For the ninth consecutive year, we have published our annual report outlining results from the last year’s ERP implementations. The 2015 ERP Report, which quantifies results from 562 implementations across the globe, provides compelling data helpful to those beginning an enterprise software initiative.
For this year’s survey, Panorama partnered with Mint Jutras, an independent research-based consulting firm specializing in the business impact of enterprise applications. Survey participants varied in size, industry and geography. Half of the organizations in this year’s results generate under $300M in annual revenue while the other half of organizations are bringing in over $300M annually. The survey data for this year’s report was gathered between February 2014 and March 2015.
Here are some of the key findings in this year’s report:
ERP implementation costs are higher than in past years. Over the last year, we saw an increase in ERP implementation costs. The average total cost of ownership increased from $2.8M last year to $4.5M this year. When expressed as a percentage of revenue, the average company spends an average of 5.9% of annual revenue on their implementation. These numbers include software licenses, consulting fees, technical integration, hardware upgrades, internal resource backfill costs and other costs required to fully deploy a new enterprise system. Our study also reveals that companies that get their implementations right the first time by investing in key critical success factors such as organizational change management and business process reengineering are spending less on their implementations in the long term.
ERP failure rates increased from last year. Although every organization has differing definitions of “success” and “failure,” we found that more companies are defining their projects as failures when compared to previous years (21% this year compared to 16% last year). Also, less companies are saying they would have chosen the same ERP software vendor again if they could do it all over again (69% this year versus 76% last year). This suggests that companies are struggling to select and implement ERP systems in a way that they would consider a success.
ERP software customization is on the rise. Despite the increasing number of options among ERP vendors in the market, more companies are customizing their chosen ERP systems than previously. This year, an overwhelming majority of organizations (93%) customized their software to some degree. Although most organizations begin their ERP initiatives with the expectation that they use the “vanilla” software, organizations are clearly still making changes to the way the software was intended to be used. This may also partially explain the increasing failure rate among ERP implementations.
SaaS may finally be reaching the tipping point of adoption. Despite industry buzz, over the last several years Software as a Service (SaaS) adoption has hovered at a relatively low level. However, this year we saw an exponential increase in SaaS and cloud adoption. This year 33% of organizations implemented a SaaS solution, compared to just 4% last year. Non-SaaS solutions that are hosted in the cloud remained at 11% adoption this year–the exact same number as last year. These numbers suggest that although a majority of companies are still implementing on-premise ERP solutions, SaaS and cloud deployment offerings may be just a year or two away from matching or exceeding the adoption rate of on-premise. However, only 56% of these organizations experienced costs savings as a result of their SaaS solutions.
Post-implementation benefits and operational disruptions still leave much to be desired. Unfortunately, benefits realization and simple operational stability after go-live are arguably the biggest challenges companies are facing when implementing their new ERP systems. This year, 52% of companies faced some sort of material operational disruption at the time of go-live – a number that is surprisingly consistent over the last several years. Further, 60% of organizations failed to realize the business benefits they expected from their ERP implementations, which is an increase of approximately 10% over last year.
There are certainly lessons to be learned from this year’s data. In addition, hiring the best qualified, focused and unbiased ERP consultants can make your organization’s implementation more successful.