How to Understand the Non Stop Promotion of ERP

Executive Summary

  • Most of the sources of information in IT are filled with ERP based financial bias.
  • Find out how this makes the coverage of ERP inaccurate.

Introduction

ERP is based upon the oversimplified concept that companies should buy an integrated financial/manufacturing/supply chain/sales management system. This concept could be implemented well or poorly, but it is important to differentiate the implementation of the concept (that is the resulting software application) from the concept itself. Proponents of ERP state that the ERP concept is not only beneficial, but that ERP systems are a requirement for all companies. Companies that don’t buy and implement ERP systems are “not with the times” and “don’t have good executives making decisions for them.” In fact, the logical fallacy used in promoting this concept is “appeal to fear,” and it is effective against executive decision-makers who must keep marketable acronyms such as ERP on their resumes.

For some time, being involved in or overseeing ERP implementations was an important addition to an executive’s resume. In the course of doing research for this book, I found a number of articles that implied that companies where ERP has not yet been implemented should absolutely be thinking of using an ERP system. These articles present no evidence that companies benefit from ERP, but instead rely upon the logical fallacy of “argumentum ad numerum”—that many companies have implemented ERP. They then combined this fallacy with hypothetical statements about how ERP software may benefit a company. Furthermore, this viewpoint is not contradicted by the opposing viewpoint that ERP may not always be the best approach. There is little variability and very little independent thinking on the topic.

How Accurate is the Unanimous View?

After a review of the research on ERP benefits has been presented, the reader should question whether this unanimity of opinion is justified. Companies have invested an enormous number of resources into ERP systems, and contrary to the opinion presented in most of the literature in the area, the failings of ERP to meet the expectations of implementing companies is not something that can be rectified simply with a change in management practice or by hiring a new implementation consultant. This is because the aspects of ERP that have been most disappointing are related to the fact that the concept of ERP—regardless of the specifi c implementation of the concept (the software)—was never as advantageous as was presented. Once companies can interpret these limitations as permanent in nature, they can begin to deal with ERP in a realistic manner rather than by relying upon a new release, wishful thinking, or some new marketing construct provided by their ERP vendor to improve the condition of their ERP systems.

Everpresent Financial Bias

Clearly, information generally available on ERP systems is subject to financial bias, for the obvious reason that the ERP industry is so large and so lucrative. Just a few ERP implementations can make a partner at a large consulting company well off, as they make a lot of money off of their consultants and it takes many consultants to implement an ERP system. For salespeople who sell ERP systems, the same rules apply. Because of the financial bias that exists, information published about ERP is quite positive, bordering on the Pollyannaish. Meanwhile, negative information about ERP tends to be suppressed. When negative information about ERP (mostly in the form of information about failed implementations) does get out, normally the information is spun so that the software and the concept of ERP is not blamed. Instead, the repetitive narrative is that the implementing company must have made some mistakes, and these mistakes are simply managerial in nature and therefore correctable. Clearly, with all this money to be made in ERP systems, the question of who can be trusted to provide accurate information on ERP is clearly not a question that I have come up with exclusively, as the following quotation demonstrates.

“ERP is a multi-billion dollar industry dominated by consultants and software vendors. This is not going to change anytime soon since software and software expertise are the necessities of an automated system. But for a practitioner within an industry responsible for a project and a company that must live with the outcomes, the question is: Who solely has your best interest in mind? I can say only one thing: The deck is clearly stacked against you.” — Control Your ERP Destiny: Reduce Project Costs, Mitigate Risks, and Design Better Business Solutions

Financial bias has caused some highly inaccurate information to be released by most of those who have written about ERP. The fact that so many entities were spectacularly wrong with respect to their predictions for ERP has been one of the great missed stories of enterprise software. And who will cover this story? The IT press themselves are the main culprits; after all, will those who take in advertising revenue from ERP vendors break the story that the emperor has no clothes? It fi ts into the overall storyline of ERP systems; in fact, the ERP phenomenon cannot really be understood without understanding how wrong the projections about ERP have been, and therefore, this is a main theme of this book. It is only through understanding why these projections were so wrong and by taking a full account of ERP as it is today (not blindly accepting the fabricated sales pitch of entities that make their money from implementing ERP), that companies that already have ERP can determine the best way to manage ERP in the future. Secondly, for companies that have not yet implemented ERP, this book will address how to avoid the mistakes of companies that jumped on the ERP bandwagon to their great detriment, and are now stuck in a situation where the system is negatively impacting their ability to meet business requirements and ERP’s resource consumption crowds out best-of-breed solutions.

Unintended Consequences and the Definition of Success

The promises to ERP buyers have not come true, but many things that ERP buyers were never promised and never expected—such as the power that enterprise software buyers handed over to ERP vendors after implementing ERP (and particularly Big ERP vendors and big consulting companies) or the large percentage of the IT budget that the ERP system would consume into perpetuity—did become realities. Therefore, it’s quite important to differentiate between the commercial success of ERP and the benefi ts analysis of what ERP does for companies. No one could dispute that ERP has been tremendously successful for ERP software vendors and for the major consulting companies. On the basis of software sales, ERP systems comprise the highest grossing category of application software ever developed. The sales, implementation, and maintenance of ERP systems have created an enormous number of well-paying jobs and quite well off ERP salesmen and consulting firm partners.

Currently all of the major consulting companies are dependent upon their ERP consulting practice to make their numbers. However, what this book will focus on is the value that ERP provides to the companies that implement it. This book will address two major assumptions. The fi rst is the unquestioned assumption that ERP is necessary.

Big ERP Benefits Companies?

The second assumption is that Big ERP actually benefits companies. As this book will demonstrate, there is no evidence to support these views, and there is quite a bit of evidence that ERP has been an unfortunate misallocation of resources within enterprise software. (In fact, the evidence is that ERP is the largest misallocation of resources to have ever occurred in the history of enterprise software—possibly not as momentous a statement as it appears to be as the history of enterprise software only goes back to the early 1970s, but the total resources expended on ERP since its inception have been gigantic.) This book explains the background of ERP, the expectations that were set for it, and why it is a myth that ERP systems improve the state of companies better than other software that could be implemented. ERP proponents say it is “ERP versus nothing”—a logical fallacy called a “false dichotomy/false dilemma” that is used to stack the deck in favor or ERP—however, the question is really “ERP versus true alternative applications” and therefore alternative expenditures of resources.

The Consensus on ERP

In the previous section I discussed the commonly held belief that ERP is essential infrastructure for a company, something that is particularly true if the company in question is in manufacturing. It is interesting that Aberdeen Research wrote a paper that stated the following about this type of assumption right in the title of the paper: “To ERP or Not to ERP: In Manufacturing, It Isn’t Even a Question.” The words in this title can be described reasonably as the general consensus on ERP, but it is a curious consensus considering ERP’s history. Interestingly, one cannot fi nd consulting advice that questions whether ERP is even a good idea.

The only real topic of conversation is when to implement ERP software or how to improve ERP implementations. If one does not have ERP installed, the question is not whether ERP is a good fit, a good value, and can meet the company’s business requirements, but why ERP hasn’t been implemented already and when the company plans to implement it. Therefore, for the most part, Aberdeen’s research conclusion is correct: this is what the majority of manufacturers believe. But what Aberdeen does not know is that this assumption is not true. With this consensus about ERP among those who provide advice, it is little wonder that most enterprise software buyers believe they need ERP as explained in the quotations below:

“More than 85 percent of respondents agreed or strongly agreed that their ERP systems were essential to the core of their businesses, and that they ‘could not live without them.’ Interestingly, just 4 percent of IT leaders said their ERP system offered their companies competitive differentiation or advantage.” — Thomas Wailgun, CIO

“The business sees the slick demos and possibilities, and then keeps forking over the money for this, and they don’t understand why they are still paying all this money,’ Wang says. ‘Why is it so hard to get a simple report? Why is it so hard to add a new product or build a new product line? Why is it so hard to get consolidated financial information? [underline added] Isn’t that the whole point of ERP?’ ” — Thomas Wailgun, CIO

Companies see the low functionality and the poor reporting functionality of their ERP systems, along with the problems integrating with non-ERP systems, but they don’t seem to be able to put the separate data points together into a complete story. As “everybody” has implemented and used ERP, how could ERP itself be bad?

Books and Other Publications on Software Selection

I perform a comprehensive literature review before I begin writing any book. One of my favorite quotations about research is from the highly respected RAND Corporation, a think tank based in Santa Monica, California—a location not far from where I grew up and where I used to walk with my friend when I was in high school—at that time having no idea of the historically significant institution that I would stroll by on my lost surfi ng weekends. RAND’s Standards for High Quality Research and Analysis publication makes the following statement regarding how its research references other work.

“A high-quality study cannot be done in intellectual isolation: it necessarily builds on and contributes to a body of research and analysis. The relationships between a given study and its predecessors should be rich and explicit. The study team’s understanding of past research should be evident in many aspects of its work, from the way in which the problem is formulated and approached to the discussion of the findings and their implications. The team should take particular care to explain the ways in which its study agrees, disagrees, or otherwise differs importantly from previous studies. Failure to demonstrate an understanding of previous research lowers the perceived quality of a study, despite any other good characteristics it may possess.”

