The Myth of ERP Being 90% Out of the Box

Executive Summary

  • ERP vendors nearly always tell companies that the functionality they provide will cover more requirements that it does.
  • This leads to unplanned customization.

Introduction to the Myth of ERP Coverage

ERP systems were first introduced in the 1980s as a single system that would meet all of a company’s needs. Consulting companies helped vendors present this fiction because they made so much money from ERP system implementation.

SAP Promotes the 90% Out of the Box Myth

One of the most assertive promoters of the 90% out of the box myth was SAP. SAP has been extremely assertive in declaring that all systems that exist at an SAP prospect that are not SAP are “legacy” as we covered in the article How SAP Used and Abused the Term Legacy. SAP also promote the false construct that SAP was only built upon best practices, as we covered in the article How Valid are SAP’s Best Practice Claims? SAP argues that companies should implement as much of standard SAP functionality as possible and minimize customizations. However, SAP only offers a portion of the functionality necessary to run companies. This is where the proposal is made to perform business process re-engineering, as we covered in the article Reengineering and its Impact on ERP Sales. Re-engineering was a trend that eventually petered out, primarily because re-engineering projects did not demonstrate the ability to add value to customers.

90% Out of the Box

Even though ERP systems have been implemented for decades and vendors like SAP know that 92% of the ERP systems will be moderately or heavily customized, SAP sales continue to propose to prospects that 90% of their functionality will be addressed “out of the box” SAP ERP. This is one of the significant reasons ERP systems were able to become so prevalent. In this way virtually all ERP systems are sold under a false set of pretenses. In each case, they have to escalate in time and budget because the customization percentage is perpetually underestimated. There was never any effort (by consulting firms, but also by Gartner/Forrester) to illuminate this fact to customers. If someone can make me aware of some entity that did this, I will read it, but there is a peculiar silence on this topic.

Proprietary ERP and High Expense

When a company buys SAP, they also end up with the high-cost ABAP customization environment. They did not have to accept SAP’s recommendation to use ABAP, but almost all of them have. This served as a “double whammy” for the customer. First, they accepted the false assumption that they would only have to perform limited customization. Then when they found out that they would have to customize highly, they were stuck with the ABAP coding and SAP customization environment, which dramatically added to the cost of ERP projects. SAP and other ERP systems have turned out to be high cost closed systems that give the vendors increasing levels of control over the IT budgets of these customers. While SAP is the most difficult broadly sold ERP system to customize, ERP systems have tended to be developed as monoliths, and have been expensive to customize.

Customers that relied upon consulting companies found that the consulting companies were “in on it” and merely repeated whatever the vendors said. This entire system of the undisclosed history of ERP has only helped the bottom lines of consulting companies.

Conclusion

For decades ERP and partner consulting companies have been telling prospects something they know is false. This falsehood is that most of the requirements of the customer will be met by the standard functionality of ERP. Once purchased, proprietary ERP systems have proven very expensive to customize. In this way, and other ways, ERP systems appear to have been a Trojan Horse, allowing entities to take control of IT spends under false pretenses. Interestingly, the companies that have told all of these lies and have so misled their “customers” have not been called out on this inaccuracies. Buy this does explain, or is one of the explanations for the broad negative ROI to ERP systems.

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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

SAP Labs Publishes Dishonest Paper About ERP

What This Article Covers

  • Interesting Quote on ERP Commodification
  • How Accurate Were the Predictions
  • The Problem with Industry Promoted Fake Research

Introduction

“Some mature information technologies, such as ERP systems and relational databases, are now undergoing commoditization, much like what happened in the automotive and chemical industries over the past 15 years. This trend is accelerating by reducing IT spending because of slowing economic growth.

I see big technology and business model changes coming from ERP. New technology trends such as high-performance computing, pervasive connectivity, Web services, and SOA will affect the front end as well as the back end of ERP.

….an ERP’s average life cycle is about 15 years.”

This is a study from SAP Labs. Interestingly none of these things happened in the roughly nine years since this was published. SOA and web services went nowhere. High-performance computing has had no effect on ERP.

SOA lets developers partition and decouple applications. It provides a bridge between incompatible technologies.

No one did more to undermine SOA than SAP. SAP is based upon coupling applications and restricting competition. Why would they want to decouple applications?

Web services are ideal for letting developers adapt ERP to fast-changing business processes. Web services can be orchestrated to create multi-service business processes that connect via SOA to the robust and reliable back end….

Once again, no one did more to undermine this than SAP. SAP does not want flexibility or open systems. But people who work for SAP Labs are not going to put this in a paper.

Conclusions

This is a completely dishonest paper written by SAP Labs and should not have been accepted as a research paper. There is much more in it that what we have quoted, but it is all primarily self-serving information for SAP, and as we described, none of it came true. It obscures the fact that SAP as a matter of policy undermines the supposed openness trends that are a big part of the paper.

This paper was written by Paul Hofmann who is Vice President of Research at SAP Labs. He has a Ph.D. in physics from Technical University in Darmstadt Germany.

However, this demonstrates that private industry research offerings can’t seem to do much more than serving as marketing puff pieces for the company they work for. This is why private research has such a poor reputation. This paper should not have been accepted for publication.

References

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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

ERP is Deal, Long Live ERP. SAP Labs, Published by the IEEE Computer Society, Paul Hoffman. 2008.