeFave finds himself about to step off a precipice with his Oracle ERP software upgrade.

The numeric change?from version 10.7 to 11i?sounds minor, but in this case the numbers and letters lie. "This isn’t just doing an upgrade; it’s a whole new system," says LeFave. "It’s a different design; it’s a whole different set of solutions; it’s a whole different way of doing business. You may as well start out from scratch."

This is not what LeFave expected. And he’s not alone. Denise Quinlan, an assistant vice president and PeopleSoft product manager at Boston-based MFS Investment Management, is still recovering from the sticker shock she got when her ERP vendor quoted her the price for dispatching its consultants to do an upgrade. When Quinlan heard the estimated cost to go from version 7.5 to version 8?$490,000 for the HR software and $872,000 for the financial software?she blurted, "For an upgrade?"

For PeopleSoft’s part, a spokeswoman says the price quote was preliminary and that there were no discussions about using MFS staff to reduce costs (see "Vendors: ’It’s Not That Bad,’" Page 49).

CIOs who have to wield the wrench in these efforts are shocked when they look under the hood of major software upgrades, not just from Oracle and PeopleSoft but from J.D. Edwards, SAP and Siebel?all the enterprise software vendors?and see that they’re facing overhauls, not tune-ups. The CFOs and CEOs who foot the bills for these upgrades are equally nonplussed. They ask questions like, Didn’t we just pay millions for this stuff?

Yes. Between $40 million and $250 million for an enterprise software system for a Fortune 500 company, according to AMR Research.

And the CFOs and CEOs want to know why they’re paying again.

Why It Hurts So Bad

This story focuses on ERP users, but the same problems and advice applies to CRM, supply chain management systems and other major enterprise software products. They have become so complex, so expensive and so integral to business processes that the term upgrade is a misnomer. Enterprise software upgrades can cost up to 30 percent of the original software installation price, according to Gartner, take more than a year to complete and require companies to revamp their technology infrastructures and business practices. CIOs have to present a strong business case for why, in these difficult economic times, their company should go through the trouble and expense. A tough sell to most corporate boards.