- ERP systems are recommended by consulting companies without ERP considering implementation history.
- Learn why are ERP systems presented as a hazing process.
This book is about uncovering new information and synthesizing new observations from research performed previously. However, the historical problems with ERP systems have been very well advertised, and have been the subject of innumerable books and articles about how to improve the poor implementation success ratio of ERP systems. These articles maintain a consistent theme and seem to follow an algorithm.
- The Case Study: Some company wasted an enormous amount of money on ERP.
- What to Improve: The central concept to ERP is never questioned. Instead, the author moves onto an account of the management flaws that were at the root of the problem.
- The Solution: The end of the article points out that it is important to obtain “top management support” when implementing ERP, and that companies need to change their business processes. Following the algorithm analogy, the content of these articles could be programmed into a computer and generated automatically, with the company and the management flaw entered as variables, thus saving the author the time of having to manually write the article. Those working in the field certainly know that ERP implementations are so problematic, and I don’t think I need to spend much time covering this well-established fact. However, I did find the following quotation to be educational.
“The preponderance of corporate pain lurking throughout the lifespan of a traditional on-premise ERP suite is unequivocal. To wit: ERP projects have only a 7 percent chance of coming in on time, most certainly will cost more than estimated, and very likely will deliver very unsatisfying results. In addition, today’s enterprise has little better than a 50 percent chance that users will want to and actually use the application. Poor application design just adds to the turmoil. In sum, ‘ERP success’ has become a very subjective metric.” — Why ERP Is Still So Hard
What is the ERP Implementation History?
Only rarely is the actual success rate of ERP implementations quoted. According to the publication, The Critical Success Factors for ERP Implementation: An Organizational Fit Perspective, the success rate is roughly 25 percent. So, according to this source, 75 percent of ERP implementations are considered failures. But quoting just one study is misleading because the estimates are truly all over the map, as the quotation below attests.
“A study by the Standish Group estimates that 31 percent of projects are not successful (Kamhawi, 2007). Barker and Frolick (2003) suggest that 50 percent of ERP implementations are failures. Hong and Kim (2002) estimate a 75 percent failure rate, while Scott and Vessey (2002) estimates failure rates as high as 90 percent. Different statistics for the success or failure of ERP projects have been offered by researchers. In addition Bradford and Sandy (2002) reported that 57 percent of the companies they interviewed had not attempted to assess the performance of their ERP systems owing to a lack of empirically effective evaluation models.” — Measures of Success in Project Implementing Enterprise Resource Planning
Stupidity Disguised as Consulting Advice
One of the most ridiculous arguments I’ve heard is that ERP implementations are so difficult that companies that manage to pull them off gain a competitive advantage over other companies. In this incarnation, the ERP system is presented as something akin to the Ironman Triathlon where the implementing company proves its toughness by running the gauntlet.
It is a ludicrous analogy, which as far as I am aware is unique in the field of enterprise software where ease of implementation—rather than the difficulty of implementation—is considered a virtue. And in fact, the argument is edging extremely close to circular reasoning: ERP is virtuous because it is difficult to do, and it is difficult to do because it is virtuous. It is also one of the few times that a high failure rate is presented as a positive attribute of a software category.
One can imagine airport advertisements like this, which focus on ERP’s character-building qualities rather than on its negligible benefits. What is interesting about the problematic implementation record of ERP is that it never seemed to quell the insatiable desire of companies to continue to implement ERP systems. Nothing should ever be accepted as a course of action because “it is hard.” If difficulty irrespective of a beneficial outcome is being promoted, then some type of scam is at play.
This is the main takeaway: ERP was so quickly established as a mandatory application suite that not even gruesome stories of ERP failures and cost overruns could mitigate the desire for ERP implementations.
What is the Satisfaction Level with ERP Systems?
Discussed much less frequently is how effective ERP systems are in helping companies achieve their objectives after the systems are live. It turns out that the satisfaction level with ERP systems is low.