There are so many books that promote ERP, rather than analyze ERP, that there was little to reference when doing research for this book—this is a “why” book rather than a “how” book. Books on ERP have a strong tendency to deal in platitudes and unexamined assumptions, and offer very little new or different information on the topic. The closest I could find to a book that applied some critical thinking to ERP was, Control Your ERP Destiny: Reduce Project Costs, Mitigate Risks, and Design Better Business Solutions, which is sort of a “tell all” book about the errors of ERP implementations. However, as with almost all ERP books, it concentrates on providing information to companies to help improve their ERP implementations rather than questioning the logical and evidentiary foundation for ERP. Most of the references in this book you are reading are not from other books, but from a combination of my personal experience and some articles (including academic articles) that study the impacts and benefi ts of ERP.

Unreliable Information from ERP Vendors

The only quality ERP statistics came from either academic research or, to far a lesser degree, IT analysts. And very little of the material from ERP vendors was found to be reliable; even when they point out flaws in the arguments of other ERP vendors, they proceed to promote their own arguments, which are not based on evidence and often contain logical fallacies. Smaller ERP vendors have gone on the aggressive against Big ERP abuses, but often their arguments are also self-serving. And after reviewing a number of ERP applications, some of the best smaller ERP systems are certainly not the loudest nor do they have the biggest marketing budgets. Some might say that this should be obvious, as these are software vendors and thus entirely biased. However, this has not been true of all vendors in all software categories that I have analyzed. For example, some vendors in the other software categories we cover have added significant content to their space. One vendor that has provided very good and very accurate content in the area of ERP is e2b enterprise, and they are referenced throughout this book. Many of the authors who work for both IT analyst firms as well as IT periodicals frequently quote statistics from other sources, with the same statistics referenced repeatedly. Some of the conclusions that were drawn from the research of others display clear logical errors.

A Lack of Analysis on ERP

Many authors in this area are simply not qualified or have not spent the time to try to make sense of the numbers and to triangulate them with other sources. They may be effective beat reporters, but they lack a background in research. Because of this, one finds that many of the same numbers are repeated in various articles; however, when you study the underlying research, you will find that the conclusions do not follow from the statistic that is quoted in the secondarily sourced article. Executive decision makers certainly do not have time to perform this type of analysis themselves, and as a result, there is little doubt that many of them have been misled by authors who lacked the background to perform the analysis for the articles that they wrote on ERP.

Aberdeen’t Fake ERP Cost Estimation

The most prolific IT analyst firm with respect to ERP cost estimation is Aberdeen. However, Aberdeen’s cost estimates are not realistic. They greatly underestimate the implementation costs for ERP projects, as well as underestimate the variance in license costs between the Tier 1 and Tier 2 vendors (projecting them with an average cost per user no greater than 15 percent in a study that included SAP, Oracle, Lawson and QAD). Aberdeen did, however, have an interesting estimate of the average number of users per ERP vendor, and that helped reinforce how various ERP vendors tend to sell into different sized companies. This is well known in the industry, but the exact figures helped drive the point home. One of the more comprehensive studies of the benefits of ERP also evaluated the research on ERP, and explained their findings in the following quotation.

“Previous evidence on ERP systems has come from qualitative case studies (e.g., Markus et al. 2000) or surveys of self-reported perceptual performance (e.g., Swanson and Wang 2003), but relatively few studies collect data from a large number of fi rms or use objective measures of productivity and performance.” — Which Came First, IT or Productivity?

Conclusion

This lack of information also demonstrates that the demand for such information was never very high. ERP was one of the most powerful trends in enterprise software; however, it was one that was driven largely without the support of academic or other forms of research. This may have been attributed to the compelling logic of ERP. Some philosophies have their own appeal and lower the need for proof in order to make people believe them to be true. ERP was clearly one of these philosophies. I cannot explain why so much writing on the topic of ERP is so generic and duplicated, I only know that this is what I found, but it has a basis in financial bias. In performing research for this book, I would frequently jump between different books and articles; often the similarities were so striking that it seemed as if I were reading from the same book or article.

Financial Disclosure

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.

ERP Contact Form

  • Want Honest Information about ERP?

    It is difficult for most companies to make improvements in ERP without outside advice. And it is close to impossible to get honest ERP advice from large consulting companies. We offer remote unbiased multi-dimension ERP support.

    This article is free, we do not answer questions for free. Filling out this form is for those that have a budget. If that describes you, just fill out the form below and we'll be in touch asap.

References

Thanks to Ahmed Azmi for his contribution to this article.

The Real Story on ERP

ERPThe Real Story Behind ERP: Separating Fiction From Reality

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.

Chapters

  • 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

How to Understand Why SAP ERP is Unquestioned

Executive Summary

  • ERP systems were proposed to reduce complexity.
  • The result was that landscapes became even more complex.

Introduction

This book was hatched during a conversation with a longtime friend who works in SAP Basis—the infrastructure area of SAP that is concerned with installing and maintaining the SAP applications. During our conversation he made the following comment:

“Look at the typical SAP landscape at a company. It now has so many applications that it eliminates what was supposed to be the advantage of ERP in the first place.”

My friend’s statement got me thinking: what is actually known about the benefits of ERP?

ERP significantly predates my introduction to working on IT projects, and because ERP has been on every project in which I have been involved, I have What I discovered through my research was that my colleague’s single observation was only the tip of the iceberg, only one example of what turned out to be multiple false assumptions about ERP put forward by multiple entities over many years. I actually held several false assumptions regarding the benefits of ERP myself; I had never analyzed the issue closely, and had been fed a steady stream of misinformation about ERP by biased parties and those who simply repeated the message they had heard from others. However, after I read the academic research on ERP, I was appalled to fi nd unsubstantiated statements about ERP made repeatedly and routinely by individuals who presented themselves in their articles as knowing something about the ERP market. Of all the technologies I have researched, the coverage about ERP that I found was probably the worst journalism I have ever encountered. In fact, based on my research, I concluded that the vast majority of articles on ERP are misleading and not useful to people who are attempting to truly understand ERP. Of course, the articles are extremely useful to companies that wish to sell ERP software or services. Interestingly, ERP is a topic that has not been analyzed critically outside of the academic literature. For those who believe that—at any time, at any place—the best determining factor of what is true is what most people think, this will not be a good book for you. Examples of when the prevailing opinion is incorrect are simply too easy to point out for anyone to be able to propose that generally agreed-upon opinions are correct. For instance, at one time, various gods explained all physical phenomena.

The Commonality of Believing False Things

In ancient Egypt there was a wind god, a sun god, a god of the harvest, a god that ate the sun in the evening and gave birth to the moon, and did the opposite in the morning. In ancient times people literally believed that physical phenomena could be controlled by praying to or making offerings to these gods. If that example is from a time too long ago for you, consider this: within the past one hundred years, the most prestigious universities in the US declared that women could never work in medicine because they would become hysterical at the sight of blood. More recently, US intervention in other countries was based upon a “domino theory,” a proposal that was never proven, never meant to be proven, and was simply a justification for the violation of most of the treaties that the US had signed. These are the tip of the iceberg with respect to beliefs that were widely never actually seen a project without an ERP system.

Henry Ford received the Grand Cross of the German Eagle, the highest medal Nazi Germany could give to a non-German. However, you won’t find this story in any Ford commercial; if something does not fit with the desired history narrative, it is conveniently altered until the desirable storyline is created. For this reason, the great frequency with which the biggest and most prestigious institutions have been wrong is underestimated enormously. It is therefore quite likely that many commonly held beliefs today are wrong; in fact it is easy to demonstrate that they are.

ERP as Just Another False Belief

There are many areas where the commonly held—and institutionally held— opinions are at odds with research in the area, and ERP is such an area. During my research I found some statements that amounted to: “ERP must be beneficial because so many highly paid executives cannot be wrong.” However, couldn’t the same statement be made about mortgage-backed securities and credit default swaps? AIG, Goldman Sachs and Bear Stearns love them; these companies are chock full of smart people, so how could they be wrong? People who are well disposed toward ERP will most likely read this book (actually they will most likely not read it) and reject it out of hand; how can people agree with something that is counter to their financial benefit? Obviously, if a person consults in ERP, that person is going to be sold on ERP. Who would ever be so thick as to believe something that could negatively affect their pocketbook? If you are a partner at a large consulting company that implements ERP systems and your large house and large Lexus have been paid for by ERP implementations, you will not want to read this book—guaranteed—and you will not want other people to read it. Your life would be more difficult if this information got out. However, if you are one of these partners, the problem is that you will have nothing but anecdotal evidence (you have seen ERP work and provide value to clients), argumentum ad numerum (lots of companies use ERP and how can they be wrong?), or ad hominem (the author must not know what he or she is talking about), because the research on ERP will not support what you are telling your clients nor your luxurious lifestyle. Very few people have suggested what I propose in this book, so it’s rare that people have even had to confront the question of the evaluation of evidence regarding the benefi ts of ERP. I can anticipate the negative responses because one person, Cynthia Rettig, wrote one of the few articles that were not critical of ERP in an ancillary way, but were critical of ERP’s foundation. Many of the criticisms of her article fell into categories listed in the previous paragraph (argumentum ad numerum, ad hominem, etc.). Even the most educated part of society—people with PhDs in the sciences—finish their academic careers still clinging to the idea that new discoveries disproving the theories upon which they built their careers must somehow be wrong. A famous example of this is Albert Einstein. Einstein was eerily prescient about most of his scientific hypothesis; in fact he is widely credited with seeing fifty years beyond any of his contemporaries. However, when he made predictions about the new science of quantum mechanics, he was incorrect. Niels Bohr—a thought leader in what was an entirely new field and who did not follow rules of “large” physics—was proven correct. It turns out that God does play with dice after all. The desire to find evidence to support one’s already existing hypothesis and to filte out contradictory information is called “confirmation bias.” It is one of the most powerful of cognitive biases and exists in all of us—except not necessarily to the same degree in each individual, and not to the same degree in each individual at each age in their lifetime. Confirmation bias explains why things that are learned early in life, no matter how false, are adhered to so strongly into adulthood. It explains why advertisers will pay more to reach younger viewers than older viewers.

