Technology

Why Your ERP Is Underperforming

One key to avoiding failure: find software that requires customization only in areas that provide competitive advantage.
David McCannJanuary 6, 2014

The latest annual study by Panorama Consulting Solutions confirms what many users of enterprise resource planning systems (ERPs) already knew: implementing one can be a nightmare and reaping its expected benefits is tricky.

In a survey of 172 global companies by technology adviser Panorama, only 35 percent said their most recent implementation was completed on budget, while more than a third (34 percent) said the cost exceeded budget by at least 26 percent. “A majority of leadership teams are unable to accurately predict total cost of ownership,” Panorama wrote in its survey report.

When asked why the projects went over budget, 25 percent of respondents indicated it was because the project scope was expanded, while 17 percent pointed to “unanticipated technical or organizational issues.”

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Similar results were found for project durations: just 39 percent of participants said the work was completed on schedule or earlier, while 34 percent reported durations of at least 26 percent over schedule. Between 47 percent and 55 percent of those surveyed cited organizational issues, scope expansion, technical issues and resource constraints as factors in project delays.

And about half (49 percent) of respondents said their ERPs have delivered less than half of the projected benefits. “Organizations looking to shave costs and time typically (and regrettably) nix the business case and other key measurement activities in an effort to get the system installed quickly and cheaply,” Panorama wrote. That result appears to support the premise of a recent CFO article by three AlixPartners executives. They argued that many companies needlessly implement new ERPs, often because of misguided perceptions that their current system is outdated simply because of its age.

Still, some of the surveyed companies may yet realize hoped-for benefits. “In our experience, benefits such as increased interaction or increased availability of information happen quickly, while benefits such as improved productivity or improved data reliability take longer to achieve,” the consulting firm said.

Indeed, the average time it took respondents to recoup the costs of an ERP implementation was 25 months. But the payback period is getting shorter: it declined for the third consecutive year in Panorama’s annual survey, during which the average has fallen by a cumulative 22 percent.

According to Panorama, there are five key reasons why ERP installations don’t go as well as expected:

1. Budgets and timeframes do not take into account the need for business process improvement; organizational change management; backfilling and resource allocation; or software customization.

2. Leadership teams choose systems based on reputation or vendor sales pitches rather than systems that truly fit their “future state” requirements.

3. Leadership teams fail to anticipate the magnitude of the project and the impact it has on end-user productivity, morale or both.

4. Non-customized training is based solely on the technical aspects of the system and fails to train users on new processes.

5. Lack of concerted communication to end users about the reasons behind the implementation, the anticipated benefits stemming from successful adoption, and the ways in which executives and other end users will affect project success or failure.

The first key to preventing overages is to find software that matches the organization’s needs and requires customization only in areas that provide competitive advantage, said Panorama.

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