How ERP is Similar to a Out of Control Octopus

Executive Summary

  • ERP has grown into an out of control octopus that has taken over IT.
  • The implications of such high overhead systems go little covered in IT media.

Introduction

Economics gave us the useful term of “externality.” When an entity engages in a behavior that places costs on other entities for which it does not compensate them, this is referred to as a negative externality. The ERP craze has been primarily an exercise in the perpetuation of a negative externality on the part of ERP vendors and ERP implementation companies on ERP buyers, and given the evidence of poor ERP functionality and costs, it is amazing that it has gone on for this long. It is the greatest misallocation of resources in the still relatively young enterprise software industry.

The Results of Research into ERP Systems

My analysis of the research into ERP systems tells a very interesting story about how software is purchased. I have explained the issue of ERP systems to a number of people—from executives to technical resources, to laypeople. A very effective analogy to use with people not familiar with ERP is to think of ERP as an octopus. ERP systems began as one thing, and now they are an unruly and expensive octopus, which connects throughout the enterprise but mostly in unproductive ways. The following quotation brings up an interesting point that more companies should consider.

“Over the last two decades, companies have plowed many billions of dollars into enterprise resource planning (ERP) systems and the hardware required to run them. But what, in the long run, will be the legacy of ERP? Will it be viewed as it has been promoted by its marketers: as a milestone in business automation that allowed companies to integrate their previously fragmented information systems and simplify their data flows? Or will it be viewed as a stopgap that largely backfired by tangling companies in even more systems complexity and even higher IT costs?”Nicolas Carr

The Reality of ERP ROI

ERP software is a category of software with a very low ROI (if one limits the financial returns to the ERP system itself), and a negative ROI when one looks at how ERP negatively impacts a company’s overall software investment—for instance, the negative affect on the company’s other applications, as well as how ERP isolates companies from customers and suppliers. In the book, Enterprise Software Selection: How to Pinpoint the Perfect Software Solution using Multiple Information Sources, I describe how most companies that buy enterprise software lack the internal ability to validate the claims made by software vendors. In addition, they are often led down the garden path to a bad decision by consulting companies that place their interests ahead of their clients. ERP systems became so popular because the actual claims about their benefi ts were never analyzed properly.

How The Lucrative Nature of ERP Leads to Censorship on the Topic of ERP Benefits

Because ERP systems have been so lucrative for software vendors and consulting companies, there has been a strong incentive for them to get companies to purchase them. For decades, when a company complained to their consultants about their current system’s shortcomings, the consultants commonly responded that what the company really needed was an ERP system (cue the oversimplified explanation of how ERP systems integrate all of the company’s processes). One can imagine how many times this same conversation has played itself out at companies around the globe. The unfortunate fact of the matter is that most ERP systems were purchased without appropriate research; a very large percentage of them were purchased because they were seen as the “thing” to implement. This faulty logic controls many IT purchase decisions, as the following quotation attests.

“Interviews with the managers confi rmed that if a successful strategic IT (e.g., laptops to salespeople) was implemented by one or two firms, the other competitors soon followed the lead. Thus, although the IT intensity of the industry increased, no net performance effect was observed.”The Relationship Between Investment in Information Technology and Firm Performance: A Study of the Valve Manufacturing Sector, Information Systems Research

The Misleading Sales Job of ERP

At its heart, ERP was a misleading and oversimplified, although a highly compelling, concept. It was never a good investment and now hinders a company’s ability to leverage the Internet and reduces its ability to gain value from its other applications. ERP was based upon several false assumptions that have been explained throughout this book. The central premise of ERP—that you could have a single set of integration applications from a single vendor that would always meet the implementing company’s needs and therefore greatly reduce and almost eliminate the need to integrate to other applications—was delusional when it was first proposed. It is even more delusional now.

How Cloud and (AWS and Google Cloud, etc..) Works Against ERP

The development of information systems in the form of Internet and SaaS/PaaS/IaaS service providers has worked in the against ERP. ERP are primarily closed systems, but SaaS/PaaS/IaaS are open systems.