The Young Impressionable Brain

The young brain is the most malleable; it exhibits what neurologists call neuroplasticity and as such it can learn new things quickly. As the brain ages, it develops specific neural connections (actually, the development of knowledge means creating some neural connections at the expense of other neural connections), meaning that it becomes increasingly “hard wired” for particular thoughts and particular ways of thinking as we age. Although sometimes suggested, it is not true that the best-educated people are immune to confi rmation bias. The more an individual has invested in any philosophy or course of action, the more they have to lose by adapting to a new way of thinking. In fact, merely following advice can reduce the ability to question that advice, particularly if that advice comes from an entity with some type of authority. The investment can be both psychological as well as real (in that one receives negative real world consequences for changing one’s views). Both of these factors—the psychological need to protect previous mental investments as well as real world consequences of changing one’s views—frequently combine to prevent people from changing to a new and better way of doing things and often make the mind impervious to contradictory information. There is research indicating that math is performed with less accuracy when the conclusion is in conflict with one’s beliefs. One question to ask is:

“Can the person who disagrees with the contentions in this article actually afford to agree with them?”

The Test of Financial Bias

Most importantly, do they have a financial bias? As for myself, I can reasonably propose that I am financially unbiased with respect to ERP, unlike the few other authors who have written on the topic of ERP. I do not make my income from ERP, but I do derive work based on the sale or implementation of ERP. I connect the systems I work with to ERP, and if ERP were to go away tomorrow, I would simply connect a different system to the planning systems in which I specialize. For the longest time it has been proposed that ERP serves as a backbone and helps the implementation of other systems. However, from my experience I have found that ERP tends to interfere with implementing other systems (although, I should say that all of my implementation experience is with “Big ERP,” and in performing research for this book and other research initiatives at Brightwork Research & Analysis, I’ve found some ERP systems that do not impose as much interference). I have been impressed with several smaller “ERP” applications; while they have similarities in terms of their footprint; they have nothing in common with Tier 1 or Tier 1 ERP software vendors in terms of costs, account control, business model, and a variety of other factors.

The Lack of Questioning with ERP

Quite simply, ERP has been ubiquitous and an unquestioned necessity. Certainly, I don’t recall people saying they liked any of the ERP systems that had been on these projects, but that did not really matter; ERP was just the reality. After this conversation with my colleague, I began researching the topic of ERP’s usefulness and value-add to companies. I expected to find a large number of books—and quantities of research and articles—that demonstrated the benefi ts of ERP. Instead I found quite the opposite. Here is a synopsis of what I found:

  1. There are few research studies on the benefits of ERP. The research that does exist shows that ERP has a low financial payback.
  2. Research into multiple aspects of ERP by serious researchers (not some survey by a consulting company or IT analyst firm) clearly shows that ERP significantly changes companies, but that the benefi ts from these changes are of a dubious nature. That is, there can be a mixture of positive and negative outcomes from ERP implementations.
  3. The actual research is at complete odds with most articles on ERP, which almost universally promote ERP as a virtue.
  4. Most of the information on ERP is unsubstantiated hyperbole written by people who benefi t fi nancially from ERP implementations directly, or by those who have “sampled the Kool-Aid” and simply don’t question any of the assumptions about ERP.
  5. There are no books that question the benefits of ERP.
  6. There is no book on the history of ERP.

What the Research into ERP Revealed

What I discovered through my research was that my colleague’s single observation was only the tip of the iceberg, only one example of what turned out to be multiple false assumptions about ERP put forward by multiple entities over many years. I actually held several false assumptions regarding the benefits of ERP myself; I had never analyzed the issue closely, and had been fed a steady stream of misinformation about ERP by biased parties and those who simply repeated the message they had heard from others. However, after I read the academic research on ERP, I was appalled to find unsubstantiated statements about ERP made repeatedly and routinely by individuals who presented themselves in their articles as knowing something about the ERP market. Of all the technologies I have researched, the coverage about ERP that I found was probably the worst journalism I have ever encountered. In fact, based on my research, I concluded that the vast majority of articles on ERP are misleading and not useful to people who are attempting to truly understand ERP.

Of course, the articles are extremely useful to companies that wish to sell ERP software or services. Interestingly, ERP is a topic that has not been analyzed critically outside of the academic literature. For those who believe that—at any time, at any place—the best determining factor of what is true is what most people think, this will not be a good book for you. Examples of when the prevailing opinion is incorrect are simply too easy to point out for anyone to be able to propose that generally agreed-upon opinions are correct. For instance, at one time, various gods explained all physical phenomena.

Conclusion

Since I began working with ERP in 1997, I have found that ERP systems have interfered with the value that can be obtained from business intelligence systems, bill of material systems, web storefronts, etc., in addition to the planning systems I have implemented (in fact, pretty much any system that must be connected to the ERP system). In the past I simply accepted this as the way it was: I thought IT implementation had to be diffi cult and frustrating. My exposure to many systems that are far easier to implement and have better functionality than Big ERP has led me to question my assumptions. More companies should be asking themselves this question; unfortunately these types of questions are not asked because a groupthink has settled over the topic of ERP.

Financial Disclosure

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.

ERP Contact Form

  • Want Honest Information about ERP?

    It is difficult for most companies to make improvements in ERP without outside advice. And it is close to impossible to get honest ERP advice from large consulting companies. We offer remote unbiased multi-dimension ERP support.

    This article is free, we do not answer questions for free. Filling out this form is for those that have a budget. If that describes you, just fill out the form below and we'll be in touch asap.

References

Thanks to Ahmed Azmi for his contribution to this article.

The Real Story on ERP

ERPThe Real Story Behind ERP: Separating Fiction From Reality

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.

Chapters

  • 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

Who Loves ERP Systems?

Executive Summary

  • ERP systems are frequently defended.
  • Who defends them (and who doesn’t) tells you a lot about who the ERP systems actually benefit.

Introduction

What you discussed about ERP projects is exactly what the academic literature shows, and which no implementer or vendor is interested in acknowledging. That is over decades of studies, ERP has no ROI as we cover in the book The Real Story Behind ERP: Separating Fiction from Reality. But remember, everyone has to have an ERP system. They are mandatory and to question this orthodoxy is to be dismissed as a wearer of a tin foil hat. Everyone knows that you need one. Except they have a negative ROI. But of course, everyone needs one!

And furthermore, no combination of systems can be used (i.e., connecting a financial system to a supply chain planning system to other systems). Also, you can’t start with a few systems and add customization. No matter what the industry or how poor the fit with the ERP system, you must use an ERP system. All of the financially interested parties have spoken on this topic.

A Typical SAP ERP Implementation

Let us take a look at a typical Deloitte implementation with SAP. After years and hundreds of millions spent, how does the implementation get a positive ROI? Obviously, the cost is the denominator in the calculation, so the bigger it gets the bigger the payoff needs to be.

I covered in this article how consulting companies parasitized by vendors and consulting firms as I covered in the article How Vendors and Consulting Firms Parasitized the ROI of IT.

Open Source With Customization and Integrated Applications Never an Option?

SAP consultants laugh when I present open source ERP options like ERPNext.

However, with open source ERP, you can now add customization and better individual applications, and you have plenty of budget to do it. The sort of amazing thing about this is there are no SAP customers I have ever seen that feel particularly advantaged by “having an ERP” system. It’s more considered a boat anchor. Now, who might jump on this article to defend SAP? Most likely it won’t be a customer saying

“How dare you; I love my SAP ERP!”

Instead, it will be an SAP consultant or SAP sales rep who makes money from SAP. Invariably the biggest supports of ERP are not users.

How Executives Give Their Users Systems They Don’t Want

Who supports ERP systems in ERP customers? Executives. Executives who make the purchase decision, who get wined and dined by the vendor-consulting firms. Moreover, the exact people who never log in to the ERP system. If you want an endorsement from an executive in technology, ask them what they use for email and calendar scheduling. In that they are experts.

Users of ERP are non-plussed. Go into the cubicle area, and people are trying to get their work done, with SAP often getting in the way. But who thinks ERP is great? It is the people who ride the ERP money train. But we already know that the consultants love ERP. Sales reps love cashing ERP commission checks.

No kidding. We all know people like getting paid.

