“ERP financials” usually refers to the software package that businesses use to manage their general ledger, invoices, purchase orders and the like: Nothing that’s terribly exciting, yet those applications are crucial to running any going concern.
The “financials of ERP,” on the other hand, is a topic that can make any CFO (or CEO and CIO) very excitable. The cause? ERP Sticker Shock.
Two new studies of enterprise IT environments demonstrate how and why many companies might suffer from a case of “buyer’s remorse” after plunking down millions on traditional ERP applications for licensing, implementation and support. The reasons are due to a combination of application sprawl, poor portfolio management and Sisyphean-like spending requirements.
First up is a new report from Andy Kyte, a Gartner fellow, in which he estimates that “Global IT Debt” will total $500 billion in 2010, with the potential to jump to $1 trillion by 2015.
Those are big numbers, but what does Global IT Debt mean? “The cost of clearing the backlog of maintenance that would be required to bring the corporate applications portfolio to a fully supported current release state,” notes Kyte in the Gartner announcement.
In other words, as companies defer maintenance and upgrades on their on-premise software upgrades, they face a slew of risks—financial, technological, administrative and business process-oriented.
“There is little problem if this is done in one year, or even in two years,” Kyte contends, “but year after year of deferred maintenance means that the application portfolio risks getting dangerously out of date.”
But that’s not the worst of it: Many companies lack an inventory of corporate applications, he says, as well as a structured review process for managing their application portfolio. In addition, companies continue to purchase more and more applications—rarely ever de-commissioning ones—which results in more complexity, more costs and more risks.
“This means the IT management team is simply never aware of the true scale of the [IT debt] problem,” Kyte says. “This problem, hidden from sight, is getting bigger every year and more difficult to deal with every year.”
[ ERP isn’t that hard. Fix all your problems by reading 5 Easy Steps to ERP Software Success! ]
A second piece of survey research, from IT consultancy MorganFranklin, offers even more disturbing insight into the applications sprawl problem. Of the 350 respondents to MorganFranklin’s survey at Oracle’s Collaborate 2010 show, 53 percent were not aware of all of the functionalities that their ERP applications had to offer.
In addition, half of the respondents knew little about the customizations in their ERP systems. “Not knowing enough about customizations will extend upgrade timelines and increase costs,” notes Anil Goel, a manager at MorganFranklin, in a survey write-up.
“These findings show that there is a lot of room to educate users about existing ERP capabilities,” Goel adds, “as well as how to maximize the return on current investments.”
According to Gartner’s Kyte, enterprise application sprawl is not going away any time soon.
“While it is true that there has never been an IT organization without a backlog of maintenance activity,” he states, “the scale of the problem is significantly greater than it has ever been.”
Thomas Wailgum covers Enterprise Software, Data Management and Personal Productivity Apps for CIO.com. Follow him on Twitter @twailgum. Follow everything from CIO.com on Twitter @CIOonline. E-mail Thomas at firstname.lastname@example.org.