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Why Your ERP Is Underperforming

One key to avoiding failure: find software that requires customization only in areas that provide competitive advantage.

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.”

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that many companies needlessly implement new ERPs, often because of misguided perceptions that their current system is outdated simply because of its age.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.

7 thoughts on “Why Your ERP Is Underperforming

  1. Companies don’t typically review and modify business processes to best align with the core ERP system functionality. They then end up just putting good technology over bad process which is a recipe for failure.

    • Alan, agree with your thought. I’ve seen this far to often in that executives do not focus on process improvement first to strengthen it, uncover where their current tech systems are weak or deficient, decide if needs to be replaced or maybe just upgraded and the look for a new solution. I think the approach of strengthening business process first, with the involvement of those who use the process, will help in reducing frustration and angst over a new ERP implementation if the company decides to go that direction.

    • Many companies fail to make a strong business case for ERP acquisition or enhancement. Technology is an investment and should have benefits. Making your mistakes faster (i.e. more efficiently) is not a benefit. Instead, companies should consider what they are not doing effectively. As previously stated this approach requires various degrees of re-engineering existing policies and procedures to insure the benefits and risk of completion are “worth it”.

  2. Good article. ROI can often be very difficult to measure if you’re coming from a situation where you don’t have any real visibility of business critical information. Also, small companies often buy from global providers, often through resellers, and wonder why they don’t have a voice. Finding some synergy with your proposed ERP partner is key to the success of the project.

  3. Agree with everything this article says… another slice at a primary reason for ERP failures is because the project management teams overlook some very simple, yet important aspects of implementation. Seemingly small tasks and milestones are missed, but the project blazes along. These include things like waiting on report development, trying to convert too much data, ignoring key interfaces, allowing milestones to slip and ignoring staffing issues. None of these sound like big deals, but they add up…. More information is avilable at http://trenegy.com/publications/technology/2013/12/12/boiling-the-frog-how-erp-implementations-go-wrong/

  4. Great article. There was a time when businesses only had a few fundamental solutions to select from, and anything they wanted outside of that box was purely custom. The ability to “create your own system” was, for a while, a pretty cool thing, but as the model expanded to really huge build-your-own ERP, too many businesses found that it was simply overwhelming, they didn’t have the people or resources, not did they fully understand their own processes and requirements.

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