The State of ERP Services
The State of ERP Services
Contents
Section 1 — Executive Summary ................................................... 1
Key Findings ........................................................................................................................................ 2
Study Methodology ........................................................................................................................... 4
Section 2 — The Current State of ERP Services ........................... 5
Current Market Conditions ............................................................................................................. 7
Section 3 — Survey Analysis ........................................................... 9
Respondent Profiles .......................................................................................................................... 9
Regions .............................................................................................................................................. 10
Industries .......................................................................................................................................... 10
ERP Knowledge ............................................................................................................................... 13
ERP Vendor Breakdown ................................................................................................................. 14
Respondent Size .............................................................................................................................. 16
Analysis: Firms With No Plans for ERP ..................................................................................... 17
Reasons for Not Adopting ERP ................................................................................................... 18
Funding Traits ................................................................................................................................... 23
ERP Background ............................................................................................................................. 23
Business Issues ................................................................................................................................. 23
Section 4 — Analysis of Firms Planning to Acquire ERP ............. 27
Client Readiness for ERP .............................................................................................................. 28
Funding ............................................................................................................................................. 30
ERP Implementation Objectives .................................................................................................. 32
Business Issues for Firms Planning to Implement .................................................................... 32
Client Concerns/Pain Points ........................................................................................................ 33
ERP Services Purchasing Criteria (METAspectrumSM Weighted) ......................................... 34
Implementation Timelines and Software Vendor Preferences ................................................ 36
Systems Integrator Preferences .................................................................................................... 36
Desired Service Provider Characteristics .................................................................................. 39
Section 5 — Analysis of Firms With Installed ERP ...................... 41
Age and Type of Installations ........................................................................................................ 43
Success Measurements .................................................................................................................. 44
New ERP Goals and Priorities: All Respondents ..................................................................... 45
New ERP Goals and Priorities: Business Versus IT .................................................................. 47
Systems Integrator Performance and Client Retention .......................................................... 49
Reasons for Not Using Outside ERP Consulting .................................................................... 50
Issues Arising From Implementation Mistakes .......................................................................... 51
Responsibility for Implementation Mistakes .............................................................................. 53
Appendix .......................................................................................... 55
© 2004 META Group, Inc.
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i
The State of ERP Services
ii
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© 2004 META Group, Inc.
The State of ERP Services
Section 1 — Executive Summary
For several years, the market for enterprise resource planning (ERP) services was one of the
hottest in the history of IT consulting. A confluence of key events and disruptive technology
gave rise to an unprecedented spending spree on the part of Global 2000 clients.
The perfect ERP storm of the 1990s was created by:
•
A corporate fever for downsizing and re-engineering — most organizations wanting
to downsize presumed that ERP software was the downsizing engine
•
A decrepit application base across North America (COBOL, legacy, in-house), with
an estimated application age of 6.7 years for financial systems (as an example)
•
The synergistic arrival of multi-tier server technology and ERP software (with a
plethora of ready vendors), which together promised firms the ability to regather
their distributed processes into an integrated horizontal framework
•
A burgeoning economy
Added to all this was the Y2K imperative, which led thousands of firms to compare the
costs of Y2K remediation via a rewrite versus ERP implementation. In most cases, ERP
implementation won out. For many years, it was a seller’s market par excellence. But it
ended, with a crash, in 2000.
We estimate that more than 400 of the Fortune 500 firms already have a core ERP
installation, and a high percentage of these firms have completed geographic rollout.
Many of these installations are six or more years old, and the ERP core has long since
become the “backbone” of the overall application portfolio. META Group estimates the
probable life cycle of an ERP installation as 15-20 years, which would preclude another
wave of core implementations. The installations will continue to evolve, but the “application replacement cycle” of the 1970s and 1980s will not recur.
Rather than replacing applications on a regular basis, as was once the case, organizations
implementing or using ERP will increasingly be purchasing related services as part of
corporate efforts to drive revenue, decrease costs, or improve employee efficiency.
© 2004 META Group, Inc.
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1
The State of ERP Services
This study was developed to find out how these organizations are purchasing and using
ERP services, and how these users perceive the various provider capabilities and offerings that exist today.
Key Findings
The bottom line is that the ERP installed base now seeks to solve its problems internally
or to outsource. New ERP adopters are as unprepared as their predecessors and ever
more skeptical of systems integrators, who have done a terrible job of leveraging their
acquired knowledge, best practices, accelerated methods, and more tellingly, the lessons learned from the installed base. Without the Y2K imperative, ERP value propositions are harder to prove, and the midmarket continues to look askance at ERP because
of the impossible-to-hide high consulting costs.
Firms that have resisted ERP to date have done so primarily for the following reasons:
•
•
•
•
High cost of ERP consulting
Perceived adequacy of legacy systems
Belief that ERP does not fit their industry
Any combination of the above three elements
Implementation costs have already been vastly reduced from the levels seen in the
mid and late 1990s as methods have become more accelerated, the consulting base
has matured, and the flat economy has pressured rates downward. Without a dramatic change in consulting models (for example, the use of onshore/offshore implementation teams), ERP consulting costs cannot be reduced much further than they
have already. Still, the high cost of ERP consulting is cited as a major impediment to the
adoption of ERP.
What does interest users is an ROI message that elaborates definitive and measurable
benefits that cannot be achieved through legacy systems. Interestingly, the survey finds
that organizations that are planning to adopt ERP within the next 36 months are poised
to repeat the mistakes of the installed base, including:
•
•
•
2
Distinct lack of ERP readiness
Variable funding patterns
Probable lack of commitment to long-term ERP
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© 2004 META Group, Inc.
Executive Summary
In the main, an ERP implementation should address not only an organization’s stated
goals, but also the goals that the organization may not anticipate. Once the implementation is complete, the enterprise will begin moving down the path of ERP awareness, and
both business and ERP objectives will change radically.We are aware that the majority of
new ERP projects tend to be overaccelerated and underfunded and that an expansion of
scope to address longer-term goals may appear cost-prohibitive.
Section 1
Among firms that have already installed ERP, only 24% retain ERP services after implementation.This is the case even though there are any number of post-installation pitfalls.
Organizations must consider the multiple consequences of application mistakes, such as
the following:
•
•
•
•
•
•
•
•
•
After go-live, the implementation team is broken up, leaving IT to support the installation
Little or no planning is given to post-implementation support
There is no quantifiable measurement of business benefits derived from implementation
Scope is not managed
Knowledge transfer is insufficient
There are too many versions or instances to manage, without planned integration
Software is overcustomized, rather than adopting inherent business practices
End-user training is limited, due to time or budget constraints
The project is underfunded and finishes late and over budget
Organizations must balance these mistakes against the priorities for ERP implementation,
and realize that the post-installation period is as important as the planning process.
ERP Implementation Priorities
ERP Priorities
Total Answering
165
100%
Drive cost reductions for business
21.8%
Drive increased profitability
16.4%
Integrate all enterprise applications
12.7%
Enhance customer satisfaction
12.1%
Enhance executive reporting
10.3%
Drive cost reductions for IT
9.7%
Integrate all ERP versions/instances
7.3%
Increase end-user competency
5.5%
Extend into other business applications
4.2%
© 2004 META Group, Inc.
All rights reserved.
3
The State of ERP Services
META Group believes organizations should develop an ERP center of excellence that
will be driven by business performance measurement, incorporate both business and IT
entities, and embrace continuous business improvement.
Study Methodology
The foundation for this study is a survey including 51 query topics for which 437 respondents provided information through a combination of multiple-choice responses,
table data, parameters, and direct quotes. This level of response yields a margin of error
of +/-4.7% at a 95% confidence level. Respondent data was gathered through the use of
Web surveys. An Executive Summary of the results was offered to respondents as an
incentive for participation in the study; all data was provided without fees or other
charges. Not every respondent provided data for every query.
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© 2004 META Group, Inc.
The State of ERP Services
Section 2 — The Current State of ERP Services
The life span of large-scale ERP installations is estimated to be 15-25 years. As market
demands for ERP solutions have reached a great degree of saturation and maturity,
services to support these applications must evolve as well.
Prior to the rise of the ERP vendors, users typically changed individual applications
every two to five years. Although the great ERP wave of 1992-99 meant enormous
expenditures on ERP, few firms installing ERP have replaced their initial software (except in cases involving M&A).
While ERP consulting revenues remain substantial, new implementations now represent
less than 50% of overall ERP spending. The bulk of ERP consulting revenues are now
being derived from the following:
•
Upgrade assistance as the ERP vendors continue to roll out advanced versions (e.g.,
PeopleSoft 8, mySAP.com, JDE 5)
•
Extended applications (i.e., beyond the backbone)
•
Continuing integration efforts, most especially in the G2000 where global installations are poorly integrated
•
Competency centers or centers of excellence
Our prior study of ERP, Deriving Value From Twenty-First Century ERP Applications, indicated that professional services costs predominate in the implementation cost of ownership (ICO) calculation. Thus, the performance of systems integrators has a major
effect on the ERP market as a whole.
The high cost of professional services in the ERP space led to a number of lawsuits, none
of which proved that the performance of professional services providers was distinctly
subpar. At issue were the following:
•
Clients had misplaced expectations regarding ERP. Most failed, at top levels, to comprehend the enterprisewide nature of their investments, and the majority rejected
the absolute need for a considerable level of organizational change management.The
result was that nearly all ERP projects were underfunded at the outset.
© 2004 META Group, Inc.
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5
The State of ERP Services
•
Systems integration implementation methodologies, at least until late 1997, were
based on pre-ERP experience and did not address the overwhelming issues posed
by ERP, including organizational change management, adherence to vendor/software
best business practices (i.e., little or no customization), and data migration/data population from multiple legacy systems to a single integrated application suite.The result
was that, even if the projects had not been underfunded, the systems integrators
would have been overbudget.
•
A massive shortage of ERP-experienced consultants (particularly in North America)
resulted in massive project incompetence, consulting firm attrition rates greater
than 30%, and a pervasive culture of ERP greed.
•
The roaring North American economy enabled a large percentage of Fortune 500
firms the wherewithal to invest heavily in IT — no matter how wrong-headed.
Since the end of the Y2K ERP-acquisition driver, new client ERP implementations dropped
by 70% from 1998 to 2001. The wave from 1994-98 will not be revived for one simple
and undeniable reason: once a firm has implemented ERP, it will have far less need of
high-volume systems integration for anywhere from 15 to 25 years. That is the projected life span of an ERP installation.
Furthermore, industry consolidation has led to a current void in regard to the competitive landscape. Firms looking for ERP service providers have far fewer choices than they
did just a few years ago.
Industry Consolidation and Leading Vendors: 1996 Through 2003
Leading Vendors of 1996
Leading Vendors of 2003
IBM Global Services
IBM Business Consulting Services
Deloitte
Deloitte
Coopers & Lybrand
KPMG
BearingPoint
Price Waterhouse
Andersen Consulting
Accenture
Ernst & Young
Cap Gemini Ernst & Young
Cap Gemini
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© 2004 META Group, Inc.
The Current State of ERP Services
In addition, a once thriving second-tier and boutique ecosystem has dried up. In 1996,
there were more than 260 such SAP practices. Today, there are roughly 100.
Section 2
Current Market Conditions
Firms making changes to key business processes will likely need outside assistance,
typically from ERP service providers, to implement these changes effectively.
One critical event that could have a dramatic effect on the need for ERP services is
compliance, such as with the Sarbanes-Oxley Act.
The deadline extension for compliance with Section 404 of Sarbanes-Oxley is November
2004, and the imposing specter of all of Sarbanes-Oxley is similar to the Y2K imperative.
To date, the solution offerings for compliance issues, most particularly the software
offerings, are extremely superficial. Client understanding of compliance issues (and the
impact on IT) is still immature.
Client awareness of compliance issues will reach a point at which software offerings will
be seen as too superficial, and market awareness of the pervasiveness of compliance
requirements will grow dramatically.
During 2004, there will be a common market understanding that compliance issues can
only be addressed through revisions to key business processes.The result will be a wave
of ERP reimplementations that require outside assistance.
© 2004 META Group, Inc.
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7
The State of ERP Services
8
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© 2004 META Group, Inc.
The State of ERP Services
Section 3 — Survey Analysis
The foundation for this study was a survey including 51 query topics for which 437
respondents provided information through a combination of multiple-choice responses,
table data, parameters, and direct quotes. This level of response yields a margin of
error of +/-4.7% at the 95% confidence level. Respondent data was gathered through
the use of Web surveys.
Not every respondent provided data for every query. For example, of the 437 respondents, only 429 provided industry identification, 427 rated key business issues, and the like.
Respondent Profiles
Respondents from both IT (76%) and business (24%) are represented with an equal
distribution of C-level/senior management and staff.
Summary of Job Titles by Region and Revenue
REGION
Asia
Pacific
South/Latin
America
Small
(<$300M)
REVENUES
Midmarket
($300M<$1B)
Total
Response
North
America
EMEA
Large
(>$1B)
IT
76%
77%
81%
67%
57%
69%
82%
76%
Business
24%
23%
19%
33%
43%
31%
18%
24%
7%
7%
4%
17%
14%
11%
13%
3%
IT/Business
Level
C-Level
VP/Director/
Manager
42%
41%
44%
50%
48%
43%
46%
42%
Staff
50%
52%
53%
33%
38%
46%
41%
55%
May not add to 100% due to rounding.
© 2004 META Group, Inc.
All rights reserved.
9
The State of ERP Services
Regions
The respondent base is predominantly North American.
Respondents by Region
North America (72.8%)
EMEA (18.7%)
Asia Pacific (2.8%)
South/Latin America (4.9%)
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© 2004 META Group, Inc.
Survey Analysis
Section 3
Industries
Manufacturing (15.9%), IT services/computing (12.4%), government (local, state, federal
— 10.7%), and telecommunications (8.2%) are the most represented industries, with
this group combining for 47.2% of all respondents. We grouped respondents into five
industry groups as follows:
Industry Groupings
Communications
Media/Entertainment
Telecommunications
Distribution
Pharmaceuticals
Retail Trade
Transportation/Distribution
Wholesale Trade
Industrial
Aerospace/Defense
Automotive
Electronics
Energy (Including Oil and Gas)
Manufacturing
Utilities
Public Sector
Education
Government (Local, State, Federal)
Services
Banking
Business Services/Consulting
Financial Services
Healthcare
Insurance
Investments
IT Services/Computing
Software Development
© 2004 META Group, Inc.
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11
The State of ERP Services
Respondents by Industry Group
Industrial (25.5%)
Services (32.1%)
Public Sector (14.8%)
Communications (9.8%)
Distribution (7.3%)
ERP Status by Respondent Role and Involvement
Total
Total Answering
427
100.0%
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Organization Has No
ERP Plans (Net)
15.3%
Organization Plans to Implement
ERP (Net)
21.5%
Organization Has Implemented
ERP (Net)
63.2%
© 2004 META Group, Inc.
Survey Analysis
Section 3
ERP Knowledge
This respondent group is very ERP savvy, which may account for the preponderance of
responses from the installed base, as nearly two-thirds of respondents have participated
in an ERP implementation. In the analysis of firms that have no plans for ERP, we will
include specific data regarding their knowledge of ERP and ERP issues.
ERP Knowledge Among Respondents
20.6%
34.1%
All Respondents
Have never
participated in an
ERP implementation
45.3%
9.7%
Plan to Implement
37.6%
52.7%
Have participated in
1-3 ERP implementations
Have participated in
more than 3 ERP
implementations
27.7%
18.8%
Have Implemented
53.5%
© 2004 META Group, Inc.
All rights reserved.
13
The State of ERP Services
ERP Vendor Breakdown
According to the survey, 276 respondents have already implemented ERP, and a majority of the 266 firms that identified their core ERP vendor use SAP.
ERP Installed Base Respondents by Core ERP Vendor
160
140
120
100
80
60
40
20
O
th
er
P
SA
of
t
op
le
S
Pe
O
ra
c
le
E
JD
La
w
so
n
aa
n
B
A
D
Q
ns
Pl
ai
G
re
at
In
te
nt
ia
IF
S
0
Although SAP has roughly 30% of the overall ERP software market, the 55% represented here is a reliable percentage for the respondent base. Approximately two-thirds
(63%) of the responding firms with more than $1B in revenues use SAP.