The future of information systems will involve mixing and matching the best solutions from a variety of vendors, with much of the data storage and processing being handled remotely. The IT burden on companies will be greatly reduced, and ERP has no place in this model. The more that companies cling to their ERP investments, the less they will be able to participate in this open approach to accessing application functionality. Forward-thinking companies will consider their ERP investments as what they are: sunk costs. They will migrate to better functionality in other systems and take a piecemeal approach to ERP. The logics that were used to sell ERP systems was never anything more than hypotheses. When I explain why any well-promoted concept should have evidence to support it, often the listener simply repeats the hypothesis back to me. At that point, I have to say, “Yes that is the hypothesis, but there is no evidence to support it.”

Of course, anyone has the right to propose any hypothesis they like. However, while a hypothesis may turn out to “make sense” or seem likely, it’s only through testing that we can know for sure. If a hypothesis has had a full opportunity to be tested (after 30 years, ERP has certainly had this opportunity) and has proven false, then it is time to dispense with the hypothesis and to move to a new one. That is how all knowledge advances. Two powerful vendors—SAP and Oracle—were installed at the top of the enterprise software hierarchy because of ERP.

This development has been bad for the enterprise software market, as these two actors have abused their power by offering their clients low value and high costs, and by using account control techniques. Many other ERP vendors were never able to capitalize on their ability to sell ERP software and to sell other types of software.

Is There Truly No Alternative to ERP?

Proponents of ERP make it sound as if there are no alternatives to ERP, or that the alternatives are “poorly integrated” (which is another way of saying that there are no alternatives). A misleading argumentative technique frequently used by people who are not interested in evaluating or discussing alternatives is to judge ideas as not representing valid alternatives. When an alternative is presented, they may say, “That is not a real alternative,” when it is in fact an alternative; it is simply not an alternative they agree with.

Reversing the Evidence Requirement for ERP

Arguments are certainly simplified when you state that all other alternatives are not real alternatives, do not provide evidence to support your claims, and announce that you have chosen the one true alternative. The following quotation is an example of this type of argument.

“If I’m a major enterprise, especially a manufacturer, what’s the cost of NOT having an ERP system?”

This frames the question in the reverse and is an example of the logical fallacy of shifting the burden of proof. It is designed to essentially ask the person on the other side of the argument to prove that ERP is not a good investment. This is called “proving a negative.” The responder is asked to prove that ERP is not a good investment. This is not how proof works in science. We don’t start off by making a contention, providing no evidence, and then asking the other person to prove our statement is incorrect. But since the question was asked…the bulk of evidence shows that the benefi ts of ERP systems are small. Therefore, naturally, the costs of not having an ERP system are less than the cost of having an ERP system, both in terms of implicit and explicit costs. A company with no ERP system will incur fewer software-related costs and gain better functionality (by choosing the best software for its needs rather than whatever their ERP vendor is offering).

“What are my alternatives to accomplish the same objectives? I submit those alternatives are few and poorly integrated.”

There are a wide variety of alternatives available to accomplish the same objectives. Quite a few financial and accounting applications can be selected and connected to any number of other applications in order to replicate (and greatly exceed) what ERP does. Secondly, while ERP systems are better integrated to themselves, which is a highly parochial way of looking at integration, ERP offers no integration benefit for connecting to a company’s other systems, and may offer higher integration costs than non-ERP environments. Here is a further quotation from the failed Air Force’s ECSS initiative:

“It’s not worth the money to poorly implement anything. It’s worth the money to take the time, hire people with the appropriate knowledge, and do the necessary planning and testing to minimize the chances of an ERP installation failing.”

