ERP: An Inconvenient Truth or A Reassured Lie?

Yesterday I reviewed a sparkling paper of academic research to an ERP failure in an SME. The authors used a interpretative narrative to unfold the complete project from its inception phase to the use phase. Believe or not, but the system is in use! The story has become all too familiar: over budget, over time, a lot of flaws and errors in the system, a troubled relationship with the ISV and a lot of painful scars in the own organization. I took the paper to contemplate on what could be an overall understanding of what is exactly the problem with ERP projects in SMEs. Of course one could say that there are abundant factors that lead or instigate a failure, but there is always a tendency to summarize and to be brief, meaningful and still be truthful.

To my believe and understanding the root cause of the failures lays within the relationship with the ISV or consultant and the inappropriate handling of risk. There is risk involved with an ERP implementation. If statistics say that more than 70% of these project either go over budget or go over time, than it should be wise to take that into account. This is an inconvenient truth. The ISV should confront his customer with that risk, instead of trying to hide this figure. But what does the CEO of the SME wants to hear? An inconvenient truth or a reassured lie?  According to D. Kahneman people largely choose for certainty if chances of a lost are high. A reassured lie?

The risk involved with an outsourced ERP project goes over to the consultant or ISV (the agent). This transfer is done in a sphere of mutual trust which is very difficult to manage. I did a rather large research to trust and outsourced IS failures and my findings where that trust is paramount to the avoidance of a failure. Trust is a highly asymmetric construct: it is much easier to lose trust than to build up trust in a relationship. The agent will try to mitigate the risks of the outsourced contract just as the principal did. In his strive to reduce the intrinsic risks of an ERP project, the agent jeopardize  easily the trust within his relation with the principal.

Let’s face it: It is not possible to transfer all risks involved with an ERP project to one party, the consultant or ISV. Why is this not possible? Because the main reason for ERP failures is the lack of commitment of top management. In SMEs this is a non transferable duty of the owner/manager. It make no sense to ignore that fact or to cover it up with formal controls and other governance mechanisms. When the cat’s away the mice will play!

So is it wise to conduct ERP projects in a traditional principal-agent setting? Maybe the key to the solution is a tripartite with a principal (the SME), the agent (the ISV) and the mediator (the project leader). The mediator should be an independent party that acts only in the interests of the project. The three parties should be independent to each other and all should sign a threefold contract. Maybe that could help to distribute the risks of the project and to avoid failure.

jan

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About jangdevos
I'm an IT/IS professor, a late Baby Boomer, married with Ann and father of Hélène and Willem, a Stones fan and interested in almost everything. I work at the UGent (campus Kortrijk), Belgium. My research domain are: IT Governance in SMEs, IT/IS Security, IT Management, IT Project Management, IT Trends and IT/IS failures.

One Response to ERP: An Inconvenient Truth or A Reassured Lie?

  1. Khawar Ayub says:

    A Cloud ERP system means traditional ERP solutions hosted off-site. It is also flexible and scalable. The system has the capability to access real-time data from anywhere without using complicated and costly remote-access software.

    On the other hand SaaS (Software-as-a-Service) model offerings are typically smaller. This is normally best for organizations with limited complexity, size and global presence. ERP system providers host SaaS model on their own infrastructures instead of locating the systems on-premise at the purchasing organization.

    In SaaS model, the vendor will have the full control of the application and not the customer where as in Cloud ERP system your data and your application can be placed on server that you control. Both these models provide instant gratification, taking mere minutes to be up and running and are likely to mitigate potential problems between a principal (the SME), the agent (the ISV) and the mediator (the project leader) which arise during ERP projects in a traditional principal-agent setting.

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