“Pretty much no one is really satisfied with the state of their ERP. Only 23 percent of users would recommend their ERP system to another enterprise. The truth is that ERP has been placed on the backburner because of the recession and manufacturers have suffered because of it.” — Old and Bad All Over Manufacturing
My research into ERP continually reinforced a central concept: very rarely does ERP impress the companies where it is installed. Who really promotes ERP systems as good? This is exclusively the province of ERP vendors and consulting firms. With customers, ERP tends to be discussed in terms of being a rite of passage.
- ERP is also commonly referred to as a “standard.”
- But the adjective “good” does not seem to surface much in discussions about ERP systems.
Of the ERP systems that I have worked with—and these systems are the more popular systems—I would say that none of them have impressed me. Furthermore, multiple aspects of the ERP system displease companies; common complaints include the following:
- Stagnant Applications: There is a perceived lack of innovation on the part of ERP vendors. It is increasingly apparent that many ERP vendors are funneling their support revenues into other applications, leaving their existing ERP customers with dated applications.
- Costs: ERP buyers frequently mention the high costs of upgrades and support.
- ERP Inflexibility: The inability of ERP systems to be adjusted is a constant constraint that companies must work within.
- Missing Required Functionality: The inability of ERP to meet a company’s business requirements, which leads to the following point.
- Customization: There is constant need to customize the ERP system, leading to another complaint: the expense to upgrade ERP systems. In a properly functioning media system, these types of issues would be the topic of more articles and better explained.
The Obvious Question
Software buyers should ask the following obvious question:
If ERP software vendors and consulting companies made all of these projections for how ERP would help companies, at some point shouldn’t an investigation into the actual benefits of the software category be performed, particularly when it is the largest enterprise software category? Whose interests do the IT media support: the software vendors or the buyers? The IT media was instrumental in building up demand for ERP software and in serving as an echo chamber for software vendors and IT consultancies.
ERP and Account Control
The history papers that I reviewed for this book left out the fact that ERP was yet another attempt (and one of the most successful attempts by software vendors in the enterprise software space) to take control of clients. Each vendor replaced many of their client’s applications with ERP, and then used their leverage as the ERP provider to sell more applications to these semi-captive companies. Mediocre systems were justified on the basis that they were at least integrated and that having poor functionality in an integrated system was better than a nonintegrated system that provided the business with the functionality they needed to get their job done. ERP had a second impact in that several vendors became extremely well positioned to sell other types of software.
The Outcome of the ERP Boom
Two of the most powerful vendors were created through the ERP boom. One was SAP, which is the most successful ERP company and which parlayed this success into other enterprise software areas. Currently, SAP stands as the largest enterprise software vendor in the world, and the second is Oracle, which extended its reach from the database into the application software realm with ERP software. From their dominant position in ERP, these vendors acquired a number of software companies that were effective at growing the company (although usually bad for the acquired software itself, as well as for the customers).
SAP and Oracle have ridden the “ERP wave” and owe much of their current central position with customers to their role as the provider of the customers’ ERP system. Both companies are “Peter Principled” control enormous faceless conglomerates that neither company has the competence to intelligently manage, and serve as liabilities for all of their customers. SAP and Oracle are followed by companies like Infor and Epicor, and other ERP vendors whose primary organizational goals are to match the account control enjoyed by the ERP market leaders.
Conceptually, ERP is a combined set of modules that share a database and user interface, and which supports multiple functions used by different business units. Because the ERP modules share a single database, employees in different divisions—for example, accounting and sales—can rely on the same information for their specific needs without any time lag. A major selling point of ERP systems was not that they provided particularly good functionality in any operational area. In actuality, they provided very basic functionality in all areas, but, because the applications shared the same database, anything that occurred in operations was immediately reflected on the accounting side. It was an argument tailor-made for executives who would never have to personally deal with the functionality limitations of ERP systems.
Gartner is credited with naming ERP systems. The term ERP (Enterprise Resource Planning) was adopted from the term “material requirements planning” (MRP) or “manufacturing requirements planning” by simply removing the “M” and replacing it with an “E.” This was done because, while ERP systems contained the MRP supply and production planning method, they also contained sales, financial accounting, and materials management functionality. Companies found that planning was only the beginning of ERP’s limitations. ERP is now well known for many limitations in its ability to present analytical data to customers. The shortcomings of ERP in this regard are a strong precursor to the growth of the separate business intelligence market, a market that was not supposed to have developed if all reporting was done within the ERP system as had been originally projected by proponents of ERP. My research into ERP continually reinforced a central concept that ERP rarely impresses the companies where it is installed. Instead, ERP tends to be discussed as a rite of passage.
