Today we launch our 2017 ERP Report, our annual survey of organizations that have recently implemented new ERP systems. A total of 342 organizations in a variety of industries were included in this year’s study.
There are a number of good takeaways that will help with your ERP and digital transformation initiatives. Some of these lessons regard best practices that organizations are following, while others pose cautionary tales.
Here are five important headlines from this year’s report:
1. Project Cost and Duration Have Decreased Since Last Year
First, let’s start with the good news. Overall project costs and durations – two sources of frustration for CIOs trying to keep their ERP implementations on track – are down from last year’s results. The average total cost of ownership is down from $3.8M to $1.3M, while average implementation duration is down from 21 to 17 months.
While this may sound like all good news, it’s important to take this data with a grain of salt. First, the decreases are likely due to the smaller and less complex organizations in this year’s sample. Second, spending less money and time on an implementation does not necessarily mean that long-term costs and overall return on investment improved in parallel. We see many organizations that are willing to step over a dollar to pick up a dime, so to speak, by cutting implementation costs without realizing that it creates more problems later on.
2. A Concerning and Counterintuitive Trend is Emerging for Cloud Adoption
Based on all the industry hype and dollars being spent on developing more robust cloud solutions, you would think that on-premise systems are on their death beds. However, the data tells a different story.
Last year, we saw cloud adoption plateau, but this year’s study shows a decrease in cloud ERP software adoption. There was a 21% decrease in companies implementing cloud solutions compared to last year, while on-premise deployments increased by 11%. Common reasons for not opting for cloud systems include perceived risk of data loss (72% of respondents) and perceived risk of security breach (12% of respondents).
There is good news, however, for the SaaS subset of cloud systems: there was a 10% increase in respondents implementing multi-tenant SaaS systems. However, companies are still four times more likely to implement private or single-tenant cloud solutions as they are to leverage multi-tenant cloud solutions. This will be an important trend to watch in future studies.
SAP vs. Oracle Case Study
SAP and Oracle both invest heavily in cloud technology. However, our client was skeptical about cloud scalability and unsure if the products were mature and proven.
3. Customization is Still a Double-Edged Sword
Most CIOs are extremely allergic to software customization, but in reality, a majority are still making some sort of changes to their source code. An overwhelming 88% majority performed some sort of customization, which is very similar to last year’s findings. This suggests that customization is a necessary evil during ERP implementations, but one that needs to be managed tightly to mitigate the risks of cost overruns, over-complexity and inability to perform future upgrades.
4. Overall Benefits and Satisfaction are on the Mend
Past studies have underscored the challenges organizations have realizing benefits and return on investment. However, this year’s data contains some good news in this category. Respondents who indicated they are “satisfied” with their implementations (a purposely subjective measure) has increased from 13% to 70%. This suggests that more organizations are feeling that they are happy with their investments.
Similarly, actual benefits realization has improved from last year. Fewer organizations are taking longer than two years to recoup their investments (down 13% from last year), while more are realizing benefits within six months (an increase of 13%). This suggests that despite the challenges they might face during implementation, more organizations are realizing a positive return on investment compared to years past.
5. Organizations are Investing More in Organizational Change Management and Business Process Reengineering
It appears that organizations are starting to recognize the importance of investing in organizational change management and business process reengineering. In years past, organizations were more likely to underinvest in these two critical success factors, and not surprisingly, a majority were also more likely to cite these two areas as reasons why their projects failed to deliver to expectations.
This year, however, 84% said they had a moderate or intense focus on organizational change management, which is an increase from last year. Similarly, 93% expressed that they improved some or all of their business processes during their digital transformation, which is a significant increase from last year. This shows that more organizations are recognizing the need and taking the time to perform business process reengineering as part of their projects.