Unending Excuses by ERP Consultants and Vendors on ERP Failures

In this statement, the individuals take the common approach to analyzing ERP failures: the failure of the ERP project was related 100 percent to how it was implemented and not related to issues with the ERP system itself. How do faulty implementation methodologies explain the low satisfaction rate with ERP systems as a whole? How did a system, which has never shown much financial and operational benefit to companies, gain its halo? Were all ERP systems incorrectly implemented? These types of comments are extremely common among ERP proponents, but they offer no evidence and no new information. They provide nothing more than an excuse, which—thirty years into ERP history—is becoming somewhat stale. The evidence, which few have any interest in reviewing, is that ERP systems produce a meager return on investment, and in other ways are major distractions for companies, drawing energy away from other initiatives. All of the investment of time and money in ERP must be compared against what it could provide if invested in other areas.

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.

  1. A commercial ERP system can be purchased, but large areas of it unused, and combined with better external functionality.
  2. 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)
  3. 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.
  4. ERP can be dispensed with entirely, and a financial solution can be connected to both specialized applications and custom coded applications.
  5. 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 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.

ERP Contact Form

  • Interested in Our ERP Research?

    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 decision support.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch

Search Our Other ERP Content

References

https://www.forbes.com/sites/oracle/2015/12/24/5-signs-that-cloud-erp-has-serious-momentum/#4a8073d2e8cc

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 Alternatives to Standard ERP Advice

Executive Summary

  • ERP vendors and consultants propose that there are no alternatives to ERP.
  • Learn about very realistic ERP alternatives.

Introduction

ERP promoters make a serious misrepresentation in their discussions of ERP by suggesting that there is no alternative to ERP. To think that there is no alternative, one would have to be biased (either financially—they work in or somehow make money from ERP—or nonfinancially—they are simply used to ERP environments), or they simply don’t understand the enterprise software market very well. Actually there are plenty of alternatives to ERP. Some of the alternatives call themselves “ERP” because this has become desired terminology, even though they would not meet the technical defi nition of ERP.

Is Criticism of ERP Simply Negative and Counterproductive?

As part of a broader and quite interesting article about enterprise software, Cynthia Rettig was critical of ERP and SOA software and implementations. In this article, she begins with the following explanation of how IT grew as a percentage of investment since 1970.

“Back-office systems—including both software applications and the data they process—are a variegated patchwork of systems, containing fifty or more databases and hundreds of separate software programs installed over decades and interconnected by idiosyncratic, Byzantine and poorly documented customized processes. To manage this growing complexity, IT departments have grown substantially: As a percentage of total investment, IT rose from 2.6 percent to 3.5 percent between 1970 and 1980. By 1990 IT consumed 9 percent, and by 1999 a whopping 22 percent of total investment went to IT. Growth in IT spending has fallen off, but it is nonetheless surprising to hear that today’s IT departments spend 70 percent to 80 percent of their budgets just trying to keep existing systems running. “But these massive programs, with millions of lines of code, thousands of installation options and countless interrelated pieces, introduced new levels of complexity, often without eliminating the older systems (known as ‘legacy’ systems) they were designed to replace. In addition, concurrent technological and business changes made closed ERP systems organized around products less than a perfect solution: Just as companies were undertaking multiyear ERP implementations, the Internet was evolving into a major new force, changing the way companies transacted business with their customers, suppliers and partners. At the same time, businesses were realizing that organizing their information around customers and services—and using newly available customer relationship management systems—was critical to their success.

“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.”

So much money now flows from the ERP industry that criticism is not well tolerated. A lot of water has passed under the bridge here; many entities (whose pockets would be lined by the sale) recommended ERP systems to clients, even though there was no evidence that the ERP systems would improve the condition of these companies. Several of those who criticized Cynthia Rettig had the following to say:

“There’s really nothing new in [Ms. Rettig’s] analysis. But Rettig goes a step further and says there’s no hope for the future. In fact, while she doesn’t offer any remedies for her gloomy prognosis, she does quash one—service-oriented architecture (SOA).”

The beginning of this quotation provides an example of the logical fallacy argument from repetition. Those who dislike research or someone else’s conclusions, but do not have anything of substance to add offer this standard criticism. Rettig disagrees with the proposal that SOA will solve the problems of ERP (a prognosis that ended up being true). Why is that considered “gloomy”?