14
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© 2004 META Group, Inc.
Survey Analysis
Section 3
Revenue Breakdown by Core ERP System
$100-$300M
$300-<$500M
$500M-<$1B
$1B-<$3B
$3B-<$5B
>$5B
Don’t Know
<$1B
>$1B
© 2004 META Group, Inc.
Total
JDE
Oracle
PeopleSoft
SAP
Other
266
13
24
34
148
30
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
45
7
3
3
17
12
19.9%
53.8%
12.5%
8.8%
11.5%
40.0%
28
1
4
4
13
3
11.2%
7.7%
16.7%
11.8%
8.8%
10.0%
35
1
3
4
19
4
13.0%
7.7%
12.5%
11.8%
12.8%
13.3%
49
0
4
9
28
4
17.6%
0%
16.7%
26.5%
18.9%
13.3%
20
1
1
2
14
2
9.4%
7.7%
4.2%
5.9%
9.5%
6.7%
85
2
7
12
56
5
25.9%
15.4%
29.2%
35.3%
37.8%
16.7%
4
1
2
0
1
0
3.0%
7.7%
8.3%
0%
0.7%
0%
108
9
10
11
49
19
41.2%
75.0%
45.5%
32.4%
33.3%
63.3%
154
3
12
23
98
11
58.8%
25.0%
54.5%
67.6%
66.7%
36.7%
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15
The State of ERP Services
Respondent Size
The aggregate data reflects a balanced distribution of different company sizes. Specifically, roughly one-third of the respondent firms have more than 1,000 employees, roughly
one-half have 100 to 500 employees, and the remainder have fewer than 100 employees.
As noted in the previous section, a very high percentage of our respondents (82.3%)
with ERP already installed have employed one of the “big four” vendors (SAP, Oracle,
PeopleSoft, and JD Edwards), none of which are used to any noticeable degree by firms
with fewer than 100 employees.
Respondent Firms by Number of Employees
14.40%
Fewer Than 100
32.40%
100-500
501-1,000
21.80%
More Than 1,000
21.40%
More than half of all respondents have already installed ERP, with the greatest concentration (albeit fractional) being firms with 100 to 500 employees and the greatest ERP
maturity (months since initial install) being firms with 501 to 1,000 employees (an average of six months more).
Age of ERP Installation by Number of Employees
Fewer
Than
100
100 to
500
501 to
1,000
More
Than
1,000
Total Respondents
58
127
86
131
Total With ERP
Installed
29
68
44
65
50.0%
53.5%
51.2%
49.6%
22.0
27.9
33.1
27.0
Percent With ERP
Installed
Months Ago ERP
Implementation Was
Completed (Average)
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© 2004 META Group, Inc.
Survey Analysis
Section 3
Analysis: Firms With No Plans for ERP
While ERP has been touted by many as the inevitable future, the fact is that the ERP
“inevitable” future is far from reality. It has long been recognized that ERP (more precisely defined as integrated enterprisewide business functionality, mostly back office)
has lent itself far more to a given collection of industries (e.g., energy, pharmaceuticals,
discrete manufacturing) than to others (e.g., healthcare, banking, retail).
Integrated enterprisewide business functionality may seem like a utopia to some, but it is
clearly viewed as unimportant by a wide array of businesses. Consider the following table:
Number of Firms by Revenue
North America
Europe, Middle East, and Africa
Total
<$500M
$500M
to $1B
>$1B
Total
<$500M
$500M
to $1B
>$1B
291,508
245,027
3,127
3,322
63,697
43,758
1,925
2,358
Source: World Companies, META Group
In these two regions, there are well over 5,000 firms with revenues greater than $1B
per year and another 5,000 with $500M to $1B, but nearly 300,000 with revenues of less
than $500M. That is a 60:1 ratio. While SAP, Oracle, and PeopleSoft argue market predominance in ERP, CRM, and supply chain software sales, their combined installed base
is roughly 40,000 companies. Most of these companies fall into two smaller company
sizes, or an equivalence of around 14%. Within the other 86%, a certain minority has
installed JD Edwards, Great Plains, QAD, Intentia, IFS, or other ERP software. META
Group estimates that the overall ERP saturation level for these nearly 300,000 firms
does not exceed 15% and will never exceed 40%.
The midmarket is a source of great mystery. In various META Group studies, we are
able to detect simple patterns of IT services behavior across firms in most revenue
groups except for the $500M to $1B split.We have observed that there are finally three
distinct kinds of firms in this group that address IT software, products, and services in
three distinct ways:
•
Family-owned firms: These tend to delay adoption, underfund initiatives, and follow
only a portion of consulting advice. Common areas of ERP neglect are organizational
change management, end-user training, and adherence to standard business processes (e.g., high customization).
© 2004 META Group, Inc.
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17
The State of ERP Services
•
Incumbent firms: These only rarely adopt new technology and very rarely engage
outside IT services. Such firms have reached the limits of senior management vision,
do not make significant acquisitions, and are not, on the whole, fertile territory for ERP.
•
Fast-lane firms/startups: These behave very much like Fortune 500 firms, are eager
to adopt new technology, are more inclined to establish horizontal business process
flow (having a smaller legacy burden than firms in the other two categories), and
tend to adequately fund their initiatives.
Reasons for Not Adopting ERP
In the survey instrument, we listed various potential reasons why a firm would not
adopt ERP. Only 6% cited reasons other than the ones we listed for not adopting ERP, so
we conclude that the reasons offered in our survey are cogent. Overall, the respondents that are not adopting ERP cited an average of 2.7 reasons.
Reasons for Not Adopting ERP
Consulting Costs Are Too High
Lack of Measurable ROI
ERP Does Not Apply to Our Industry
Software Is Too Expensive
Senior Management Resistance
ERP Is Too Complex for Our Firm
Legacy Systems Are Adequate
Support Costs Are Too High
Publicized ERP Failures
Other
0.0%
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10.0%
20.0%
30.0%
40.0%
50.0%
© 2004 META Group, Inc.
Survey Analysis
Consulting Costs Are Too High
In the heyday of ERP implementations (and at the worst phase of execution), the ratio of
consulting costs to software license costs exceeded 3:1. As it happens, client expectations of consulting costs for ERP were (and often remain) unrealistic, based as they
often are on pre-ERP experience, where consulting costs were roughly equal to software license costs.The core issue is that enterprisewide scope raises the consulting bar
beyond the 1:1 ratio. Why? Two key elements intervene: 1) the absolute necessity of
organizational change management engendered by enterprisewide scope; and 2) the
scope of enterprisewide integration. Clients who balk at consulting costs tend to compare the cost of ERP implementation to the costs of implementing individual, discrete
applications. They do not take into account the magnitude of organizational change or,
more tellingly, the change in business processes that an ERP implementation can entail.
Section 3
In a more enlightened sense, they do take into account the ERP necessity of horizontal
business process viewpoints and the concomitant organizational change management
and decide, for sound business reasons, not to proceed.
Furthermore, the consulting models that work for large firms are less effective for
smaller firms. In a mega-billion-dollar firm, service providers can assign multiple consultants to individual ERP modules (i.e., sales and distribution, purchasing, accounting), whereas
in smaller engagements, a single consultant may have to span multiple modules, thus
straining the fabric of a successful project.
Measurable ROI Is Lacking
In a related META Group study of ERP TCO, only 34 of 204 (16%) qualified respondents
could provide reasonable data relating to benefits derived from implementation. Frequent reasons cited for lack of measurement were “Y2K compliance was a priority,”
“management saw no need to track figures,” and “implementation chaos.” Notably, none
cited a lack of benefits focus on the part of systems integrators. Overemphasis on
speed to implementation contributes to measurement failure and usually undercuts the
realization of business value.
For various reasons, firms that have implemented ERP have largely failed to measure
either their prior state or the state achieved at the conclusion of an ERP implementation. In the main, the notion of business return, as obvious as it may now seem, has not
been a major component of IT investment rationale until recently.
© 2004 META Group, Inc.
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19
The State of ERP Services
Service provider firms, notably IBM BCS and BearingPoint, have made great strides in
providing gain-sharing fee models by which clients receive a substantial fee-rate discount in return for a percentage of measurable business benefits derived from an ERP
engagement. However, we have only begun to scratch the business benefits surface of an
ERP implementation because the vast majority of firms that implement ERP do so for
reasons far and (often) too wide.
ERP Does Not Apply to Our Industry
One of the more annoying and distracting features in the ERP wave of 1993-99 was the
insistence of many vendors that ERP was ideal for all industries. Indeed, industry focus
yielded the highly valuable knowledge that ERP had its industry limits.
Healthcare is not a viable industry for ERP. None of the vendors can offer a suite of
applications that fit the processes needed. Although there are a great number of
“healthcare” implementations completed, few are thriving.
Retail has been an ERP dog from the beginning because of the vast diversity of retail
segments. Any retail firm that has adopted ERP (SAP, Oracle, or otherwise) has found
itself duty-bound to vastly customize its software to fits its particular model, thus hampering upgrades, maintenance, and evolution.
None of the major vendors has put forth a “government” or “public sector” version of
their software with the exception of PeopleSoft, which caters largely to state governments and has a major focus on education. Furthermore, 17 of 66 (26%) such respondents citing this reason are in “government (local, state, federal).” We are aware that
ERP can and does serve the public sector, so this area may require more outbound
communications on the part of vendors and service providers.
It is interesting to note that none of the firms in automotive, energy, pharmaceuticals, or
aerospace/defense cited this as a reason for not adopting ERP.
Software Is Too Expensive
The cost of ERP can be breathtaking when compared to the costs of individual applications. These respondents necessarily have a mix of package and homegrown software.
When faced with what amounts to a multiapplication price tag, resistance sets in. The
prospect of a 17% annual maintenance fee further dampens enthusiasm.
20
All rights reserved.
© 2004 META Group, Inc.
Survey Analysis
Senior Management Resists
We have seen untold cases in which senior managers resist ERP for all the right reasons
(those noted above), but also a similar number of cases in which they simply will not
study the merits.
Section 3
We note a distinct difference of reasoning for rejecting ERP between IT management
and staff versus business and executive respondents:
•
A much higher percentage of IT respondents find ERP software costs, consulting
costs, and support too high.
•
A much higher percentage of business and executive respondents cite “ERP does
not apply to our industry” and their own “senior management resistance.”
•
Not a single one of the business and executive respondents checked “The company
fully examined an ERP solution and decided against implementation” and only three
(21%) checked “The company has done some independent research on ERP that has
discouraged us from moving forward.”
ERP Is Too Complex for Our Firm
ERP is in fact too complex for a vast array of emerging firms. Integration, along horizontal lines, presumes a maturity of business process or a willingness to adapt that many
firms do not possess. While they are making revenues and gains, many firms, especially
in the $500M to $1B arena, are not yet at a point where redundant or recurring business
processes might apply. They are thus still in the “opportunity” arena for which static,
redundant, predictable ERP business processes are of small or no consequence.
There is also a direct relationship between ERP complexity and client satisfaction. In a
recent related META Group ERP TCO study of 112 client respondents, 80% rated their
systems integrator performance as average, 11% above expectations, and 9% below
expectations.The average engagement fees for the above-average group was only $3.2M,
while the below-average group was at $19.7M.Thus, when project size is factored in, the
above-average drops to 3% and the below-average rises to 17%, indicating that largeproject complexity has an enormous effect on both client perception and the reality of
systems integrator performance.
© 2004 META Group, Inc.
All rights reserved.
21
The State of ERP Services
Difference in Reasons Cited for Not Adopting ERP
Business and Executive
Bias vs. ERP
IT Bias vs. ERP
Software is too expensive
Consulting costs are too high
Support costs are too high
Publicized ERP failures
Lack of measurable ROI
ERP is too complex for our firm
Other
Legacy systems are adequate
Senior management resistance
ERP does not apply to our industry
-20.0%
22
-15.0%
All rights reserved.
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
© 2004 META Group, Inc.
Survey Analysis
Section 3
Funding Traits
These firms do not have a good funding posture. While 66% of our ERP respondents
adequately fund their IT initiatives, only 44% of the non-ERP firms do so, and only 15%
always fund what it takes to fulfill their IT vision. Any move toward ERP within these
firms would probably best be driven by the IT population.
IT Budgeting and Expenditures Profile
$100M to
<$300M
$300M
to
<$500M
$500M
to <$1B
$1B to
<$3B
$3B to
$5B
>$5B
Don’t
Know
63
16
4
8
9
6
13
7
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
A. We always budget and
spend what is needed to
fulfill our IT vision
15.9%
12.5%
50.0%
12.5%
11.1%
16.7%
23.1%
0%
B. We generally budget and
spend what is needed to
fulfill our vision
28.6%
37.5%
0%
25.0%
11.1%
16.7%
38.5%
42.9%
C. We generally underfund
IT initiatives and then
incrementally spend what it
takes
28.6%
25.0%
25.0%
25.0%
55.6%
33.3%
23.1%
14.3%
D. We traditionally underfund
IT initiatives and fall short of
our vision
27.0%
25.0%
25.0%
37.5%
22.2%
33.3%
15.4%
42.9%
Properly Fund (A + B)
44.4%
50.0%
50.0%
37.5%
22.2%
33.3%
61.5%
42.9%
Underfund (C + D)
55.6%
50.0%
50.0%
62.5%
77.8%
66.7%
38.5%
57.1%
Total Answering
ERP Background
Three out of four respondents in the non-adopter group admit to little or no investigation of ERP, and only 6% of these firms have fully examined ERP solutions before coming
to a conclusion. Fully 72% have had “discussions” or “have no knowledge.”
This leads us to believe that a generally negative image of ERP (i.e., it is costly, takes
forever to implement, and works only for very large firms) still permeates the market,
and as long as non-adopters fail to investigate more fully, there will be no second wave of
ERP implementations.
© 2004 META Group, Inc.
All rights reserved.
23
The State of ERP Services
Business Issues
We find a great amount of divergence between the business priorities of the next two
years for firms that do not plan to adopt ERP, as opposed to those that are adopting or
already have ERP.
Whereas IT cost and resource management are at the top of every firm’s list, non-ERP firms
are far less focused than ERP firms on supply chain management, application portfolio rationalization, outsourcing, integration of business applications, and business/IT alignment.
Difference in Business Priorities: ERP Versus Non-ERP Firms
Supply Chain Management
Application Portfolio Rationalization
Outsourcing
Integration of Business Applications
Business/IT Alignment
CRM
Collaborative Applications
IT Resource Management
IT Cost Management
-0.35
-0.30
-0.25
-0.20
-0.15
-0.10
-0.05
0.00
It is notable that firms not adopting ERP have less interest in all these issues than do
firms that have ERP or are moving toward it.
Among the drivers that might cause these firms to adopt ERP, credible ROI justification,
senior executive commitment, and reduced implementation costs are critical. We employ the term “credible” with ROI justification. Historically, ERP acquisitions and implementations have been done with little or no attention paid to ROI. We had hoped that,
after the Y2K rush, more attention would be paid to such measurement, but we find that
this still is not the case in the emerging installed base
24
All rights reserved.
© 2004 META Group, Inc.
Survey Analysis
One striking oddity is the fact that “reduced implementation risks” is last on the overall
list and is last or next to last in all demographic breakouts we studied. This indicates
another layer of maturity around ERP relative to prospect perceptions (and reality?)
regarding the high risk of ERP implementations. Even a companion element, “more success stories from the field,” scores relatively low.
Section 3
Drivers That Will Lead Firms to Adopt ERP
Credible ROI Justification
Senior Executive Commitment
Critical
Reduced Implementation Costs
Software Costs Drop
Qualifiers
Legacy Systems Too Expensive to Manage
New ERP Offerings Reduce Complexity
Reduced ERP Operational Costs
Reduced ERP Vendor Support Costs
Client
More Success Stories from the Field
Specific
Specific Emerging Industry Solutions
Reduced Implementation Risks
0.0%
© 2004 META Group, Inc.
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
All rights reserved.
25
The State of ERP Services
26
All rights reserved.
© 2004 META Group, Inc.
The State of ERP Services
Section 4 — Analysis of Firms Planning to
Acquire ERP
An overwhelming percentage of the 94 respondents planning to implement ERP were
firms with more than 500 employees, while nearly half were firms with revenues of
more than $1B annually.