The question is what is the ROI for the customer, not for the vendor or consulting firm.

The Implications of ERP Systems

Contrary to popular belief, not all companies have implemented ERP. Is there is any reason for those companies that do not use ERP to start? Furthermore, many companies that have ERP systems have implemented only certain modules, and within these modules only certain functionality. Perhaps by communicating the true payoff of ERP, it will have a positive effect by making even small adjustments in the behavior and decision-making of ERP vendors and buying companies. ERP vendors and consulting companies that specialize in ERP have not given their clients the accurate story. That is a problem because every year, companies must essentially decide anew how much to reinvest in their ERP system. This reinvestment can take many forms.

  1. Support Fees and Upgrades: Means paying the yearly support fee, and upgrading the software—which also means investing resources in understanding the release notes, testing the new version—making sure the new version is compatible with other applications and with already written customizations.
  2. Deepening the use of ERP: Often means choosing to activate more ERP modules and more functionality within the modules as well as adding more customization to the system to meet various business requirements.
  3. Adding More Non-ERP Applications from the ERP Vendor: Can mean purchasing additional non-ERP applications from their ERP vendor that will not necessarily give the business what they need but will meet the needs of the IT department and will be “integrated” to their ERP system. This can extend to infrastructure, content management and business intelligence software. Some of the large ERP vendors in particular develop sales plans to take over most of the software purchase for any enterprise software that their current ERP customers buy.
  4. Deepening the Interaction with the Vendor: Software vendors like their customers to attend conferences, talk about their success stories, be part of user groups, etc.

The most common decision over the past several decades has been for companies with ERP systems to increase their involvement and purchases with their ERP vendor in any of the ways mentioned above, but is that the right decision? Purchasing companies get a steady stream of information from the software vendor and consulting companies that other customers who follow the advice that the ERP vendor recommends continue to see gains in their business and efficiency—but is this true? So much of this information is financially biased because it comes from a desire to sell more ERP software and services, but where can companies turn to find out the “real story,” and one that is not biased
by promotion.

Conclusion

ERP promises, over a 5 year period, an increase in business productivity. When we compare the before and after figures, we see no increase in revenue per employee or units of output or profit per person-hour. In fact, we often see an increase in IT staff to employee ratios (for obvious reasons and to maintain the ERP system). In this case, the ongoing cost of the IT investment keeps escalating until it consumes most of the IT budget leaving no room for innovation.

To answer the question, “Who defends ERP systems.” The answer is those that benefit the most from their implementation — vendors and consultants.

Financial Disclosure

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.

ERP Contact Form

  • Want Honest Information about ERP?

    It is difficult for most companies to make improvements in ERP without outside advice. And it is close to impossible to get honest ERP advice from large consulting companies. We offer remote unbiased multi-dimension ERP support.

    This article is free, we do not answer questions for free. Filling out this form is for those that have a budget. If that describes you, just fill out the form below and we'll be in touch asap.

References

Thanks to Ahmed Azmi for his contribution to this article.

The Real Story on ERP

ERPThe Real Story Behind ERP: Separating Fiction From Reality

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.

Chapters

  • 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

Is the Concept of ERP Passed its Expiration Date?

What This Article Covers

  • Conventional Wisdom Versus What is True
  • The Built-In Problem with ERP
  • ERP Systems as Simplistic Platitudes to Sell Mediocre Software
  • The Everpresent Alternatives to ERP

Introduction

While commenting on an ERP study, we were asked the question if ERP is essentially an expired concept. In this article, we will answer this question.

Conventional Wisdom Versus What is True

There are really a few different dimensions in which the question of whether ERP is passed its expiry date should be discussed.

  1. One is the dimension of conventional wisdom. Conventional wisdom does not have a lot to do with what is true. So as far as when conventional wisdom changes I have no idea, and I can’t predict when people will gain a better understanding of things. That is a question of mass psychology not what is real.
  2. But if we consider the dimension of what is true — where I am much more comfortable.

Therefore the reality of ERP as an expired concept is what I will address.

The Built-In Problem with ERP

ERP is a problem because it leads people not to question the quality of the system. It is a category that has an inherent assumption that the functionality does not have to be very good because it is ERP, and “everyone knows” you need an ERP system, so shut up and take your ERP medicine. This type of force-feeding of systems that are a bad fit for requirements, or where the business requirements are diminished in importance is the dominant approach of the major consulting companies who work in very top-down fashion. No questioning is tolerated at either the client or within the consultancies themselves.

There is little doubt now that ERP systems were sold on false pretenses, and they did not meet their lofty objectives. (We have a wealth of information that supports this at Brightwork, and a book on the topic.) Yes, the finance system was “out of the box” connected to the supply chain system, but the outcome was you ended up with a shitty supply chain system! What if I sell you a washer and dryer. The washer is great, but the dryer is bad. But how about if I bundle it for you? Personally, I still don’t want that. I want a good washer and a good dryer.

ERP Systems as Simplistic Platitudes to Sell Mediocre Software

ERP systems were, in essence, a simplistic platitude that was appealing. Remember, the first sales pitch of ERP was that it was the only system you would ever need. So ERP systems were sold with a sophistication similar to razors or coffee.

Let us think of some marketing jingles, shall we? Just for comparison purposes.

“Gillette is the best a man can get.”

“The best part of waking up is Folgers in your cup.”

How is that any different from you need a

“Single integrated system that will replace all other legacy systems?”

The Everpresent Alternatives to ERP

There always were many good alternatives to ERP systems. Everything from custom coded solutions to a combination of best of breed with a more moderate amount of custom code, to open source ERP with best of breed, etc… It is a cornucopia of options. But these options could not be seen because in my view, of the high conformist nature of the people to become executives.

Executives are Type A go-getters with little interest in researching things below the surface. Therefore, they often rely on simplistic platitudes.

But there are more options than ever, and the power of ERP should (I say should) decline because it is obvious what the outcome of ERP implementations have been — you just have to pay attention.

Conclusion

So as a principle, it is foolish to be impressed with a system because it is bundled. It is also unwise to try to single source most of your software from one vendor. SAP customers are finding out with indirect access claims and continually increasing support costs, that the more leverage the vendor has over you, the worst you will be treated over time. SAP ERP systems do not have an ROI, and that negative ROI is going to grow as SAP continues to harvest more and more out of their customers. And the customers are now trapped because they have a vendor they over-relied upon, thinking they would have fewer headaches by concentrating their vendor spend.

ERP Contact Form

  • Want Honest Information about ERP?

    It is difficult for most companies to make improvements in ERP without outside advice. And it is close to impossible to get honest ERP advice from large consulting companies. We offer remote unbiased multi-dimension ERP support.

    This article is free, we do not answer questions for free. Filling out this form is for those that have a budget. If that describes you, just fill out the form below and we'll be in touch asap.

Brightwork Explorer for ERP Parameters

How to Tune ERP Systems

ERP applications require MRP parameters to be optimized externally to the ERP system. Having analyzed many ERP systems, we developed the Brightwork MRP & S&OP Explorer. It is free to access until it sees “serious usage” and is free for students and academics. Click the image to find out more.

References

The Real Story on ERP

ERPThe Real Story Behind ERP: Separating Fiction From Reality

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.

Chapters

  • 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

How to Understand ERP as The F-22 of Enterprise Software

What This Article Covers

  • Understanding the F-22 Program
  • Quotes from Scientific America on the F35
  • F-22 and F-35 Failures
  • Continuing the Unending Fiasco that is the F-22 and F-35
  • The Political Engineering of ERP
  • Pushing Customers to Reinvest in Low or Negative ROI ERP Systems
  • The Example of S/4HANA
  • How ERP Vendors Overstate the Integration Argument
  • Maintaining a Portfolio of Applications that are Not the Expertise of the ERP Vendor
  • Driving Industry Consolidation

Introduction

In the book The Real Story Behind ERP: Separating Fiction from Reality, I explained something that no major IT consulting company or ERP vendor would want to get out. That is that the consensus of all the academic studies into ERP show that ERP systems do not show a positive ROI.

However, particularly for ERP systems from the largest vendors, ERP systems have shown an even more nefarious outcome than simply having no ROI themselves. This is that the ERP system is used by the software vendors and the consulting companies to direct IT purchases into other inefficient areas as well.

Understanding the F-22

The F-22 fighter is a long-running exorbitantly expensive initiative to develop the next generation fighter for three branches of the US military, which began all the way back in 1991.

  • Twenty-seven years later, the F22 costs roughly $68,000 per flight hour.
  • The F-22, while having been featured in movies has barely taken part in any military action. The F-22 is a stealth aircraft, but for a publicity stunt, it has been used occasionally to bomb Afghanistan — a country without radar.
  • The F-22 has a massive logistics tail and unending reliability problems.

However, the proposal was that all of this would work out because it would go into the F-35. As explained in the video below, this was always a deception developed by those trying to keep the program alive.

As the video above explains, the fact that the F-35 is of little use, but its continued purchase cannot be stopped.