SOA to the Rescue?

If there is little evidence that SOA will remedy the issues with ERP, then why invest resources into it? Secondly, if there is “nothing new” in Rettig’s analysis, perhaps the analysis is synthesized in a different way. Furthermore, I read through countless articles on ERP that repeated unfounded statements regarding the benefits of ERP—and Rettig’s analysis, and I can’t recall anyone criticizing these generic articles that could have come off of a copy machine from previous articles, yet one of the first articles to be critical of ERP as a concept is not new? What is this author’s definition of new? The explanation that ERP systems have performed poorly by any measure and have a bleak future is not generally accepted, so her analysis is new in the sense that it explains something that is generally not known. Actually Rettig’s article is novel in many ways; it is not original research, but does a nice job referencing multiple sources of original research. Furthermore, there is nothing new in the multitude of articles about the opportunity of ERP or about getting more value from ERP, or how SOA was going to make all the ERP investments worthwhile. But no one seems to criticize those articles—because they are promotional. In terms of the criticism regarding “not offering any remedies,” firstly, not every form of analysis needs to provide a solution. The very idea that research or observations need to provide remedies (why would anyone think that is true?), is itself a pretext for rejecting research. This does not provide a positive outlook. In fact, the remedy should be self-evident: reduce one’s investment in ERP software, and do not place one’s bet on SOA as a solution.

As it turns out, this remedy would have been the correct choice. This type of criticism deliberately evades the obvious behavioral adjustment that is implicit with Cynthia Rettig’s analysis. As long as the standard is what is positive rather than what is true, the evidence required for a promotional statement will always be lower than the evidence required for a critical statement.

Reducing ERP Dependency

Companies will benefit if they reduce their dependency on ERP—particularly “Big ERP”—in even small ways. Any redirection of resources away from ERP (for example, replacing ERP functionality with external systems) should benefi t the company over the long term. However, companies that buy new non-ERP software that helps them manage their businesses better rather than their ERP software must still pay the support cost of the system, and they will pay the same amount even if they turn off portions of their ERP system. This is a major reason as to why so many companies have continued to implement uncompetitive functionality in their ERP systems when so many better solutions are available in the marketplace: they are attempting to utilize their pre-existing investment in their ERP system. However, our research demonstrates that this is a faulty logic: companies can only expect to save 12.5 percent of the application’s TCO by leveraging the sunk cost of a previously implemented ERP system. Other applications that are specifically designed to meet business requirements (aka best-of-breed) have better ratings in a variety of compensating criteria. Companies must consider which costs are higher: the cost to purchase better software plus pay the support cost of their ERP system, or the continuing indirect costs associated with their ERP system, including:

  1. A longer implementation
  2. More customization expense
  3. A higher-risk implementation
  4. Lower functionality/worse fit of functionality
  5. Lower usability
  6. Lower maintainability

The Research is Conclusive for the Negative Hypothesis

Once all the negatives are recognized, ERP cannot even be shown to improve the financial performance of companies. The only real demonstrated benefit of ERP has been to the ERP vendors and to implementation companies, not to the actual buyers of ERP software. A purchase of an ERP system is an extremely effective way to lock in a customer to a vendor, and to allow the vendor to sell other applications to current customers. Have ERP systems been beneficial for SAP, Oracle, IBM, Deloitte and all manner of consulting companies? There the evidence is clear: ERP has greatly benefited those that sell and implement ERP software. Therefore, if you want to benefit from ERP, sell it or implement it, but don’t buy it.

