- ERP systems were proposed to reduce complexity.
- The result was that landscapes became even more complex.
This book was hatched during a conversation with a longtime friend who works in SAP Basis—the infrastructure area of SAP that is concerned with installing and maintaining the SAP applications. During our conversation he made the following comment:
“Look at the typical SAP landscape at a company. It now has so many applications that it eliminates what was supposed to be the advantage of ERP in the first place.”
My friend’s statement got me thinking: what is actually known about the benefits of ERP?
ERP significantly predates my introduction to working on IT projects, and because ERP has been on every project in which I have been involved, I have What I discovered through my research was that my colleague’s single observation was only the tip of the iceberg, only one example of what turned out to be multiple false assumptions about ERP put forward by multiple entities over many years. I actually held several false assumptions regarding the benefits of ERP myself; I had never analyzed the issue closely and had been fed a steady stream of misinformation about ERP by biased parties and those who simply repeated the message they had heard from others. However, after I read the academic research on ERP, I was appalled to find unsubstantiated statements about ERP made repeatedly and routinely by individuals who presented themselves in their articles as knowing something about the ERP market. Of all the technologies I have researched, the coverage of ERP that I found was probably the worst journalism I have ever encountered. In fact, based on my research, I concluded that the vast majority of articles on ERP are misleading and not useful to people who are attempting to truly understand ERP. Of course, the articles are extremely useful to companies that wish to sell ERP software or services. Interestingly, ERP is a topic that has not been analyzed critically outside of academic literature. For those who believe that—at any time, at any place—the best determining factor of what is true is what most people think, this will not be a good book for you. Examples of when the prevailing opinion is incorrect are simply too easy to point out for anyone to be able to propose that generally agreed-upon opinions are correct. For instance, at one time, various gods explained all physical phenomena.
The Commonality of Believing False Things
In ancient Egypt, there was a wind god, a sun god, a god of the harvest, a god that ate the sun in the evening and gave birth to the moon and did the opposite in the morning. In ancient times people literally believed that physical phenomena could be controlled by praying to or making offerings to these gods. If that example is from a time too long ago for you, consider this: within the past one hundred years, the most prestigious universities in the US declared that women could never work in medicine because they would become hysterical at the sight of blood. More recently, US intervention in other countries was based upon a “domino theory,” a proposal that was never proven, never meant to be proven and was simply a justification for the violation of most of the treaties that the US had signed. These are the tip of the iceberg with respect to beliefs that were widely never actually seen a project without an ERP system.
Henry Ford received the Grand Cross of the German Eagle, the highest medal Nazi Germany could give to a non-German. However, you won’t find this story in any Ford commercial; if something does not fit with the desired history narrative, it is conveniently altered until the desirable storyline is created. For this reason, the great frequency with which the biggest and most prestigious institutions have been wrong is underestimated enormously. It is therefore quite likely that many commonly held beliefs today are wrong; in fact, it is easy to demonstrate that they are.
ERP as Just Another False Belief
There are many areas where the commonly held—and institutionally held— opinions are at odds with research in the area, and ERP is such an area. During my research, I found some statements that amounted to: “ERP must be beneficial because so many highly paid executives cannot be wrong.” However, couldn’t the same statement be made about mortgage-backed securities and credit default swaps? AIG, Goldman Sachs and Bear Stearns love them; these companies are chock full of smart people, so how could they be wrong? People who are well disposed toward ERP will most likely read this book (actually they will most likely not read it) and reject it out of hand; how can people agree with something that is counter to their financial benefit? Obviously, if a person consults in ERP, that person is going to be sold on ERP. Who would ever be so thick as to believe something that could negatively affect their pocketbook? If you are a partner at a large consulting company that implements ERP systems and your large house and large Lexus have been paid for by ERP implementations, you will not want to read this book—guaranteed—and you will not want other people to read it. Your life would be more difficult if this information got out. However, if you are one of these partners, the problem is that you will have nothing but anecdotal evidence (you have seen ERP work and provide value to clients), argumentum ad numerum (lots of companies use ERP and how can they be wrong?), or ad hominem (the author must not know what he or she is talking about), because the research on ERP will not support what you are telling your clients nor your luxurious lifestyle. Very few people have suggested what I propose in this book, so it’s rare that people have even had to confront the question of the evaluation of evidence regarding the benefits of ERP. I can anticipate the negative responses because one person, Cynthia Rettig, wrote one of the few articles that were not critical of ERP in an ancillary way, but were critical of ERP’s foundation. Many of the criticisms of her article fell into categories listed in the previous paragraph (argumentum ad numerum, ad hominem, etc.).
Even the most educated part of society—people with PhDs in the sciences—finish their academic careers still clinging to the idea that new discoveries disproving the theories upon which they built their careers must somehow be wrong. A famous example of this is Albert Einstein. Einstein was eerily prescient about most of his scientific hypothesis; in fact, he is widely credited with seeing fifty years beyond any of his contemporaries. However, when he made predictions about the new science of quantum mechanics, he was incorrect. Niels Bohr—a thought leader in what was an entirely new field and who did not follow rules of “large” physics—was proven correct. It turns out that God does play with dice after all. The desire to find evidence to support one’s already existing hypothesis and to filter out contradictory information is called “confirmation bias.” It is one of the most powerful of cognitive biases and exists in all of us—except not necessarily to the same degree in each individual, and not to the same degree in each individual at each age in their lifetime. Confirmation bias explains why things that are learned early in life, no matter how false, are adhered to so strongly into adulthood. It explains why advertisers will pay more to reach younger viewers than older viewers.
