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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.


ERP Gap Fillers

It looks like many ERP implementations have a lot of holes and do not cover all business processes in an automated way. Indeed, how can one otherwise explain the wide variety of business initiatives and new businesses that offer solutions in supplement to ERP to fill in the gaps?

Yesterday I read a white paper of a medium-sized software vendor offering a solution to automate the processes of accounts receivable (AR) and payable (AP) in organizations that have implemented an ERP system from a major vendor. One could expect that AR and AP are basic business processes that should be incorporated in an ERP system. Nope! There are several reasons why this gap-filling business is booming. Since business growth nowadays is mainly achieved by M&As, large companies are still struggling with implementing one standard ERP-template in all their affiliates. Time is not always on their side. The greatest common divider of their ERP-template is therefore very small leaving a lot of holes that cannot be covered in the system. These organizations do not manage to fully implement an end-to-end solution for their business processes. Processes AR and AP are considered as quite complex and at times very different over geographic locations, so there are left over to the gap-fillers.

Same goes for the accounting and bookkeeping systems in ERP. Nothing is more country specific as a tax system (e.g. VAT system). Several documents and even complete work flows are defined by governments and are sometimes surprisingly well automated by e-government initiatives, but not so well in the major ERP systems. This time it are the ERP-systems that are lagging behind. Again this leaves room for gap fillers. Therefore it is of no surprise that there is still a large number of independent software vendors selling their country specific accounting systems to organizations where large ERP vendors has once promised to cover the complete set of business processes.

Another example where gap fillers see opportunities is in the domain of business intelligence (BI). BI should be the pedal of an ERP system. Was the promise of ERP not to cover all operational processes and bring them onto a tactical level from which they should deliver information to the strategic level of the organization? It is therefore sad to see that precisely for BI there are a lot of separate products, largely based on open software, that must fill in the gaps.

There are in addition some problems related with ERP that gives extra fuel for the gap fillers. A common problem for many ERP implementations is the often poor performance in terms of response times. ERP systems are centralized systems but incorporate a broad spectrum of different software trunks, all having different operational requirements. This constitutes a system with a very heterogeneous nature. For example heavy duty transaction systems like order-entry systems often demand the largest portion of  performance of the system, leaving no room for simultaneous running BI processes. Cloud computing does not always offers a solution here since the variation in demand for immediate performance does not change in a cloud setting. The only solution is therefore sometimes to uncouple the operational data from the centralized system to a separate system. The latter from which BI is operating.

And there is of course the ever present sword of Damocles over the ERP system in the shape of user rejection and resistance to the software. Not all users fully embrace the often complex ERP user interfaces and therefore tend to adopt ‘easier’ solutions.

The discussion inside or outside the ERP is most active in SMEs. Smaller organizations have tighter IT budgets and are therefore sometimes more demanding to ERP systems than large ones and are challenging the selling propositions of ERP vendors. Unfortunately this leads again to lots of IT failures due to unmatched selling promises!



IT in the Old World and in the New World

Today I read two articles with advice for CIOs. First article headlines that CIOs should forget innovation and should focus on cost reduction and increase internal IT service. Second article states that innovation and entrepreneurial thinking is vital for IT leaders. The first article is based on a survey within Western European CIOs and the second one based on testimonials of innovation award-winning CIOs in the US. Both articles are published in respectable practitioners journals. What could this mean?

That practitioners do not read the academic literature on IS/IT? Why should they? Is there somewhere a coherent stream of IS research on innovation and information systems? And if so, what does it tell you on how to deal today with the IS function in organizations? Do we need cost cutters  or do we need innovators? We teach IT risk control management on the one hand and IT entrepreneurship on the other. IT/IS courses are almost completely vanished in most business schools, replaced with courses on business process management. ERP systems dominate in most large companies, leaving almost no more funds for new technology and initiatives. A clear answer or directive for CIOs is certainly not to be expected from the academia, no matter how hard they try to deliver relevant research.

The articles also show us that the appetite for risk is definitely different in old continent as compared to the new continent. Nothing new under the sun! Sometimes you should think that Europeans have developed an extra gene responsible for entrepreneurial risk aversion. The new world is so different when it comes to entrepreneurial risk taking. European CIOs have to operate with the constant burden of cost reduction. There is no room for experiments or slack management! No wonder that all successful innovative IT companies like Facebook, Cisco, Google, Verizon, Apple, LinkedIN,… of the last 10 years are coming from the new world. The old world can only show SAP as the nova star. Not really an innovator and soon maybe a red giant.

Why does Europe claim they have the best IT universities and still has no IT companies nor organizations with strategic IT visions? Is there not something wrong in our educational approach? Leadership is not something that is lectured in European universities and certainly no IT leadership. Rather we focus on mastering and controlling technology, but not using it! European CIOs should understand that cost reduction can never be a generic strategic choice unless you want to achieve cost leadership, but there is only room for one cost leader in every sector. Instead, there is so much room outside the company that can be occupied with new IT supported business models as shown by the new world if we only could get rid of our risk aversion gene!

jan devos

After all these years, ERP implementations still fail…

The last three months I spotted five articles in the business press of failed ERP projects. Names of companies, involved project leaders, CEOs, CIOs and lawsuits are all mentioned without camouflage; this might be the top of an iceberg. It is remarkable but all major ERP suppliers and consultants are involved. It is certainly not a one actor concourse. Off course it is very difficult to reveal the exact causes of these failures, since both parties, customer and consultant (or supplier) are making their points of defense or complaint.  But there are some common components involved as we shall see. Let’s first review in short the five cases.

