The digital transformation landscape is changing at a breakneck speed. Technology is shifting to the cloud, new functional capabilities are being added at a record pace, and companies implementing these technologies are themselves going through unprecedented changes as well.
Against this backdrop, we recently published our 2020 ERP and HCM Report. This annual report captures the quantitative results and qualitative trends from hundreds of recent ERP and HCM implementations across all parts of the world.
The report covers a number of topics, including:
- Average implementation time, cost, and results
- Statistical correlation of factors most contributing to implementation success vs. failure
- Challenges most experienced by implementation teams and executives
- Forecast of ERP industry trends and predictions based on this year’s findings
- Ranking of Top 10 ERP systems according to a number of objective criteria
Below are a handful of the most interesting findings from this year’s report:
The industry is in a significant state of transition
The ERP vendors’ race to the cloud – and the profitability they achieve as a result – is creating an awkward state of transition. For many of the leading ERP and HCM vendors, highly matured legacy on-premise systems are being replaced by less mature and less battle-tested cloud systems. While customers will likely benefit from this transition in the longer-term, software vendors and systems integrators are the primary beneficiaries during this transitionary stage.
In the meantime, customers should carefully consider their options. They also need to work harder to identify gaps in current ERP software offerings, and they will be well-served to consider ERP best of breed strategies to address some of the deficiencies and weaknesses of enterprise technologies as they exist today.
Lots of movement in the Top 10 ERP Systems rankings
With this transition comes fluidity among the leading ERP solutions. This year’s independent ranking of top 10 ERP systems shows a larger amount of movement than years past, largely because the relative strengths and weaknesses of these newer solutions is changing so far.
For example, Oracle ERP Cloud missed the top 5 last year but move to the #3 spot this year. SAP S/4HANA, on the other hand, fell from #3 to #6 as more customers struggle to navigate SAP’s 2025 deadline. The #1 and #2 vendors from last year swapped spots (read the report to see who they are!). We expect the top 10 list to show more stability in coming years, but there is a lot of movement at the moment.
Operational disruption is still the biggest ERP implementation risk
Many may pontificate about how cloud ERP systems are easier, cheaper, and less risky, but our objective data strongly refutes this myth. The good news is that ERP failures are currently not increasing. The bad news is that they are not decreasing, either.
Failure rates have been very consistent over the last 15 years our team has been conducting this data. Approximately 50% of ERP and HCM implementations are likely to result in some sort of material operational disruption at go-live. Inability to ship product, close the books, or run payroll are three of the most common disruptions – hardly the result most of us sign up for when we embark on a digital transformation. These disruptions are also the most expensive part of the affected transformations.
And this number only represents the companies that experience operational disruption. Of the lucky ones that do not experience this headache, many of the remaining 50% go way over budget or spend a lot more time implementing than they expected. For those to embark on an ERP or HCM implementation, this is probably the bleakest news coming from our report.
Best in class companies know how to effectively manage ERP implementation risk
Despite this discouraging data, there is a silver lining in the report: best in class companies know how to avoid these pitfalls to make their ERP and HCM implementations successful. According to our analysis, these are the things that are the biggest contributing factors to transformation success:
- Clearly defined business processes before beginning the technical design and implementation
- Heavy investment in organizational change management strategies, going well beyond training and basic communications
- Strong internal alignment, or if there is internal misalignment, the team gets on the same page before starting the implementation in earnest
- Plenty of time spent on user acceptance and conference room pilots
It is important to note that these success criteria commonly do not fall within the wheelhouse within most ERP systems integrators. In fact, some may resist these best practices because they are not in their best interests. But the most successful transformation teams do what is best for their organizations.
Many bigger ERP systems integrators lack in their ability to manage ERP implementation risk
One of the hidden findings of the 2020 report is that the big ERP systems integrators are generally not as good at managing risk or delivering value relative to cost. When digging further into the research, we find that some of the most challenged and expensive transformations were led by the biggest-name and most well-known systems integrators.
On the other hand, we could not find a correlation between type or size of systems integrator and overall success rate. In other words, companies that used the big, well-known providers were no more likely to succeed than ones that used lesser-known integrators. The core of what makes companies successful in their transformation endeavors is largely unrelated to the systems integrator chosen.
Bottom line: Take control of your ERP or HCM implementation
If we had to summarize this year’s report into one lesson, it would be: don’t believe the hype and take control of your implementation. ERP vendors and systems integrators may be pushing products that mostly benefit them, methodologies that don’t necessarily make sense from a business perspective, and other outdated modes of operation, but that doesn’t mean you have to follow suit. After all, this is your business.
Advice from independent ERP and HCM consultants such as our team at Third Stage can help coach and ensure that your project is successful in the coming years. Feel free to contact me to arrange an informal video conference or phone call to brainstorm ideas related to your initiative – I am happy to be a sounding board as you embark on your digital transformation journey!