The Young Impressionable Brain
The young brain is the most malleable; it exhibits what neurologists call neuroplasticity and as such, it can learn new things quickly. As the brain ages, it develops specific neural connections (actually, the development of knowledge means creating some neural connections at the expense of other neural connections), meaning that it becomes increasingly “hard-wired” for particular thoughts and particular ways of thinking as we age. Although sometimes suggested, it is not true that the best-educated people are immune to confirmation bias. The more an individual has invested in any philosophy or course of action, the more they have to lose by adapting to a new way of thinking. In fact, merely following advice can reduce the ability to question that advice, particularly if that advice comes from an entity with some type of authority. The investment can be both psychological as well as real (in that one receives negative real-world consequences for changing one’s views). Both of these factors—the psychological need to protect previous mental investments as well as real-world consequences of changing one’s views—frequently combine to prevent people from changing to a new and better way of doing things and often make the mind impervious to contradictory information. There is research indicating that math is performed with less accuracy when the conclusion is in conflict with one’s beliefs. One question to ask is:
“Can the person who disagrees with the contentions in this article actually afford to agree with them?”
The Test of Financial Bias
Most importantly, do they have a financial bias? As for myself, I can reasonably propose that I am financially unbiased with respect to ERP, unlike the few other authors who have written on the topic of ERP. I do not make my income from ERP, but I do derive work based on the sale or implementation of ERP. I connect the systems I work with to ERP, and if ERP were to go away tomorrow, I would simply connect a different system to the planning systems in which I specialize. For the longest time it has been proposed that ERP serves as a backbone and helps the implementation of other systems. However, from my experience I have found that ERP tends to interfere with implementing other systems (although, I should say that all of my implementation experience is with “Big ERP,” and in performing research for this book and other research initiatives at Brightwork Research & Analysis, I’ve found some ERP systems that do not impose as much interference). I have been impressed with several smaller “ERP” applications; while they have similarities in terms of their footprint; they have nothing in common with Tier 1 or Tier 1 ERP software vendors in terms of costs, account control, business model, and a variety of other factors.
The Lack of Questioning with ERP
Quite simply, ERP has been ubiquitous and an unquestioned necessity. Certainly, I don’t recall people saying they liked any of the ERP systems that had been on these projects, but that did not really matter; ERP was just the reality. After this conversation with my colleague, I began researching the topic of ERP’s usefulness and value-add to companies. I expected to find a large number of books—and quantities of research and articles—that demonstrated the benefits of ERP. Instead, I found quite the opposite. Here is a synopsis of what I found:
- There are few research studies on the benefits of ERP. The research that does exist shows that ERP has low financial payback.
- Research into multiple aspects of ERP by serious researchers (not some survey by a consulting company or IT analyst firm) clearly shows that ERP significantly changes companies, but that the benefits from these changes are of a dubious nature. That is, there can be a mixture of positive and negative outcomes from ERP implementations.
- The actual research is at complete odds with most articles on ERP, which almost universally promote ERP as a virtue.
- Most of the information on ERP is unsubstantiated hyperbole written by people who benefit financially from ERP implementations directly, or by those who have “sampled the Kool-Aid” and simply don’t question any of the assumptions about ERP.
- There are no books that question the benefits of ERP.
- There is no book on the history of ERP.
What the Research into ERP Revealed
What I discovered through my research was that my colleague’s single observation was only the tip of the iceberg, only one example of what turned out to be multiple false assumptions about ERP put forward by multiple entities over many years. I actually held several false assumptions regarding the benefits of ERP myself; I had never analyzed the issue closely and had been fed a steady stream of misinformation about ERP by biased parties and those who simply repeated the message they had heard from others. However, after I read the academic research on ERP, I was appalled to find unsubstantiated statements about ERP made repeatedly and routinely by individuals who presented themselves in their articles as knowing something about the ERP market. Of all the technologies I have researched, the coverage of ERP that I found was probably the worst journalism I have ever encountered. In fact, based on my research, I concluded that the vast majority of articles on ERP are misleading and not useful to people who are attempting to truly understand ERP.
Of course, the articles are extremely useful to companies that wish to sell ERP software or services. Interestingly, ERP is a topic that has not been analyzed critically outside of academic literature. For those who believe that—at any time, at any place—the best determining factor of what is true is what most people think, this will not be a good book for you. Examples of when the prevailing opinion is incorrect are simply too easy to point out for anyone to be able to propose that generally agreed-upon opinions are correct. For instance, at one time, various gods explained all physical phenomena.
Since I began working with ERP in 1997, I have found that ERP systems have interfered with the value that can be obtained from business intelligence systems, bill of material systems, web storefronts, etc., in addition to the planning systems I have implemented (in fact, pretty much any system that must be connected to the ERP system). In the past I simply accepted this as the way it was: I thought IT implementation had to be difficult and frustrating. My exposure to many systems that are far easier to implement and have better functionality than Big ERP has led me to question my assumptions. More companies should be asking themselves this question; unfortunately these types of questions are not asked because a groupthink has settled over the topic of ERP.
Financial 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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Thanks to Ahmed Azmi for his contribution to this article.
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