The Problem With ERP
March 4, 2019 Alex Woodie
Enterprise resource planning (ERP) software has been the backbone of modern business since it emerged in the mid-1990s. Hundreds of billions of dollars have gone into ERP implementations with the promise of enhanced business processes automation. But was it all worth it? According to new research from Computer Economics, the answer is not clear.
Every year in its Technology Trends report, Computer Economics surveys a few hundred IT decision makers to gauge their satisfaction level with a variety of technologies. For the past two years, ERP scored dead last in terms of satisfaction and return on investment (ROI). In fact, it hasn’t even been close.
“We are tapping into what we see as a general depression and lack of satisfaction of ERP in our readers and the people who take our surveys,” says David Wagner, vice president for research at Computer Economics, which is based in Irvine, California.
The survey found that people are highly satisfied with their investments in things like mobile devices, mobile applications, robotic process automation, and Ecommerce, all of which scored well in the risk/reward metric. Even enterprise asset management (EAM), a distant cousin to ERP, puts a smile on the CFO’s face thanks to a positive ROI and an amiable risk/reward ratio.
But nobody seems to like ERP. Wagner finds that a bit concerning, seeing as how critical ERP systems are to the livelihood of businesses.
“ERP can’t go anywhere. It’s the backbone of the organization. It’s the most deployed system of all that we look at,” Wagner continues. “But nobody is happy with it. Nobody’s doing anything with it. Nobody feels that they’re getting an ROI.”
So what happened to ERP? How did such an important technology – arguably the most important piece of technology that an organization can invest in – end up so deep in the digital doghouse? Wagner has some ideas about the downfall of ERP. One piece of data collected by Computer Economics – the level of investment across various technologies – provides a clue.
(I Can’t Get No) Satisfaction
Despite the Mick Jagger-levels of dissatisfaction with ERP, companies are still pumping money into their ERP systems. (The fact that companies still spend so much on ERP may have something to do with the dissatisfaction).
According to Computer Economics, ERP is the fifth most-invested-in technology for 2019. Even though IT decision-makers seem to hate their ERP system, they’re still buying new ERP systems or upgrading the ones they already have. That provides an interesting dilemma.
Source: Computer Economics Technology Trends 2019 study.
“Nobody’s abandoning their ERP, because there’s no choice. You can’t go back to Excel spreadsheets, or something like that,” Wagner tells IT Jungle. “I don’t think anybody is necessarily giving up. We’re seeing a lot of investment [in ERP]. But even with that investment net, people still are not happy. And the reason we think they’re not happy is because they approaching this as a technology problem.”
The lack of satisfaction with ERP is a technology problem, to a certain degree. But the bigger issue boils down to one critical element in any successful business endeavor: people. According to Wagner, the real issue is that companies aren’t approaching their ERP situation as a people problem.
IT Is People
“In our opinion, the biggest problem is a lot of IT organizations don’t focus enough on their end users and their business processes,” he says. “So what happens is, they’ll go through an investment, either a new ERP or upgrade an existing ERP, and they’ll spend a huge amount of time on the technology issues. They will say: ‘Oh this has AI embed in it or this is the new fancy version.’ But they don’t actually examine how the users use the ERP, what are their pain points, what can they automate or improve, how can they transform business process to make the ERP more effective. They don’t do that at the beginning, and they certainly don’t do it later after the deployment.”
An overall lack of communication among three constituencies – business officers, IT leaders, and end users – is dooming ERP to a life of perpetual discontent. Wagner advises business leaders, including the CEOs, CFOs, and COOs, to give their IT colleagues a seat at the table to discuss business strategy instead of just viewing the IT department as cost center.
Business executives should also strive to maintain a healthy balance between proven technologies that can help a business today versus those that may provide an edge in the future.
Hype Versus Reality
“I go to a lot of conferences and I see a lot of blue-sky thinking,” Wagner says. “Somebody will get up and do a keynote and say 75 percent of humans will be reporting to a robot manger in two years and the datacenter is going to be completely manned by autonomous vehicles.”