The greatest percentage of imminent implementations (within 12 months) is in the small
market, while a large percentage (44.4%) of the firms with more than $3B in revenues
plan to implement in 36 months.
ERP Implementation Horizon by Revenue
Implementation Horizon
12 Months
24 Months
36 Months
Total
Planning
Total Answering
31
36
27
94
Firm Revenues
100.0%
100.0%
100.0%
100.0%
$100-$300M
45.2%
16.7%
14.8%
25.5%
$300-<$500M
16.1%
16.7%
11.1%
14.9%
$500m-<$1B
9.7%
13.9%
7.4%
10.6%
$1b-<$3B
9.7%
22.2%
22.2%
18.1%
$3b-<$5B
12.9%
16.7%
18.5%
16.0%
More Than $5B
3.2%
13.9%
25.9%
13.8%
Don't Know
3.2%
0%
0%
1.1%
Since the ebb in new implementations in large firms began in 1999, there has been considerable talk about “midmarket” ERP efforts, few of which have borne visible fruit.
However, the survey indicates that more new implementations may be derived from
the midmarket than from the large market.
© 2004 META Group, Inc.
All rights reserved.
27
The State of ERP Services
State of ERP Implementation by Revenue
Revenues
>$1B
Revenues
<$1B
0%
10%
20%
30%
40%
Plan to Implement
50%
60%
Have ERP
Of the respondents who provided insight into their systems integrator plans, a high
percentage (38%) are just beginning the systems integrator (SI) selection process, and
none of those implementing in 25-36 months have chosen an SI.
The first contact made in regard to ERP was split between the ERP software vendors
and the SIs, with the vendors having the edge.
Client Readiness for ERP
We asked our respondents in firms planning to move to ERP about the relative readiness and commitment of their management and staff. Their response illustrates a serious lack of knowledge and/or commitment on the part of executive management and
business management. Clearly, these firms view an ERP implementation as an “IT project”
rather than a “business endeavor.”
Organizational Preparedness for ERP
Level
Executive
Management
Total Answering
IT
Management
End
Users
83
86
83
75
100.0%
100.0%
100.0%
100.0%
A Knowledgeable And Committed
28.9%
32.6%
62.7%
9.3%
B Lacking ERP Knowledge
44.6%
39.5%
25.3%
38.7%
9.6%
18.6%
9.6%
6.7%
16.9%
9.3%
2.4%
45.3%
C Lacking Commitment
D Lacking Knowledge And Commitment
28
Business
Management
Total Lacking ERP Knowledge (B + D)
61.4%
48.8%
27.7%
84.0%
Total Lacking Commitment (C + D)
26.5%
27.9%
12.0%
52.0%
All rights reserved.
© 2004 META Group, Inc.
Analysis of Firms Planning to Acquire ERP
Knowledgeable commitment from executive management is often cited as the ultimate
key to success in ERP implementations. Although this is true, it is also imperative that this
commitment be shared across the organization, or results will be less than satisfactory.
Section 4
However, META Group has observed the continual failure of clients to fully address
their ERP readiness. ERP vendors, seeking to reassure prospective clients, tend to
downplay the complexity of an ERP implementation. Systems integrators regularly stress
the need for senior management buy-in and sponsorship, but do little to assess client
readiness at the other levels.
In the results from our survey, only IT management has an acceptable score, and the low
scores for the other groups will have a negative effect on implementation success.
Historically, executive management has confused budget approval with commitment
while business management presumes that its role in implementation will be limited to
defining requirements.These attitudes have a negative effect on funding levels (early on)
and on the alignment of business and IT (down the line).
The high percentage consigned to “lacking knowledge and commitment” to the end
users suggests a high level of change management required early on in any ERP implementation. (a total of 84% lacking in ERP knowledge and 52% lacking in commitment).
Improving readiness (through ERP education) is an absolute requirement for success.
The benefits of improved readiness are as follows:
•
Significant reduction in time and cost for the initial core implementation of ERP software
•
Ingrained enterprisewide awareness that the endeavor is intended to bring benefit to
the firm and is not merely an “IT implementation”
•
Advance diagnostic of potential organizational and change management pitfalls, which
may later compromise project progress and, ultimately, the realization of benefits
•
Upfront reality check
In Section 5, we find that knowledge transfer is a major sticking point for clients and that
they blame vendors and systems integrators as much as they blame themselves.
© 2004 META Group, Inc.
All rights reserved.
29
The State of ERP Services
We believe that an accelerated client learning curve will reduce both time and cost of
implementations and contribute to more effective knowledge transfer. The latter is a
prominent source of client disappointment.
Funding
ERP implementations have traditionally suffered from underfunding (SI point of view) or
running overbudget (client point of view). Thus, we asked all respondents to characterize
their firms’ traditional spending profile. For firms planning to implement ERP, the overall
split between those that adequately fund and those that underfund was nearly identical.
However, we observe a marked degradation of firm funding as the plans to implement
are broken down by time frame, as proper funding drops from a confident 72% to a
nerve-jangling 52%. Admittedly, a firm claiming the intention to move to ERP in three
years is not exactly putting its feet to the fire, and their intentions should be taken with
a grain of salt.
Even worse, as can be seen in the overall table of results for funding traits, fully 18% of the
respondents with plans for ERP in 36 months are in the least attractive funding posture.
Proper Funding Versus Underfunding
All
Respondents
30
All rights reserved.
Total
Planning
Properly Fund
62.9%
62.4%
Underfund
37.1%
37.6%
© 2004 META Group, Inc.
Analysis of Firms Planning to Acquire ERP
Section 4
Funding Traits
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
12 Months
24 Months
36 Months
Properly Fund
Underfund
IT Budgeting Profile by Implementation Horizon
Total
Planning
93
Implementation Horizon
12 Months
24 Months
36 Months
31
35
27
100.0%
100.0%
100.0%
Total Answering
Total
423
100.0%
A. We Always Budget and Spend What Is
Needed to Fulfill Our IT Vision
16.3%
14.0%
25.8%
5.7%
11.1%
B. We Generally Budget and Spend What Is
Needed to Fulfill Our Vision
46.6%
48.4%
48.4%
54.3%
40.7%
C. We Generally Underfund IT Initiatives and
Then Incrementally Spend What It Takes
22.2%
26.9%
16.1%
34.3%
29.6%
D. We Traditionally Underfund IT Initiatives and
Fall Short of Our Vision
14.9%
10.8%
9.7%
5.7%
18.5%
Properly Fund (A + B)
Underfund (C + D)
© 2004 META Group, Inc.
Total
62.9%
37.1%
Total
Planning
62.4%
37.6%
Implementation Horizon
12 Months
24 Months
36 Months
74.2%
60.0%
51.9%
25.8%
40.0%
48.1%
All rights reserved.
31
The State of ERP Services
ERP Implementation Objectives
Objectives were stated in nearly identical order for all three sets of firms planning to
implement ERP (1-12 months, 13-24 months, 25-36 months), with cost reductions for
business being the clear leader.
ERP Implementation Objectives
Drive Cost Reductions for Business
Improve Financial Management/Performance
Boost Employee Productivity
Improve Customer Service
Drive Cost Reductions for IT
IT Consolidation/Legacy Replacement
Increase Revenue
Streamline Manufacturing and Supply Chain
Increase Scalability
0.0%
20.0%
40.0%
60.0%
80.0%
Business Issues for Firms Planning to Implement
Client concerns regarding their service providers change dramatically after implementation. In similar fashion, clients planning to implement ERP have a somewhat different
set of business priorities than do clients who have already implemented.
Business Issues Before and After ERP Implementation
Total Answering
Supply Chain Management
ERP Improvement, Implementation, and/or Rollout
Outsourcing
CRM
Business/IT Alignment
Applications Portfolio Rationalization
IT Cost Management
IT Resource Management
Integration of Business Applications
Collaborative Applications
32
All rights reserved.
A
Plan to
Implement
94
3.38
4.32
3.09
3.68
4.72
3.84
4.85
4.51
4.77
4.09
B
Already
Implemented
274
3.72
4.58
3.25
3.80
4.78
3.70
4.68
4.29
4.54
3.83
Difference
(B-A)
0.34
0.26
0.17
0.11
0.05
-0.14
-0.17
-0.22
-0.23
-0.25
© 2004 META Group, Inc.
Analysis of Firms Planning to Acquire ERP
Supply chain management moves higher up the list as do ERP improvement, outsourcing,
and CRM as clients plan to spread their application wings.We note that, later in this study,
we report that clients were only partially successful in streamlining manufacturing or supply chains, which suggests that clients have higher (and unmet) expectations with regard to
supply chain improvements that will be achieved through ERP implementation.
Section 4
In addition, business/IT alignment moves from third on the list to first after implementation. One of the key mistakes clients claim to make during implementation is the
breakup of their business/IT implementation groups at go-live, which hampers their continuing efforts to get business benefit from their ERP investment.
Client Concerns/Pain Points
We asked clients to rate their concerns or pain points on a scale of 1 (not a pain point)
to 6 (extreme pain point). Clients facing more imminent ERP implementations show a
heightened concern about organization transition complexity, business and IT alignment,
and ease of integration, while those with later plans are still stuck on cost and duration.
Nineteen of 30 firms (63%) implementing in the next 12 months listed “organization
transition complexity” as either a 5 or 6.
Implementation Pain Points or Concerns
Implementation Horizon
12 Months
Total Answering
24 Months
36 Months
Total
30
36
25
91
100.0%
100.0%
100.0%
100.0%
Implementation Cost and Duration
Organization Transition Complexity
4.1
4.6
4.7
4.4
4.7
4.2
4.1
4.3
Business Operations/IT Alignment
Ease of Integration With Other Business Applications
4.2
4.0
4.2
4.1
4.3
4.0
3.9
4.0
Scope and Risk
Business Strategy/IT Alignment
4.0
3.9
4.2
4.0
3.8
4.1
4.1
4.0
Achieving Stated Business Goals
Architecture/Infrastructure
Application Maintenance Costs
4.0
4.0
3.8
3.9
3.8
3.7
4.0
3.8
3.5
3.8
3.9
3.7
Application Maintenance Support Fees
3.4
3.7
4.0
3.7
Vendor Capability
Geographic Rollout
3.8
3.5
3.8
3.7
3.1
3.2
3.1
3.2
© 2004 META Group, Inc.
All rights reserved.
33
The State of ERP Services
ERP Services Purchasing Criteria (METAspectrumSM
Weighted)
META Group research has identified several key criteria areas for both presence and
performance that are shared across markets.There are eight criteria areas for presence
and seven for performance. When performing a METAspectrum analysis for a specific
market, the META Group analyst provides weights for each criteria area to give them
relative importance to one another.This is done by distributing 100 impact points among
the criteria in each area.
For the purposes of this study, we asked those respondents planning to implement ERP
to provide us with their weighted criteria for choosing their systems integrator. The
tables contain raw results.
Presence Criteria
Implementation Horizon
12 Months
24 Months
36 Months
29
31
21
81
100.0%
100.0%
100.0%
100.0%
Awareness/Reputation
18.5
20.2
21.9
20.0
Business Drivers
20.3
24.9
20.2
22.0
Channels/Partners
7.1
5.0
6.5
6.1
Focus on Your Industry
16.7
13.6
16.9
15.6
Total Answering
Total
Geographic Coverage
7.8
8.4
7.0
7.8
Investments (Relevant to ERP Services Delivery)
6.6
6.0
6.8
6.4
Share (ERP Services Market Share)
9.4
7.2
9.1
8.5
Vision/Strategy
13.6
14.8
11.4
13.5
Performance Criteria
Implementation Horizon
Total Answering
34
All rights reserved.
12 Months
24 Months
36 Months
28
32
21
Total
81
100.0%
100.0%
100.0%
100.0%
Agility
11.3
22.9
14.3
16.7
Execution
22.8
20.8
23.8
22.3
Financial Strength and Results
7.9
9.2
11.2
9.2
Personnel
15.2
13.5
15.7
14.6
Pricing Methods or Options
14.6
9.3
10.2
11.4
Services
12.7
12.3
12.1
12.4
Technology
15.5
12.0
12.6
13.4
© 2004 META Group, Inc.
Analysis of Firms Planning to Acquire ERP
Our respondents rated the relative performance to presence criteria for ERP services
as 64% to 36%.Thus, we factor these respondents’ raw scores to arrive at a METAspectrum
criteria weighting.
Section 4
Presence and Performance Criteria Redistributed Weightings
36%
Presence Criteria
Implementation Horizon
12 Months
24 Months
36 Months
29
31
21
81
100.0%
100.0%
100.0%
100.0%
Awareness/Reputation
6.7
7.3
7.9
7.2
Business Drivers
7.3
9.0
7.3
7.9
Channels/Partners
2.5
1.8
2.3
2.2
Focus on Your Industry
6.0
4.9
6.1
5.6
Geographic Coverage
2.8
3.0
2.5
2.8
Investments (ERP Services Delivery)
2.4
2.2
2.5
2.3
Share (ERP Services Market Share)
3.4
2.6
3.3
3.1
Vision/Strategy
4.9
5.3
4.1
4.9
Total Answering
Total
64%
Implementation Horizon
Performance Criteria
Total Answering
12 Months
24 Months
36 Months
28
32
21
Total
81
100.0%
100.0%
100.0%
100.0%
Agility
7.2
14.7
9.1
10.7
Execution
14.6
13.3
15.2
14.3
Financial Strength and Results
5.0
5.9
7.2
5.9
Personnel
9.7
8.6
10.1
9.4
Pricing Methods or Options
9.4
6.0
6.6
7.3
Services
8.1
7.9
7.8
7.9
Technology
9.9
7.7
8.1
8.6
There are no significant differences in the weighted criteria across the three groups of
respondents. The ability of the ERP SI to execute is clearly the highest priority, while the
channels and partnerships maintained by the SI are the lowest.
© 2004 META Group, Inc.
All rights reserved.
35
The State of ERP Services
Implementation Timelines and Software Vendor Preferences
Primarily, the smaller firms are implementing short term (12 months), while the very
large firms plan to implement in 24 to 36 months
Firms Planning to Implement ERP
50.0%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
$100 -
$300 -
$500M -
$1B -
$3B -
$300M
<$500M
<$1B
<$3B
<$5B
12 Months
24 Months
>$5B
36 Months
Overall, volume of vendor consideration follows traditional market leader order, with the
86 firms responding including an average of 4.8 vendors that will be considered. However,
when we consider the strength of conviction or commitment to individual vendors, the
response does not follow the traditional market share of SAP (~30%), Oracle (8%), and
PeopleSoft (6%). Indeed, Oracle, PeopleSoft, and JD Edwards show relative strength in
regard to SAP, most especially for firms with more than $1B in annual revenues.
36
All rights reserved.
© 2004 META Group, Inc.
Analysis of Firms Planning to Acquire ERP
Section 4
Systems Integrator Preferences
Branding and mind share play an integral part in clients’ consideration and selection of
ERP systems integrators.Thus, the frequency of respondent mentions in regard to their
SI considerations is a reflection of branding and mind share. In our survey, we offered
the 26 most prominent ERP systems integration providers and asked respondents to
provide their level of consideration for each — “will not consider,” “will consider,” “have
shortlisted,” or “have chosen.”
We summarized all mentions except “will not consider.” The 76 respondents provided
input for, on average, nine SIs. IBM Business Consulting Services received the most positive
mentions (52), and altogether, nine of the SIs received at least 30 positive mentions.
Hewlett-Packard, which performs little ERP implementation work, and SAP SI (a midtier
provider that is separate from the main SAP organization) are both on this list, but
Accenture (29 mentions) and BearingPoint (27) are not.
To gauge the depth of preference, we scored responses in a way similar to that of
vendor preference with -1 for “will not consider,” +1 for “will consider,” +2 for
“shortlisted” and +4 for “already chosen.” Many respondents checked a number of
firms as “will not consider” while leaving that box blank for others. We therefore consider it a negative response rather than neutral.
The predominant firm, IBM Business Consulting Services received only 13 “will not
consider” responses (20%, by far the lowest such rate of all firms included) while having
4 “already chosen” and 13 “shortlisted.”
