Each year, we at Panorama Consulting Group publish our annual ERP Report, which highlights actual results from our research of over 1,000 ERP implementations across the globe. Our report is a summary of the industry’s only independent research with the breadth, depth, and objectivity to make meaningful and pragmatic conclusions about ERP software initiatives. In fact, since we began publishing the report in 2008, our research has been quoted in hundreds of prominent publications and blogs, including CIO magazine, the Wall Street Journal, Industry Week, Focus, and a host of others.
Last year’s report, published in February of 2010, highlighted a few interesting findings. For example, we found that average implementation costs declined in 2009 compared to prior years, which is a step in the right direction. However, a deeper analysis of the data also showed that at the same time costs were declining, business benefits realized decreased and failure rates increased. We found that there was a direct and inverse relationship between the two metrics: companies were cutting implementation costs because of the recession and tight ERP budgets, but they were undermining business benefits and project success as a result. In other words, companies were cutting corners to bring costs down, which actually increased their long-term total cost of ownership and business risk.
Our analyst team is hard at work on drafting the 2011 ERP Report, and I was able to sneak a peek at some of the initial data and findings. Similar to what we saw in implementations completed in 2009, implementation costs and durations appear to be on the decline again in 2010. The average ERP software total cost of ownership was $5.5 million in 2010, or 4.1% of annual revenue. This is down fairly significantly from 2009, when the average implementation was 6.9% of annual revenue.
There are a number of factors contributing to these trends. The first and most prominent contributing factor again this year is that strained IT budgets forced companies to be more prudent with their ERP software implementations. Companies and their executive teams simply do not have the resources or the tolerance for risk to to allow the cost and time overruns that were evident several years ago.
However, we suspect that once the final data is compiled analyzed, we will again see a correlation between these lower implementation costs and lower business business benefits. In addition, we also expect to see an increase in the percentage of companies that experienced some of type of “material operational disruption” at the time of go-live, another casualty of cutting corners and too eagerly skimping on key implementation activities. This suspicion is somewhat validated by the uptick in the number of ERP failures and lawsuits announced in 2010, including Marin County, Lumber Liquidators, and a host of others.
It won’t be long before we see the final data to know whether or not my suspicions are true. We plan to publish our 2011 ERP Report next month, but in the meantime, feel free to review the initial 2011 findings below, download our 2010 ERP Report from last year, or sign up to attend a live webinar, where I personally review the results.