Why ERP Is Still So Hard
After nearly four decades, billions of dollars and some spectacular failures, big ERP has become the software that business can't live without--and the software that still causes the most angst. In Part I of CIO.com's analysis of the ERP market, we look at where ERP has been, where it's at today, and why it's still so hard to do these mission-critical projects well.
Wed, September 09, 2009
CIO — Steve Berg knows what intense pain feels like: The man has been Tasered, in fact—not because he ran afoul of the law, but as VP of IT at Taser International he's partaken in a corporate rite of passage. "It's the worst five seconds of your life," he says. "You cannot move."
Like other IT execs, he also knows pain and suffering as it relates to traditional ERP deployments—from vendor selection and licensing negotiations, to implementation and change management, followed by upgrades and integration. And as he and many other IT leaders have come to know, ERP-induced pain can last much, much longer than a mere five seconds.
Taser's attempt to wrap an ERP package around its corporate processes sounds eerily similar to most companies' experiences. The "before" picture: A mélange of disparate systems that didn't talk to each other and a good deal of "paper pushing" between the systems, Berg says. "When you don't have a centrally managed technology environment," he says, "things can get overly complicated very quickly."
But a funny thing happened on the next upgrade: Naturally, all of those customizations done to the initial AX rollout—which were "plentiful," Berg says—were going to have to be upgraded in 2009. Taser decided it didn't want to go down that road again. This time, Taser ERP users would change, demonstrating that vendor-purported "flexibility" has been both ERP's blessing and its curse.
"We're going to get rid of these customizations and go back to what the [Microsoft] AX best practices and recommendations out of the box," Berg says. "If we're going to be able to grow the company—we're at $100 million now and if we want to be a half-billion company in four years' time—the current processes are not allowing us to get to that point."
The upgrade took longer than expected: Testing and training issues, as well as certain customizations that were unavoidable, complicated progress along the way, Berg reports. Executive sponsorship and interest never waivered, though. "It seemed like all eyes were on this upgrade and all eyes were on IT to make sure nothing could go wrong," he says. "Everybody understood the long-term benefits, but there will always be some teething pain at the beginning. We went live in May  and now we're in July, and things are running smoothly. But May and June were pretty tough."
Taser's tale probably seems commonplace to IT vets. But the fact that Taser's story is so common, so expected, so universal, after nearly 40 years of all things ERP, makes it all the more significant.
ERP Pain, By the Numbers
The preponderance of corporate pain lurking throughout the lifespan of a traditional on-premise ERP suite is unequivocal. To wit: ERP projects have only a 7 percent chance of coming in on time, most certainly will cost more than estimated, and very likely will deliver very unsatisfying results. In addition, today's enterprise has a little better than a 50 percent chance that users will want to and actually use the application. Poor application design just adds to the turmoil. In sum, "ERP success" has become a very subjective metric.
As for costs, an ERP system from a Tier I provider isn't cheap: Total cost for an average SAP install runs nearly $17 million, Oracle at $12.6 million and Microsoft is relative bargain at $2.6 million. (Tier II ERP providers average in at $3.5 million.)
For all of that investment, today's enterprises surely must be basking in the glow of their fully modernized ERP backbones? Hardly. A Forrester Research survey of more than 2,200 IT executives and technology decision-makers in North America and Europe found that modernizing key legacy applications is the top software initiative for businesses in 2009.
Making matters worse is that CEOs and CFOs are still trying to wrap their heads around the financial aspects of your standard ERP package, a most unusual piece of the corporate pie: the licensing, implementation, customization, annual maintenance and upgrade costs. (More on that later.) Not surprisingly, ERP has consistently remained among the top IT spending priorities in large corporations, growing at the rate of 6.9 percent each year and set to top the $50 billion mark globally in 2012, according to Forrester Research data.
Summing it up in an understated yet perfect way is Ray Wang, a former Forrester analyst and now a partner for enterprise strategy at Altimeter Group: "Business software is just not easy."
But, as far too many people have lamented over the years: Why does it still have to be?