© 2004 META Group, Inc.
All rights reserved.
37
The State of ERP Services
The following table includes all the scoring and reveals relative market size strengths
and weaknesses.
SI Consideration Index by Number of Employees
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
38
Systems Integrator
IBM Business Consulting Services
Oracle Consulting
SAP Consulting
PeopleSoft Consulting
Deloitte Consulting
Cap Gemini Ernst & Young
SAP SI
Hewlett-Packard Consulting
JD Edwards Consulting
BearingPoint (formerly KPMG)
Siemens Business Services
Accenture
EDS/AT Kearney
AMS
CSC
itelligence
Offshore Providers
Atos Origin
Fujitsu Consulting
Intelligroup
Rapidigm
Logica CMG
Hitachi
TSC
IDS Scheer
Plaut
All rights reserved.
Total
63
53
44
43
35
29
26
20
15
14
10
8
5
4
2
-4
-6
-7
-8
-8
-9
-9
-11
-11
-11
-14
Small
(<$300M)
8
13
3
6
-1
2
-2
2
1
-4
-1
-2
-4
-8
-3
-8
-2
-8
-6
-10
-10
-10
-7
-7
-10
-8
Midmarket
($300M$1B)
18
14
16
11
23
14
11
8
4
8
7
0
0
17
0
2
-3
3
0
2
1
2
-1
1
-1
-1
Large
(>$1B)
37
26
25
26
13
13
17
10
10
10
4
10
9
-5
5
2
-1
-2
-2
0
0
-1
-3
-5
0
-5
Total
Score
63
53
44
43
35
29
26
20
15
14
10
8
5
4
2
-4
-6
-7
-8
-8
-9
-9
-11
-11
-11
-14
© 2004 META Group, Inc.
Analysis of Firms Planning to Acquire ERP
Section 4
Desired Service Provider Characteristics
Here, we focus on the characteristics sought by clients before their core implementation
of ERP, as opposed to the characteristics sought by firms that have already implemented.
Before implementation, clients seek a firm that can fully manage their ERP assets and
provide support after implementation. However, once implementation is complete, these
concerns fade in importance.
Ideal ERP Service Provider Characteristics Before and After Implementation
Offers a Wide Range of Services
(CRM, ERP, SCM, Etc.)
Provides Tangible Knowledge Transfer to Client Staff
Understands Our Business and Adapts Their
Proposals As a Result
Has Proven Capabilities and Performance Records
Supports After Implementation
Can Fully Manage Our ERP Assets
-0.60
-0.40
-0.20
Before Implementation
0.00
0.20
0.40
After Implementation
Desired characteristics include the following:
•
Offers a wide range of services: After implementation, clients look outward from
strict ERP concerns and embrace the full suite of their business applications.
•
Provides tangible knowledge transfer to client staff: As we have seen, this is a
sore point with clients at all levels, and after implementation, they heavily blame their
systems integrators for a failure to succeed at this task.
•
Understands our business and adapts their proposals as a result: Having implemented ERP, clients are more wary of blanket proposals that do not adhere to their
specific situation. ERP service providers have to demonstrate greater agility and
business context to succeed.
•
Has proven capability and performance records: Again, clients that have implemented ERP are more demanding the second time around in this regard.
© 2004 META Group, Inc.
All rights reserved.
39
The State of ERP Services
40
All rights reserved.
© 2004 META Group, Inc.
The State of ERP Services
Section 5 — Analysis of Firms With Installed ERP
Roughly one-quarter of the respondents among the installed base of 270 were implementing ERP systems (Group 1), while another 25% have completed implementation
and have no distinct plans for upgrades or additional applications (Group 4). Another
one-third are considering upgrades or additional applications (Group 3).
Status of ERP Installation by Region
Status of Install
Installed
Base
Total
Total Answering
Group 1
Group 2
Group 3
Group 4
271
68
43
90
70
100.0%
100.0%
100.0%
100.0%
100.0%
North America
73.5%
83.8%
70.5%
68.9%
71.4%
EMEA
18.4%
10.3%
20.5%
20.0%
22.9%
Asia Pacific
South/Latin
America
Group 1
2.9%
0%
2.3%
5.6%
2.9%
4.8%
5.9%
4.5%
Are currently implementing ERP
5.6%
2.9%
Group 2
Have completed a base implementation of ERP software and
are rolling out to other sites
Group 3
Have completed a base implementation of ERP and are
considering additional applications or an upgrade
Group 4
Have completed implementation of ERP
As in most areas of this study, the great majority of installed firms have more than 1,000
employees and annual revenues in excess of $1B.
In general, funding traits for the installed base are sound, with the exception of Group 3
clients, who may fall into the category of overacquirers and underachievers. Such firms
tend to acquire and implement software, find that they are not getting the results they
wanted, and so acquire more software. Not surprisingly, they also report the lowest
level of achieving their objectives.
© 2004 META Group, Inc.
All rights reserved.
41
The State of ERP Services
IT Budget Profile by Status of ERP Installation
Status of Install
All
Installed
Respondents
Base Total
Group 1
Group 2
Group 3
423
267
68
43
86
70
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
We Always Budget and Spend
What Is Needed to Fulfill Our IT Vision
16.3%
17.2%
17.6%
11.6%
14.0%
24.3%
We Generally Budget and Spend
What Is Needed to Fulfill Our Vision
46.6%
50.2%
58.8%
53.5%
40.7%
51.4%
22.2%
19.1%
14.7%
23.3%
24.4%
14.3%
14.9%
13.5%
8.8%
11.6%
20.9%
10.0%
Total
Base Total
Group 1
Group 2
Total Answering
We Generally Underfund IT Initiatives and
Then Incrementally Spend What It Takes
We Traditionally Underfund IT
Initiatives and Fall Short of Our Vision
Installed
Properly Fund (A+B)
Underfund (C+D)
62.9%
37.1%
67.4%
32.6%
Group 4
Status of Install
76.5%
23.5%
Group 3
65.1%
34.9%
Group 4
54.7%
45.3%
75.7%
24.3%
Group 1 Currently Implementing ERP
Group 2
Have Completed A Base Implementation Of ERP Software And
Are Rolling Out To Other Sites
Group 3
Have Completed Our Base Implementation Of ERP And Are
Considering Additional Applications Or An Upgrade
Group 4 Have Completed Our Implementation Of ERP
Business Goal Achievement by Status of ERP Installation
Installed
Base Total
Status of Install
Group 1
Group 2
Group 3
Group 4
194
43
29
68
54
Total Answering
100.0%
100.0%
100.0%
100.0%
100.0%
100%: Achieved All Business Goals
17.0%
25.6%
17.2%
13.2%
14.8%
75%: Achieved Many of Our Goals
43.8%
41.9%
41.4%
35.3%
57.4%
50% or Less: Achieved Some of Our Goals
28.4%
20.9%
27.6%
41.2%
18.5%
NA: Implemented Without This Business Goal in Mind
10.8%
11.6%
13.8%
10.3%
9.3%
Group 1 Currently implementing ERP
Group 2
Have completed a base implementation of ERP software and are rolling
out to other sites
Group 3
Have completed our base implementation of ERP and are considering
additional applications or an upgrade
Group 4 Have completed our implementation of ERP
42
All rights reserved.
© 2004 META Group, Inc.
Analysis of Firms With Installed ERP
Section 5
Age and Type of Installations
The average age of the installations for 218 respondents in this group is 27 months. We
presume that we received more responses for more recent installations than for those
that occurred three or more years ago, because respondents who recently installed are
in a better position to reply to survey questions. Thus, we do not consider the ratio of
installations across our age span as reflective of overall installations across the market. A
majority of the installed base represented here is SAP.
Installed Base: Core ERP Software Vendors
4%
SAP
18%
PeopleSoft
56%
9%
Oracle
Others (Not Specialized)
13%
© 2004 META Group, Inc.
JD Edwards
All rights reserved.
43
The State of ERP Services
Success Measurements
Clients had mixed success in regard to the following:
•
•
•
Driving cost reductions for business
Increasing revenues
Streamlining manufacturing or supply chains
It is no surprise that “IT consolidation/legacy replacement” was very successful (80% of
183 respondents with 75%-100% success reported).
Goals Achieved Through ERP Implementation
Overall
(Weighted)
Total Answering
100%: Achieved All
Business Goals
75%: Achieved Many
of Our Goals
50% or Less: Achieved
Some of Our Goals
Total Answering
100%: Achieved All
Business Goals
75%: Achieved Many
of Our Goals
50% or Less: Achieved
Some of Our Goals
44
All rights reserved.
Drive Cost
Drive Cost
Boost
Employee
Reductions for Reductions for
Productivity
Business
IT
173
176
163
100.0%
100.0%
100.0%
Improve
Customer
Service
160
100.0%
25.6%
19.1%
17.0%
23.3%
22.5%
44.8%
49.1%
41.5%
39.9%
51.3%
29.6%
31.8%
41.5%
36.8%
26.3%
Improve
Financial
Mgmt./Perf.
186
100.0%
Increase
Revenue
131
100.0%
Increase
Scalability
162
100.0%
28.5%
19.1%
35.8%
39.3%
22.5%
49.5%
40.5%
40.7%
41.0%
50.4%
22.0%
40.5%
23.5%
19.7%
27.1%
IT Consolidation Streamline
Legacy
Mfg. or
Replacement Supply Chain
183
129
100.0%
100.0%
© 2004 META Group, Inc.
Analysis of Firms With Installed ERP
Section 5
New ERP Goals and Priorities: All Respondents
From several angles, it appears that business issues, rather than pure IT issues, are predominant, and the most pressing issue is for ERP to drive cost reductions for business.
ERP Goals and Priorities
What Are Your New Goals for Your ERP Installation?
What Is Your Most Urgent Goal for Your ERP Installation?
ERP Goals
ERP Priorities
Total Answering
Drive Cost Reductions for Business
Drive Cost Reductions for IT
Enhanced Executive Reporting
Enhance Customer Satisfaction
Drive Increased Profitability
Increase End-User Competency
Integration of All Enterprise Applications
Extension Into Other Business Applications
Integration of All ERP Versions/Instances
194
100.0%
77.3%
69.1%
68.0%
66.0%
65.5%
61.3%
61.3%
53.6%
48.5%
Total Answering
Drive Cost Reductions for Business
Drive Increased Profitability
Integration of All Enterprise Applications
Enhance Customer Satisfaction
Enhanced Executive Reporting
Drive Cost Reductions for IT
Integration of All ERP Versions/Instances
Increase End-User Competency
Extension Into Other Business Applications
165
100.0%
21.8%
16.4%
12.7%
12.1%
10.3%
9.7%
7.3%
5.5%
4.2%
We note a relatively low priority is to “increase end-user competency.” This is significant for a number of reasons:
1. A high percentage of firms cited the fact that they shortchanged end-user training
due to time or budget limitations as an implementation mistake (see “Issues Arising
From Implementation Mistakes”).
2. Results from another recent META Group study, “ERP End-User Competence,”
reveals that, of 112 firms responding, 76% rate their end users as suboptimal or
failing. Of those 76% of firms, 57% had never had a second wave of training, and most
relied on “user trains the user” methods.
In the figure below, we highlight all goals cited by 70% or more of respondents and boldline the leading goals for each age group.
© 2004 META Group, Inc.
All rights reserved.
45
The State of ERP Services
ERP Goals by Age of Implementation
ERP Implementation Age
Within 1
3 to 4
4 to 5
Years
Years
2000
1999
1998
41
19
16
14
21
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
71.4%
Year
Years
2002
2001
199
60
100.0%
Year Implemented
Total Answering
1 to 2
2 to 3
Years
>5 Years
1997 >
Drive Cost Reductions for Business
75.4%
80.0%
73.2%
73.7%
75.0%
78.6%
Drive Cost Reductions for IT
67.3%
75.0%
63.4%
47.4%
75.0%
64.3%
81.0%
Drive Increased Profitability
63.8%
58.3%
65.9%
63.2%
75.0%
42.9%
57.1%
57.1%
Enhance Customer Satisfaction
64.3%
70.0%
58.5%
57.9%
62.5%
50.0%
Enhanced Executive Reporting
66.3%
65.0%
61.0%
78.9%
68.8%
64.3%
61.9%
Extension Into Other Business Applications
52.3%
61.7%
51.2%
52.6%
37.5%
50.0%
52.4%
57.1%
Increase End-User Competency
59.8%
63.3%
58.5%
47.4%
68.8%
50.0%
Integration of All Enterprise Applications
Integration of All ERP Versions/Instances
59.8%
70.0%
58.5%
47.4%
56.3%
42.9%
57.1%
47.2%
53.3%
39.0%
47.4%
25.0%
28.6%
52.4%
Sum of All Goals
556.3%
596.7%
529.3%
515.8%
543.8%
471.4%
547.6%
Highest Ranked Goal by Age Group
>70% Response
Firms in their third to fourth year of ERP are in an aggressive mode, seeking cost reductions for business and IT while driving increased profitability. As we note later in this
report (see “Issues Arising From Implementation Mistakes”), firms in their second to
third year of ERP deployment come to a fuller realization of what it takes to manage and
drive an ERP installation. It stands to reason that these would therefore become more
aggressive in terms of gaining cost reductions in succeeding years.
Most Urgent Goal by Age of Implementation
ERP Implementation Age
Year Implemented
Total Answering
Within 1
1 To 2
2 To 3
3 To 4
4 To 5
>
Year
Years
Years
Years
Years
5 Years
1997 >
2002
2001
2000
1999
1998
165
50
34
15
12
12
18
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
50.0%
Drive Cost Reductions for Business
21.8%
22.0%
11.8%
40.0%
Drive Cost Reductions for IT
9.7%
12.0%
11.8%
6.7%
Drive Increased Profitability
16.4%
14.0%
20.6%
6.7%
16.7%
Enhance Customer Satisfaction
12.1%
16.0%
8.8%
6.7%
8.3%
8.8%
13.3%
8.3%
Enhanced Executive Reporting
10.3%
4.0%
Extension Into Other Business Applications
4.2%
6.0%
Increase End-User Competency
5.5%
12.0%
5.9%
Integration of All Enterprise Applications
12.7%
6.0%
29.4%
Integration of All ERP Versions/Instances
7.3%
8.0%
2.9%
22.2%
16.7%
8.3%
11.1%
8.3%
11.1%
16.7%
11.1%
8.3%
16.7%
22.2%
8.3%
8.3%
5.6%
6.7%
20.0%
25.0%
16.7%
Highest Priority
46
All rights reserved.
© 2004 META Group, Inc.
Analysis of Firms With Installed ERP
When these same respondents choose their highest priority, the follow results surface:
•
•
•
•
Section 5
Driving cost reductions for business is at the top for Years 3-5 and beyond
User competency is forgotten after the second year
Enhanced customer satisfaction drops out after the fourth year
Integration of all enterprise applications becomes a growing priority
New ERP Goals and Priorities: Business Versus IT
In the never-ending quest for business and IT alignment, we find that there is a sharp
divergence of new ERP goals and priorities between our business respondents and
those involved in IT.
