Today we released our 2013 ERP Report, which is a summary of our study of the actual results of ERP implementations across the globe. Since beginning the annual study in 2006, we have surveyed more than 2,000 different implementations across the globe to quantify the challenges and results that most CIOs and project teams experience when implementing new ERP systems. We’ve found that this quantitative understanding of the ERP market provides a good context for some of the more qualitative experience our consulting teams have experienced with our portfolio of international clients in a variety of industries.
This year’s report shows a continuing trajectory in some areas, with new trends emerging in others. For example, most projects still take longer than expected, cost more than expected, and fail to deliver the expected business benefits. In fact, many of these trends are headed in the wrong direction compared to last year, meaning that although the average implementation costs less, it takes longer and delivers less business benefits than those completed a year earlier. The graph below highlights some of the summary metrics in this regard.
On the other hand, there are some more positive trends as well. Cloud and SaaS ERP vendors continue to increase their market share, with 26-percent of ERP implementations leveraging some sort of cloud or SaaS solution, compared to 16% last year. In addition, and despite the troubling trends regarding actual business benefits realized, organizations are in general more satisfied with their chosen ERP vendors than in past years. In addition, we for the first time looked at the use of consultants in ERP implementations and find that while companies often fail to leverage outside expertise in some areas critical to the success of any implementation, such as independent validation and verification (IV&V), benefits realization, and contract negotiations, they are likely to enlist support in areas such as system training and organizational change management.
While the data from the study is quite extensive – and this report is simply the first installment of the data that we will make available to the public – we can draw five general conclusions and headlines from this year’s report:
1. Most ERP implementations still struggle. As mentioned above, the most consistent data in our years of conducting this annual study is that related to actual implementation time, cost and expected business benefits. Companies are not only spending more than expected, but the raw costs of implementing ERP systems are increasing as well. For example, this year’s data suggests that the average ERP implementation cost is $7.1 million, or 5.5-percent of an organization’s annual revenue (or annual budget for public entities). Both of these numbers represent increases over previous years, suggesting that companies are not necessarily getting better or more efficient at managing their ERP initiatives. This suggests that companies are not necessarily getting better or more efficient at managing their ERP initiatives. On the other hand, some of the cost (and overages) may be attributed to increased implementation scope, which we will further explore in forthcoming analysis of the data.
2. ERP implementation teams are setting the bar too low. While we have suggested in our experience and research that many executives have unrealistically high expectations for their ERP implementations, this year’s data suggests that some are having the opposite problem. There is a disconnect between satisfaction with software and actual business benefits, suggesting that companies are satisfied with their ERP systems even when they cost too much and fail to deliver the expected business benefits. This phenomenon could be due to a number of reasons, including the failure of executive teams to properly set quantitative expectations of what success means and what they expect to see from the implementation. Another possibility: are companies simply glad that they made it through their implementations without bringing their operations to its knees and/or losing their jobs in the process?
3. Most ERP systems work as advertised. The fact that satisfaction levels are increasingly high at the same time implementations are troubled and business benefits are hard to come by suggests that the market recognizes that today’s ERP systems do in fact work well. While there is always going to be the occasional mismatch between some companies and their selected ERP software, most organizations find that the challenges and difficulties outlined in the report are not related to the software itself. Instead, issues such as business process reengineering, organizational change management and project management are more often the Achilles’ heels of ERP project teams across the world. Even the world’s best ERP system is going to fail to deliver results if the more important business-based aspects of an implementation are not appropriately managed.
4. Cloud and SaaS market share continues to increase, but on-premise ERP systems still dominate. Although a majority of ERP implementations still leverage traditional on-premise solutions, a growing number are migrating to cloud or SaaS ERP systems. The most recent batch of data shows that 26-percent of organizations are leveraging some sort of cloud solutions, compared to 16-percent last year. This suggests a continuing trend toward more cloud and SaaS solutions, especially among small and mid-size organizations. At the same time, it is clear that on-premise ERP systems are not going anywhere anytime soon, especially when you explore the concerns that executives have with the cloud, which is outlined in more detail in the report.
5. Most implementing organizations are still better off than they were before they implemented new ERP systems. While our research shows that the average company leaves literally millions of dollars on the table in terms of lost business benefits, most appear to still be better off than before they implemented their new systems. For example, respondents in our study point to several common qualitative and “soft” business benefits resulting from enterprise system initiatives, such as availability of information, improved productivity and increased interaction between different parts of the organization. However, one big question remains: are these intangible business benefits worth the investment of an average of 5.5-percent of a company’s revenue?
These are just a handful of findings that we outline in the report, which can be downloaded for free on our web-site. To learn more, download our 2013 ERP Report now.
In addition, I will present a more detailed deep dive in a free webinar on Thursday, February 21 at 12 p.m. EST.