- ERP systems were sold on the basis of reduced integration costs.
- Learn how the ERP systems increased most integration costs.
Enhanced integration was one of the major selling points of ERP. The hours of PowerPoint presentations that have been created since the first ERP systems were sold describe the great cost savings and integrative benefits that implementing companies would receive from a “solution” where all the main applications used the same database. One of the assumptions about purchasing an ERP system was that the buying company would implement all of the modules and decommission their current software. I discussed this briefly in a previous section. This oversimplified assumption was self-serving for the concept’s promoters, but not considerate of the buyer’s needs. The fact is, some of the company’s pre-existing applications could not be replaced by ERP, and for a variety of very good reasons.
Here are two of the common scenarios in which companies that implemented ERP found themselves:
Scenario 1: When Companies Replaced All Pre-Existing Systems with ERP
In rare cases, companies eventually replaced every one of their existing systems with ERP, representing a perfect match with what the ERP salespeople proposed.
- Some companies that followed this approach paid far more than they had anticipated customizing the ERP application to replicate part of their current solutions.
- Some companies that followed this approach lost functionality and wished they had not gone 100 percent ERP, but could not go back once they had completed the switch.
- In some cases they removed all existing systems and replaced them with ERP, and were happy with both the cost and the functionality that resulted from doing this.
Scenario 2: When Companies Replaced Some of the Pre-Existing Systems with ERP
In most cases companies did not implement all of the modules that they had purchased.
- General estimates are that an average of 60 percent of the modules were implemented and 40 percent were unimplemented.
- Other times, companies implemented all the modules but were unable to decommission pre-existing applications because those applications did something of value for the company and it would have required too much work to customize their new ERP system.
Advantages of ERP Integration?
Contrary to most assumptions, ERP systems provide no advantages in terms of integration to other systems, and in fact present several disadvantages:
- No Integration Advantage: ERP systems were not designed to integrate well with any other system, with the exception of electronic data interchange (EDI). ERP vendors proposed that their systems integrated better with the other applications that they offered for sale. However, this contention is also of a dubious nature. Many applications sold by ERP vendors (Oracle being a good example) resulted from acquisitions. These applications have different heritages than the vendor’s ERP system. Oracle created adapters for these disparate applications, but their value is questionable.
- Low Quality and Uncompetitive Middleware: Even when the non-ERP vendor applications were developed internally (such as with SAP), the applications did not integrate very well. I have many years of experience integrating external planning systems to SAP, and contrary to what ERP vendors say, not as many of these applications integrate to the ERP system as what is led to believe. Part of the reason for this is that ERP vendors are not necessarily good at creating middleware (the software that connects other software). In fact some (such as SAP) are not at all skilled in creating integration applications of any type; they seriously lag behind the best vendors in the middleware software category. Therefore, the customer ends up purchasing middleware by default from a company that is uncompetitive in that software category. I discuss this in the following articles that I wrote to inform companies that they were greatly underestimating the short-term and long-term effort involved to maintain the SAP ERP to SAP APO integration application called the “core interface” (CIF). The CIF is an SAP-to-SAP interface, but while it can be brought up quickly, is so maintenance-intensive that over the long term, I debate whether it is better to develop an adapter from scratch in Why I No Longer Recommend Using the CIF.
ERP companies normally entirely exaggerate how much integration their systems provide. The following is a good example of this.
“As companies buy Oracle ERP Cloud, Oracle is seeing more companies attach other Oracle services, such as human capital management. Companies don’t have to buy Oracle HCM Cloud and Oracle Sales Cloud, since Oracle ERP Cloud integrates with cloud and on-premises applications from other providers. But companies see advantages in buying cloud applications from the same provider because those apps are designed to work together, eliminating the integration work that’s often required to weave together cloud services from different providers.” – Oracle
This is a complete lie on the part of Oracle, but it is the type of lie frequently told to customers.
The Unfortunate History of ERP “Integration”
Here is a much more effective solution than I have described above: ERP vendors should never have been allowed to procure other vendors. They should not have created external applications, and instead should have published an integration standard and allowed the middleware vendors (those that were actually skilled at creating middleware) to create the adapters. ERP companies had no interest in this solution. Instead they intended to use their position at their customers to sell in more software. Often this software was poorly integrated and uncompetitive with best-of-breed applications (outside of just the ERP system). In this way, the ERP companies put their own interests ahead of their customers’ interests, as explained in the quotation below.
