Enterprise Software Upgrades: Less Pain, More Gain

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Smith and Stahlin came up with costs for two options: modifying the actual ERP code of the new version (expensive and difficult) or adding a custom program outside of the ERP system to perform the function. That helped users understand just how much effort IT had to put into writing and maintaining those customizations, says Stahlin. But the users also had to do some research before they could go before the steering committee to plead their case. They had to come up with a "no-technology" option, usually a change to the business process to fit with the software out of the box.

"Sometimes the users had valid reasons for keeping the customizations, like labor contracts that required things to be done a certain way," Smith says. "But we found nine and a half times out of 10 we could change the way we do business because it wasn’t that critical; it was just habit. You just unfreeze the organization and rearrange the way people do things, and now you just do them a slightly different way and that’s OK."

The steering committee tended to shoot down the requests for customizations, says Smith, because they were invariably more expensive than the no-technology options. "When someone from HR came to them and said, ’We have to do it this way,’ the committee would say, ’No you don’t?change your process. I’d rather spend this money in my business.’"

Strategy No. 3: Do It Yourself (Forget Consultants)

Having a continuous internal planning system for upgrades makes it easier for CIOs to limit the number of outside consultants they need to bring in to help with upgrades. An AMR study found that companies that handed over responsibility for their upgrade projects to outside consultants spent twice as much ($2.3 million versus $1.5 million) and took longer (10 months versus six) than those that kept the project leadership and as much of the work as possible in-house. "The costs skyrocket because you will have people on the project who don’t know your business," says Judy Bijesse, an analyst at AMR Research, "and you’ll have a lot of consultants who are being trained while you’re paying them."

By retaining leadership yourself and tracking the fortunes of colleagues who are upgrading, "you can avoid being the one that bleeds on that first release," says Nextel’s LeFave. Indeed, most enterprise software is so bug-ridden in its first release that CIOs can wind up installing the upgrade all over again when the vendor comes out with a "point release" to fix the initial bugs. Manish Khadepau waited until Oracle was on the second point release of Oracle 11i before implementing it at Infogrames, a New York City-based video game publisher. (There have been six point releases of 11i since it was first introduced in 2000?each requiring a complete reinstall if the customer has customized it.) But it was still bleeding edge at the time, Khadepau says, and full of bugs.

Each time Oracle would send Khadepau a new bug fix, the fix would destabilize the rest of his system and require him to rewrite the customizations his company had made. "Oracle 11i is so big and so interconnected that when they fixed one piece, three others would break somewhere else in the system," he says. The earlier version of Infogrames’ ERP software was so heavily customized that the upgrade wound up costing as much as a new installation?between $400,000 and $500,000, according to Khadepau.

Quinlan, the MFS systems manager who blanched at the cost of consulting fees for her company’s upgrade, has decided to install a new HR application herself (she has a background in HR and is a former PeopleSoft consultant) with support from a few internal staffers. But the financial upgrade is bigger and much more complex than she and her staff can handle. "We haven’t decided what to do there yet," she says.

Strategy No. 4: Wait for the Bugs to Pass You By

Companies that can afford to wait for an upgrade are best positioned to get it done quickly?at least from a technical standpoint, says Khadepau, the Oracle ERP veteran who is now manager of financial systems for Multilink Technology, a Somerset, N.J.-based maker of optical network components.

Khadepau knows because he is the volunteer director of the New Jersey chapter of the OAUG and has seen his colleagues struggle with 11i. He says one New Jersey company (which declined to be identified) bought the license for 11i and did not install it. Instead, it sent an IT staffer to monitor meetings of his group until the wails of despair changed into guarded optimism about the software. The company is now installing version 11.55 of the software, which works well, according to Khadepau, and has new functionality that early releases of 11i did not. "Now they come to me and say things like, What was all that fuss you were making about?" he laughs.

Companies have to pick their time to upgrade carefully?especially small companies that don’t pull much weight with their vendors. KeySpan’s Smith remembers that when she was with Verizon, the telecom giant used to take on upgrades earlier than most customers because it had enormous clout with its vendors. "The vendor would put a big staff of its top people onsite to help us through it," she says. "At KeySpan, we have a tough enough time getting our vendors’ attention without risking an early upgrade."

Epilogue: The Upgrades Bottom Line

There is one other strategy that CIOs could pursue: treat the upgrade process as a greenfield. At Nextel, making the shift to the new version of Oracle’s ERP software will cost enough and take long enough that LeFave is calling it a new installation and inviting Oracle’s main competitors, SAP and PeopleSoft, to bid on installing their system at Nextel. "We’ve worked hard to build an integrated architecture with ERP" that is heavily integrated with software from other companies, says LeFave. "All of a sudden you have to make this major leap of faith, and that opens up a discussion around should we be doing it with these guys or should we look into the future with someone else?"

The stakes have risen for enterprise upgrades. These projects need to add value, and value is no longer defined by squeaking through an upgrade before the desupport date for an older version. A good planning process, along with regular meetings with fellow users at other companies who can help you organize to get what you want from vendors, is critical.

But old habits die hard. Amazingly, 21 percent of the AMR survey respondents sold their enterprise software upgrades to their business based on vendors’ announcing desupport dates for the software. That’s not planning. That’s desperation.

As CEOs and CFOs tighten the reins on IT spending, Brother International’s Upton pities the fool that tries to get away with such a sales pitch in the future. "If you’ve got a multimillion-dollar ERP system, there better be a better reason for upgrading than the fact that the vendor won’t support it anymore," he says.


Copyright © 2002 IDG Communications, Inc.

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