Case One. The plaintiff (customer) complains about the consultant lying about his skills to manage the project. The consultant will continue to defend his work vigorously. (lawsuit claim = $90 million)

Case Two. An ERP supplier cannot deliver on time making the customer to delay its financial filling. The consultant didn’t respond to  the claim. (lawsuit claim unknown)

Case Three. After a formal selection, the customer discovers that the proposed ERP  is dated and that the users find it hard to change to the ‘new’ system. The consultant was taken away from the project. (lawsuit claim = $33 million)

Case Four. A customer decides to halt the roll-out of an ERP due to massive budgetary over spendings. The consultant didn’t respond to  the claim. (lawsuit claim = $2 billion).

Case Five. A customer was proposed a vanilla implementation of an ERP. However the implementation took massive customizations to make a fit with the organizational needs. The consultant will continue to defend his work vigorously. (lawsuit claim = $102,000)

The customer organizations in all of the former cases are in no way small and medium-sized enterprises (SME), but well staffed organizations with IT capabilities, and the consultants and the suppliers tend to have a proven (?) track record. This raise questions on the approach of such projects. Can we still use the well known techniques of project management if it turns out that we constantly ran out of time and budget? Isn’t it time to rethink our current models of governing these large complex organizational and technical projects?  Is ERP really a solution or is it the problem? Maybe we should start all over again with the implementation of information systems and start to make an organizational architecture from which we can derive a workable system instead of doing the opposite. All too often ERP is proposed as a solution to avoid the difficult and often tedious exercise of making an enterprise architecture. In such a context ERP vendors make sometimes expensive promises to bridge fit-gap analyses and bring themselves in defense positions. Indeed, the most compelling factor in all cases is that the plaintiff is the customer.

jan devos

The fall and rise of ERP and the spiders form Mars?

ERP systems are here since more than 20 years now. It all started back in the early 90s when the down-sourcing trend took off and smaller client-server systems became popular. Bespoke software and in house developments, mostly based on older Cobol, PL/I or RPG languages were chiefly outdated and were replaced at fast pace by newer and contemporary ERP systems. We headed to the end of the millennium and the nervousness for a complete system clash due to the date problem rose the temperature and accelerated ERP implementations. Since 2000, sales of ERP systems grow also in Small and Medium-sized Enterprises, although not always with great success. Not that ERP success was only guaranteed for large companies. Horror stories of failed ERP project reached the business and academic literature since the first day. The paper ‘Putting the enterprise into  the enterprise systems’ of Davenport in 1998 set the tone of the most of the preceding ominous reports on ERP systems. ERP on the fall?

According to recent research, ERP systems are still alive and kicking! Investments of the early days has become outdated and require updating. Today computer platforms move to the cloud and this requires a new and fresh look to the IT budget. Compared with 20 years ago, decisions to adopt ERP systems are now more carefully taken, with consideration for business disruptions and impact on customers, staff and (financial) resources.   But there is more. A lot of ERP suppliers didn’t survive the battle and a lot mergers and acquisitions took place and are still taking place. At a certain point Microsoft in her strive to compete with SAP and Oracle for the SME market became owner of more than three ERP systems. A splendid competitive move to conqueror the market but internally a mess. All these software systems in one portfolio needed a cleanup.

Today ERP systems are based on multiple systems that allow flexible integration of a wide variety of business processes. Not so much the big bang conversion, but gradual integration based on SOA and web services. This means that the suppliers also have changed their software license policies. No more rigid prices for a all-in software, but ‘Software as a Service’ (SaaS). Customers are now paying monthly fees which allows a stricter budgetary control.  Not only the software is rented, also the hardware platforms become more and more hosted form external data centers, offering ‘Infrastructure as a Service’ (IaaS) and ‘Platform as a Service’ (Paas). The centralisation of computer infrastructures in data centers allows a better and cheaper 365/24/7 service of the operations, still a burden for most organisations when done on they own premises.  ERP on the rise?

However there are still some problems to be deal with. First, implementations of ERP systems for the most part suffer from cost excesses. For SMEs this starts with an appropriate selection of an industry-specific preconfigured solution. However this requires managerial and technical capabilities who are not always present in the organisation, so the burden of the adverse selection loom largely in SMEs. ERP implementers often lack good skills, even those who have glossy brochures and smashing web sites. This is the second major problem with ERP systems: a real shortage of consultants on the market that can combine good IT skills with a combined understanding of an industry and a particular business in that industry. Spiders from Mars? The universities and colleges offering IS and IT programs should start to rework their current (too) technical oriented curricula to bring in new skill domains such as business process management, project management, (legal) contract management,  enterprise architectures, business modelling and also the so-called ‘soft’ skills like interviewing, presenting, and writing skills. A well-skilled and talented ERP consultant can make the difference of an ERP systems implementation success or failure!

jan devos

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