My wife and I recently renovated our condo. Like all major renovations, it took twice as long as we expected and cost three times as much as we thought it would. Are we satisfied with how it turned out? Absolutely. Would we want to go through this again? I think I would prefer root canal. Ever the eternal optimist, my wife said it was actually a good thing that we overspent by so much. We simply would have lost the money in the stock market!
So, I got to thinking about the parallels between renovations and new ERP projects. And, what inspired me to write this blog was the recently published results of an ERP study by Panoramic Consulting Group, a Denver based firm specializing in mid-size ERP implementations. Their study includes 1,322 respondents that have implemented ERP over the past three years.
So, why are ERP projects like renovation projects?
Lack of ERP expertise: One third (33%) of all respondents cited lack of ERP expertise as a key problem. Companies should choose their ERP project teams carefully. Diverse skills are required to get the project done. The same is true for renovations. One of the contractors’ staff measured the lead pan in the shower wrong, and decided he could paste two pieces together. Don’t try this at your home.
Projects took too long: Nearly seven in ten (68%) respondents said the project took to long. Well, we will come back and examine “length” later. Suffice it to say that the ERP vendor, the consultants and the customer (read my wife and I as the renovating team) are all responsible for this very high number.
Costs exceed budget: According to the Panoramic study:
• 65% of ERP implementations go over budget
• 27% go at least 15% over budget
• 16% go 50% or more over budget.
So, we are in lock step with renovations. Lack of expertise, too much time, too much money all contributed to our woes. Perhaps if we had hired a different contractor, things might have gone better. Perhaps there are ERP vendors who contribute more to the overages than others. Follow along then to part II of the ERP survey results.
Implementation Duration:
SAP — 20.0 months
Oracle – 18.6 months
Microsoft – 18.0 months
Tier II — 17.8 months (including Lawson in Tier 2)
As expected, SAP has the highest average duration, but there is only a two-month spread between SAP and Tier II. The above notwithstanding, these results do not speak well for the ERP industry, and both vendors and customers must work harder to improve these results. So, do contractors and their customers.
Implementation Cost:
Average Total Cost & Cost as a % of Revenue
SAP — $16.8 million, 18.6%
Oracle — $12.6 million, 10.6%
Microsoft — $2.6 million, 5.0%
Tier II — $3.5 million, 6.7%
Yes, everything costs more than you think – true both for ERP and renovations. Now, the really interesting data is about “Cost as % of Revenue,” because that is an absolute measure, which takes size into account. So, what can we say about these results about SAP and Oracle.
1). “Oh my goodness”
2). “Sounds like the high price spread”
3). “If I were approaching a new ERP project, I would want to make very sure that I couldn’t get decent results with Microsoft or other Tier II vendors. It is in fact about cost relative to value.
So, here is a really important thing to consider. If you are doing a banking application in Macao, well, maybe you need SAP or Oracle. But, for many other areas (e.g., health care and logistics), what if these nimble Tier II vendors can get you there? Instead of following the crowd on the golf course, how about earning one of the first bonuses when the economy improves?
Bottom Line: Find out which vendor provides the most value per dollar invested. And, I would not recommend doing a major ERP project (unless you select an agile Tier II vendor) and a renovation (unless you select an agile contractor) simultaneously.