Lockheed Martin, as with ERP vendors issues simplistic platitudes to support the F-22 and now F-35. One is that the planes provide jobs, but of course, any plane produced would also provide jobs, therefore it need not be a bad plane. Second, Lockheed Martin has conflated support for the F-22 and F-35 with patriotism. Good patriots who love America want to get ripped off by Lockheed Martin and field the most wasteful fighter jet ever produced in the history of humankind. Americans who want a better value are unpatriotic and may not love America sufficiently.

ERP vendors, and their partners in crime, large consulting companies follow similar approaches in establishing ERP systems as the only option. “Everyone agrees” that ERP systems are necessary and are the “digital core” (as proposed by SAP). And something that all the people who agree with this have in common is that a) they sell or otherwise financially benefit from ERP systems, or b) they have never analyzed the issue in a sufficient level of detail to develop an informed viewpoint on the topic.

Quotes from Scientific America on the F35

Like ERP the F22/F35 has been relentlessly pitched by those that either make ERP or make money off ERP using exaggerated claims. With respect to the F22/F35, this is explained in the following quotes.

“The company building the F-35 has made grand claims. Lockheed Martin said the plane would be far better than current aircraft – “four times more effective” in air-to-air combat, “eight times more effective” in air-to-ground combat and “three times more effective” in recognizing and suppressing an enemy’s air defenses. It would, in fact, be “second only to the F-22 in air superiority.” In addition, the F-35 was to have better range and require less logistics support than current military aircraft. The Pentagon is still calling the F-35 “the most affordable, lethal, supportable, and survivable aircraft ever to be used.”

But that’s not how the plane has turned out. In January 2015, mock combat testing pitted the F-35 against an F-16, one of the fighters it is slated to replace. The F-35A was flown “clean” with empty weapon bays and without any drag-inducing and heavy externally mounted weapons or fuel tanks. The F-16D, a heavier and somewhat less capable training version of the mainstay F-16C, was further encumbered with two 370-gallon external wing-mounted fuel tanks.

In spite of its significant advantages, the F-35A’s test pilot noted that the F-35A was less maneuverable and markedly inferior to the F-16D in a visual-range dogfight.

Lockheed Martin and the Pentagon say the F-35’s superiority over its rivals lies in its ability to remain undetected, giving it “first look, first shot, first kill.” Hugh Harkins, a highly respected author on military combat aircraft, called that claim “a marketing and publicity gimmick” in his book on Russia’s Sukhoi Su-35S, a potential opponent of the F-35. He also wrote, “In real terms an aircraft in the class of the F-35 cannot compete with the Su-35S for out and out performance such as speed, climb, altitude, and maneuverability.”

Other critics have been even harsher. Pierre Sprey, a cofounding member of the so-called “fighter mafia” at the Pentagon and a co-designer of the F-16, calls the F-35 an “inherently a terrible airplane” that is the product of “an exceptionally dumb piece of Air Force PR spin.” He has said the F-35 would likely lose a close-in combat encounter to a well-flown MiG-21, a 1950s Soviet fighter design. Robert Dorr, an Air Force veteran, career diplomat and military air combat historian, wrote in his book “Air Power Abandoned,” “The F-35 demonstrates repeatedly that it can’t live up to promises made for it. … It’s that bad.” – Scientific America

Continuing the Undending Fiasco that is the F-22 and F-35

ERP is eerily similar to the F-22 and F-35 not only in the inability to meet exaggerated claims but in how it has created a great number of financially biased entities that support it. For the F-35, the proponents of the fighter are the politicians in the various states. The customer is the normal US citizen (ostensibly who is purchasing defense), i.e. the taxpayer. However, the decision maker is different than the taxpayer. The politician is far more focused on their political career than defense overall. Many years after the JSF was conceived, and with the development of drones (which often run around $5,000 per flight hour), there are many who question whether the F-35 has any reason for existing. But this does not matter to the US politicians that seek to direct revenues to their states.

Lockheed Martin need only make payments to the right politicians and then set up the F-35 so that most US states receive income from the F-35 (right now 46 out of 50 states do).

This is enough to have the F-35 continue to be purchased, regardless of whether it is a good fighter or a good value for US taxpayers.

The video uses the term “political engineering,” to describe how Lockheed Martin continues to receive funding for the F-35.

The Political Engineering of ERP

ERP has its own proponents. While ERP is a poor value for most companies that have implemented ERP (as explained in the book The Real Story Behind ERP: Separating Fiction from Reality), ERP is very good for the largest consulting companies. These consulting companies are very high on recommending ERP systems. Normally ERP systems from the largest vendors like Oracle and SAP, but especially SAP.

The lesson from the history of enterprise software history is that consulting companies don’t much care what is the right software for their clients to purchase and implement. They are in it to maximize their own billing hours. Therefore, they will recommend the software categories and the vendors within each category that maximizes their revenues. The longer your software takes to implement, and the worse value the software is for the end customer, the more the large consulting companies will sing your praises!

The clients of consulting companies don’t seem to recognize that nearly all of the consulting company’s “recommendations” are determined by working backward from self-interest. 

In the Vox video, it states.

“Despite deep design flaws and constant problems, there have been no serious efforts to cancel or scale back the project.”

This quotation was referring to the F-35, but it applies equally to ERP systems. Once in place, ERP systems take on a life of their own.

Pushing Customers to Reinvest in Low or Negative ROI ERP Systems

The ERP vendors continually reinforce investing more back into the ERP system. This can take the form of unnecessary upgrades. Increasing support costs, customization remediation, etc..

The Example of S/4HANA

For the past three years, SAP has been telling a wide variety of lies about S/4HANA in order to…you guessed it, get companies to redirect even more money into ERP, even though companies that do this will have little hope of getting this investment back. S/4HANA is an amazingly brazen example of how many ERP vendors harvest their accounts in that SAP’s demand that customers pay for what is merely and upgrade to ECC and should be covered by SAP’s 22%+ yearly software support fee. (we covered this topic in the article Why S/4HANA Should be Free). SAP does not worry about their claims about R/2, R/3 and ECC not coming true, they have simply pushed the claims forward to S/4HANA.

For example, SAP has stated that running MRP and end of period close is really horribly problematic in ECC, and therefore companies should move to S/4HANA. However, curiously, when SAP was selling companies on moving to ECC, they did not at time point out how horribly ECC was in these two processes.

Statements made by both SAP and other ERP vendors win our Golden Pinocchio award. The intent is to make it seem as if everything the ERP vendors offers is “naturally integrated,” and that other vendor that connect to their ERP do not also use adapters. 

How ERP Vendors Overstate the Integration Argument

ERP vendors use their relationships with customers to push their customers to purchase other non-ERP software that they offer, arguing that while it may not be competitive in its own right, at least it is “integrated” back to the ERP system. This argument dilutes the most important aspects of software that should drive any software purchase, which is the quality of the software, combined with how well that software matches business requirements of the customer. It is also misleading because ERP vendors use an adapter to connect their non-ERP to ERP systems, in the same way, that non-ERP vendors do.

This results in large amounts of mediocre or worse software that has been acquired by ERP vendors, only being selected because it happens to be owned by the ERP vendors. Not because it is good software, and not because it meets the business requirements. Therefore the ERP system cannot be looked at in isolation from its impact on the rest of the company’s IT landscape. While as was pointed out already, the studies point very clearly to ERP systems not having an ROI, ERP systems also reduce the ROI of the other systems that a company purchases. This is accomplished through the way that ERP redirects purchases away from competitive applications to the applications that the ERP vendor happens to have in their stable.

When taken as a whole, this means that it is the case the ERP has a substantially negative ROI when this larger effect is taken into account. These types of analyses are not done in the industry. The assumption is that ERP has a positive ROI. A positive ROI that has never been proven. Therefore the analysis of the impact of ERP on the ROI of related applications is beyond the industry’s ability to process or even analyze properly. 

The IT organizations within companies, that are often more interested in keeping the number of software vendors to a minimum, push for what is most cases the worst software for the business inside of their companies to use, so they can both deal with fewer vendors. Another prime motivator is so the IT decision maker can show their allegiance to specific vendors to which they frequently have more loyalty than to the company they receive their paychecks from.

Maintaining a Portfolio of Applications that are Not the Expertise of the ERP Vendor

This has caused ERP vendors to maintain broad portfolios of applications that normally are not adept at maintaining. That means acquiring applications that they have no business acquiring. SAP is an excellent example of this. SAP has really only ever demonstrated competency in ERP, yet they maintain a broad portfolio of bad applications that have nothing to do with ERP. Applications that get acquired by ERP vendors to “broaden the portfolio” become less prominent over time.

Driving Industry Consolidation

ERP vendors have in many cases acquired other non-ERP applications, specifically, so they could force these non-ERP applications into their accounts. And thus, ERP has been a force of consolidation in the enterprise software market, making the overall market less competitive.

Along with the consulting companies, many directors and VPs of IT have an incentive to keep up the high investments into ERP for career reasons, which means that ERP continues to soak up resources, further decreasing its ROI from neutral to negative, to steeply negative.

