A few weeks ago, we released the 2019 ERP Report. Unlike similar studies of years past, this one digs deeper into the statistical root causes of success versus failure – and the findings are very eye-opening.
The study examines ERP implementations over the last 20 years, with a particular emphasis on ones completed in the last 2-3 years. Companies captured in the study include a variety of companies across the globe, ranging from smaller organizations with tens of millions of dollars of annual revenue, to large global companies with billions in annual revenue. You can download the complete 2019 ERP Report here.
Past studies tended to focus on average numbers, such as “average implementation cost” or “average benefits realized.” We found that these numbers on their own aren’t of much value for three reasons:
With these limitations in mind, this year’s study analyzes both the quantitative and qualitative drivers of ERP success and failure. We have yet to find another study that captures the correlation between transformation activities and overall ERP success and failure in the same way that the 2019 ERP Report does.
Findings from the 2019 ERP Report: Implementation timeline
A majority of companies studied in this year’s report fall into the upper mid-market, ranging from $500M to $3B in annual revenue – which is consistent with the distribution of Third Stage’s client base. Because of the variety of companies, we segmented average implementation time between mid-size companies and larger organizations.
The average implementation duration for most companies in these two segments fall into the ranges outlined in the graphic below.
It is important to note that these implementation durations have remained fairly consistent over the years – despite technological improvements such as cloud ERP, mobility, and predictive analytics. This is because the human and operational components of ERP implementations remain the most difficult when compared to the more technical aspects.
It’s easy to myopically focus on containing your short-term ERP total cost of ownership. This phenomenon may be understandable, but what on paper looks like a reasonable cost containment strategy is often a driver of bigger cost overruns in the longer-term.
Operational disruption is the most common – and most dangerous – hidden cost of ERP implementations. Over the years, the percentage of companies experiencing such a problem – such as not being able to ship product or close the books at period end – has remained consistent at roughly 50%. This year is no different, with 51-54% of companies experiencing some sort of operational disruption, depending on which data set we look at.
These costs add up: of those that experience operational disruption, the average addition to their implementation cost is between 50% and 300% of the planned implementation costs. When we look at the key differentiators between digital transformation vs. ERP implementations, the most successful initiatives have the bigger picture focus on overall transformation rather than technology, which tends to reduce the risk of operational disruption.
When we look at the root causes of what drive implementation time, cost, and overall results, organizational change management – or lack thereof – has the largest correlation with other data in the study. Companies that invest appropriately in organizational change management are more likely to experience success, while those that don’t are more likely to experience problems like recent SAP failure at Lidl.
On the surface, many assume that organizational change management is a line-item that can be reduced to save time and money. This may be true in the short-term, but our data and analysis shows that it actually increases the overall cost and undermines business benefits in the long-term. Organizational change management is clearly the #1 key to digital transformation success.
Larger companies are more likely to implement a Tier I ERP solution such as SAP S/4HANA or Oracle Cloud ERP, while mid-size organizations are more likely to implement less complex systems such as Microsoft Dynamics 365 or NetSuite. However, our analysis reveals that the actual software solution being implemented doesn’t have any statistical significance on results when compared to other implementation variables. For example, how the system integrators was managed, organizational change management strategies, and degree of change resulting from the transformation all have a much more significant statistical impact on likelihoold of success.
There is a lot more detail outlined in the study, but this highlights some of the key points. The takeaway here is that lessons from the successes and failures of other recent ERP implementations should be a key part of your planning process. Download the complete 2019 ERP Report here to leverage this information that will help you define the path to success.
You can also reach out to me with questions regarding the study or to discuss in more detail.