The Mystery of ERP Failures

Pratima H

INDIA: When Avon pulls the plug on a multi-million dollar ERP project, when Pennsylvania Turnpike Commission sues an ERP partner, when Gartner reminds that approximately 75 per cent of all ERP projects fail, when researchers like Vanson Bourne echo that 33 percent of businesses tend to feel unsure about the level of honest and transparent advice that is being offered, when Panorama Consulting surprises with 63 per cent of ERP projects slipping into Budget over-runs, when overbilling becomes a constant customer gripe – you know that something is out of kilter.

ERP projects have failed and that’s not some Breaking news to discover. But what should give us the jeepers is the part that the industry’s focus on delivering better customer service and advanced IT systems has only gone up, and yet like Vanson Bourne unraveled, ERP decision-makers are flustered enough to understand the market and choose the right vendor or partner; with over half of businesses (48 per cent) nodding that they find the range of solutions confusing (and 50 per cent mind you, is the lack of clarity just around a solution’s flexibility).

Wait, there’s more. About 28 per cent in this research turned out to aver that their ERP implementation was successful because it ran over budget (55 per cent) and deadline (47 per cent), and there was still that lack of transparency round process (53 per cent) and still that lack of adapting for the staff on new processes (37 per cent). If a third of these organizations are admitting that they are unsure about the level of honesty offered by their partners; there is something seriously amiss when it comes to ERP implementations.

There is also something strangely askew. When Panorama Consulting tracked the ERP footprint with its 2014 results, it came up that even as projects significantly decreased in size, relative to past years, implementation times are more or less unchanged.

Can you live with these numbers? An average duration for ERP project running up to 16.3 months (with increasing duration over-runs staying consistent as a trend in the last few years)? More people reporting reduced level of benefit from their ERP system? Average total cost of an ERP implementation hitting at some $2.8 million? Or in other words – approx. 4.6 per cent of the implementing company’s’ annual revenue!

The hot potato here can stop at anything, and everything – scope-bleeds on the project, poor requirement mapping, unrealistic expectations, sloppy planning, clunky hardware, inept implementation guys, confused customer side peeps, over-the-top salesman’s spiels, disconnect between promises and actual software, higgledy-piggledy trainings and on and on.

When we get to speak to Arun Bala, COO,

Invenio Business Solutions, a SAP consulting firm spanning 60 enterprises and geographies like the UK, USA, Europe, the Middle East, India and the USA; we get to know why two-tier ERPs are a fad or not, where product roadmaps are affecting ERP customers and when would well-cemented names be shaken off (or not) by new-age ERP players. But how can we let this chance pass without getting some of the below-the-water iceberg views on ERP failures? So, put on some gloves and join us as he shares some hands-on grease to examine what goes wrong.

Let’s start with your strong suit first. Why ERP and why SAP?

We have chosen our expertise carefully and would not like to dilute our focus. We have grown in an organic way so far and our graph has been focused and measured. We will not acquire anything and everything out there in the market. For ERP solutions, we work on specific verticals like Media, PSU, and Pharma with customers like Universal Music, Star, Kirloskar Bros, some Income Tax units in Middle East etc. We do have some horizontal solutions also around analytics, taxation, E-commerce and are doing extensive work on HANA. We would make reasonable growth in India and would recruit talent in the next two years here. Our goal is that every customer should be a reference-able customer. Yes, SAP is our core expertise and while we are platform-independent in certain areas like analytics and customer engagement, when it comes to ERP, we do not believe in carrying a portfolio that can be confusing. We do not want to dilute our focus, skills and innovation.

You handle ERP lifecycle and support areas also. What is happening in terms of customer concerns on clear product roadmaps from SAP that way?

Verticals like PSU, Manufacturing have pretty clear roadmaps but in other sectors, yes, customers still have that criticism. That said, SAP is genuinely making progress and a lot of investment has happened in last two years. Look how tremendously have areas like Sports and Entertainment and other new technologies like HANA come up.

How solid is the ground names like SAP, Oracle or Microsoft had commanded so far – before the likes of Infor, Workday, Salesforce, Epicor came in? Are niche and new-age names at work disrupting or displacing them?

No, I wouldn’t say these new-age names are disrupting old ones. SAP, specially, has been recognizing what is changing around and has incorporated mobility, cloud, and analytics very well with efforts like HANA, Ariba, SuccessFactors etc. Some ERP companies have not been quick enough to change but on a general note, new age companies are also witnessing how established names have been investing strongly in R&D and futuristic innovation. Yes, they have attempted to disrupt old players but SAP, for one, has come up strongly in front of new challengers.