Despite the enormous influence of ERP systems on information technology, remarkably little has been written on the history of ERP. This is for good reason. If the history were known, many ERP systems would be reduced in investment, and the reputation of ERP vendors would be irreparably damaged. ERP vendors, the compliant ERP consulting firms, and the paid off IT media and IT analysts make sure that the history stays hidden.
Options for ERP
ERP proponents like to present the idea that there are not options to ERP. In fact, they go a step further, they state that there aren’t real alternatives to whatever ERP they happen to have resources they can bill for. Then after they buy ERP, they tell their customers they don’t have options outside of buying applications from the same vendor that made the ERP system. Consulting companies are very good at leading companies down a restricted number of options, all of which end up benefiting the consulting company itself.
Here is the truth, there are a large number of options to ERP systems, and furthermore to how any ERP system is used. Here are just a few alternatives — without getting into any specific vendor offerings.
- A commercial ERP system can be purchased, but large areas of it unused, and combined with better external functionality.
- A commerical ERP system can be purchased, but large areas of it unused and connected to custom functionality/custom applications rather than porting the code to the ERP system (that is not recoding everything in say SAP’s ABAP and porting to the SAP system)
- An open source ERP can be used and with the large extra pool of money, any number web-based (hosted on AWS or Google Cloud for example) applications can be developed and connected to the ERP system.
- ERP can be dispensed with entirely, and a financial solution can be connected to both specialized applications and custom coded applications.
- ERP can be dispensed with entirely, and a custom coded solution can be created which covers financials and other and combined with specialized applications.
These are just five options. Any number of permutations are possible from these options. The evidence of decades of ERP projects heading back to the 1980s is clear; no company of any size or complexity will use an ERP system by itself without support from other applications.
Financial Bias Disclosure
Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.
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The Real Story on ERP
How This Book is Structured
This book combines a meta-analysis of all of the academic research on the benefits of ERP, coupled with on project experience.
ERP has had a remarkable impact on most companies that implemented it. Unplanned expenses for customization, failed implementations, integration, and applications to meet the business requirements that ERP could not–have added up to a higher Total Cost of Ownership for ERP were all unexpected, and account control, on the part of ERP vendors — is now a significant issue affecting IT performance.
Break the Bank for ERP?
Many companies that have broken the bank to implement ERP projects have seen their KPIs go down— but the question is why this is the case. Major consulting companies are some of the largest promoters of ERP systems, but given the massive profits they make on ERP implementations — can they be trusted to provide the real story on ERP? Probably not, however, written by the Managing Editor of SCM Focus, Shaun Snapp — an author with many years of experience with ERP system. A supply chain software expert and well known for providing authentic information on the topics he covers, you can trust this book to provide all the detail that no consulting firm will.
By reading this book you will:
- Examine the high failure rates of ERP implementations.
- Demystify the convincing arguments ERP vendors use to sell ERP.
- See how ERP vendors take control of client accounts with ERP.
- Understand why single-instance ERP is not typically feasible.
- Calculate the total cost of ownership and return on investment for your ERP implementation.
- Understand the alternatives to ERP.
- Chapter 1: Introduction to ERP Software
- Chapter 2: The History of ERP
- Chapter 3: Logical Fallacies and the Logics Used to Sell ERP
- Chapter 4: The Best Practice Logic for ERP
- Chapter 5: The Integration Benefits Logic for ERP
- Chapter 6: Analyzing The Logic Used to Sell ERP
- Chapter 7: The High TCO and Low ROI of ERP
- Chapter 8: ERP and the Problem with Institutional Decision Making
- Chapter 9: How ERP Creates Redundant Systems
- Chapter 10: How ERP Distracts Companies from Implementing Better Functionality
- Chapter 11: Alternatives to ERP or Adjusting the Current ERP System
- Chapter 12: Conclusion