ERP is Mick Jagger of the IT jungle. (Image source: Bert Verhoeff-Anefo)
“All this grand thinking goes on at these conferences,” he says. “But when we do our survey, we find that there’s still billion-dollar companies that haven’t deployed an ERP system and they’re still using Excel. There are companies that, for whatever reason, aren’t deploying basic security technology.”
Digital transformation has captured the attention of many tech executives, who are looking to leverage the latest advances in things like AI and machine learning to give their companies a competitive edge. In Computer Economics’ survey, IT organizations expressed less satisfaction with their data analytics and AI investments – but they still ranked much higher than ERP.
AI and machine learning will undoubtedly have big impacts on business in the future, perhaps by automating many of the tasks that are performed by humans today – even those sitting at an ERP terminal. But AI and machine learning have a long way to go before they’re trusted with day-to-day management of businesses.
Relational databases debuted in the 1980s and ERP systems followed in the 1990s. Both gave us big increases in automation. The core technological breakthroughs that power these systems are 30 to 40 years old. However, that doesn’t mean they’re irrelevant to business today. In fact, they may be even more relevant, Wagner argues.
“Long before I would worry about a big data project, I would be worried about my core systems,” he says. “Let’s say you are a company that’s investing in big data. Where is that data coming from? A huge percentage of that data is coming from your ERP, it’s coming from your CRM, it’s coming from your system of record. If your systems of record aren’t up to snuff, then you’re data is not going to be” up to snuff either.
Keep Evolving Your ERP
It may seem obvious, but automation takes practice. It’s not something you can just turn on one day and expect to glean all sorts of financial rewards from. The type of automation that ERP offers can definitely lift an organization up in terms of its output, efficiency, and overall capability, but a business can’t get there without putting in the effort, without practicing.
“Automation is not an on off switch. It’s not a binary situation where you’re either automated or not automated,” Wagner says. “What we see is you automate a few processes and they work well. Then you automate a few more and they don’t work well. You find a few that don’t necessarily work well and you back off.”
Finding what to automate is critical, because if you continue to push automation where it doesn’t belong, you’ll soon find yourself with a bunch of broken systems. The automated trading systems on Wall Street that gave us the “Flash Crash” of 2010 momentarily erased more than a trillion dollars of stock market value.
The same lesson applies to ERP, which is the primary vehicle for most forms of computational automation in the business today. “ERP is not something you set and forget,” Wagner says. “ERP should always be evolving.”
Very interesting graphic, and yet somehow I feel the reality. The dislike effectively follows the same curve that you would have if you put “complexity”.
ERP is big, complex in its own right, and then further complicated by your own organisation. Everyone has a stake in it, therefore it can’t be changed easily regardless of code complexity as nobody wants to let another part of the business get one up, or let small changes go without impact assessments. Similar positions for security.
Nobody will ever admit their own business is part of the problem!
I’ve never had a failed implementation of an ERP, and I could give you names of users who love their ERP.
Great article, Alex. Thanks.
After working on ERP implementations for more than 20 years this is an excellent set of observations. Moist organizations buy an ERP solution based on what they are told it can do. Then they make it an IT project and the reality of what’s delivered does not nearly align with the expectations that were set. This should not surprise anyone. In my experience change management, training, and most important of all skilled business process analysis and design are cast aside in order to hit an implementation date. Organization frequently attempt to implement a different version of the same old tired and ineffective business processes. In some cases businesses have very little in the way of documented and well understood business processes and they are disappointed when SAP, Oracle, or some other ERP system does not fix all of the problems. If you want an ERP implementation to fail don’t involve the users up front. That will almost assure failure, delays, and cost escalations.
Wonderful explanation..
ERP with Business process ease is best. Too much integration is challenge. most of project implementation by experience not expertise.
CXO involvement in BBP gives best value
What you wrote is totally true.