Cloud computing and the increasing consumerisation of enterprise technology are two factors that are transforming ERP and enabling new ways for companies to interact with their staff, customers, suppliers and other stakeholders. Despite such advancements, ERP deployments are often left to grow old, moving from a business enabler delivering value, to a straitjacket holding the business back. Often this is because companies do not consider the ongoing cost of change to the system to mirror changes in the business over time in their ERP purchasing decision.
In a recent report by Mint Jutras looking at the high cost of business disruption in modifying and maintaining ERP, it concludes that: “Architectural agility to accommodate change is important to everyone but for ERP buyers faced with frequent or massive changes, it is absolutely essential.” The survey of 240 business and IT executives found that “when change prompts even moderate levels of modification to ERP, the average business disruption cause can be devastating: 15.6% loss of revenue from a delayed product launch, 15.8% drop in market valuation and a 15.2% decrease in satisfied customers.”
The Warning Signs
1. Processes are adapted to what the system can cope with leading to loss of productivity
Enterprises have spent too long re-engineering their businesses to fit their legacy ERP. A new IDC White Paper titled ‘Maintaining ERP Systems: The Cost of Change’, summarises responses from 167 executives to gain insight into their companies’ use and ongoing maintenance of ERP systems. Michael Fauscette of IDC says: “ERP system modification causes disruption, and disruption has a cost.” Commenting on the level of effort (in days) required to modify ERP, he reports that “the level of effort can be significant, and that effort takes away from other important business activities.”
2. Workarounds Are Mushrooming
When people start relying on manual systems to complete everyday tasks that should be a part of the system’s process support, it’s time to change. By running a complete and integrated, role-focused ERP solution that can be adapted to support any type of business change – planned or unplanned – simply, quickly and cost effectively, companies can ensure accurate and real-time data without manual workarounds.
3. ERP that is difficult to modify can leave you dangerously out of touch
The more change your organisation is subject to – growth and expansion, acquisitions, new product lines, etc. – the less you really know. A lack of available business information can become a significant problem, no matter how many spreadsheets and workarounds have been developed.
4. The Vendor Is Holding You Hostage
The majority of ERP systems cannot support business change easily and so the only way to make any sort of tweaks to the system is through significant, complex and expensive programming at code level. That’s why ‘big legacy’ ERP customers often find that they’re completely dependent on their software providers.
5. A Lack Of Innovation
In today’s business environment, vendors must be able to show an innovative product roadmap and deployment strategy. Are they developing mobile and social applications that could benefit you in the future? Are they simplifying future upgrade paths, delivering more value at less time and cost to the user? Most importantly, does your ERP supplier provide flexible delivery options like the ability to move to a cloud infrastructure quickly and inexpensively?
The Best ERP Puts Users Back In The Driving Seat
Some of the key findings detailed in the IDC white paper on The Cost of Change include:
- “Due to business changes, 15% of the respondents were forced to re-implement the entire ERP system. Of those, 60% had initially spent over $2.5 million USD.”
- “The cost of system modifications not only is direct but also includes a substantial amount of lost productivity.”
- “The average costs of maintaining ERP systems and meeting changing business needs are up to $1.2 million USD, but in the extreme, they can exceed $4.1 million USD per year.”
Traditional software evaluation has focused too much on the total cost of ownership (TCO) and not the Total Cost of Change (TCC) – a vital measure of value that is often overlooked. That’s a measure of the cost of making changes to the ERP system. How quickly can adjustments be made, and what stresses do system changes place on the organisation?
Often the business changes even during the implementation project, causing disruption and budget overrun. Once the project team has left, further business change can render the initial ERP implementation outdated and almost useless. When modifications take too long or are highly costly, the negative impact of business disruptions can be significant.