ERP Adjustment

The value of Big ERP is just not there. Some of the highest rates in the enterprise software space are being charged for what amounts to basic functionality. The resources can be transitioned from Big ERP to applications that offer a better ROI. ERP disintegration is a term that I have coined to describe what should be the next phase of ERP: that is, to begin to give up the long-dead idea that ERP can meet all of a company’s needs (the original proposition for ERP), and that “getting the most” out of ERP is the best strategy for a company to follow. Getting the most from ERP translates very simply to giving the least to your business. Rather than trying to get ERP to do things that it is not good at doing, more diverse applications should be brought into the fold, along with more analytical skills. The ERP period was a period when many people turned their brains off and put their trust in ERP vendors and in offi cial “authorities” (all of whom had fi nancial confl icts of interest) to answer all of their question and to meet all of their requirements. With ERP disintegration, true system integration skills will be brought back within implementing companies and custom solutions will be developed that fit the company’s needs. On average, companies still have 60 percent of their ERP systems modules implemented. It’s been a long road and the payoff has been poor.

It is now all too obvious that the promise of ERP will not be realized, and it will not get better in the future. Too often, applications were purchased from the ERP vendors because customers preferred to go with familiar vendors over vendors whose software best met their business requirements. IT departments have been covering up the defi ciencies in software purchased from the major ERP vendors for many years now, and it has led to poor outcomes. Companies looking for the easiest route to enhancing the value of their IT spend should break the cycle of dependency on their ERP vendors and create a competitive environment that rewards software innovation and the best software available. This means running tighter and more analytical software selections, and comparing what is currently implemented in the ERP system against applications that could improve the area.

Free from Overinvestment in ERP

Freed from overinvestment in ERP, the company is able to choose the best software for its needs in each area and then integrate this software directly to the fi nance system. However, for those who already have ERP, the question becomes: What to do with the ERP system, and how to best leverage it?

Essentially, the effect of the ERP system must be minimized. Different areas of the ERP system will gradually cede ground to other applications and the more quickly this happens, the more quickly companies can improve their IT by leveraging the better functionality in non-ERP applications. As a result, ERP vendors will have less infl uence over your company, and your company may not need to upgrade its ERP system as frequently. Remember that there is no reason to look to other software from the ERP vendors, or to give their software preferential treatment.

One approach to detaching from your ERP system is to deactivate complete modules or portions of modules. ERP systems are modular, and in fact, most companies have not implemented all of the modules in their ERP system, but instead continue to use other applications and connect them to the ERP system—although they pay a high price in integration costs and functionality incompatibility to do so. A company can run one module or several modules, and can slowly decommission portions of each module and attach best-of-breed applications. A company that is running a sales and distribution module, along with a production planning module and finance/accounting module, could deactivate the production planning module and instead use a best-of-breed production planning and execution system from the vendor of their choice. They would then integrate this production planning module back to the ERP sales module and the finance/accounting module, instead of integrating the external production planning and execution system to the production planning module, which would then interact with the sales module and the finance/accounting module.

There are plenty of alternatives to an ERP centric approach, and many companies use them. I have included a few alternatives in this book, but this book is really directed toward a review of the research on ERP.

ERP Alternatives Per Company Size

Larger companies tend to be the bread and butter of large ERP vendors such as SAP and Oracle. Mid-sized companies do not use anywhere near the amount of functionality offered by these software vendors. SAP and Oracle started off building their software around the needs of big companies. They adjusted their software to appeal to smaller companies, but their solutions are simply overkill for anything but the larger companies. Therefore, when people address the topic of Big ERP, it is from the perspective that ERP has proven something—at least at big companies. When they do this, they essentially accept the assumptions they have heard from the marketing departments of ERP vendors and their lieutenants, the large consulting companies. As I have shown in this book, research has proven that the fanciful projections regarding ERP were simply marketing hyperbole. To accept the position that “ERP must be helpful” is to accept something that has never been proven. It is argumentum ad numerum—a fallacious argument—that concludes the proposal is true because many people (and companies) believe it to be true.

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.

  1. A commercial ERP system can be purchased, but large areas of it unused, and combined with better external functionality.
  2. 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)
  3. 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.
  4. ERP can be dispensed with entirely, and a financial solution can be connected to both specialized applications and custom coded applications.
  5. 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.