Overall ERP Goals by Role
Total Answering
Other
Enhanced Executive Reporting
Extension Into Other Business Applications
Increase End-User Competency
Integration of All Enterprise Applications
Enhance Customer Satisfaction
Drive Cost Reductions for Business
Integration of All ERP Versions/Instances
Drive Cost Reductions for IT
Drive Increased Profitability
Sum of Goals
Total
Answering
199
100.0%
2.5%
66.3%
52.3%
59.8%
59.8%
64.3%
75.4%
47.2%
67.3%
63.8%
558.8%
Business
& Executive
45
100.0%
11.1%
71.1%
55.6%
60.0%
55.6%
57.8%
68.9%
37.8%
53.3%
46.7%
517.8%
IT
139
100.0%
2.2%
64.0%
50.4%
57.6%
59.7%
65.5%
77.7%
51.1%
69.1%
67.6%
564.7%
Difference
9.0%
7.1%
5.2%
2.4%
-4.2%
-7.7%
-8.8%
-13.3%
-15.7%
-21.0%
Decision
Influencer
164
100.0%
2.4%
65.9%
50.0%
57.3%
58.5%
64.0%
73.8%
48.2%
68.9%
64.6%
553.7%
Decision
Maker
35
100.0%
2.9%
68.6%
62.9%
71.4%
65.7%
65.7%
82.9%
42.9%
60.0%
60.0%
582.9%
Decision
Influencer
Decision
Maker
Not all respondents defined their roles which explains the totals discrepancy
Most Urgent ERP Goal by Role
Total Answering
Enhance Customer Satisfaction
Increase End-User Competency
Enhanced Executive Reporting
Extension Into Other Business Applications
Drive Increased Profitability
Drive Cost Reductions for IT
Integration of All Enterprise Applications
Integration of All ERP Versions/Instances
Drive Cost Reductions for Business
Other
Total
Business
Answering
& Executive
165
48
100.0%
100.0%
IT
Difference
112
100.0%
136
100.0%
29
100.0%
12.1%
5.5%
10.3%
18.8%
10.4%
12.5%
8.0%
3.6%
8.9%
10.7%
6.8%
3.6%
13.2%
2.9%
10.3%
6.9%
17.2%
10.3%
4.2%
16.4%
9.7%
12.7%
7.3%
21.8%
21.8%
4.2%
14.6%
6.3%
8.3%
0.0%
12.5%
12.5%
4.5%
16.1%
8.9%
14.3%
10.7%
25.0%
25.0%
-0.3%
-1.5%
-2.7%
-6.0%
-10.7%
-12.5%
-12.5%
3.7%
17.6%
9.6%
11.8%
8.8%
22.1%
22.1%
6.9%
10.3%
10.3%
17.2%
0.0%
20.7%
20.7%
Not all respondents defined their roles which explains the totals discrepancy
© 2004 META Group, Inc.
All rights reserved.
47
The State of ERP Services
To the first question, respondents could include as many goals as they chose. We note
that IT’s sum of goals clearly exceeds that of business and executives.We also note that,
in 7 of 10 areas, there is sharp divergence between the two groups. Other goals/priorities cited by IT had to do with IT-related issues.
For the second question, respondents could only check their single highest priority. In
this, the misalignment between IT and business is pronounced. One area of absolute
agreement is that extension into other business applications is a very low priority.
We also observe that business and executives rank increased end-user competency as
a high priority, whereas IT ranks it last — yet another indication that, in the ERP installed
base, IT is failing its user community. This same priority was tied for the top spot for
those respondents claiming to be decision makers.
Furthermore, while the high priority assigned to driving cost reductions for the business
(which was observed in the study by age of installation) appears to have been authored
by IT staff rather than business and executives, decision influencers and decision makers
rate it at the top.
The most desired new applications/functions for the next three years are business intelligence, product life-cycle management, customer relationship management, industryspecific applications, and strategic sourcing.
New Functions Planned (Software Acquisitions) Over Next 3 Years
Business Intelligence/Data
Product Life-Cycle Management
CRM
Hot
Industry-Specific Applications
Strategic Sourcing
Maintenance Management
Professional Services Automation
Human Resources/Payroll
Private Trading Exchanges
Moderate
Warehouse Management
Supply Chain Planning
Transportation Management
Order Management
Finance
Saturated
Manufacturing
0.0%
48
All rights reserved.
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
© 2004 META Group, Inc.
Analysis of Firms With Installed ERP
Section 5
Systems Integrator Performance and Client Retention
We asked respondents to indicate which firm had been the lead consultancy during the
ERP implementation and to provide a rating from 1 (poor) to 6 (excellent) across a
number of performance criteria. The main criteria include technology, personnel, agility,
execution, services, and pricing methods or options. In addition, we examined subsets
— or focus criteria — related to services and execution (knowledge transfer, value
drivers, and methodology and tools). For details regarding META Group’s Professional
Services Strategies viewpoint on these criteria, see “In Search of Relevance: Evolved
Characteristics of an Ideal IT Service Provider,” in the Appendix.
We received 211 responses, which is an insufficient number to provide detailed competitive analysis across the many vendors. We therefore isolated a key group (with a minimum of 9 responses) of nearly all the major systems integration firms. BearingPoint (with
5 responses), Hewlett-Packard (2), and Oracle Consulting (8) did not make this cut. We
compare each of the top firms individually as well as collectively versus all others.
Performance Scores by Systems Integrator
This
Total
Total Answering
237
Others
87
Group
124
Accenture
CGE&Y
16
9
Deloitte EDS/ATK IBM BCS
14
12
IBM GS PeopleSoft
PwC
SAP Cons.
10
10
13
15
25
Technology
4.20
4.33
4.12
4.00
3.50
3.43
4.83
5.00
4.40
4.08
3.53
4.38
Personnel
4.12
4.17
4.05
3.56
3.25
3.79
5.18
4.70
4.11
4.23
3.20
4.38
Methodology and Tools
4.00
4.01
3.97
3.75
2.88
3.57
4.75
4.88
4.10
3.69
3.27
4.52
Agility
3.97
4.04
3.88
3.75
2.88
3.43
4.58
4.44
4.10
3.85
3.47
4.20
Execution
3.94
3.99
3.91
4.19
2.88
3.43
4.33
4.78
4.10
4.23
3.07
4.08
Services
3.94
3.91
3.92
3.69
3.00
3.54
4.50
4.78
4.20
4.08
3.27
4.20
Knowledge Transfer
3.83
3.95
3.73
3.19
2.33
3.64
4.83
4.50
4.00
3.92
3.07
4.00
Value Drivers
3.80
3.84
3.75
3.69
2.63
3.36
4.55
4.56
3.78
3.85
3.07
4.04
Pricing Methods or Options
3.62
3.77
3.47
3.38
3.13
2.77
4.58
3.75
3.75
3.54
2.79
3.67
Average
3.94
4.00
3.87
3.69
2.94
3.44
4.68
4.60
4.06
3.94
3.19
4.16
> Total Average for Criterion
Complete scoring criteria were as follows:
•
•
•
•
•
•
•
•
•
Agility (ability to respond to client needs and work well with other services)
Execution (ability to deliver and adhere to time/budget constraints)
Knowledge transfer
Methodology and tools
Personnel (experience and expertise)
Pricing methods or options
Services (support, training, span of services)
Technology (product knowledge, technical expertise, software, etc.)
Value drivers (measurable, visible business benefits/value)
© 2004 META Group, Inc.
All rights reserved.
49
The State of ERP Services
Overall, 67% of the projects undertaken by the select group were SAP (usually greater
scope and complexity than other software). In the related META Group study, Deriving
Value From Twenty-First Century ERP Applications, of 112 client respondents, 80% rated
their systems integrator performance as average, 11% above expectations, and 9% below expectations. The average engagement fees for the above-average group was only
$3.2M, while the below-average group was $19.7M. Thus, when project size is factored
in, the above-average drops to 3% and the below-average rises to 17%, indicating that
large project complexity has an enormous effect on both client perception and the
reality of systems integrator performance.
Reasons for Not Using Outside ERP Consulting
Only one in four of the firms in the installed base engage ERP service providers. Decision makers (who cite more reasons than others for not engaging outside ERP services)
are fairly adamant that they have sufficient internal ERP resources and that ERP consulting costs are too high.
Reasons for Not Using Outside ERP Consulting
25%
17%
12%
We have worked with an ERP consulting service since our
go-live date
We have sufficient internal ERP skills to meet our need
17%
ERP consulting is too costly
45%
39%
Dissatisfaction with past providers of ERP services
Insufficient ERP consulting knowledge in our industry
There are no services offered that meet our specific needs
It is also disquieting that nearly one in five decision makers believe that there are no
services that meet their specific needs.With 39% overall claim that ERP consulting is too
costly, we have even more evidence that measurable value has not been demonstrated.
Furthermore, one in five decision makers cite “dissatisfaction with past ERP service
providers.” This percentage is equal to the percentage of decision makers still retaining
outside services, which strongly suggests that past performance is still an issue. Compounding this issue is that half the decision makers also think ERP is too costly.
50
All rights reserved.
© 2004 META Group, Inc.
Analysis of Firms With Installed ERP
Section 5
Issues Arising From Implementation Mistakes
Since roughly 1995, a pattern of common implementation mistakes or weaknesses has
emerged, and great numbers of clients have voiced disappointment in their ERP systems
integrators. To gauge the level and nature of the mistakes made and to determine the
depth of blame for these mistakes, we asked our respondents two questions:
•
Please indicate if your organization experienced any of the following problems/issues
with your base ERP implementation project?
•
For those problems/issues your organization experienced with your base ERP implementation project, who do you believe is most responsible?
We listed the following common mistakes:
•
•
•
•
•
•
•
•
•
After go-live, we broke up the implementation team and left IT to support the installation
Little or no planning was given to post-implementation support
There was no quantifiable measurement of business benefits derived from
implementation
We failed to manage scope
We had insufficient knowledge transfer
We have too many versions or instances to manage and are not getting integration as planned
We overcustomized the software rather than adopting inherent business practices
We shortchanged end-user training due to time or budget limitations
We underfunded the project and finished late and overbudget
A surprising 46 of 198 respondents (23%) claimed to have made none of these mistakes.
However, 15 such respondents had completed their implementation within the past
year. We posit that they would respond differently one year from now, given our findings of issues by age of installation.
The remaining 152 respondents reported a total of 390 such mistakes (2.56 on average)
with “There was no quantifiable measurement of business benefits derived from implementation” leading at 40.1% for respondents citing mistakes.
“We had insufficient knowledge transfer” was second among all respondents, but a
resounding first for firms in the revenue range of $500M to $1B.
© 2004 META Group, Inc.
All rights reserved.
51
The State of ERP Services
When we look at the same data by age of ERP installation, we detect significant change
in perception and level of concern over issues as the installation matures.
In the first year, clients have no over-riding sense of issues arising from implementation
mistakes other than with regard to knowledge transfer, which is perfectly understandable.
By the second year, when questions are being raised about the return on investment,
there is a great regret that quantifiable measurements do not exist, and the first effects
of breaking up the implementation team are noted.
It is between the second and third year that issues arising from implementation mistakes come to the fore. Failure to manage scope, little or no planning given to
postimplementation support, overcustomization, the breakup of the implementation team,
and other factors are all viewed at their peak (or nadir) during this time frame.
We note as well that the sum of all issues is by far the highest for this age group.
Potential factors leading to this group being the most challenged include the following:
•
In the first few years, clients are still “shaking out” their ERP implementations and
presume that success will follow.
•
The first upgrade usually occurs after two years of ERP utilization, and
overcustomization of software is revealed as an impediment.
•
With a broken implementation team, it is more difficult to correct or undo
customizations.
In Years 4 to 5, client self-knowledge sinks in. Knowledge transfer failures and end-user
competence issues are revealed, and a second year of awareness about the failure to
measure adds to a renewed sense that little or no planning was given to
postimplementation support.
52
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© 2004 META Group, Inc.
Analysis of Firms With Installed ERP
Section 5
Responsibility for Implementation Mistakes
In the main, clients blame themselves for implementation mistakes or oversights, shouldering the majority of responsibility for eight of nine miscues.
Software vendors are generally whitewashed, except for their role in insufficient knowledge transfer and instance/integration difficulties.
Systems integrators are held accountable for a lack of postimplementation planning,
poor knowledge transfer, and (to some degree) overcustomization of software.
© 2004 META Group, Inc.
All rights reserved.
53
The State of ERP Services
54
All rights reserved.
© 2004 META Group, Inc.
The State of ERP Services
Appendix
© 2004 META Group, Inc.
All rights reserved.
55
The State of ERP Services
56
All rights reserved.
© 2004 META Group, Inc.
The State of ERP Services
Taking the Measure of ERP Implementations
Application Delivery Strategies, Enterprise Application Strategies
Barry Wilderman
Before undertaking ERP projects, companies must estimate key measures such as total
cost of ownership. To do this correctly and to guide selection of ERP vendors, analysis is
needed regarding the key variables that drive project cost and time as well as benefits.
META Trend: During 2003/04, Tier 1 ERP vendors will focus on the small and medium business
(SMB) market, vertical extensions, and technology infrastructure. During 2004/05, vendor viability concerns will drive SMB ERP market consolidation as these vendors become increasingly
threatened by Tier 1 vendors and Microsoft. By 2005/06, Tier 1 ERP vendors will leverage their
application breadth and component architectures to reduce application complexity significantly.
META Group has recently completed a major multiclient study titled Deriving Value From
21st Century ERP Applications, sponsored by JD Edwards, Lawson, Oracle, PeopleSoft,
QAD, and SAP. The basic measures that drive the report include:
•
Total cost of ownership (TCO): In this category, we have included software, hardware, professional services, and internal staff costs, as well as two years of postimplementation cost. We believe an accurate analysis of TCO should include the
costs of building and running the system.
•
Time to implement (TTI): This represents the time frame from project inception
to going live.
•
Time to benefit (TTB): This represents the average time until benefits were achieved.
For example, if the preparation time for going live was 20 months (as results of the
2002 study indicated) and two benefits were achieved — one immediately, and one
18 months after going live — the average TTB would be 29 months.
We also asked our 204 respondents to quantify their benefits, but the quality of results
was poor. We believe many of these projects were started during the Y2K era, and
clients were not particularly focused on business plans and benefits analysis. The study
contains significant data about the timing of benefits, and we have computed net present
values for 34 cases (hardly statistically significant).
Our study indicates respondents will increase their number of applications by 16% through
2003, and by 12% per year through 2005 (see Figure 1). By 2005, the average respondent
© 2004 META Group, Inc.
All rights reserved.
57
The State of ERP Services
will own four applications from an ERP vendor and two best-in-class applications (see
Figure 2). This indicates clients should buy an ERP backbone for the architecture and
core functions but still carefully examine the ERP versus best-in-class decision. Moreover, the range of ERP-centricity (as shown in Figure 2, Column 5) varies from a low of
61% (PeopleSoft) to a high of 74% (SAP). Through 2006/07, we believe clients will still
view SAP as an enterprise purchase, but PeopleSoft and Oracle will become increasingly
viewed as “more enterprise” (i.e., their percentages will rise).
Clients must consider a variety of variables to measure dimensions of cost and time, including:
•
META Trend: During 2003/04,Tier 1 ERP vendors will focus on the small and medium
business (SMB) market, vertical extensions, and technology infrastructure. During
2004/05, vendor viability concerns will drive SMB ERP market consolidation as these
vendors become increasingly threatened by Tier 1 vendors and Microsoft. By 2005/
06,Tier 1 ERP vendors will leverage their application breadth and component architectures to reduce application complexity significantly.
TCO alone has no value for comparative analysis: Looking at the population of our study
and the average TCO results by ERP vendor (see Figure 3), the average SAP respondent
had much higher TCO than any other ERP vendor. It is no surprise, however, that SAP
had the highest average numbers for TCO (many of the largest projects were done with
SAP software). We believe that vendor charts that show only TCO should generally be
ignored, because we view that approach as flawed and believe other variables must be
considered. It should be noted that, in this chart and in all charts that follow, the data is
represented twice: once to represent the entire population and again to remove a series
of outliers (two cases per ERP vendor).
•
Adding revenue improves the TCO calculation: Use of the variable “TCO as a
percentage of revenue” (which we define as relative TCO) provides a more normalized view of how TCO varies by company. Moreover, in the ERP study, we divided
the companies into three strata according to revenue size: 1) Tier 1 (revenues of
more than $1B); 2) Tier 2 (revenues of $200M-$1B); and 3) Tier 3 (revenues of less
than $200M).As shown in the first table of Figure 4, the relative TCO numbers seem
much more manageable. Indeed, SAP still has the highest relative TCO results —
about 20% higher than Oracle (with outliers removed). Nonetheless, this data provides a better scale of analysis and naturally leads to an examination of additional
variables. In the second chart, it is interesting to note that Tier 3 companies spend
twice as much on ERP as a percentage of revenue. We believe this points to the fact
that there is a “cost of admission” for ERP, regardless of company size. For compa-
58
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© 2004 META Group, Inc.
Appendix
•
nies in the top two tiers (assuming ERP spend is about 1% of revenue on average),
since the time to implement averaged 20 months and we included two years of
post-implementation cost, a $500M company, for example, could assume that its
cash outflow ($5M) would be over the course of four years.
