Implementing an enterprise resource planning (ERP) system is a major undertaking that produces great results for some companies, so-so outcomes for others, and disasters worthy of business school study for an unfortunate few.
Despite ERPs being around for a while, companies still see them as essential, and every year a new crop of growing companies get large enough to sign up for an ERP implementation experience.
Panorama Consulting Group’s annual ERP report looks at ERP software selection and implementation practices the previous year. This year’s findings (detailing 2021 implementations) proved once again that, with ERP implementations, “your results may vary.”
From a traditional finance point-of-view, it wasn’t a bad year. Nearly 60% of the 140 organizations' ERP projects were on budget and only 10% were significantly over-budget. And more than 60% of respondents completed their implementation in the projected timeline.
But as usual, Panorama, an ERP consultant, found some mistakes: some adopters underinvested in consulting assistance, others fell short in pre-implementation goal-setting. And though they were few, some companies did blow through their budgets — most due to organizational issues like employees’ resistance to change and process redesign challenges.
The risk of security breaches at a cloud provider was the most common reason cited (35% of respondents) for not adopting cloud ERP, followed by risk of data loss and connectivity challenges (16% each).
Diving deeper into the study results of 140 companies with median annual revenue of $200 million and a median employee base of 2,000:
Affinity for big. About half of the 140 respondents chose an ERP from either SAP, Oracle, Microsoft, or Infor. The least popular systems were from vendors that offer only cloud solutions, said Panorama.
A little more than one-third (35%) of organizations went the on-premises route. The result was puzzling, Panorama said, because “the need for real-time data is typically what instigates [ERP] software projects, so naturally these projects focus on cloud technology.”
The risk of security breaches at a cloud provider was the most common reason cited (35% of respondents) for not adopting cloud ERP, followed by the risk of data loss and connectivity challenges (16% each).
“Security is a significant concern these days because of the prevalence of data breaches, but also because the [European Union] is exerting more control over cloud software companies in the United States,” Panorama noted. “Potential customers of these vendors may be wary of getting fined if one of the vendors is noncompliant.”
Of companies that chose cloud, 64% opted for software-as-a-service models, proving that most companies were not eager “to set up and operate their servers and databases,” said Panorama.
Do-it-yourself. Despite the complexities of ERP adoption projects, some organizations kept consultant involvement to just a few areas: 64%, for example, engaged a consulting firm to guide their project, “surprisingly low,” said Panorama.
But less than half of all respondents hired a consultant for technology assessment and less than one-third used outside experts in software selection.
Third-party help. Only 27% of the surveyed firms sought consulting help on digital strategy or “digital transformation” as part of their ERP implementation. More organizations (52%) sought help with the traditional ERP areas of business process management and process reengineering. Unfortunately, according to Panorama, “many organizations don’t understand the importance of digital strategy nor what it means, so they’re less likely to seek guidance for it.”
On the bright side, getting business process advice “typically leads to more realistic cost expectations as organizations can better estimate the time and resources required for thorough process improvement,” according to Panorama.
People and processes. The process and people aspects of ERP projects, such as the encouragement and training of employees, were rated by half the organizations as just as difficult or more difficult than the technical aspects. Panorama called that unsurprising because more than a few of its clients had experienced disastrous IT implementations and were determined “to dedicate more focus to people and processes in forthcoming projects.”
Benefits expectations. The most common areas in which organizations set and quantified the expected benefits of a new ERP system were productivity/efficiency, IT maintenance costs, and the customer experience. But most kinds of expected benefits — standardization and real-time data among them — were quantified by less than half of companies.
Organizations don’t always take the time to outline and quantify all the benefits they hope to achieve, according to Panorama, but that’s a mistake.
“Quantifying expected benefits keeps project team members focused on achieving the benefits most important to executives and end-users and that are most likely to deliver long-term ROI,” according to the consulting firm, as well as keeping the project team from “implementing more functionality than necessary” or “overlooking certain process improvements necessary for achieving organizational goals.”