Conclusion

Executive decision-makers undermine their software selection process when they attempt to validate the statements about and capabilities of applications that neither they, nor other people in their company, have experience with. The executive decision-maker is in a position of weakness, which makes it difficult for them to make informed decisions. First-hand experience regarding all enterprise software is available and can be found on LinkedIn or Dice. Independent consultants may be hired full-time and work on-site, or be hired remotely, depending upon the circumstances and the consultant’s availability. An independent consultant is far more reliable than a consulting company for advising on a software selection. Unlike a major consulting firm, an independent consultant is not attempting to staff consultants on the project. However, in order to minimize bias, it should be explained to the independent consultant that they will not be part of the implementation in any way. This removes any potential for financial bias and makes the consultant indifferent as to which software the company decides to implement.

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.

ERP Contact Form

  • Interested in Our ERP Research?

    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 decision support.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch

Search Our Other ERP Content

References

https://www.forbes.com/sites/oracle/2015/12/24/5-signs-that-cloud-erp-has-serious-momentum/#4a8073d2e8cc

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 The Failure of ERP Decision Making

Executive Summary

  • The broad purchase of ERP systems without looking for evidence says many things about IT decision making within companies.
  • Learn what areas lead to so many companies to fail on ERP.

Introduction

Decision-making in companies is often presented as highly rational. The assumption is that attentive and thorough research is performed before purchasing decisions are made. A perfect example of this line of thinking is presented in the following quotation:

“If IT were not delivering value, rational decision makers would not keep investing in it.”Andrew McAfee

The above quotation provides an example of the logical fallacy of an appeal to authority combined with the logical fallacy of an appeal to accomplishment. The same argument could be made for exotic financial instruments. How could mortgage-backed securities and credit default swaps—which fell in value so precipitously that without government intervention every US investment bank involved in these instruments would have had to shut their doors—possibly be lacking in value?

Many entities, ranging from consulting firms to the business press that cover these companies, as well as the software buying companies themselves, have an interest in having this line of reasoning accepted. However, the results of my research and experience in software selection, some of which is encapsulated in the book, Enterprise Software Selection: How to Pinpoint the Perfect Software Solution using Multiple Information Sources, actually show considerable evidence to the contrary. A few of the issues that are problematic for IT decision-making are listed below:

  1. Selecting Biased Information Sources: Companies often lack the knowledge to make appropriate software selection decisions for themselves. Often this issue is not mitigated by hiring external parties because the buying companies are frequently misled by advisory firms. These firms are more interested in selling IT consulting services than in providing objective advice. These advisory firms are not “fiduciaries,” in that they have no legal responsibility to put their client’s fi nancial interests above their own. This issue is similar to the problem of a lack of fiduciary responsibility that the majority of financial advisors have, which is why financial advisors have a very strong tendency to place their clients into investment vehicles that benefit them more than they benefi t their client’s. This is discussed in detail in the following article. Enterprise software buyers rely upon research from entities that are themselves paid by software vendors, along with a host of other limiting factors.
  2. Accepting Simplistic Explanations: As will be shown repeatedly in this chapter, companies deciding which course of action to follow tend to be influenced by oversimplified rationales or logics. If the executive decision-makers knew technology better, and if they had studied the history of enterprise software sales methods, there is no way that the oversimplifi ed logics that were so effective in selling ERP to them would have worked. Another way of looking at this is that it was simply all too easy.
  3. Companies Do Not Delve into Detail on Functionality: There is a strong tendency for buying companies to accept that functionality between the software of multiple vendors is the same, as long as the description of the functionality is the same and the functionality is proven to be similar when demonstrated by a skilled pre-sales consultant. In fact, rarely is the competing functionality “the same.” Often there are very signifi cant differences in the usability, implement-ability and maintainability of functionality that is at first blush seen as identical across multiple applications. A purpose of the software selection process is to determine the best fit between the various desired functionalities versus its documented business requirements and the functionalities that are available from competing applications.
  4. Overestimation of Implement-ability: Companies have a strong tendency to overestimate what they can implement. Software vendors that market a broad or deep set of software functionality are of no help to these companies. However, some functionality is tricky to implement properly. In addition, companies will often have a certain level of funding in mind for software implementations, but will then implement more advanced functionality that requires a greater commitment of funds than they are interested in making. This lack of funding, which increases the general failure rate on projects, is addressed with the concept of Maximum Tolerable Functionality, as explained in the following article:
  5. Susceptibility to Salesmanship: Good salespeople are paid very well by software vendors for a reason. Salesmanship works. However, sales, regardless of how well done, does not have anything to do with how well the application can be implemented. Software salespeople will become “best friends” with their prospects, but after the sale is made, the relationship will not count for much. In fact, salespeople frequently make implementations worse by insisting that overpromised capabilities can be met with “creativity.” Some of the sales presentations that I have seen seem highly conceptual and have little to do with how an application is used in reality; one of the old jokes in this area is that the difference between a car salesperson and a software salesperson is that the software salesperson does not know he is lying. Unfortunately this joke has quite a bit of truth to it.

