How Accurate Are the Single Instance Benefits of ERP?

Executive Summary

  • ERP is sold on the ability to be used as a single instance.
  • Learn why the proposal that ERP works as a single instance is incorrect and what this means for projects.

Introduction

A primary selling point of ERP was that a company would be able to move to a single instance of their ERP system. This idea continues to be a selling point of vendors such as SAP, even though in most cases only smaller companies actually have single instances of ERP.

“An ‘instance’ refers to the number of discreet versions of ERP software you have in your company. The original vision of ERP was that companies should have a single instance—that is, a single implementation of the software running on a single database— that serves the entire company. It would mean no duplication of information in different departments or in different geographic divisions and thus better integration and information quality across the company. Upgrading the software would also be easier than with multiple customized instances of ERP across the company.”The ABCs of ERP

Historically companies have been unable to move to a single instance of ERP, yet no one questions why, especially since this is presented as such a desirable end state. As the complexity of a company increases with the addition of regions or subsidiaries, the value of having a single instance of an ERP system, with only one database, becomes questionable. Vendors certainly know this, but present a single instance as a desirable option with benefi ts to the customer anyhow. The reasons why companies are unable to move to a single ERP instance are well documented and are not going away; some of the major causes are listed below:

  1. Database Management and Query Efficiency: ERP systems are supposed to be single database systems, which belies their integration. There are issues with reduced efficiencies at higher data volumes, but what is the value of having sales fi gures from different subsidiaries that may have no relationship to each other in the same sales order table? For instance, if a user performs a query for all sales in a quarter, do they mean the sales of subsidiary one or subsidiary two? How do proponents of the single instance ERP system consider the increased complexity of the data in their presentation of this solution?
  2. Which Region/Division/Subsidiary Gets Its Way?: If different regions do business differently, and they must move to a single instance, which region gets the system configured or customized to its requirements? What happens to the productivity of the company that gets its confi guration adjusted for no other reason than the desire to normalize the functionality across the subsidiaries so that the move to a single ERP system can be facilitated? Most often it is the region with the political power (i.e., the region where the headquarters are located), and has absolutely nothing to do with logic or what is best for the business. I have been on several global implementations and I would recommend to any independent contractor who could choose between a global implementation and a regional implementation to choose the latter. Global implementations are exercises in one region enforcing its will upon the other regions. At one client site, the region with the headquarters simply left out functionality that was available in the application when the new application was explained to the other regions. The functionality they left out would have allowed the application to be confi gured differently. They did this to prevent the other region from choosing a confi guration that was different from what they had already decided upon. The region that selected the confi guration assumed that the confi guration was right for everyone seeing as they had selected it. They called this the “Global Template,” which was a convenient way of getting the other regions to do things their way.
  3. Negotiation Leverage: A single ERP system is viewed as a cost savings because more business is aggregated to one vendor. Surely this is a one-sided view on the matter: single sourcing also increases the negotiating leverage of the vendor (why they like it so much). What happens when the ERP vendor knows they have 100 percent of a customer’s ERP business? Well, this is just the starting point for Tier 1 ERP vendors; their eventual goal is to replace all enterprise software used by the company with their other applications, to turn the client’s IT infrastructure into a monoculture, and to staff the IT departments with 100 percent compliant executive decisionmakers. If this sounds vaguely familiar, it is because it is the same desire of every major IT consulting company. When I first got into consulting, my partner at KPMG explained to me that our role was to “penetrate” the client and then “radiate” through them.
  4. What About Functionality?: Looking from 30,000 feet up, it’s easy to state, “If we use one system we can save money.” However, there is another side of the equation: the value that the system provides. When a company moves to a monoculture, having regions/divisions/subsidiaries—the people who actually know the business, reduces the functionality benefi ts—choose their own solutions. This leads to the next point.
  5. How Much Does Customization Increase With a Single Solution?: Proponents of a single instance ERP leave this point out of the analysis, and for good reason. Using a single instance ERP system will mean more customization or, as so many IT proponents prefer, taking a wrecking ball to the business requirements. However, customization translates to real money, both up front and in long-term maintenance, and the costs must be estimated as part of a strategy of moving to a single instance ERP.
  6. What About Flexibility?: Moving toward a single ERP system has negative implications for the flexibility of the company. If the acquisition is eventually sold, what is the cost of breaking the acquisition out from the combined ERP system? Hold on to your hats! Tier 1 ERP vendors are not doing this analysis—or have done the analysis but don’t want their customers to know the truth. Instead they continue to bang the gong of single instance ERP. In truth, that a single ERP system was never a realistic proposition should have been apparent to buyers from the very beginning. It is now well documented that the vast majority of companies do not have a single ERP system, and the reasons are quite well explained.

The following quote is just one of many examples.

“Well, it sounded great on paper, but unfortunately reality bites. The stories started to leak out—multi-million dollar never-ending ERP projects, high profi le ERP project failures, inability to tailor the deployment to local subsidiary needs, and over-tapped local IT resources overwhelmed by a monolithic on-premise ERP deployment. And if a division is run as a profi t-center, these kinds of deployments can quickly paint red all over the P&L.”The Decline of Single Instance ERP

The Use of Multiple ERP Systems

Multiple ERP systems in companies are now the norm, and not just two or three ERP systems as the quotations below explain.

“On average, big companies worldwide are running fi ve SAP instances, while almost four in ten have more than six, according to a study from IT services firm HCL Technologies.”When SAP Sprawl is Cool, ZDNet

“The concept of a single monolithic system failed for many companies. Different divisions or facilities often made independent purchases, and other systems were inherited through mergers and acquisitions. Thus, many companies ended up having several instances of the same ERP systems or a variety of different ERP systems altogether, further complicating their IT landscape. In the end, ERP systems became just another subset of the legacy systems they were supposed to replace.”The Trouble with Enterprise Software

According to one IDC survey, 72 percent of respondents were running more than one ERP system. People will say that multiple ERP instances can be consolidated into one, but in most cases that is simply not practical. There are a number of very good reasons as to why a company cannot reasonably be expected to move to a single ERP instance.

“‘A lot of people run multiple instances because of geographic reasons, regulations, or business-sector reasons,’ Illsley said. “If you’ve got part of your business that is outsourced, for example, you’d probably want to run an instance that your outsourcing provider could use and that would be different to the one you would want to keep inside, so that it’s easier to do things like that.”When SAP Sprawl is Cool, ZDNet

Conclusion

So, while some companies have moved to a single instance of ERP, most have not and will not in the future. It is easier for smaller companies to move to a single instance, and more difficult for larger companies, particularly companies with subsidiaries. We are now three decades into the ERP phenomena and only a small portion of single instance ERP systems are in use. So why is it still considered a realistic goal to move to a single instance of ERP? Apparently many Tier 1 ERP software vendors think it is quite reasonable. However many companies are turning a deaf ear to this message and are, in fact, now far more frequently exploring the concept of a two-tiered ERP system.

Financial Disclosure

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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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