Conclusion

None of the ERP vendors ever proved the early claims that ERP would have an ROI or that they would improve the operation of companies. In fact, several of ERP vendors claims, ranging from best practices to re-engineering to ERP being the only system a company would ever need, is now in shambles. But luckily for the ERP vendors, people generally do not have very good memories, and there is now good evidence that digital media and a number of other modern factors is making this worse, further eroding both attention span an memory. If we had a properly functioning IT media system, IT media entities would cover where software vendors and consulting companies made projections that ended up not coming true. However, the IT media systems are themselves paid by the largest IT entities and therefore they are actually part of the problem. Because of this all of the things that ERP vendors (and Gartner, and the major consulting companies, and IT media) said would happen because of ERP, they are not held accountable for being so wrong.

Companies that have ERP systems are at a distinct disadvantage when doing things like running MRP. When companies purchased ERP systems they had no idea that the systems could not survive without keeping legacy systems (or heavy customization), spreadsheets, and Scotch Tape. Yet the orientation of most companies is to “get as much as possible” out of their ERP systems, whether or not the ERP system is any good at doing what it is tasked with doing. Outside of the supply chain system being integrated into the financial system, nothing else that the ERP vendors claimed came true.

ERP became popular and continues to be the largest category of enterprise software not because of its technical capabilities, and not because of what it does for customers, but because as with the F-22/F-35, ERP systems were politically engineered. And the major IT media entities, IT analysts, ERP vendors, and ERP based consulting companies, all of whom were part of ERP’s financial engineering have any interest in having any of this known.

ERP Contact Form

  • Want Honest Information about ERP?

    It is difficult for most companies to make improvements in ERP without outside advice. And it is close to impossible to get honest ERP advice from large consulting companies. We offer remote unbiased multi-dimension ERP support.

    This article is free, we do not answer questions for free. Filling out this form is for those that have a budget. If that describes you, just fill out the form below and we'll be in touch asap.

Brightwork Explorer for ERP Parameters

How to Tune ERP Systems

ERP applications require MRP parameters to be optimized externally to the ERP system. Having analyzed many ERP systems, we developed the Brightwork MRP & S&OP Explorer. It is free to access until it sees “serious usage” and is free for students and academics. Click the image to find out more.

References

https://www.scientificamerican.com/article/what-went-wrong-with-the-f-35-lockheed-martins-joint-strike-fighter/

http://nationalinterest.org/blog/the-buzz/the-real-reason-the-us-air-force-wont-build-new-f-22-raptors-15920

https://www.politicopro.com/defense/whiteboard/2016/04/thornberry-supports-study-on-restarting-f-22-070837

http://www.popularmechanics.com/military/aviation/a13820424/f-22-drug-lab-afghanistant/

The Real Story on ERP

ERPThe Real Story Behind ERP: Separating Fiction From Reality

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.

Chapters

  • 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

Enterprise Software Risk Book

Enterprise Software Project Risk Management: How to Control the Main Risk Factors on IT Projects

What the Book is About

This book is tied to the book Enterprise Software Selection. This is because the first place to manage risk is during the software selection phase, which is the opportunity to connect the best available application to the business requirements. There are of course many other risks that require enterprise risk management after the software is selected and implementation has begun. This is the first book to focus on the interpretation aspects of enterprise risk management in term of the information that is received from the main information providers such as consulting companies, vendors and IT analysts. The book explains how to triangulate on data sources, and is less about the mechanical aspects of enterprise risk management — which is covered in other books and online material. It is much more focused on providing practical information from years of experience in enterprise risk management and seeing the how companies can often struggle to find accurate information and unbiased advice on the topic of enterprise software decision making. Surprise, not all information providers in this area actually lead companies to risk-appropriate decisions, and the book covers how many of the techniques that implementing companies use as shortcuts to reduce the t

This is the first book to focus on the interpretation aspects of enterprise risk management in term of the information that is received from the main information providers such as consulting companies, vendors and IT analysts. The book explains how to triangulate on data sources, and is less about the mechanical aspects of enterprise risk management — which is covered in other books and online material. It is much more focused on providing practical information from years of experience in enterprise risk management and seeing the how companies can often struggle to find accurate information and unbiased advice on the topic of enterprise software decision making. Surprise, not all information providers in this area actually lead companies to risk-appropriate decisions, and the book covers how many of the techniques that implementing companies use as shortcuts to reduce the risks of their projects actually increase the riskiness of their implementations.

  • Vendor Risk Management
  • Enterprise Risk Management
  • Risk Assessment
  • Client Specific Risk Assessment

A Book Based in Reality

The book provides many examples from real life project experiences, the emphasis being on the reality of planning projects.

Interconnected to Web Information

Buy Now

Chapters 

  • Chapter 1: Introduction
  • Chapter 2: Enterprise Software Risk Management Misconceptions
  • Chapter 3: The Basics of Enterprise Software Risk Management
  • Chapter 4: Understanding the Enterprise Software Market
  • Chapter 5: Software Sell-Ability Versus Implement-Ability
  • Chapter 6: Controlling for IT Consulting Advice
  • Chapter 7: How to Use The Reports of Analyst Firms Like Gartner
  • Chapter 8: How to Interpret Vendor Provided Information to Reduce Project Risk
  • Chapter 9: Evaluating Implementing Preparedness
  • Chapter 10: Using TCO for Decision Making
  • Chapter 11: The Software Decisions’ Risk Component Model Defining The Components of Risk

How ERP System Was a Trojan Horse

 Executive Summary

  • ERP vendors presentation the concept of a single system for everything, and later a fully integrated suite.
  • Neither of these proposals ended up being true. Increasingly ERP looks like a Trojan Horse.

Introduction

ERP fundamentally reconfigured the marketplace of enterprise software and became a major software category. ERP had a second impact in that it positioned several vendors extremely well to sell other types of software. However, what is almost never discussed is whether the logic that was used to persuade companies to purchase ERP systems has proven to be true over time. This is the topic for this article. In it, I will analyze the primary reasons provided for ERP implementations, and how that logic has held up.

One of the largest trends in enterprise software was ERP vendors acquiring their way into non-ERP applications. (In the case of Oracle, it was Oracle moving into applications overall, purchasing both ERP and non-ERP systems).

A major reason why software vendors have gone on acquisition sprees is due to the resonance of the concept of the single integrated suite.

In this article, we will review the philosophy that integrated suites and gets into more detail than is typically done when this term is used, finishing off by getting into the topic of how ERP systems became a Trojan Horse.

The Single System Logic for ERP

The initial idea behind ERP systems was that it would take many applications and make them a single system – reducing application integration issues.

“Many technical reasons exist including the replacement of disparate systems into a single integrated system (Hitt et al., 2002).”

However, after the major ERP vendors sold the ERP product into companies, they began to develop specialized products for things like supply chain planning, business intelligence, customer relationship management, etc.. This was done for several reasons. One was that there was simply no way that an ERP system, with its simple approach to all functionality – with the possible exception of finance and accounting, could meet all the needs of companies. Secondly, once ERP companies had sold their ERP applications, they needed to develop more applications to grow their sales. Once they had the ERP system implemented, they had the network effect on their side, as the ERP system is the mother ship application for a company, the application or set of applications to which other application must all integrate. This allowed ERP vendors to unfairly compete by telling companies that their applications had a head start in integration to the company’s ERP system. Companies like SAP and Oracle promptly took full advantage of this market power.

This means that they were in a competitive position to be able to sell more software into these accounts. These applications all have their platforms and do have adapters to one another, but are each a separate application, with a different database, sitting on different hardware. This means that companies are essentially back where they started before the move to ERP systems. Except, they now rely more on external application development through commercial software rather than internal application development. This leads to the next point.

The Logic of Cost Reduction for ERP

All of these factors undercut one of the primary arguments that were often used to sell ERP systems, which they would reduce costs. As is explained above, the main argument for IT simplification based cost reduction is gone. However, after ERP systems had been sold, that logic conveniently left the building, or declined as a point of emphasis, because after ERP software had been sold, the motivation moved towards selling different types of software. I noticed this change at SAP. Back in the late 1990s, before they had a supply chain planning system, SAP essentially told companies that supply chain planning systems (which duplicated some of the supply chain functionality in SAP R/3, but also offered supply chain functionality not in ERP systems and provide much more advanced functionality.) was unnecessary. However, after they developed their external supply chain planning system, they changed their tune and proposed that it was now very necessary.

Business Cost Reduction

The second area where ERP systems were supposed to save companies money was in the standardization of business processes. This has been accepted uncritically, as the quotation below demonstrates.

“It is also one of the most worthwhile initiatives for securing your place in a competitive market. A successful, enterprise-wide implementation will move your company from one with piece-meal business procedures and no overall plan, to a re-engineered organization that is poised to take growth and profitability to a whole new level.”

However, there was never any evidence that this was, in fact, true. Searches for research in this area do not produce studies which show the beneficial effects, or the cost reducing effects of ERP implementations. However, there are several studies in the area. Interesting quotes have been listed below:

“The benefits of ERP systems are usually overestimated by ERP vendors.”

