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Business change driving ERP costs sky high

Business change driving ERP costs sky high
Tuesday July 9 2013

Survey finds ERP software change issues related to business events are not resolved by more recently developed systems

New survey results compiled in an IDC white paper have found that business-related change events are driving enterprise resource planning (ERP) system costs sky high, despite the newer ERP systems recently introduced into the market. 

The survey, conducted by IDC, included 167 executives across North America and Europe and the white paper, Maintaining ERP Systems: The Cost of Change, was published by business software provider UNIT4

Most organisations that purchase and implement ERP systems that are large in scope and connect to all of a business’ operational areas, expect and budget for a hefty cost connected to the system’s deployment. 

Meeting business change requirements

While ongoing annual maintenance costs are predictable, the technology “budget buster” for many organisations is the unexpected high additional cost of managing ERP systems to meet business change requirements. 

According to the results of the survey, the price of change requirements averages $1.2 million (£790,000) per year and in the extreme can exceed $4.1m (£930,000) a year after the initial deployment costs are borne. In fact, business-related circumstances forced 15% of the survey respondents to re-implement their entire ERP system; of those organisations, 60% reported this was after an original $2.5m (£1.65m) cash outlay.

Many of the market’s leading ERP vendors, including SAP and Oracle, have introduced major new releases and even new architectures in the recent past. “It would be a reasonable assumption that systems implemented in the last three years would be more modern ERP systems, and thus be more flexible and easy to modify,” said Michael Fauscette, global vice president of Software Business Solutions at IDC. “The survey data though shows a very different picture.” 

Keeping pace with business change

Nearly 70% of the respondents had implemented new ERP solutions in the past three years, and this group was the most likely to have needed to make moderate to substantial modifications to their systems due to business events, such as merger and acquisition activity, business process change, regulatory and financial change, and organisational change. 

While many of the newer ERP offerings cite the ability to support interoperability of various hardware and software systems, and use language like “agility” and “flexibility” in their marketing materials, the survey data shows that supporting business change is going to be costly, disruptive and time consuming for many organisations. 

For example, to modify the underlying data structure underpinning the ERP solution just one time, the average estimate for the level of effort was almost 14 business days. Additionally, ERP system modification sidelines both IT and business people resources away from other strategic business activities, resulting in a substantial amount of lost organisational productivity. 

Proactively seek flexible systems

The report observed that there seems to be a sense of surrender by ERP users that the cycle of cost and disruption is inescapable. “The frequency of change and subsequent investment to make the ERP system support the business has become so common that many businesses simply accept that there is no better way to operate business,” Fauscette said. 

“When evaluating the costs of an ERP system, it’s not sufficient to look only at the upfront implementation and licensing investment," he advised. "Organisations also need to factor the ongoing system costs tied to inflexible systems that cannot accommodate business change – which include even the newest solutions introduced in the past three years. IDC found that companies need to do their due diligence and seek out ERP systems that can provide the flexibility to continue to meet business needs with low investment of scarce company resources.”

Tagged as: Survey | software | supply chain | ERP | business change | processes | maintenance | upgrade | IDC | UNIT4