How Much Does an ERP Implementation Cost?

Written By: Bob Blanchette
Date: December 16, 2019

More than anything at Third Stage Consulting, we enjoy educating and partnering with clients. While everyone would love an answer to how much an ERP implementation will cost, the reality is, it’s somewhat of a moving target. There are many critical dependencies that impact costs, and how you think about cost is important too.

Let’s look at three of many considerations that will help you determine how much your ERP implementation will cost:

1.  Are you willing to do it right? Lessons from Disney’s streaming service.

Costs can be somewhat accurately estimated if everyone agrees on all the moving parts, who owns them, what your quality control standards are, and if your budget allows for a variance for unexpected costs. Of course, everyone says they want to do it right, but it typically comes down to a couple of usual suspects – time and money.

Let’s take an example than many are aware of – Disney’s problems with its launch of their new streaming service. With a plethora of new users (reportedly north of 10 million) signing up in the first 24 hours, it was an amazing success. Or not.

How Disney treats their guests is legendary. When thousands got disappointed and couldn’t get access to stream on day one, it was a big deal. Disney didn’t skimp on money. It spent billions to acquire the expertise of BamTech, a small lesser-known tech savvy company with streaming knowledge. So, what went wrong? Some suspected a hack or high demand, but neither proved to be the culprit. Long story short – coding errors were to blame.

This illustrates advice we commonly give to clients about system testing – you’re not doing enough rounds and types of it. This advice is expanded upon in the blog The ERP Go-Live: Three Key Considerations. As part of testing, there should be several stage gate decision point reviews. This is a phase-driven best practice where go/no-go decisions are made (especially pertinent in code testing). We also recently reported about the importance of massaging and testing data before data migration to avoid costly design/build/test rework cycles.

If you want to know how much your ERP system will cost, you must ask yourself if you are willing to do it right. And you might just need an independent outside expert to validate your progress and help you do it more efficiently and cost effectively than you might on your own.

2.  Are you willing to be taught?

There are many skills from martial arts to algebra that people probably learned from an instructor. Someone who was dedicated to imparting knowledge as well as coaching and guiding you. Good teachers release responsibility in a methodical fashion to help prevent failure. They are always there to give corrective feedback and model the skill they are helping you to learn. There is context in what they do, and they can evaluate and show you what you’ve missed.

So, when it comes to complex initiatives topics like digital transformations or enterprise resource planning. why do some companies choose to go it alone? The days of IT owning what used be called a “project” is no longer relevant.

A couple of points to consider:

Executive sponsorship is not enough. It conjures up images of a well-intentioned executives agreeing to an initiative while getting periodic updates. In other words, it’s all going to magically happen because there’s a team assigned to it.

We’ve seen this scenario too many times with too many disappointing to disabling results. It requires a different mindset, level of involvement and external resources. Executives should look at it more like a merger or acquisition (M&A). It’s that serious, and the impacts to the company equally as important. Rarely would you see a M&A process that didn’t involve outside specialized counsel, consultants, investment bankers, etc.

If you are in “legacy land” and have been using your current system for years – cloud technology is a whole different major paradigm shift. The range of services, technologies and platforms are all different, and radically so. It doesn’t count that your company has been using basic Internet functions like email or customer relationship management (CRM) software. Everything is different from computing concepts to cloud architecture.

The cost and timing of your digital transformation is most at risk if you’re trying to do it yourself. The expense of a good independent ERP “coach” will almost always end up paying for itself. The best formula is one that pairs your best and brightest internal stakeholders with independent ERP consultants for synergy.

3.   What is the opportunity cost of not implementing a new ERP system effectively

It’s easier (but not easy) for a qualified person to provide cost estimates for an ERP business case. But what’s the cost of doing nothing? There’s a cadre of considerations from company growth to company extinction. Emotional avoidance is the norm. Companies are emotionally and financially invested in what they know and often unable to see the impact of avoiding change. It’s hard to measure lost opportunities because maybe you’re still growing – albeit at what pace?

For many businesses, analyzing/calculating lost opportunity cost is a daunting task they’d prefer to avoid. That’s one of the reasons you’ll see so many companies implement cost cutting initiatives as they sense shifts in business or profits. It’s easier to remove obligations than to create new processes and implement new technology.

Cost cutting is often a band-aid for bigger issues and missed opportunities. The Wall Street Journal reported that capital spending by S&P 500 companies only rose 0.8% in the third quarter of 2019, while the stock market hit new highs. Blame it on trade tensions or pre-election jitters? Then there’s companies that just go for it.

Take Domino’s pizza for example, increasing digital transformation expenditures and being rewarded as four-fifths of their sales now result from digital channels. Their revenue for twelve months ending 9/30/19 showed a 9.51% increase year-over-year. That’s turning something pretty ordinary tasting into respectable growth (my opinion).

In Conclusion

There’s never been a more important time for companies to plan and act on their digital transformation goals. Expect innovation, disruption, and an increase in digital transformation efforts from your competitors. If it’s not your company - some other company will do it.

Whatever happened to the predicted stamp out of Best Buy from big foot Amazon? Best Buy dedicated the time and money to updating old systems while embracing new employee training initiatives. They committed to and now own a tech blueprint for survival. In the consulting business we call that a solid digital strategy.

Blanchette, Bob
Bob Blanchette

Bob brings a creative blend of understanding operational benefit and navigating employee resistance to change, ultimately helping organization realize success and benefit through maximizing the effectiveness of people. He holds a successful track record of HR leadership and promoting fair and unbiased outcomes.

Bob Blanchette
Bob brings a creative blend of understanding operational benefit and navigating employee resistance to change, ultimately helping organization realize success and benefit through maximizing the effectiveness of people. He holds a successful track record of HR leadership and promoting fair and unbiased outcomes.
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