“Of course, as soon as companies began buying these products, it became clear that enterprise software was another chunk—a much larger and better integrated chunk to be sure, but still a chunk—of software in a complex architecture of IT systems that desperately needed to talk to one another and exchange information. The vendors created clunky, proprietary methods of connecting their systems with others that have improved over the years, but that misses the point. The architecture of these systems, in a broad sense, was just like the ones that they were intended to save you from monolithic, highly integrated and difficult to change.“The high degree of integration envisioned in the R&D lab was tenuous at best inside most customers.” — CIO
The Increased Need for Integration
ERP systems integrated some areas of functionality used by the company, but certainly not all things. And again, because most companies have so many applications, there is still a lot of integration work that needs to be done. A 2001 study found that ERP increased the need for integration.
“ERP technology does not offer an integrated solution but amplifies the need for integration.” — ERP and Application Integration
ERP as a single architecture.
“Although ERP is touted as a single architecture, ERP applications usually contain different generations and sources of technology. Third-party applications are acquired and amalgamated into the platform, sometimes by name only. In total, this makes the environment complex for the customer and diffi cult to change over time. ERP suppliers have become system integrators. [emphasis added] The sheer size and number of applications makes moving all the applications forward a diffi cult task. Application functionality often lags.” — ERP Alternatives
Short Term or Long Term Benefit?
In terms of ERP’s impact on application integration, companies did not see any immediate benefit. But was there a longer-term benefit? Unfortunately after extensive searching I was unable to find research data that compared what portion of the IT budget was consumed by application integration before and after ERP implementations. The shortage of research on this topic is particularly galling when one considers how confidently those who sold ERP systems predicted that integration costs would decline. However, findings in the study ERP and Application Integration are not promising.
“ERP technology does not offer an integrated solution but it amplifies the need for integration. Enterprises faced integration problems when they attempted to incorporate other applications with an ERP system. Only EDI applications were integrated successfully (81 percent) with ERP infrastructure. This high integration rate derives from the fact that EDI technology follows similar concepts to AI (application integration).” — ERP and Application Integration
This shocking quotation states that ERP “amplifies the need for integration.”
But wait, how can that be the case?
It is because ERP applications are self-integrated, the problems that ERP systems have with interfacing with other systems is actually higher than the benefits derived from ERP’s self-integration. That is yet another amazing statement.
The quotation goes on to say as much.
“All observations discussed above indicate that ERP systems cannot be seen as a reliable solution to integration problems as ERP modules co-exist with other applications. Additionally, there is a need to integrate the ERP solutions with other applications. However, this incorporation causes serious problems, especially with companies.” — ERP and Application Integration
ERP may have been a step forward for the integration of the ERP modules, but they were a major step backward for all other forms of integration. However, the only important measurement is total integration—not how much the integration effort was reduced for one application. It is important to consider that no study demonstrates that ERP systems reduce integration costs, and at least one study demonstrates that ERP increases integration costs. This exact statement may be used the next time you hear a person promote the integration benefits of ERP systems: ask him/her to produce the study that demonstrates this “well-known fact.”
Project Experiences with SAP ERP
My personal experience with SAP ERP is that it is an extremely difficult system to write interfaces for, but this level of difficulty varies for each ERP vendor. SAP does not even export data in rows and columns but instead uses something called an intermediate document or IDOC. This is a hierarchical document, which is difficult to read, and time consuming to write transformation scripts for which will convert the document into rows and columns. Unfortunately IDOCs also change between versions of SAP, and a single movement of a character by one place can render the integration unusable and require a script rewrite. However, when these IDOCs will be changes is not communicated by SAP—so you find out when something breaks. Generally, others who work in SAP ERP integration tend to agree that SAP is difficult to integrate to, although they will not go on record as saying so; if one wants to continue to work in an area, it’s better, of course, to keep silent. I did not perform an analysis of all ERP systems to determine integration difficulty. I found it far easier to integrate to some of the lighter open-source ERP systems, but it is no coincidence that these applications were developed more recently than Tier 1 ERP applications.