Other variables provide insight into measures of time and cost:
 Named users and concurrent users: “Named users” typically represent users
who are licensed to access the ERP software; “concurrent users” represent the
maximum number of simultaneous logons.We had good success in the 1999 ERP
study with the variable “cost per named user.” However, in the current study,
user counts are dramatically higher, since many companies have large populations of self-service users. Therefore, we recommend use of “cost per headsdown user” as a measure of the part of the user base that would define ERP
usage as an aspect of a normal day job. Still, managing self-service users and
trading partners adds to costs.
 Additional user dynamics: The number of applications being installed for these
users has an impact on cost. Of greater consequence, perhaps, to measuring
TCO are the number of separate physical locations where the users are located.
Multiple locations on a single continent are more manageable than physical locations spanning a number of continents. In the 2002 study, one respondent had
users in 126 countries. Clearly, this will have a significant impact on the postimplementation costs (e.g., “follow-the-sun” help desk). In addition, companies
must determine whether a template will be created first and then rolled out to
multiple locations.
 Data centers: Having one production instance in a single data center is the least
expensive approach. Costs increase when there are multiple instances in a single
data center. Clearly, multiple instances in multiple data centers (across three
continents) can be quite expensive.
 “Environmental” complexity: We defined five variables — re-engineering, data
migration, customization, legacy/best-of-breed interface development, and enduser training) — which, as an aggregate measure, were highly correlated to TCO.
We believe re-engineering should be kept to a minimum, and the system should
be built around best practices of the ERP packages. Moreover, current ERP systems have numerous capabilities to configure the system (i.e., change the system’s
behavior without coding), and customizations should be kept to a minimum.
© 2004 META Group, Inc.
All rights reserved.
Section 6
59
The State of ERP Services
Business Impact
Understanding and managing the components that drive TCO will help drive a project
toward real benefits that will lead to a significant ROI for the company.
Bottom Line
Total cost of ownership is a useful measure for selecting ERP software, but only relative
to key corporate variables. Companies should compute an overall TCO figure based on
revenue, dynamics of the user base, and environmental complexity.
Figure 1 — Applications Currently Installed and Planned
Application
Current Install
CRM
Manufacturing
Buy Side
Enterprise Asset
Management
Enterprise Portal
Finance
Human Resources/Payroll
Industry-Specific
Applications
Private Trading Exchanges
Prof. Services Automation
Sell Side
Strategic Sourcing/SRM
Supply Chain Planning
Transportation Mgmt.
Warehouse Mgmt.
Total
69
89
40
71
Plan
12
11
5
22
12
Plan 36
Growth 12
Growth 36
21
6
25
22
15.94
5.62
55.00
16.90
46.38
12.36
117.50
47.89
30
198
146
53
23
4
10
6
18
1
7
4
76.67
2.02
6.85
11.32
136.67
2.53
11.64
18.87
16
17
41
26
54
35
59
3
4
13
12
10
6
11
7
7
24
9
14
12
9
18.75
23.53
31.71
46.15
18.52
17.14
18.64
62.50
64.71
90.24
80.77
44.44
51.43
33.90
944
152
186
16.10
35.81
Figure 2 — Applications Currently Installed and Planned:
ERP Vendors Versus Others
60
Application
Primary ERP
JD Edwards
Lawson
Oracle
PeopleSoft
QAD
SAP
175
94
152
105
98
183
Other
Only
81
46
68
67
50
63
Total
807
375
All rights reserved.
Respondents
Primary %
44
29
34
33
30
34
68.36
67.14
69.09
61.05
66.22
74.39
204
68.27
Prime per
vendor
3.98
3.24
4.47
3.18
3.27
5.38
3.96
Other per
vendor
2.00
1.66
2.24
2.03
1.77
1.91
1.95
© 2004 META Group, Inc.
Appendix
Section 6
Figure 3 — ERP Vendor Statistics
# Responses
Average
# Responses
Average
Median
Smallest
Largest
# Responses
Average
Median
Smallest
Largest
JDE
44
$690.8
Average Revenue by ERP Vendor
Lawson
Oracle
PSOFT
29
34
33
$585.8
$1,829.9
$2,291.6
QAD
30
$129.1
SAP
34
$2,875.1
TCO Statistics by ERP Vendor
All Responses
JDE Lawson Oracle
PSFT
QAD
SAP
All
44
27
26
28
28
31
184
$5.93
$4.99
$15.62
$20.50 $1.50 $104.98 $25.39
$3.60
$2.88
$4.21
$7.33 $0.74 $13.30
$3.71
$0.65
$0.61
$0.07
$0.96 $0.20 $2.05
$0.07
$45.84 $38.00 $255.00 $155.00 $4.90 $875.00 $875.00
Data Excluding Outliers*
42
25
24
26
26
29
172
$5.99
$4.94
$16.15
$15.84 $1.41 $82.73
$20.99
$3.43
$2.84
$3.51
$6.78 $0.67 $13.30
$3.47
$0.65
$0.61
$0.07
$0.96 $0.20 $2.05
$0.07
$45.84 $38.00 $255.00 $110.00 $4.90 $875.00 $875.00
*For each vendor, the two highest Relative TCO responses have been removed
v032603
Dollars represented in US millions
© 2004 META Group, Inc.
All rights reserved.
61
The State of ERP Services
Figure 4 — TCO Statistics
Relative TCO Statistics by ERP Vendor
All Responses
JDE
Lawson
Oracle
# Responses
44
27
26
Average
1.36%
0.56%
1.75%
Median
1.02%
0.48%
0.98%
Smallest
0.06%
0.05%
0.01%
Largest
5.02%
1.67%
12.23%
Data Excluding Outliers*
# Responses
42
25
24
Average
1.20%
0.48%
1.12%
Median
0.83%
0.38%
0.88%
Smallest
0.06%
0.05%
0.01%
Largest
3.21%
1.13%
3.58%
PSFT
28
1.38%
0.72%
0.01%
7.75%
QAD
28
0.73%
0.61%
0.00%
3.50%
SAP
31
2.27%
1.00%
0.05%
18.85%
26
0.90%
0.63%
0.01%
2.65%
26
0.58%
0.58%
0.00%
1.40%
29
1.36%
0.87%
0.05%
5.00%
*For each vendor, the two highest Relative TCO responses have been removed
v032603
Numbers represented in percents
Relative TCO by Company Size
Company Size
Number of Responses
All Responses
Tier 1 (>$1B)
Tier 2 ($200M-$1B)
Tier 3 (<$200M)
Data Excluding Outliers*
Tier 1 (>$1B)
Tier 2 ($200M-$1B)
Tier 3 (<$200M)
TCO as a Percent of
Revenue
62
79
43
1.10%
1.03%
2.34%
60
77
35
0.60%
1.01%
1.52%
*For each vendor, the two highest Relative TCO responses have been removed
v032603
Numbers represented in percents
62
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© 2004 META Group, Inc.
Appendix
Best Practices for Delivering ERP Applications
Section 6
Enterprise Application Strategies, Application Delivery Strategies
Barry Wilderman
Although ERP projects often represent the largest projects undertaken by
IT and line-of-business executives, when best practices are followed, they
can lead to on-time, on-budget results that meet project scope.
META Trend: During 2003/04, Tier 1 ERP vendors will focus on the small and medium business (SMB) market, vertical extensions, and technology infrastructure. During 2004/05, vendor viability concerns will drive SMB ERP market consolidation as these vendors become
increasingly threatened by Tier 1 vendors and Microsoft. By 2005/06, Tier 1 ERP vendors will
leverage their application breadth and component architectures to reduce application complexity significantly.
Many Global 2000 (G2000) companies have completed one or more large ERP projects,
often resulting in a corporate ERP backbone, but in many cases, multiple ERP systems
exist across disparate lines of business (LOBs). The above notwithstanding, we believe
many large ERP-related projects are still in the offing, such as:
•
Consolidation of data centers and ERP instances
•
Renovation (creation) of ERP centers of excellence
•
Rationalization of ERP/best-in-class applications with the current application portfolio
•
Reconciliation of metadata (especially for a single view of the customer)
•
Large projects in CRM, supply chain management, and administrative applications
(often driven by Sarbanes-Oxley or Basel II)
•
Coordination of a data warehouse architecture and analytical applications
In addition to these projects, there is considerable activity among small and medium
businesses (SMBs), which often create wholesale replacements of their entire application
stacks.
Through 2008 and beyond, companies will struggle to get ERP projects “right.” Through
2004/05, a class of integrators will emerge with a focus on the critical elements of organizational dynamics and application design. By 2005/06, a complementary group will emerge
with specialization in developing post-implementation centers of excellence. During this
entire time frame, successful companies will be forced to create a blended team for
most implementations.
© 2004 META Group, Inc.
All rights reserved.
63
The State of ERP Services
For successful delivery of ERP projects, companies must follow a series of best practices:
•
Executive sponsorship: The CEO or a direct report must be the executive sponsor.These projects require the commitment of resources and cash on a timely basis,
and the executive sponsor must have the clout to move quickly and decisively.
•
Business ownership: ERP projects are business projects, not IT projects. There are
many crucial roles for IT staff to play, but the project must be owned by the business.
Business and IT executives must work together on a business plan. IT staff can help
educate the business on what the ERP system is capable of doing, and the business
must then establish the value of what the system is expected to do (e.g., reduce
inventory, increase customer contacts that leads to sales). IT staff has responsibility
for determining the time and cost for delivering the system, as well as the requisite
post-implementation costs.
•
Organizational dynamics: ERP systems (and other major business implementations)
are concerned with implementing key business processes across LOBs and geographies. To be successful, LOB executives must be willing to compromise and work
toward a core set of business processes. At the beginning of the project, it is crucial to
achieve alignment and to identify areas where LOB processing must be “one-off.”
•
Program management/project management: The ERP project is likely to consist
of multiple related projects (e.g., data center expansion), and a program office will be
required to oversee these multiple projects. In addition, it is valuable to assess the
current application portfolio, and consider auditing the current set of applications as
a precursor to the ERP project. Project management is also a crucial skill, and project
managers familiar with multiproject analysis, earned value, estimates to complete,
etc. are invaluable.
•
ERP package selection: A systems integrator or advisory organization can be
quite helpful during the package selection phase. In particular, the advisor must be
quite familiar with all the steps previously mentioned, and develop a detailed understanding of the future state the company hopes to achieve. There should be an orderly process in going from a long list of packages (perhaps six), to a shortlist (two to
three), and then to the final selection. Under no circumstances should a consulting
organization be guaranteed the implementation work. Moreover, it is also a mistake
to have a consulting organization recommend an ERP vendor as a partner or vice
versa (which is the technology equivalent of the fox in the henhouse).
•
Design for post-implementation: During the design phase, companies should give
serious thought to what happens after the “go-live” date (it does happen!).This means
infrastructure and operations executives must be consulted as the system is designed. Critical issues must be coordinated across the help desk, testing, quality
64
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© 2004 META Group, Inc.
Appendix
•
•
control, database administration, backup/recovery, output management, security, and
other areas.
Implementation teams: Generally speaking, implementation teams are organized
across process areas (e.g., finance, possibly even be general ledger), with integration
teams tasked with cross-functional areas (e.g., order to cash). These teams are business-driven, and the business people are responsible for the configuration of the
system. As a key corollary, these people are also responsible for post-implementation configurations, as part of their new job responsibilities. Decisions should be
made at this time regarding where IT and LOB staff will be going next. There are
generally three possibilities:
 The application center of excellence
 Join the template team to roll the system out to different geographies/LOBs
 Perhaps join the team that will work on the second phase of the project
Post-implementation center of excellence: This group has responsibilities that
include the help desk, configuration, customizations, testing promotion to production, training, documentation, new user ID creation, security, database administration, support for reporting/business intelligence, infrastructure, and operations.
Section 6
Business Impact
Well-executed ERP projects help ensure real benefits for the corporation, within a project
framework that minimizes cost and manages time estimates.
Bottom Line
Attaining alignment between IT and line-of-business executives is crucial for project
success. Attention must be paid to involving infrastructure and operations staff early on
in the project. Business people who work on configuration should remain attached to the
project after the “go-live” date.
© 2004 META Group, Inc.
All rights reserved.
65
The State of ERP Services
The Cost of Managing ERP Applications
Enterprise Application Strategies, Application Delivery Strategies
Barry Wilderman
In most cases, it is impossible to tell when an ERP development project
truly ends and the post-implementation period begins. That notwithstanding, clients must develop a clear picture of post-implementation costs, as
well as service delivered, tied to key service-level agreements.
META Trend: During 2003/04, Tier 1 ERP vendors will focus on the small and medium business (SMB) market, vertical extensions, and technology infrastructure. During 2004/05, vendor viability concerns will drive SMB ERP market consolidation as these vendors become
increasingly threatened by Tier 1 vendors and Microsoft. By 2005/06, Tier 1 ERP vendors will
leverage their application breadth and component architectures to reduce application complexity significantly.
It is a myth that a company ever “really” goes 100% live with its ERP implementation.
Indeed, many companies stretch to make the go-live date but leave some tasks for later.
A fully implemented system implies:
•
All required business processes are tested
•
The business processes meet 100% of the requirements
•
The business processes must satisfy users (which can also include suppliers and
customers) in all geographies (read: multiple languages) and all lines of business
•
All interfaces to other applications have been built and tested
•
All legacy data has been imported for system initialization
•
All e-commerce systems have been designed and tested to interact correctly with
suppliers and customers
•
Infrastructure and operations have all their procedures and processes in place to
maintain the system
•
All documentation is available online
•
All users have been trained
•
A complete center of excellence has been designed to deal with help desk issues,
new business processes, new reports and queries, infrastructure and operations
issues, patches from the vendor, database tuning, etc.
66
All rights reserved.
© 2004 META Group, Inc.
Appendix
In our recent study, “Deriving Value From 21st Century ERP Applications,” we asked
respondents about their post-implementation costs. On average, the respondents’ costs
in the first year after go-live were 26% of the original project cost and 20% in year two.
These costs are not insubstantial and must be closely monitored.
Section 6
It is still astonishing that there are no ERP vendors or consulting firms that have either
any data to benchmark these costs or a clear methodology to understand how many
staff members are required for each area. During 2005/06, we believe this will begin to
change as more companies go live (mostly) and demand a rigorous methodology on
how to do ERP management well.
For now, clients must understand the types of costs and resources they will incur in a
steady-state ERP environment and plan accordingly. Indeed, an understanding of the ERP
post-implementation world should drive the overall planning of the ERP project. We
began to describe some of the staffing costs in previous research (see ADS Delta 1044),
but will expand that discussion here.
Hardware Considerations. ERP vendors (especially Oracle), have often discussed
the merits of a single production instance. In principle, this can be quite effective for
establishing and maintaining a single version of the truth. However, consideration must be
given to the duplication required to shadow the production processors and storage
requirements — development landscape, testing/quality assurance landscape, disaster
recovery capabilities, data mirroring, etc. In fact, creating redundancy for two smaller
systems might actually be cheaper than doing so for one megalandscape. The ERP team
must create service-level agreements with end users regarding to availability as well as
scheduled and unscheduled downtime. A true 24x7 environment may be possible, but it
will certainly be expensive. In particular, this analysis should include an investigation of a
range of activities from minor bug fixes to major upgrades.
In addition to the redundancy issues, allocations must be made for the use of desktop
machines (if dedicated), processors, storage, and network capability. Capacity management should be a key function within IT operations, and the allocation of capacity to the
ERP system should be tied to ERP value.
Operations Staff. In general, since more work will be required to support a new ERP
system (even when legacy systems have been retired), IT operations staff must make
decisions as to what new personnel or special training will be required.Areas to consider
© 2004 META Group, Inc.
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The State of ERP Services
will include security, database administration (some ERP vendors take unconventional
approaches to storing data), print management, output management, performance management, and the entire “promote to production” process (e.g., how configuration changes
wind up in the production system). In addition, the ERP vendor will want direct access
to the production system to support troubleshooting (e.g., SAP’s Solution Manager), and
the operations staff must determine how to allow this while maintaining secure control
of the production environment.
Following the Business Process. A crucial decision should be made early in the ERP
implementation as to what role business users will play during and after implementation.