The Reality of Getting Around Rationality

There is no way of getting around the fact that companies appear far less rational when one works within them and sees “how the sausage is made,” than when one reads about them from afar. Business journalists, afraid of losing their access to information, have a strong incentive to place a positive spin on their coverage of a company, and most of the journalists are suitably compliant. Secondly, journalists don’t actually work in the companies they cover; thus it is quite easy for them to get bamboozled. Typically the executives who are interviewed and provide information to the journalists are good at selling or at least good at making good impressions, and are motivated to improve their prominence in the field as well as to positively impact the company’s stock price. A nice write-up on them and their company gives them even more negotiating leverage for salary increases, bonuses, stock options, etc. The most extreme example of this is the Wall Street Journal, which produces puff pieces on executives, building them into either geniuses or exemplars of highly capable and responsible corporate officers. The Wall Street Journal completely misrepresented how the industry worked when I was young and had not yet worked in these large companies. Now I understand the Wall Street Journal’s focus on making companies look good for stock market ends.

ERP Success and Failure

ERP success and failure rates are difficult to estimate, as was explained several pages ago. Much of this is definitional: what does one consider a success?

The failure rate of ERP systems is far higher than generally understood. While some high-profile failures get released to the business press, in most cases the news simply never gets out. I know of several implementations that have featured very prominently in the marketing literature of several software vendors, and have been featured both by this vendor, and even at the implementing company for over ten years. This customer is the main reference account for the software, has numerous press releases and marketing documents created for the project, and the truth is that the client is barely using the application. This is a case where the client has so much of their reputation wrapped up in the success of this application, that they cannot admit the failure—it is simply too embarrassing. However, another reason that so many implementation failures go unrecognized is that companies often do not even know the applications well enough to know that their implementations have failed. I have written a number of articles that explain how some of the most advanced software available is poorly configured to such a degree that there was no point implementing the sophisticated software that had been selected such as What is Your Supply Planning Optimizer Optimizing?

When I have brought up this matter to several of my clients, I have been told that there is no time allocated to fix the system; we must hit the deadlines to roll out the flawed configuration to new regions. At one company I was told that part of my role was to be enthusiastic about the system and to use my credibility with the business to get them to believe that the system was working well. The information I provide regarding a detailed analysis of system output and its fit with what the business needs is often suppressed and never reaches the ultimate decision-makers. The top decision-makers are in effect insulated from accurate information about how systems perform and instead are told only the good news. It’s a complicated political stew of competing agendas that results in decisions being made without any logical foundation for the positives or negatives of the actual impact of the decisions. However, I suspect that to those readers with significant work experience, this is not exactly news.

Conclusion

The first assumption to dispense with is that because companies are big they must have rational decision-making processes or have effective channels for transmitting information to decision makers. This should help to explain why companies have universally accepted the following examples of logic for implementing ERP systems.

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.

ERP Contact Form

  • Interested in Our ERP Research?

    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 decision support.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch

Search Our Other ERP Content

References

https://www.forbes.com/sites/oracle/2015/12/24/5-signs-that-cloud-erp-has-serious-momentum/#4a8073d2e8cc

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 Much Money Has Been Wasted on Oracle and SAP ERP?