The Best Practice Logic for ERP

The manner in which SAP pushes the concept of best practices is extremely easy to ridicule, as I have done in multiple articles such as here and here. SAP simply took the initial pitch of best practices from their ERP system sales approach and applied it to other products such as their supply chain planning suite. As an expert in these SAP systems, I can say that any statement regarding best practices in the SAP supply chain planning APO suite is utterly unfounded. Not only does SAP APO not contain best practices, but many of the areas of functionality in APO are a worst practice. After more than that a decade of opportunity, very few companies have benefited from buying or implementing APO, with companies having a higher likelihood of failure with APO than success. It makes one wonder if the entire best practice logic for ERP ever had any validity. What many vendors call “best practice” often seems to be a code word for “generic” functionality. For instance, many companies would say that posting a goods receipt document after a product has been scanned into a warehouse is a best practice. But is it, or is it simply generic. In the say way, is using a steering wheel to steer a car a best practice? Indeed one could say it is, but it is also now a generic offering. Furthermore, ERP systems had watered down functionality. This was acknowledged even by ERP vendors, but it was counteracted by improved integration. How such watered down functionality can also contain “best practices” is a mystery.

The Integration Logic for ERP

ERP systems integrated some things, but not all things. And again, because corporate landscapes have so may applications, there is still a lot of integration work that needs to be done. One of the areas of logic for ERP systems was that the company would be better integrated. However, it is hard to see how that is the case, and wouldn’t this improvement show itself in financial performance? As pointed out in a research study into the benefits of ERP.

“In the end, it could be said that previous research suggest that a mixed result exists when analyzing the effect of IT on business performance where some studies supported a positive relation while others suggested that companies adopting ERP did not perform financially better than non-adopting companies (Nicolaou, 2004). It can be also said that the effect of IT on business performance differs from country to country (Pilat, 2004) and should be considered when measuring business performance gains due to IT adoption.

Therefore, previous research has found contradicting findings regarding the effect of ERP systems on business performance. While some researchers have found that ERP systems can affect overall business performance positively, others have only found ERP systems to affect specific areas communications of the IBIMA 6and not the overall business performance. This can then suggest that ERP systems do not always affect business performance positively and some contributing factors affect this relationship (Kang et al., 2008).”

The Real Benefit of ERP Systems

The only demonstrated benefit of ERP has been to the ERP vendors, not to the buyers or ERP software. A purchase of an ERP system is an extremely efficient way to lock in a customer to a vendor and allowing the vendor to sell them other applications.

The Presentation of the Integrated Suite Philosophy

The presentation of the integrated suite philosophy is that integration between applications that are not from the same vendor is complicated. The concept is that while it may be acceptable to give up functionality and fit between the application and the business requirements, it is highly desirable to purchase as much software as possible from a single vendor into order to receive integration benefits.

There are significant holes with this philosophy even though it is quite prevalent.

Virtually All Applications (Integrated Suite or Point Solutions) Are “Integrated”

Here is the standard type of completely integrated marketing hyperbole offered by integrated suite vendors.

“The SAP NetWeaver technology platform is a comprehensive integration and application platform that helps reduce your total cost of ownership (TCO).”

This sentence is inaccurate. NetWeaver never did anything to improve integration on projects and was more marketing construct than an actual product as is covered in the article Did Netweaver Ever Actually Exist?

But this concept was effectively used to push customers to buy from SAP, and customers found out that Netweaver did nothing to reduce integration overhead. In fact, the argument before Netweaver offered by SAP was that all of their applications were already integrated with each other. If that was the case then why was Netweaver necessary.

Unless the application sits on the same database as another application, all applications require adapters. The only applications that meet this standard are the various modules within an ERP system. For example..

  • The sales module of an ERP system sits on the same database as the finance module. In that case, there is no integration.
  • But this is not true of any non-ERP application.

The Reality Around Adapters

Sometimes the adapters are internal to a vendor, and sometimes the adapters are between applications from different vendors.

But, because in many cases the software that is sold as part of an “integrated suite” is from a variety of different vendors, the adapters that you receive from integrated suites are often nothing more than the adapter the acquired application already had when they were part of the pre-acquisition independent vendor.

Furthermore, the idea that being acquired by a larger software vendor better or more complete adapters to be created is also an oversimplification. There are many stories of integration still being a problem years after an acquisition. In the case of the SAP acquisition of Ariba, Steve Lucas of SAP made a strange statement that we covered in the article The Problems with Diginomica on Steve Lucas on HANA, Oracle, IBM, AWS, and Microsoft.

Steve Lucas made the following statement to Diginomica, that, of course, Diginomica allowed to pass without comment.

“We are integrating that (one of that being Ariba) with our logistics applications, our inventory applications.)”

There is a three year lag between the acquisition of Ariba and this comment by Steve Lucas. How many years are necessary for SAP to integrate an acquisition to SAP’s ERP system?

While doing research for the book The Real Story Behind ERP, I found interesting information regarding the tactics used to sell ERP software. One of the central logics used to sell ERP was that it would decrease the need for integration. This turned out to be false, but was a main motivator for many ERP purchases in any case.

A Better Course for Achieving Integration

A much more effective solution that what has been described above would have been if ERP companies had never been allowed to procure other vendors, and if ERP vendors had not created external products, and instead if they had worked to publish to an integration standard and allowed the middleware vendors, those that were actually skilled at creating middleware to create the adapters.

Why ERP Vendors Invested Nothing in Publishing Standards

ERP companies had no interested in doing this. Instead they intended to use their position at their customers to sell in more software, which was often poorly integrated and uncompetitive with best of breed applications. In this way, the ERP companies put their own interest ahead of their customers’ interests.

This is 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.”

After the Acquisition of a Vendor, How is The Integration Story “So Much Better?”

Applications tend to have adapters to the major ERP systems both to ease the sales process and to speed the integration process. Therefore it is a great oversimplification to give an integrated suite so much preference over applications that are from different vendors. In fact, if a vendor is acquired and already had an existing adapter to the company that acquired it, what changed from the integration perspective due to the acquisition?

We cover this topic specifically in the book Enterprise Software TCO: Calculating and Using Total Cost of Ownership For Decision Making.

“…while many companies like SAP and Oracle lead executives to believe that they will incur minimal integration overhead if they purchase one of their non-ERP applications to connect to their ERP applications, this is untrue. All of SAP and Oracle’s applications sit on different hardware, and while they may have adapters, they are not actually integrated – they have different databases (the term “integrated” is colloquially used to mean any connected systems, but most accurately it means that the systems sit on the same database – when systems have adapters between them, they are not actually technically integrated). The quality and ease of use of these adapters is often not actually superior to the adapters that are written to connect best of breed applications to the ERP system.”

Integrated Suites Tend to be More Expensive in Multiple Dimensions (i.e., Have a Higher TCO)

Integrated suite vendor tends to charge more than point solutions. For example, when an application is acquired by IBM, one of the immediate effects is for the price of that application to significantly rise. But the change in the price of the application license is only one part of the increased TCO.

Integrated suite is also more often implemented by large consulting companies, which increases their TCO. This is the truest of the largest integrated suites and consulting companies will normally only build consulting specialties around these largest vendors. As soon as the application is implemented by a consulting company an consulting company builds a practice around the software, the costs very significantly increase. Consulting companies not only charge more on a daily basis than the consultants of software vendors (not in all cases, but in most cases) but they also lengthen the implementation duration.

And they do this often against the wishes of the software vendor. This extra cost easily overwhelms any increased integration costs that come from integrating point solutions to the existing systems at the account.

Integration Suites as a Way to Reduce Competition?

It is no secret that software vendors do not acquire other vendors to increase the competition that they face. Our research into the growth of ERP vendors other associated applications, after ERP vendors told customers that ERP systems were the only applications they would ever need, is covered in our book The Real Story Behind ERP: Separating Fact from Fiction.

“…this has meant that the business does not get the software it needs. Software selection based on software suites does not emphasize each application (emphasis added), but instead emphasizes the suite. As explained in this quote from Christopher Koch of CIO Magazine, software suites themselves are mechanisms that reduce the competition a vendor must face.

“Indeed, integration standards interfere with ERP vendors’ traditional ways of gaining and keeping customers and market share. Before the Web came along, your integration strategy was simple: Buy as many pre integrated applications from a single vendor as possible. That worked for you, and it worked extremely well for the vendor; integrated application suites fetched a high price and required long- term maintenance and support contracts that promised a steady, predictable stream of revenue from customers.”—ABCs of ERP

How well is that working for companies that bought ERP systems? Did companies find that they were able to eliminate all legacy systems and not use any non-ERP systems?

Integration is Not a Primary Driver of TCO

There is no one else that has performed as much work into TCO as Brightwork Research & Analysis. Our free TCO calculators are available for anyone to use. The poor state of TCO research was uncovered as part of our investigation into TCO, that is the literature review we performed before creating our calculators and writing the only book on the TCO of enterprise software systems. We were not able to find any reliable studies on TCO. Most TCO calculations, for instance, those we analyzed from Salesforce, are simply created by the marketing department of the software vendor. And “shockingly,” in each case we examined the TCO estimation released by the vendor showed them as having the lowest TCO in 100% of the occasions.

One of the conclusions from our research is that integration is an overestimated cost by both the largest software vendors and the consulting companies that align with integrated suites for their own financial reasons. Through recommending an integrated suite, consulting companies can drive their “client” into the highest TCO outcomes.

Consulting Companies Focus on TCO or Set About Maximizing TCO?