We believe business superusers should configure the software and have part or all their
jobs defined around ERP in a steady-state organization. There are alternatives to this
theme — a heavier involvement by IT staff and an outsourcing approach, where the
consulting firm implements a design/build/run approach (e.g., Accenture, IBM e-business
on demand). Once a well-defined approach for the business users has been defined, a
number of other areas become more clear:
•
Help desk: The help desk needs to take trouble tickets and will include the business
superuser as Level 1 support before problems become further escalated. In addition,
help desk calls should be reduced because the business users spend time helping
their colleagues.
•
IT application specialists: These specialists will have more of a concentration on
system customizations (which should be minimized anyway), but the IT application
specialist should know the basic system functionality well enough to take off-hours
help desk calls (it is difficult to get the end users to wear beepers).
•
Business liaison staff: This could be done by application specialists, but it is often
efficient to have dedicated IT personnel who “live” with the end users and represent
their interests.
•
Documentation, training, and simulation: These functions are mandatory for
system go-live, but if they are not maintained regularly, changes to the system will
not be reflected correctly in documentation and users will not be trained.
•
Process (and other) changes: Users will require (or hope to get) new business
processes, forms, etc. As they are developed (by business users and perhaps IT
staff), the formal process of “promote to production” must be maintained.
•
The ERP program office: Staffing will be required by IT and line-of-business staff,
even in steady state, to negotiate system changes. Governance is crucial in an ERP
post-implementation world.
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Appendix
Following the Data. Most ERP implementations have a companion data warehouse
(which must be maintained over time by IT) and a set of production reports. Moreover,
end users will create an “adhocracy” to continue developing reports and queries.This ad
hoc world must be monitored by IT staff (e.g., how many resources are being consumed
by full-table scans), and when new reports are production-ready, the IT staff must tune
them and add them to the production library. IT and line-of-business personnel must
negotiate the level of service delivered and the level of monitoring required, and agree
on key workflows.
Section 6
Business Impact
The post-implementation environment must be monitored carefully to continue delivering the kind of value that was achieved (hopefully) when the ERP system went live (mostly).
Bottom Line
The strategy for the post-implementation organization should be decided as part of the
overall ERP strategy. IT and line-of-business roles must be clearly defined. IT staff roles
for operations, business process maintenance, and reporting/analysis must be defined,
communicated, tied to value, and coordinated through service-level agreements.
© 2004 META Group, Inc.
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The State of ERP Services
The Migratory Patterns of ERP Customers
Enterprise Application Strategies, Application Delivery Strategies
Barry Wilderman
Enterprise resource planning (ERP) migrations within the same product family
(e.g., PeopleSoft 7 to PeopleSoft 8) can be complex, but migrations from one
ERP vendor to another are more like installing a new ERP package.
META Trend: During 2003/04, Tier 1 ERP vendors will focus on the small and medium business
(SMB) market, vertical extensions, and technology infrastructure. During 2004/05, vendor viability concerns will drive SMB ERP market consolidation as these vendors become increasingly
threatened by Tier 1 vendors and Microsoft. By 2005/06, Tier 1 ERP vendors will leverage their
application breadth and component architectures to reduce application complexity significantly.
With the recent acquisition flurry (e.g., PeopleSoft/JD Edwards, Oracle/PeopleSoft), there
has been considerable discussion about ERP migrations. In the simplest case, two companies merge and leave both product lines relatively intact. Over time, the client might be
able to use components from one ERP package to enhance the capability of another. In
the more radical case, one ERP vendor might buy another ERP vendor and announce a
strategy to retire the second vendor’s software. In that situation, the client must consider how to achieve this migration and plan accordingly:
•
Reassembling the team: The company with an installed ERP package should be
relatively happy with its assignment of staff to post-implementation jobs. Once the
migration has gone live, typical staff teams support the migration, travel to sites to
get the software working, and work on the next phase of the ERP project. These
teams must be disassembled and a new team put in place (many members of which
may have just recovered from the trauma of a difficult ERP implementation).
•
Hiring a systems integrator (SI): The creation of a new ERP system is a complex
task, and the client must interview, select, and manage the SI (again). Moreover, the
suggested vendor implementation approach (e.g., ASAP from SAP) will vary from
vendor to vendor and must be relearned.
•
Planning the future state: A new ERP system represents an “opportunity” to once
again plan the future state of the organization.The current state is represented by the
current functions performed in the current ERP system. The organization needs to
go through a formal design phase to re-establish this future state within the confines
of the new ERP system. The most challenging aspect will occur where the new ERP
system does not perform functions that existed in the old system (e.g., global trade
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Appendix
•
•
•
•
•
•
•
logistics). In this case, the client can customize the new package or forgo the functionality. This phase is likely to take at least three months.
Configuring the software: Current business processes may be modestly useful toward a new configuration, but the work of configuring the software and re-establishing
the workflows (along with associated identities, roles, permissions, etc.) remains. Once
the basic system has been reassembled, it must be tested iteratively by end users to
ensure the correct functionality is present. This phase can easily take six months.
Establishing the data model: There will be new data architecture, and the client
will have to migrate data from the old ERP system (and other systems) to establish
the data foundation for the new application, regardless of whether the underlying
DBMS remains the same.
Warehousing the data: Each ERP vendor has a unique approach to data warehousing,
and the client must re establish an approach to populating the new ERP data warehouse. The architecture is likely to be different as well (e.g., OLAP, ROLAP, MOLAP,
relational tables). In addition, each vendor has a different approach to business intelligence, complex reporting, and which reports are “canned.” Time must be allocated to
establish a new decision support environment, what reports are to be canned, and how
end users will be empowered (yet again). Moreover, the new ERP data warehouse
must be made part of larger data warehouse architecture for the enterprise.
Re-establishing analytical applications: The two vendors will have different outof-the-box approaches to analytical applications (e.g., business performance management), and the new collection of analytical applications must be re-established.
Integrating with other applications: There will be a requirement to integrate this
application to perhaps dozens of other applications in the enterprise, and a middleware
strategy (including potentially application servers, EDI mappings for partner integration, etc.) must be re-established.
Determining or retrofitting portal strategy: The new ERP system will come with
its approach to portal technology, and the strategy for empowering end users must
be re-established. At the very least, new “widgets” to integrate the new applications
will be required. At worst, third-party applications must be reintegrated, dashboards
established, and a closed-loop approach decision support must be rebuilt (whether
through the portal or otherwise).
Reconfiguring infrastructure and operations: IT staff members will have to resize
the application and create an approach for areas like servers, network, database,
security, backup and recovery, disaster recovery, systems management, output management, etc.This will require a thorough understanding of the internal architecture
of the new application (e.g., application servers).
© 2004 META Group, Inc.
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Section 6
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The State of ERP Services
•
•
•
•
Testing: The new application must go through single and multithreaded testing. Moreover, an approach to “promote to production” must be established to enable the
testing of post-implementation patches, new configurations, etc.
Re-establishing the center of excellence: The functions of a center of excellence
must be reestablished, as well as the approaches to help desk, continuous testing,
customization, integration, etc.
Training and documenting: The new ERP system will require a unique approach to
training and documentation. Classes must be planned for both IT and line-of-business staff. Moreover, there is an expectation that the ERP vendor will offer training
software that can be installed and maintained by the client.
Teaching: In most cases, the client must assemble a traveling team to go to multiple
locations to teach the usage of the software. This problem is made more complex, of
course, if there are “N” installations of the software in data centers around the world.
Business Impact
ERP migrations must take into account the ability to “perform while transforming,” ensuring that businesses continue to operate during the migration’s various phases.This will
include not only IT planning and execution, but also business preparedness.
Bottom Line
Swapping one ERP system for another is a complex project that should not be underestimated. Most Global 2000 companies should allocate at least one year for the transition.
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Appendix
Three Out of Four ERP End Users Raise the
White Flag
Section 6
Enterprise Application Strategies, Professional Services Strategies
Michael Doane
Although organizations that installed ERP lurched through their initial years
of operations, IT service providers continue to offer assistance for greater
integration, extended applications, geographic rollouts, and operating efficiencies, usually with a marketing mantra that features return on investment. However, client end-user bases exhibit eroding skills, thus compromising business benefits of ERP, and few viable, continuous end-user monitoring and training offerings are on the horizon to address this erosion.
META Trend: Clients will continue to seek post-implementation services for both IT management and business process enhancement from software vendors through 2003/04, but lack
of adequate service availability will drive them back to third-party consultants or internal
means. By 2005/06, all major software vendors will offer suites of post-implementation services or service-level agreements in direct competition to their alliance partners.
Our research reveals that 76% of organizations surveyed find that the competency level
of ERP users is substandard or failing. Only 22% of such organizations instituted a comprehensive plan, and 56% have provided no end-user training beyond the training that was
provided at the conclusion of the ERP implementation. These same organizations also
show an unhealthy reliance on a “user trains the user” approach (57%).
Among the 24% of organizations claiming their user base is highly competent (11%) or competent (13%), 87% provide regular refresher training or new training after system changes or
upgrades, as opposed to 43% of organizations with substandard or failing end users.
For both groups, ERP end-user training has been accomplished through various external
sources, often in combination with the following:
•
ERP vendor-supplied trainers: ERP vendor-supplied trainers often have extensive
product/software knowledge but are not as business-savvy as their counterparts,
and tend to provide more product-generic training rather than training that focuses
on actual client business processes.
© 2004 META Group, Inc.
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The State of ERP Services
•
•
Third-party ERP training organizations: Third-party ERP training organizations
usually provide a combination of product knowledge transfer and tangible “how to”
information by leveraging design documentation in training documents.
Third-party ERP systems integrators: META Trend: Clients will continue to seek
post-implementation services for both IT management and business process enhancement from software vendors through 2003/04, but lack of adequate service
availability will drive them back to third-party consultants or internal means. By 2005/
06, all major software vendors will offer suites of post-implementation services or
service-level agreements in direct competition to their alliance partners.
Third-party ERP systems integrators are more costly and are not always professional
trainers but they are often more able to teach end users their roles within each business
process because of prior involvement in both business process design and configuration.
•
Independent consultants: Independent consultants are less costly than systems integrators but are not always professional trainers. If they have had prior involvement during
development phases, they may, like systems integrators (SIs), help end users understand
their roles within each business process. However, the results of our study suggest that
the use of independent consultants may be negative. Only 5% of the respondents with
competent or highly competent end users engaged independent consultants, while 24%
of the respondents with substandard or failing users did so (see Figure 1).
Budgets have traditionally been limited to one-time ERP end user training (with this training
occurring at the end of a project) and 56% of the firms with sub-standard or failing end users
have never provided any subsequent training. Given the life-span on an ERP installation (many
are already 10 years old), this failure to return to training has obvious consequences.
The preferred combination of end-user training methods/sources (at 48%) was “a combination of peer instruction, professional instruction, and distance learning.” The next two
preferences at 18% each were “a combination of instruction and distance learning” and
“peer instruction only.”
In any case, the current state of ERP end-user competency is unacceptable, and both
clients and IT service providers need to address the problem. Therefore, clients must
do the following:
•
Take a long-term view of ERP end-user training (83% of the organizations with competent or better end users instituted a comprehensive training plan, as opposed to
22% of the organizations with substandard competence)
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Appendix
•
•
Institute a cycle of continuous or refresher training, with the right combination of
outside and inside training resources and distance learning (preferably a simulator)
Establish a process to capture and disseminate best practices and lessons learned
throughout the organization (71% of successful organizations have done so, as opposed to 44% of unsuccessful organizations)
Section 6
SIs are urged to recast their implementation methodologies to include a deeper focus
on end-user training and link organizational change management to the development of a
comprehensive training plan (extending well beyond the implementation duration), in
which the following occurs:
•
End-user performance monitoring and performance criteria are established
•
Training means are identified (e.g., combination of periodic outside training agents,
internal “trainer trains the trainer,” and software simulation tools)
•
Ongoing ERP competency is included in clients’ operational budget
End users fulfill the business processes that are supported by ERP software, and their
competency, or lack thereof, has a direct effect on the efficacy of those processes.
Although ERP leaders continue to swing the ROI “baton,” too few of their users can read
the “music.” A continuing failure to address end-user competency will condemn organizations to continuing cacophony and operational disappointment.
Business Impact
ERP training organizations should enter into recurring fee or repeat contracts with clients in order to supply the continuous end-user training that an ERP client must possess
to achieve lasting ROI.
Bottom Line
Although other investments in the ERP installed base may well bring excellent returns,
raising the level of end-user competency is imperative. If this does not occur, gains made
through other means may be ephemeral.
© 2004 META Group, Inc.
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75
The State of ERP Services
Figure 1 — Combination of Resources Used for End-User Training
ERP vendor-supplied
Third-party ERP training
Third-party systems integrator
Independent consultant
Internal staff
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A
(Highly Competent +
Competent)
20%
10%
15%
5%
90%
B
(Substandard + Failing)
17%
13%
5%
24%
78%
© 2004 META Group, Inc.
Appendix
Using a Center of Excellence to Revitalize
Business Through Enterprise Applications
Section 6
Enterprise Application Strategies, Outsourcing & Service Provider Strategies, Professional Services Strategies
Michael Doane
FOCAL POINT
Clients focusing solely on day one of “go live” rollout of enterprise applications — at the
expense of the long-term perspective — have been increasingly disappointed in the results of their implementations. These firms suffer from decreased business benefit and
an erosion of user competency, thus compromising the value of the enterprise application asset as well as customer relationship and supply chain management. To avoid such
disappointment and gain continuous business improvement over the life cycle of an enterprise application installation (i.e., 20+ years), we recommend that clients create a
center of excellence (COE).
META Trend: Clients will continue to seek post-implementation services for both IT management and business process enhancement from software vendors through 2003/04, but lack
of adequate service availability will drive them back to third-party consultants or internal
means. By 2005/06, all major software vendors will offer suites of post-implementation services or service-level agreements in direct competition to their alliance partners.
CONTEXT
Persistent Enterprise Application Disappointment and Increased Application Complexity
Along with immature enterprise application methods and consulting skills, the Y2K deadline led to a vast number of rushed enterprise application integration projects, leaving
hundreds of client firms still searching for visible benefit. In addition, fully 80% of the
firms in the enterprise application installed base formally or virtually created some form
of enterprise application support environment within 18 months following their initial golive date. Few of these firms express satisfaction with the process followed and even
fewer are satisfied with their results. In most cases, the users had little or no consulting
assistance, since few professional services include post-implementation support services
in their enterprise application solution portfolio. Clients have moved inexorably to day
one of enterprise application go-live rollout and have reverted to pre-enterprise applica-
© 2004 META Group, Inc.
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The State of ERP Services
tion IT maintenance processes that fail to take advantage of enterprise application functionality and evolution.
Two key failures have led directly to enterprise application disappointment (see Figure 1):
1. The “wedding” viewpoint of enterprise application investments and returns
2. Failure to institute business-based targets and measurements
Enterprise application clients, alarmed by the high cost of implementations, have traditionally insisted on speed and economy to the detriment of business benefit. A parallel
failure to include business performance measurements leaves firms unable to determine
the value of the implementation or to reliably identify the subsequent business gains that
can be achieved.
Current Implementation Methods: Failing to Provide
Long-Term Business Benefit
During the early stages of an enterprise application implementation, users ask the following
two questions, which are not easily answered by systems integrators (SIs) and require
further conditional investigation or prior completion of interim implementation steps:
•
For post-implementation, how should we reorganize our IT group?
•
When and how do we transition to this new organization?
In response, enterprise application implementation consultants usually provide only parenthetical responses relating to an “it depends” axis and the variables of: a) number of
users; b) business entities; c) geographies; d) ambitions; and e3) budgets.
Figure 1 — The Enterprise Application Lifespan
Vendor/SI View: The ERP Wedding
Client Reality: The ERP Marriage
1-3 Years
15-22 Years
Investment Scope
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Appendix
The “post-implementation” vision provided by consultants is too often centered on
the intended business benefits as established during the planning stages, at which point
clients are only at the beginning of the enterprise application learning curve.The “to be”
vision established during the design and blueprint phases is seldom fully mastered by
client staff, and too often this vision is viewed as an end state rather than a launch state.
Indeed, the greater vision of “continual business evolution” is seldom mentioned in
implementation methodologies.