Executive Summary

  • ERP systems are great consumers of resources.
  • We analyze the waste level with SAP and Oracle ERP.

Introduction

In the book The Real Story Behind ERP: Separating Fact from Fiction, extensive research performed by SCM Focus is presented — and the conclusion is that ERP was never proven to improve either the operations or finance of any company. Furthermore, one after another prediction made by — particularly the Tier 1 ERP vendors never came true.

The uncovered story of how ERP software become the most popular category ever developed within enterprise software. This was done without any evidence that it could either pay back the enormous investment it required, could improve the return or efficiency of applications which were connected to it. Or even reduce the integration costs incurred by IT departments relates to a central problem in IT decision making, which is explained in the quotation from the book below:

  1. Accepting Simplistic Explanations: Companies tend to be easily influenced by oversimplified rationales or logics for following particular courses of action. This will repeatedly be shown in this chapter. If the executive decision-makers had known technology better, and if they had studied the history of both enterprise software sales methods there is no way that the simple logics that were so effective in selling ERP would have worked. Another way of looking at this is that it was simply all too easy.

The Team Effort for Required for the Analytical Failure

It was a team effort to make such poor decisions, and the research shows repeated unsubstantiated comments made by both IT analysts as well as consulting companies. The book chronicles evidence-free statements made by the most prestigious IT analysis, consulting firms and from enterprise software media. What is clear is that most of the entities which put out articles on enterprise software combine both a financial bias with an inability to perform original research — or even to review research that should not have been that difficult to find.

Tips for Interpreting the Book

The first step for readers — and it is a big step, is to review the evidence presented in the book to understand what transpired in an over 30-year misinformation program. Because ERP is now so ubiquitous, it is assumed that ERP is necessary — even if it does not provide any payoff. However, there are a large number of flaws in this common assumption. “ERP” is some things. First, it is a concept, which is defined by the book as the following:

“Conceptually, ERP is a combined set of modules that share a database and user interface, which supports multiple functions used by different business units.”

However, it is more than this idea and the following are just some of the aspects of ERP that are covered in the book.

  1. ERP as the Central System: ERP is also a philosophy that ERP should be the center of the IT system – when in reality it is simply another application.
  2. Functionality if of Secondary Importance: ERP takes as a foundational assumption that functionality is secondary in importance to integration — which was never true. In fact, the benefits of all software — enterprise or consumer — are what the application can do. Integration is a consideration, but it can never be the driver to what software to purchase. ERP vendors were not only able to get companies to implement common functionality which resided in the ERP application, but also in the standard feature in uncompetitive non-ERP solutions that they sold. ERP vendor, and their partners — the major consulting companies, are significantly responsible for the low efficiency of enterprise software as so much standard and low functioning software has been implemented by ERP vendors at so many companies.
  3. ERP as a Method of Account Control: ERP – as practiced by both Tier 1 and many Tier 2 vendors are connected to anti-competitive practices which are centered around account control. In the grand strategy of the Tier 1 ERP vendors, the ERP system serves as “the wedge.” Once the ERP vendor has sold the ERP system, the ERP vendor has both the established relationships and from there uses a variety of logical fallacies to take over as much of the IT business of the customers as possible. The eventual goal gobbles up as much footprint as possible and to turn the IT department into a passive and controlled entity which implements the software it tells it to.

Conclusion

The book includes specific examples of how ERP limits companies which are listed below.

  1. Case Study #1 of ERP Misuse: Managing the Bill of Materials/Recipe
  2. Case Study #2 of ERP Misuse: Disabling the Enterprise for Collaboration
  3. Case Study #3 of ERP Misuse: How ERP Undermines Internal/External Planning
  4. Case Study #4 of ERP Misuse: Intercompany Transfer

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.

ERP Contact Form

  • Interested in Our ERP Research?

    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 decision support.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch

Search Our Other ERP Content

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