buchachon - Fotolia
Organizations implementing ERP continue to struggle, according to the 2015 ERP Report by Denver-based Panorama...
Consulting Solutions. ERP implementations cost more than was budgeted, take longer than planned, and are failing at higher rates.
The report surveyed more than 500 ERP users during the past year, drawing from a diverse sample of industries and sizes.
Over the past five years, Panorama's research indicates that ERP implementations have cost an average of $6.1 million with an average duration of 15.7 months. Of these projects, 58% exceeded their budgets and 65% ran past the planned timeline for completion. The projects also appear to have unsatisfactory results, with an average of 53% of the organizations achieving less than 50% of the measurable benefits that they expected from the ERP system.
"One thing that stands out this year is that failure rates have increased," said Eric Kimberling, Panorama's president and founder, calling the survey results a mixed bag. "This is interesting because it's the companies themselves that have assessed that the projects have failed, it's not just some analysts' view."
Indeed, the report shows that 21% of ERP projects were considered failures in the past year, a 5% jump over the previous year. The same percentage of respondents (21%) are "neutral" or did not know if the project was a success or failure. According to the report, this can indicate that the organization did not invest adequate planning effort (such as software selection or business case justification) or in follow-through (such as benefits realization measurement or post-implementation audits).
Overall, the majority of respondents are satisfied with their ERP software, with 69% saying they would select the same software again. However, this may be another less–than-rosy indicator, having declined from 76% in last year's survey.
SAP leads shortlists for ERP implementations
The survey covered more than 20 vendors. SAP, Oracle and Microsoft still dominate the market, accounting for about 60% of the vendors who are shortlisted for ERP implementation, with SAP at 27% and Oracle and Microsoft at 19%. Others who are shortlisted include Epicor (4%) and Infor (4%).
Once the decision is made to choose a vendor, SAP is clearly in front at 39%, followed by Microsoft at 27% and Oracle at 26%.
"SAP had a fairly big jump in being the choice that companies actually selected," Kimberling said. "In the past few years we had seen a fairly big increase in the number of smaller companies that were chipping away [at the market share of SAP, Oracle and Microsoft], but this years' data suggests that SAP has halted this at least for now." SAP has done a nice job with things like HANA, Kimberling explained, but its strategy has also changed. Rather than just pushing the full-blown SAP experience, it is getting more into niche functionality with SuccessFactors and Concur, for example.
The way organizations are deploying ERP is also changing, according to the report. While the majority of respondents still select on-premises ERP software, the percentage has dropped from 85% in 2014 to 56% this year. Software as a service (SaaS) has grown dramatically from 3% to 33%, while ERP deployed in the cloud or a hybrid cloud and SaaS has stayed flat at 11%. This may be because there are more vendors offering SaaS ERP and more customers are becoming aware of the benefits, including reduced costs, increased reliability, accessible updates, and better flexibility and scalability.
Despite all the investment of resources, the benefits an organization derives from ERP can be a mixed bag, according to the report. A large number of respondents (81%) reported measurable business benefits, but of these, 41% realized less than half of the benefits that they had anticipated. Further, 16% said they attained no measurable benefits at all.
Cost overruns have been a persistent problem for ERP projects and slightly more than half exceeded implementation budgets. Furthermore, on-budget projects decreased 7% to 30% this year. The most common reason for a project going over-budget was an expanded scope to the initial project. Other common reasons include project staff underestimates in the original budget and additional technology needed to meet the project goals. "Companies may be running into trouble because they not planning well up front and not putting enough resources and effort into choosing the right software," Kimberling said. "That could be increasing costs later on."
The average implementation cost rose by approximately $1.7 million, from $2.8 to $4.5 million. Kimberling said this may indicate that some organizations are, in fact, getting better at investing the necessary resources up front, rather than running into problems down the road that require costly training and communication updates. The cost increases might also be due to a rise in the number of implementation sites.
Organizations are still running into operational disruption when the system goes live, according to the report. More than half (52%) reported experiencing some type of material disruption, up 1% from the previous year. Paradoxically, while most ERP systems are implemented to increase efficiency and streamline processes, the report found that many organizations cannot perform simple tasks like shipping products at go-live. The majority of these disruptions lasted more than one month, while 30% were one week or fewer. "Operational disruption has been steady," Kimberling said. "Companies need to get their ducks in a row and make sure everything is in place, or else there will be costly consequences when the system goes live, such as failure to ship products, or inventory issues."
Read about Oracle ERP implementations
See what Panorama said about Tier 1 ERP implementations
Learn how CRM implementations differ