Section 6
The error is in the linear “start-stop” philosophy of implementation methodologies.The “planning,” “design,” and “build” activities are covered right up to day one of “run” (with “run” having
purely operational meaning, while ignoring the key notion of continuous business improvement — see Figure 2), yet scant attention is paid to day two through day 1,000.
Evolution of an enterprise application installation from day two through day 300
usually includes:
•
Geographic rollout: Additional hardware, software instances, and users
•
Business process redesign: From tinkering to wholesale business process changes
(usually spurred by a mastery of the enterprise application learning curve based on
live experience)
•
Extended applications: Either within the realm of enterprise applications or in
buy-side (SCM) or sell-side (CRM) spheres, requiring integration or interfacing
These considerations are only casually addressed in nearly all enterprise application implementation methodologies.
Figure 2 — Superseding Incremental Improvement
Go Live
Continuous Business
Improvement
B
E
N
E
F
I
T
To Be
COE
Incremental
Improvement
As Is
Core
Implementation
TIME
Performance Curve
Go Live = The end of the beginning
© 2004 META Group, Inc.
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The State of ERP Services
By the go-live date, client training has included:
•
Enterprise application orientation for senior and middle management
•
Project team training (regarding the software and methodology)
•
End-user training
•
IT support training
All of this training is geared toward a static “future state” vision (most commonly referred to as the “to be” vision) developed during the planning and design phases of the
core implementation project. It is presumed that this vision will be fulfilled on or about
day one of the go-live rollout (see Figure 3). Yet it is common knowledge that few firms
fulfill their vision at this point. Also, implementation methodologies fail to address the
twin facts that: a) organizational requirements change faster than software can be implemented; and b) successive “to be” visions must be generated and pursued. This failure
leaves clients stuck in a rut of incremental, snail-paced evolution.
Figure 3 — Implementation Methodologies Stop at Day One
Plan
Design
Project Charter
Funding
Commitment
Scoping
Enterprise
Model
Definition
Software
Configuration
Reporting
Staffing
Process
Design
Interfacing
Benefits
Targeting
Data
Analysis
Data
Cleansing
Project Installation
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Build
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Sizing
Go Live
Run
Integration
Testing
Help Desk
Data Migration
Interface
Support
Interfacing
User Testing
User Training
Production
Platform
Benefits
Monitor
Process
Improvement
© 2004 META Group, Inc.
Appendix
Overview of a Center of Excellence
A center of excellence resides at the heart of an IT/business organization and replaces the traditional relationship between IT and business, in which business advocates request IT services, define needs to IT representatives, and then test and
implement new or revised software. The key organizational difference for a client
firm moving to a COE is the shift of some traditional IT functions into the center of
excellence, including business process design, integration management, and enterprise application business functional configuration/programming. The essential function of the COE is to drive continual business benefit through:
1. Optimization of business processes that drive business benefit
2. Optimization of end-user competency and employee fulfillment of business processes
3. Continued coherence and integration of functionality and data through all process chains
Section 6
The center of excellence is run by the enterprise program management office (EPMO),
which reports to the CIO and the IT steering committee while receiving its project
initiatives from the various lines of business. Ideally, these initiatives will be driven by key
performance indicators (KPIs) as well as traditional business imperatives such as mergers, organizational changes, and event-driven programs. In essence, the EPMO is responsible for an evolving “to be” vision.
Although the COE may reside within the greater IT organization, it is made up of elements from various domains (see Figure 4), including:
•
Application management
•
Vendors
•
The client lines of business
•
The client IT organization
© 2004 META Group, Inc.
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The State of ERP Services
Figure 4 — The Center of Excellence: Its Own Entity Within the
Traditional IT Organization
IT Steering
Committee
CIO
IT
Architecture/
Planning
Sourcing &
IT Financials
IT Human
Resources
Quality &
Measurement
Security
Change
Management
Program
Management
Business
Groups
Process Delivery/
Maintenance
Integration Mgmt.
Technology
Domains
•
•
•
•
•
•
Database
Host
Middleware
Network
Desktop
etc.
Infrastructure
Development/
Engineering/
Technical
Support
Operational
Services
Technical
Support
Center
of
Excellence
Operations
Although other terms for an entity similar to a COE have been used (e.g., competency
center, support center, customer care center), we view “center of excellence” as a
superior label because it presumes that the focal point and purpose is business-based
rather than IT-based. A successful COE must include the full contribution of business
staff, which often balks at being “assigned to IT” and thus may shun assignment to a
“competency center.” A disadvantage to using the term “customer care center” is that
the customer as well as everyone else in the firm is viewed as the end customer.
It is important to note that the COE may well be a virtual organization with component
members in various divisions and geographies.Whether local or virtual, the COE functions
according to the governance and drivers described in the following sections (see Figure 5).
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Appendix
Enterprise Program Management
The EPMO drives the vision, strategy, budget, and prioritization for application management. This may include formal software implementation projects or directives for specific business process changes or improvements. On a day-to-day basis and in project
mode, process owners drive business process improvements to the software configuration and support team for execution and unit testing.The highest priority for this group
is continuous business improvement.
Section 6
Figure 5 — Center-of-Excellence Domains
Client IT Domain
Enterprise Program Management
Process Owners
Users
Users
Users
Users
Client
Line-of-Business
Domain
Software Vendor
Domain
Application Management Domain
Help Desk
Continuous Education
Finance
Sales
Logistics
Production
Software Configuration & Support
…
Extended apps
New apps
Upgrades
Custom Applications
Integration Management (Functional, CrossCross-Application)
Integration Management (Technical)
Production Control/Change Management
Client IT Domain
Application Management
The application management team is responsible for help desk support. Unresolved calls
relative to applications are reported to the software configuration and support team or
to relevant vendors. Help desk functions may also be shared by specific application software vendors for issues that exceed internal capacity or expertise.
Responsibilities of the software configuration and support team, which resides within
application management, include:
•
Effecting non-customized changes to application software
•
Providing functional specification to the custom application engineers
© 2004 META Group, Inc.
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83
The State of ERP Services
•
Performing unit testing of software changes
Ensuring continuous education of the end-user base
•
Also in the realm of application management are custom applications such as reporting,
bolt-ons, and interfacing.
Integration Management
The integration management team is responsible for cross-application integration testing
and the handover of results to the IT domain for technical integration, change management, and production control.This level of integration management is the nexus between
a business-centric application management group and the IT support entity.
The Enterprise Application Value Chain
For any enterprise, business results are directly reflected in a profit-and-loss (P&L) statement. Key performance indicators that most directly affect P&L results should be identified as well as the business processes that drive these KPIs (see Figures 6 and 7). For
example, order fulfillment turnaround time and costs have a direct effect on both costs
and revenues, and therefore drive KPIs such as revenues per employee and cost of
finished goods, as well as other key performance indicators.
Figure 6 — Driving Business Improvement Through Key Performance Indicators
Profit & Loss
Key Performance Indicators
Sample
SampleBusiness
BusinessPerformance
PerformanceKPIs
KPIs
8
Return on
8Return
onsales
sales
8
Return
on
assets
8Return on assets
8
Net sales
8Net
salesper
peremployee
employee
8
Ratio of
8Ratio
ofassets/liabilities
assets/liabilities
Business
Business Process
Process Drivers
Drivers
Order
Order
Fulfillment
Fulfillment
Procurement
Procurement
Production
Production
Application Software
1.
2.
3.
4.
5.
84
When targeting KPI improvements, use industry and peer performance as a relative
benchmark
Identify business processes that drive KPIs
Redesign these processes and configure the software
Train relevant users
Go back to step 1 above
All rights reserved.
© 2004 META Group, Inc.
Appendix
End users have traditionally been trained only for enterprise applications functions. They
should now be trained according to their roles in fulfilling business processes and how
such fulfillment drives business performance improvement.
Section 6
Figure 7 — An Example of KPI Targeting
KPI
Cost/sales order processing
Current
$14.66
Industry
Peer
Average
Average
$12.25
Business process
ERP Modules
Order Fulfillment
Sales, materials management
($2.41)
Target
$12.66
($2.00)
$12.00
Annual
Annual
Target
Volume
Cost
100,000
Gain
$1,466,000
$266,000
Transforming the “Build” Team iInto a Continuous Business Evolution Team
During enterprise application implementation projects, SIs join with client IT and business staff to form a project team primarily dedicated to business process design and
subsequent configuring of software to fulfill that design. This team is usually complemented by other IT build teams that address reporting, interfacing, data warehousing, or
custom applications.
Most clients erroneously dissolve these teams shortly after going live and revert to a
traditional IT maintenance mode, which results in the incremental improvement rut
mentioned earlier in this Practice.To ensure continuous business evolution, these teams
should remain largely intact, with sufficient resources to not only maintain the initial “to
be” vision but also drive evolution through extended applications, renewed business
process improvement, and extended user competency.
During an implementation project, most of the COE elements are already in working
order. Process owners define business design with the application management team,
whose software changes are moved to integration management and then to production.
Just prior to the go-live date, the remaining elements are added, namely the help desk
and the end-user population. Help desk staff and end-user groups should be trained not
only for the software being implemented but also for the continuous business evolution
methodology inherent in the COE.
Building a COE During or After Implementation of Enterprise Applications
Nearly every enterprise application consulting firm studied by META Group lists “ROIdriven” at the top of its list of differentiators, but none of these organizations has demonstrated consistent ability to help clients move past day-one implementations to drive
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continuous business improvement. We believe consulting firms should upgrade software
implementation methodologies, most specifically for enterprise applications, to include
the planning and creation of an internal center of excellence. This would result in:
•
Clients being better served
•
New consulting business being generated
•
The way being paved toward “continuous service”
For clients who have already implemented enterprise applications and are seeking to
create a COE, the task will be more difficult, since the impetus for organizational change
may be lacking and the traditional business/IT misalignment may appear daunting. For
such firms, a commitment to continuous business improvement and the empowerment
of business will be the means by which such barriers will be overcome (see Figure 8).
A center of excellence should fulfill four functions (see Figure 9):
1. Maintenance and support of enterprise applications and related functions
2. Optimization of current system usage
3. Continuous business improvement
4. Preparation of the company for transformational change
Figure 8 — Knowledge Requirements for Transition
From Project Mode to COE Mode
Group
Direct Users
•
System exploitation
•
Training and re-training
•
Exceptions reporting
•
User testing
Help Desk
•
(Front end) call Center
•
Functional assistance/referral
Process Owners
•
Monitor business results
•
Define business process improvements
Application Management
•
Help desk assistance (business process level)
•
Executive business process improvements
•
Unit testing
•
Continuous end-user training
Integration Management
Production Control/Change Management/
Middleware Administration
Architecture and Infrastructure
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Knowledge Required
Business/IT integration principles, process flow, module
functional mastery, help desk procedures
System navigation and connectivity troubleshooting,
security tracing, typical application functional questions
to query users when reporting problems
Business/IT integration principles, process flow, module
mastery, help desk procedures, methodology
Line-of-business business knowledge, business/IT
integration principles, integration, process flow, workflow,
module mastery, help desk procedures, methodology
Business/IT integration principles, software package
integration, workflow, database, legacy architecture,
methodology
Transport control, change management, hierarchy,
instance management
Enterprise application hierarchy, instance/version
management, client/server architectures, security,
database
© 2004 META Group, Inc.
Appendix
Section 6
Figure 9 — Levels of COE Aims
To Be
Prepare the company for
transformational change
(all the time)
Continuous
business improvement
As Is
Optimization of current
system usage
Maintenance and support of
ERP and related functions
(ERP/CRM/SCM)
Effective planning and implementation of a center of excellence as part of or following an
enterprise application implementation will include the following steps.
During Planning
A high-level vision for a post-implementation COE should be created. This vision will
address:
1. The scope of the center of excellence: Will the COE support just the enterprise
application installation, or will it also support legacy systems, bolt-ons, and interfaces?
2. Organization/structure: There are at a minimum four basic variants for a COE
organization, depending on a client’s size, geographic locations, and support requirements (see Figure 10).
3. A transition plan (high level): A calendar must be defined for migration of legacy
systems to enterprise applications as well as for the migration of legacy IT staff to
new roles in the COE. Organizational change management during enterprise application implementations tends to embrace only business organizational changes and
usually fails to include changes to the IT organization.Therefore, if a firm has already
implemented enterprise applications, the main organizational changes will probably
be in the IT organization.
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The State of ERP Services
Figure 10 — COE Organization Variants and Characteristics
Variant
Characteristics
Single-instance support
Centralized IT and continuous evolution functions; can
embrace remote functional expertise
Multiple-instance support
The COE provides the technical and functional hub to the
galaxy of instances
Small organization
IT support and continuous evolution functions can be
combined
Remote flex support
Continuous evolution functions are assigned to rolling,
separate teams united by program management
During the Design Phase
1. Create an initial roster for the application management team: This team will necessarily be comprised of business-centric individuals who are willing to make the transition from pure business to the COE and will be required to complete a career transition
program.This roster typically is made up of members of the internal project team.
2. Establish post-”going live” role definitions: These should be established for the
EPMO, application management, and integration management teams.
3. Determine which COE functions will be outsourced
4. Launch outsourcing negotiations with chosen vendors
5. Create a staff transition plan: This transition plan should include: a) product training; b) methodology training; c) team orientation; and d) change management.
These activities are usually also included in the implementation methodologies for an internal project team.The sole variant in this regard is that post-implementation responsibilities
will be addressed as well as project responsibilities, according to the role definitions.
During the Build Phase
1. Complete transition education for COE staff
2. Integration and orientation of outsourced COE functions: This should commence as the build phase reaches the final preparation phase.
3. Initial end-user training: This should include an introduction to COE user-support
functions, and the help desk should be in place.
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Appendix
Going Live
1. Operational COE: The center of excellence is operational, with all elements in
place for continuous business evolution.
2. Transition and re-assignment of legacy IT staff: After going live, the balance of
legacy IT staff will be: a) transitioned to the new enterprise application-centric organization; b) re-assigned within the organization; or c) terminated.
Section 6
“Selling” the COE to Enterprise Application Clients
Ideally, consulting firms will upgrade core implementation methodologies to include the
steps required to help a client establish a center of excellence at the “go live” stage of an
enterprise application endeavor.A significant impediment to this inclusion is the increased
cost of enterprise application implementation.Although building a COE will probably add
less than 3% additional consulting costs, it will dramatically increase the change management burden for clients. The additional steps required to build a COE may have little
impact on the duration of an implementation, but the power curve that clients will need
to surmount may have a serious effect on project progress.
Internal selling points that will help overcome these obstacles include the following:
1. Maximizing the investment: the installation of a viable engine for continuous business improvement provides a client with benefits that extend well beyond those defined in the initial business case. Potential systems integrators should contrast the
additional cost of building a COE during the implementation (with the on-site guidance
provided by an SI) with the probable cost of building one after the implementation.
2. Having a responsive IT organization: An enterprise application implementation is
intended to remove the wall between business and IT by providing the business with
the means to directly address IT support for business processes. META Group
estimates that fewer than 20% of the firms in the enterprise application installed base
have actually removed this wall. An SI’s greatest appeal is to the business side of the
client in demonstrating how, post-implementation, it will be able to drive its business
through program management and process ownership.
3. Reducing cost: Various traditional IT functions, such as functional/technical design
and programming, are vastly reduced in scope as a result of an enterprise application
implementation.The inclusion of a COE during the planning phase enables more precise cost planning for the post-”go live” phase.
4. Increasing user competency: End-user training prior to going live does not ensure continuous user competency, nor does it cater to continuous training based on the inevitable
evolution of applications (through improvements, upgrades, or standard revisions).
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The State of ERP Services
5. Leveraging client testimony: The testimony of knowledgeable clients from the
vast installed base can be used to support the COE initiative.
All of these internal selling points for a center of excellence are valid not only for new
enterprise application clients but also for clients in the installed base.
Business Impact
For clients implementing enterprise applications for the first time, we recommend that
the building of a COE be included as part of the implementation. Clients who have already installed enterprise applications should retrofit a COE and establish a recurring
cycle of “to be” visions that will be fulfilled by the COE.
Bottom Line
Exaggerated cost-consciousness during enterprise application implementations may lead
to insufficient funding and a lack of focus on long-term maintenance and extension of the
enterprise application asset, thus eroding user competency and business benefits.
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