Although there are too few studies upon which to base any definitive conclusion, it is equally possible that ERP systems increased the integration costs that were incurred by companies. But either way (whether it is a wash, or whether ERP increases integration costs), the story does not have a positive outcome. That they most likely did not reduce their integration costs (and quite possibly increased their integration costs) would be quite surprising to companies that gave up so much for the promise of an integrated system.
ERP and the Internet
There are few people (with the natural exception of ERP vendors themselves) who will debate the notion that ERP systems are walled off from the Internet. Since ERP developed, the Internet has become an important force, and web front-ends have greatly improved application interfaces and the ability to connect various applications. This point is reinforced by a 2007 article in the MIT Sloan Management Review.
“Just as companies were undertaking multiyear ERP implementations, the Internet was evolving into a major force, changing the way companies transacted business with their customers, suppliers and partners.”
Here’s a concrete example of how far integration has come since ERP first became popular. I recently installed an application called Yesware off of the Internet. Yesware automatically integrates with my Gmail to track emails, and also integrates with a variety of CRM applications; this is integration across Internet servers by different companies that have decided to cooperate. These are two applications that are communicating over the Internet to one another—each performing a different function—and each aware of what the other is doing. All of these adapters are created for me, and all of them work transparently.
My integration effort was limited to clicking a button to install Yesware, and rebooting my email client. This is clearly the future of application integration across the Internet. Of course, none of this capability existed when the concept of ERP was developed. In stark contrast, most ERP software—and particularly on-premises ERP software—still sits with dated application interfaces and manually intensive ways of interacting with other systems. Getting most ERP systems to do what I did with Yesware, Gmail and a CRM application would be a major initiative at a company and cost quite a lot of money. This point is brought up in the following quotation:
“As the web increasingly becomes the medium for information exchange, your on-premises ERP is increasingly a disconnected silo from the rest of the world.” — Craig Sullivan, NetSuite
Rootstock, which covers much of the functionality of an ERP system, does in fact work in a similar way, as it is part of the Salesforce.com platform. But Rootstock is more of an exception, most ERP systems do not work this way.
Errors in the Platitudes Regarding ERP Integration
Executive decision-makers, and also researchers, have some general misunderstandings about the state of integration. The following is an example.
“Information integration is a key benefit of ES. This integration can replace functionally oriented and often poorly connected legacy software, resulting in savings in infrastructure support costs. Furthermore, improvements in operational integration enabled by ES can affect the entire organization and therefore can positively impact fi rm performance. As discussed below, ERP systems also provide benefi ts in the area of transaction automation, SCM systems provide more sophisticated planning capabilities, and CRM systems facilitate customer relationship management.” — The Impact of Enterprise Systems on Corporate Performance
This and other similar quotes confuse functionality with the system that brings that functionality, in much the same manner as those who confuse an economic system with a particular form of production. For instance, one who says that industrial capitalism is good because “people bake bread for profit” misses the fact that bread has been baked and sold for thousands of years before the existence of industrial capitalism. Such logic intends to prove that the desired output—the bread in this case—is best accomplished within an industrial capital system versus some alternative system.
Let’s parse this quotation in order to analyze it properly because there are a number of assumptions contained within:
- New software can replace poorly connected legacy software: It’s unclear why the legacy systems were so poorly connected in the first place, as was suggested by ERP salesmen during the early stages of ERP’s popularity. All enterprise software faces these integration challenges. Notice the researchers in this quote are using “ES” not “ERP,” as they propose that all enterprise software has advantages in integration over legacy systems. However, no evidence is given as to why this is true. Systems must be made to work with other systems. An ERP system is more integrated to itself, but as I have explained earlier, that is not the end of the story. Furthermore, enterprise software infrastructure costs have not declined due to ERP being implemented. Some vendors do allow their applications to be integrated easily to other systems that are not their own. However, SAP and Oracle do not promote ease of integration to systems from other vendors. Instead they sell closed systems to companies, getting them to buy into the SAP or Oracle ecology. Even if one vendor provides multiple systems, the systems will not share the same database, and many of the adapters that are offered are of questionable value.
