ERP customization boosts software value, but beware runaway costs

Panorama Consulting’s new survey of ERP implementers suggests customization may be key to ERP satisfaction -- if expectations are properly calibrated upfront.

More companies have figured out that ERP customization is the key to realizing the software’s value but often blow their budgets and schedules implementing it, according to a new report from Panorama Consulting Group.

“What we’ve seen is that the customization levels are not only high, they’re increasing,” said Eric Kimberling, president and CEO of the Denver-based consulting firm. “It’s somewhat dispelling the myth that most companies can implement off-the-shelf ERP without any customization whatsoever. That’s some unfortunate hype that the industry’s using right now.”

The figures come from an online survey of 185 respondents -- nearly a third of them manufacturers or supply chain providers -- that completed ERP implementations in 2010.

The deep recession that began in 2008 apparently caused companies to spend less on ERP implementations and try to finish them sooner, according to Kimberling. The average ERP implementation cost fell from $6.2 million in 2009 to $5.48 million in 2010, and the average duration of ERP projects dropped from 18.4 months to 14.3 months.

“The fact that the numbers dropped as much as they did -- that was a surprise to me,” Kimberling said.

“The good news here is it’s forcing companies to be lean and focus on value.”

The recession probably prevented companies from implementing entire ERP suites and instead forced them to focus on modules that provide the fastest return on investment, he said.

Still, nearly three-quarters of companies reported going at least 5% over budget, a sharp rise of 23% compared with the previous year.

Meanwhile, schedule overruns also increased significantly, to 61%, which represents a 26% jump.

Panorama hypothesizes that a steep drop in the percentage of companies that chose not to customize their ERP package was largely responsible for the more frequent overruns. In 2010, only 15% of companies went with the out-of-the-box version, nearly half the number in 2009. Kimberling said Panorama hopes to prove the correlation with further data analysis.

ERP meets expectations, but overruns disappoint

Panorama conducted a similar survey last year, and one in the inaugural year, 2008, both of which had well over a thousand validated responses. Kimberling said Panorama opted for a higher-quality sample this year, performing statistical analysis and selective confirmation of responses to ensure their validity. Because they could only respond if they completed their implementations in the calendar year, different companies were included in the two surveys.

Seeming to run against the negative trends were substantial increases in the percentage of respondents who said the ERP system met their expectations. The number of companies that saw at least half of the anticipated business benefits increased 9%, to 42%, while large drops were seen in those that realized less than half the expected benefits.

The takeaway lesson on ERP success factors, according to Kimberling, is for vendors and consultants to properly set expectations and not scrimp on the change management that can help manage project costs and duration.

SAP, Oracle, Microsoft continue to dominate shortlists

Panorama again asked ERP implementers which vendors had been on their shortlists for selection. SAP again led, at 38%, followed closely by Oracle, at 32%, then Microsoft, at 24%. Epicor, Exact, Infor, IFS, Lawson, Openbravo (the first open source vendor to make the top 10) and Sage were all in single digits.

But when companies were asked which vendor they eventually chose, Oracle bested SAP slightly, 22% to 19%. The order was similar in 2009, but with Oracle’s product lines broken out.

Kimberling, who said Panorama helps implement both vendors’ products and prefers not to play favorites, nonetheless suspects the numbers say something about the archrivals’ fortunes. 

“That would suggest Oracle is taking market share from SAP,” he said. “This could be considered a leading indicator of where the market share is heading.”

Kimberling said Panorama also expects 2011 to be a strong year for customer relationship management (CRM), as IT purse strings have loosened enough to make more money available for CRM, which has a shorter payback period than most ERP modules and can help companies ride the recovery without adding staff.

“Companies are still in the cherry-picking mode with ERP,” Kimberling said, adding that increased demand for ERP among small companies in “high-growth mode” also bodes well for CRM, which fits well with their emphasis on new sales.

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