It should also be remembered that large consulting companies do not want their customers to know what the TCO of different solutions is. This is because consulting companies like Deloitte or Accenture are significant drivers of the higher TCOs. In our calculators, the highest TCOs routinely came from the purchase of large software suites implemented by the largest consulting companies. In fact, the major consulting companies are a primary reason why the ROI on so many application implementations are actually negative as is covered in How Enterprise Software Was Parasitized by Consulting Firms.

In fact, an extra benefit of using smaller vendors and more point solutions is that companies like Deloitte and Accenture don’t have resources trained and available in those applications, and the applications are typically implemented by the vendor’s consultants.

How Consulting Companies Undermine any Intelligent Software Selection Process for Their Ends

Consulting companies like to create “uni-crop” software environments which allow them to have large numbers of consultants in a relatively smaller number of applications. Consulting companies overstate their software coverage and resource specialization to their clients on a routine basis. They will often hire independent consultants off of the market (as the client could have done) and then present the independent consultant as if they are a full-time employee, and that represent furthermore, the consulting company was somehow responsible for developing their skills. The consulting firms demand a significant margin on the resources even if they just met the resource a week ago.

Hypothesis Testing

Our risk research into software risk and which calls into question the quality and objectivity of the information provided by large IT consulting companies is covered in the book Rethinking Enterprise Software Risk. The following quotation is from this book.

“Is there a way to test this hypothesis?

The question we had was whether clients that followed the advice of major consulting companies would receive the benefit of lower risk implementations. As it turns out, there is a way to test this question. The applications recommended by the major consulting companies are rated for risk (among other characteristics such as maintainability, usability, functionality and implement-ability) in the Software Decisions MUFI Rating & Risk evaluation. We compared the MUFI Rating & Risk evaluation for applications in ten software categories and compared them to software that the major consulting companies typically recommend.

The research shows that the applications recommended by the major consulting companies always have a high or the highest TCO (total cost of owner-ship) in the respective software category, along with the highest risk. The reason is simple: not a single major consulting company that provides IT services is a fiduciary. This means Accenture, IBM, Deloitte, etc., have no legal responsibility to place their client’s interests ahead of their own. And the internal incentives laid out within each consulting company, where sales is far more esteemed than implementing the software successfully, or even implementing the best software (there is no measure for this whatsoever) means that the customer’s interests are a distant second to the profit-maximizing interest of the consulting company. It is in the financial self-interest of these major consulting companies to recommend software for which they have trained resources ready to bill—therefore it is this software that is recommended.”

The Most Important Feature in the Software Correlated to Implementation Success

This has lead us to conclude that the most important feature of the success of an implementation is the match between the business requirements and the selected software. Not whether the software comes from a single vendor. There can be cases where more than one application purchased from one vendor meets the business requirements of a customer, but each application should be able to win in each area on its own merits without having to rely upon the “crutch” of being part of a suite of applications offered by one vendor.

The degree of match is a major determinant of the overall risk of the implementation. That is pushing for an integrated solution at the expense the fit with business requirements will result in a higher risk that the project either never goes live or that after it goes live the value it provides to the company will be minimal.

An Often Repeated Evidence-Free Assertion

The integrated suite argument, most prominently from ERP vendors is at its essence and the evidence-free assertion that is put forward by integrated suite vendors and reinforced by consulting companies who have a financial interest in repeating and companies like Gartner. They receive the most vendor income from the largest vendors and who slant their Magic Quadrants in the direction of the largest vendors.

To provide evidence would require a little work, and the outcome would go in the opposite direction of the assertion. In fact, we have provided more evidence against the integrated suite argument in this one article you are reading than has been provided to support the integrated suite argument.

This says a lot about how little assumptions are verified in the IT space.

IT buyers have proven extremely susceptible to misleading simplistic platitudes that are promulgated not because they are true but because they fit the financial incentives of those that promote these concepts. The most prominent IT analysts companies have proven useless in educating IT buyers on these inaccuracies because, in part, they are paid by the largest software vendors and consulting companies to perform well in their various published ratings. 

How ERP Systems Were a Trojan Horse

Enterprise software is an area with an enormous amount of hype, and while some of the hype works out and becomes real, most of the hype does not. That means that most of the hype people are currently exposed to now will not work out. And when I say “work out,” I don’t only mean won’t become popular — because some things can come popular, but don’t work out in that they don’t add value over what they replaced. After the enterprise resource planning system had been purchased, it started gobbling up the IT budget.

It also, and very importantly, narrowed the options of the buyer and put into place a series of false assumptions. That was that the purchaser needed to perpetually consider and give preferential treatment to the enterprise resource planning system when making all other enterprise software purchases.

Using the enterprise resource planning system to preference purchases for other software the enterprise resource planning vendor offers is what I call horizontal competition, as it is competition within one layer. (For those with an economics background you will recognize the relationship to horizontal integration.)

How Competition in Enterprise Software Works

However, competition for software sales moves vertically as well as horizontally.

  • For instance, Oracle has used its high market share of the database market as a wedge to get into applications (by acquiring many applications vendors and by leveraging its already account management).
  • SAP is currently using its dominance in many of its customers in the application space to push Oracle (and others) out of the layer below by introducing its database.

A great deal of misinformation about the centrality of enterprise resource planning systems has been built up over time which was never proven but merely became part of a set of unexamined assumptions that continues to drive enterprise software purchases. These are unmet promises that are virtually undiscussed.

The ERP System and Horizontal Enterprise Software Competition

In my view, one of the worst things in the history of enterprise software decision making was due to the introduction of the enterprise resource planning systems in the mid-1980s. Before this time, systems that made up enterprise resource planning were sold by different vendors.

Industry Consolidation

Enterprise resource planning software caused lots of consolidation, so much so that after the 1980’s it was uncommon to find MRP vendors that had not been gobbled up and incorporated into an enterprise resource planning suite.

Ignoring The Reduction in Choice

This was sold as a good thing. However, it reduced the choice available to customers because they now had to select an enterprise resource planning suite where the various selections had been already made for them. This feature of enterprise resource planning systems went seemingly unnoticed by IT analysts. There was a tremendous amount of money paid to analysts like Gartner, and they never provided a 360-degree view of the implications of buying so much functionality from a single vendor. Gartner and other analysts promoted the trend to the moon

What is the Specific Comment

Now, I am not commenting” here as to whether enterprise resource planning systems are necessary or not necessary. Instead, I am making a particular comment as to how enterprise resource planning systems have been and continue to be used in what is referred to as “account control.”

What is Account Control?

Account control is a term coined by IBM decades ago which describes how IBM would use a customer’s previous IBM purchases to control its future purchases and to steer them towards buying more IBM products. It’s not something IBM talks about in public, but it is part of the public record that they discussed this strategy on many internal documents.

The ERP System as the Queen

Quickly following their introduction, ERPs became the queen of the enterprise software chess board, and once captured, the software vendor who captures this piece was in a position to dictate much of the rest of the game.

This is at its essence anti-competitive behavior because the enterprise resource planning company is no longer simply competing on a level playing field, but is proposing that it’s other applications be given preference because they “integrate better” with the already purchased enterprise resource planning system. Every monopolist going back since before John D Rockefeller has used control of one area, to establish control in another, most often connecting area.

ERP-Centric Strategy?

Enterprise resource planning vendors used these systems to steer purchases to applications that in a freely competitive arena would have never been bought. In our book The Real Story Behind ERP which was a meta analysis of every single academic study into the ROI of enterprise resource planning software since the category was first introduced, the book outlines how we could not find a single study that demonstrated a positive ROI of enterprise resource planning systems after go live.

Overall, this has set back enterprise software decision ever since. And while it did this, it established a faulty thought pattern in enterprise software decision makers — and ERP-centric thinking is a consequence of this.

I ridiculed this way of thinking, which I likened to a medical condition in the article Do You Suffer from (ECS) – ERP-Centric Strategy?

Conclusion

Those vendors that offer integrated suites universally attempt to make their customers overestimate the degree to which their applications are integrated to one another, and push their prospects to overestimate the impact on TCO of application integration. Furthermore, they also minimize the adapters that the point solution providers have created for the major ERP systems.

Therefore the largest software vendors, the consulting companies, and the IT analysts (by in large) push the integrated suite concept as improving implementation outcomes, not because it is true, but because they find it to be profit maximizing.

The enterprise resource planning system has not lived up to its promises. The entire software category was promoted by and for the vendors and consulting companies that benefited from ERP sales. These entities created the impression that companies “had to have” enterprise resource planning software. However, there was never any evidence presented that this was true. Rather it was proposed through an unending number of conferences, articles, consulting and vendor presentations.

Based upon false pretenses these systems became the queens on the chessboards of enterprise software where they promoted the sale of more software that was often acquired by the vendor. This created higher degrees of concentration in enterprise software and more lock in and account control that could have been obtained without these systems.

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References

http://www.ibimapublishing.com/journals/CIBIMA/2011/670212/670212.pdf

Brightwork Explorer for ERP Parameters

How to Tune ERP Systems

ERP applications require MRP parameters to be optimized externally to the ERP system. Having analyzed many ERP systems, we developed the Brightwork MRP & S&OP Explorer. It is free to access until it sees “serious usage” and is free for students and academics. Click the image to find out more.

The Real Story on ERP

ERPThe Real Story Behind ERP: Separating Fiction From Reality

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.

Chapters

  • 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