- ERP systems also provide benefits in the area of transaction automation: This may have been a differentiator when ERP was fi rst introduced, but now less expensive applications like RootStock or ERPNext can automate transactions as well as any Tier 1 or 2 ERP system. There is no reason to give up so much leverage and pay such a high price for automation that can be found in applications from software vendors that are far easier to deal with.
“ERP systems replace complex and sometimes manual interfaces between different systems with standardized, cross-functional transaction automation.” — The Impact of Enterprise Systems on Corporate Performance
This paper was written in 2005, but manual interfaces between systems were replaced a long time ago. There is standardized cross-functional transaction automation, but that is only within the ERP application and not between the ERP application and the many different systems with which it must interact.
“Another benefi t of ERP systems is that all enterprise data is collected once during the initial transaction, stored centrally, and updated in real time. This ensures that all levels of planning are based on the same data and that the resulting plans realistically reflect the prevailing operating conditions of the fi rm. For example, a single, centrally developed forecast ensures that operational processes remain synchronized and allows the firm to provide consistent order information to customers (Bancroft et al. ).” — The Impact of Enterprise Systems on Corporate Performance
Unless the company uses an ERP system only (and no other systems), the example above is inaccurate. On projects I have spent quite a lot of time working on how the supply chain planning system will pull data from the ERP system and on how the planning recommendations will be sent back. Data pulls from the ERP system for reporting or business intelligence must also be timed, and this is not a real-time feed. These are just two examples, but all systems that are connected to ERP face the same questions and limitations. The only thing that is true about the above quotation is that the ERP system has updated transactions (stock transfers, purchase orders, financial transactions), but this functionality is generic.
ERP vendors continually propose false information on the integration benefits from ERP. The integration benefits never turned out to be true, but they remain mostly unquestioned because of the army of ERP vendors, consultants and industry paid IT analysts that provide the bulk of information about ERP to customers.
Financial Bias Disclosure
This article and no other article on the Brightwork website is paid for by a software vendor, including Oracle and SAP. Brightwork does offer competitive intelligence work to vendors as part of its business, but no published research or articles are written with any financial consideration. As part of Brightwork’s commitment to publishing independent, unbiased research, the company’s business model is driven by consulting services; no paid media placements are accepted.
The Real Story on ERP
How This Book is Structured
This book combines a meta-analysis of all of the academic research on the benefits of ERP, coupled with on project experience.
ERP has had a remarkable impact on most companies that implemented it. Unplanned expenses for customization, failed implementations, integration, and applications to meet the business requirements that ERP could not–have added up to a higher Total Cost of Ownership for ERP were all unexpected, and account control, on the part of ERP vendors — is now a significant issue affecting IT performance.
Break the Bank for ERP?
Many companies that have broken the bank to implement ERP projects have seen their KPIs go down— but the question is why this is the case. Major consulting companies are some of the largest promoters of ERP systems, but given the massive profits they make on ERP implementations — can they be trusted to provide the real story on ERP? Probably not, however, written by the Managing Editor of SCM Focus, Shaun Snapp — an author with many years of experience with ERP system. A supply chain software expert and well known for providing authentic information on the topics he covers, you can trust this book to provide all the detail that no consulting firm will.
By reading this book you will:
- Examine the high failure rates of ERP implementations.
- Demystify the convincing arguments ERP vendors use to sell ERP.
- See how ERP vendors take control of client accounts with ERP.
- Understand why single-instance ERP is not typically feasible.
- Calculate the total cost of ownership and return on investment for your ERP implementation.
- Understand the alternatives to ERP.
- Chapter 1: Introduction to ERP Software
- Chapter 2: The History of ERP
- Chapter 3: Logical Fallacies and the Logics Used to Sell ERP
- Chapter 4: The Best Practice Logic for ERP
- Chapter 5: The Integration Benefits Logic for ERP
- Chapter 6: Analyzing The Logic Used to Sell ERP
- Chapter 7: The High TCO and Low ROI of ERP
- Chapter 8: ERP and the Problem with Institutional Decision Making
- Chapter 9: How ERP Creates Redundant Systems
- Chapter 10: How ERP Distracts Companies from Implementing Better Functionality
- Chapter 11: Alternatives to ERP or Adjusting the Current ERP System
- Chapter 12: Conclusion