Let’s dwell on the other big issue for the industry. Why are ERP projects still failing and massively at that, despite all the innovation and automation that the market has embraced.

There are a number of tools and techniques today but some challenges that existed two years back, remain. Any ERP implementation, whether manual–to-ERP or legacy replacement, essentially means that the company starts to do things in a new way. Also, usually a business case is built to justify costs which entails hardware, staff time, resources, customers’ time, professional services etc; but a certain part of cost may not be visible. ERPs still bring a big challenge called – how the business changes here – as with new systems, new processes emerge as that affect people, their roles, egos, political dynamics, everything. ERP is not an IT project, it is a business project. Resistance to change is a human tendency and that has to be taken into account. People will stay comfortable with old ways so executive level engagement and proper training and change management parts are crucial.

Arun Bala, COO Invenio Business Solutions

How do they tend to get ‘overbilled’?

Planning and estimation can happen inadequately. Proper assessment should start the very day a business case is built and all involved parties should be part of RFP process. Flags should be raised at the right time and if more budget is required, there should be requirements posed at the right time. Still, over-runs can happen if requirement gathering is not consistent with standard ERP implementation approaches. Later, this may cascade into testing and realization stages and multiple iterations may follow. Not sticking strictly to budget will always lead to discrepancies.

Some findings by Panorama Consulting threw up unusual patterns like in 2013, projects significantly decreased in size, relative to past years and yet implementation times stayed almost unchanged. What is the rough correlation between scale and ROI or scale and duration for an ERP, if any?

Scale can have many interpretations – size and complexity being the top ones. If there is a global roll-out ERP project, there is need for retaining global templates and yet implementing it diversely, so complexity shoots up. I have heard of several system integrators that have failed in such scenarios. It is important to understand all complications that can pop on the way. Many variables are involved but there has to be trust and transparency between the customer and the provider.

Well said. Where is that trust and transparency evaporating? We have heard of California Payroll project, Mont Claire State University, Avon and others suing ERP companies, and some marquee names at that, for botched projects. Why the need to go to courts?

Projects, specially complex ones, need to have a clear shape defined at the very beginning itself. This is where both customers and suppliers have to play a big role. Once the project kicks off, based on a certain understanding of the solution, lot of work starts but after initial three to four months some aspect or scope issues may come up. There can be disagreements between supplier and customer. At this stage clarity makes all the difference. There is need for a water-tight contract but eventually it is still about relationships, trust and transparency.

You mean lofty sales promises vs. actual delivery?

Yes, tall promises should be avoided and real deliverables should be mapped well and with candor. Promises should not be based on product or some other customer but as per ‘this’ customer and scenario. Most customers would actually appreciate real talk. For instance, we qualify only those opportunities that we can actually honor. Customers too, have to understand the scope well. There should be no room for surprises. Everything should be laid out clearly. When all this starts happening, there is no need for courts or laws to sort out ERP projects.

Ok, if you are a customer, what would be your metric to gauge whether an ERP project is going right or awry?

I would define a proper time and cost outline for the project. There has to be a business case ROI justification so both tangible and intangible factors would be looked into. It will be as much about clear reduction in cost or time that the ERP brings in as it would be about happier customers, a more streamlined customer experience, happier suppliers and employees that it should produce.

How significant is the cloud ingredient for ERPs today? Are two-tier ERPs catching up?

Hybrid ERPs are not going to be dominant for at least the next few years. Cloud can be a trend for small or medium-sized enterprises but for big ones, hybrid approach will not work too strongly yet. The reason is that most have an on-premise version built a long time back with lot of investment gone in. Upgrades too have added to that investment over the years so to dislodge or disrupt all that is not an easy decision. Data integrity and security concerns also come in. Hybrid formats may work in overall scheme of things but not from a purely ERP point of view, at least for the next few years.

You mentioned, you have been handling HANA as well. What’s your sense of its actual potential? Would this muscle fit in for Indian use-cases?

Yes, HANA is being adopted by companies. Yes, there is a certain cost associated with HANA, on the hardware or infrastructure angle. But, the power it brings in is quite some value-for-money for early customers so far. We have a HANA lab in Delhi and we have seen powerful use cases across finance and other functions. The uptake is a little lower than expected for sure but it has started to pick up, specially in the Middle East. There is a significant shift happening from traditional databases to HANA and as the cost of hardware comes down in next three to four years, adoption will accelerate.