Every year, Panorama Consulting releases a piece of thought leadership in its ‘ERP Report’, where it polls candid and anonymous responses from organizations that have completed their ERP implementations.
The 2018 ERP report questioned more than 200 businesses, both large and small, primarily in the United States, Europe, and Asia. We took a detailed look at the report and pulled some of the most important takeaways to help you, as a business leader, when it comes to your own ERP strategy.
1) Consider ERP if you have a professional service or public-sector business
The 2018 ERP report largely represented largely manufacturing businesses (43% of the companies surveyed), as well as retail and distribution companies. This makes sense as ERP was initially tailored to fit manufacturing and supply chain processes.
However, this year saw a growing number of professional service and public-sector organizations looking at ERP, which is due to vendors offering cloud applications that support more niche business practices.
2) Approach ERP implementations differently depending on your size
There was a wide range of company sizes polled. Most respondents reported between $50 million – $300 million in total annual revenue. Panorama says it is important to approach an ERP implementation differently depending on your size – for example, larger businesses should take a more strategic approach and seek solutions that scale as a business grows. Smaller businesses might look for more tactical solutions that improve certain core processes.
3) When budgeting for an ERP implementation, consider all the costs
Panorama advises that when budgeting for an implementation, businesses need to consider all costs, not just licenses and services. This could include internal costs, such as the time employees might spend on the project and backfilling of positions. 84% of respondents had an expected or actual spend of less than 2% of income, although it wasn’t common to exceed 4% depending on the type of implementation.
A significant number of respondents (64%) of respondents had projects exceed their budgets – however, this was an improvement from the 74% that went over budget last year. Top reasons for budget overruns were unanticipated technical or organizational issues, unrealistic project budgets, and the addition of technological requirements. Panorama advises companies to properly evaluate ERP solutions to establish an accurate price scope.
4) Software-as-a-service (SaaS) ERP is becoming prominent
A significant proportion (64%) of businesses that chose SaaS ERP implementations – (an increase of 37% from last year). To meet this a demand for cloud, vendors are building out their service platform and infrastructure, potentially digitizing customer experience, workforce engagement, supplier management and the move to the Internet of Things.
Half of the organizations (50%) recouped the cost of their ERP implementation within three years and saw a 31% increase over last year (19%). However, only 4% recouped their costs within one year, lower than last year’s 15%.
5) The single most compelling reason for ERP is to improve business performance
The largest percentage (64%) of respondents said that the most compelling reason to implement an ERP system was to improve business performance. This was closely followed by positioning the company for growth (57%), to reduce working capital (also 57%), and to serve customers better (54%).
There was less emphasis on making jobs easier and replacing legacy systems. This doesn’t mean these reasons are not important, but it does suggest that C-level executives have a fuller understanding of what they need their businesses to do when it comes to aligning and optimizing business, such as tighter integration of functions such as finance and the supply chain. Having a good base will help support further organizational growth.
6) There is a balance needed when it comes to ERP customization
ERP software often needs to be customized to enable key business functions, increasing efficiency and providing key competitive advantages to businesses which may have complex systems. However, a customized code might not be supported in system upgrades and will often need reviews and tests during upgrades.
The 2018 ERP report says that businesses are customizing a significant portion of their ERP – with 37% of organizations customizing 26% to 50% of their application. Panorama advises organizations to make sure they understand how customization aligns with their business and IT strategies – they need to avoid over-customization, but they also need to take advantage of their competitive advantages.
7) Most organizations report having three to five full-time resources dedicated to ERP implementation
According to Panorama, the number and types of resources committed to an ERP project can significantly impact the likelihood of a project’s success. These employees might have a part to play in organizational change management (OCM), which includes activities such as encouraging buy-in and prepare for change with minimal disruption. Interestingly those businesses that value OCM are typically individuals who might have experienced a failed initiative.
Only 42% of respondents deemed their ERP implementation a success. This was a substantial drop from last year’s report, which said that 82% of respondents considered their projects a success. It’s important for business leaders to pick the suitable metrics to help their project teams focus and communicate – such as business KPIs and user adoption.
8) Look at ERP to improve all your business processes, rather than just some
Only 49% of respondents improved all their business processes, a drop of 26% from last year. It’s important that businesses get the best value from their ERP investment, which can be a significant feat – but according to Panorama, there is a clear suggestion this isn’t always happening.
Typically, businesses should look to realize multiple business benefits of ERP through an implementation this might mean the creation of a business case, performance metrics or a benefits realization plan. It won’t simply help with scope creep but can help define what success is, measure it, prioritize pain points and look for improvement opportunities.
9) Make sure that you understand the investment and budget appropriately
According to the 2018 ERP report, 64% of ERP projects exceeded an organization’s budget. Although this sounds high, it’s still an improvement of last year, where 74% said their project overran. The top three reasons for project overruns were unanticipated technical or organizational issues, unrealistic initial project budgets, or the addition of technological requirements.
Panorama advises businesses to perform a proper evaluation of proper ERP systems to establish an accurate scope for the project. A good approach would be to consider ERP solutions that are flexible and scalable enough to support current and future growth, aligning with organizational and IT strategies.
10) Make sure you spend time picking the right ERP partner
There is a significant proportion (23%) of organizations that experience dissatisfaction with their ERP vendors. Panorama suggests that customers need to look at certain areas when looking at vendors, such as:
- The vendor’s experience with the software they’re selling
- The culture fit within your organization
- The ability to lead or support your project
- The frequency and quality of interactions
As a customer, if you work with a software vendor that is well managed and with clearly defined expectations, it will go a long way to getting exactly what you need in terms of business benefits and cost-effectiveness.