It's all or nothing with ERP

Accurate, timely data is critical for finance directors to make forward-thinking, strategic business decisions. Information is the oil in the finance engine and financial software provides the tools to get at it. But for some FDs who invested in large financial systems in the 1990s, when large hairy beasts such as enterprise resource planning were fashionable, the huge costs of integrating and implementing systems and the constant problem of project creep cost their companies dearly.

Chris Woodhouse, former FD of Homebase, told us that when he joined the company 2001 it was already in the midst of implementing a giant ERP system from SAP. The company was employing a large number of expensive consultants to implement the system, it was planning a very high-risk Big Bang implementation across all of its stores and total expenditure on the system was on its way up to £30m. But Woodhouse couldn’t pull the plug. “When I came on board, the consultants were roughly half-way through. Too much money had already been spent to say, ‘Stop the project’,” Woodhouse said.

Dennis Keeling, CEO of the Business Application Software Developers’ Association, has recently published a white paper on corporate enterprise systems strategy, Does one system fit all? The paper points an accusing finger at large Tier-1 ERP systems such as SAP, Oracle, PeopleSoft, Baan and JD Edwards. “Many corporates start to implement ERP systems only to find they don’t meet their expectations,” the paper states. “Grand aims were rarely met … the computer press, over the last two years, has been full of stories of failed projects, cost over-runs and customer dissatisfaction with their ERP systems.”

Keeling says corporates shouldn’t abandon ERP completely, but only implement Tier-1 systems in central headquarters and use smaller systems at a local level. This will reduce cost and speed up implementation, he argues.

Alastair McGill, marketing director at PeopleSoft, was less than impressed by Keeling’s findings. “Most of the examples in the paper are based on one business model … Keeling doesn’t understand how the typical corporate works,” McGill says. “Keeling talks about the importance of real-time information. Well, if you want that you must have standardised business processes and systems to back them up.” That, in McGill’s book, means ERP based on an ‘access anywhere’ internet framework a la PeopleSoft.

In an interview with Financial Director, Keeling says large software vendors are wrong to believe wall-to-wall ERP implementations are the answer to every large business’s financial needs. “The ERP market is suffering because customers are saying it (ERP) is just not working. And the systems are expensive. Most companies are under non-disclosure agreements with suppliers so I had a Dickens of a job getting the facts together. But in a report I wrote for Ovum, we found one ERP implementation that cost the company £60,000 per user,” Keeling says.

Andrew Munday, head of solutions marketing at SAP, agrees that ERP can be expensive but says it depends on what companies ask for. “Dennis is talking about Tier-1 seats ranging from $3,000 to $90,000 and Tier-2 ranging from $1,000 to $50,000. I’m sure those facts are correct. But it is difficult to comment on individual cases unless you look into what that company hoped to achieve for that cost,” Munday says. “There are plenty of examples from the 1990s, where projects started with a particular scope, but as customers became more aware of what the system could do they wanted every piece of functionality, so projects spun out of control.”

Munday says SAP is now a more customer-friendly company. “We now understand customer requirements for faster implementations of applications, more modularity within applications and better scalability,” he says. Munday also agrees that Keeling’s model of a mixture of large ERP system, combined with small midrange systems, is probably best for large companies with many sites.

But Keeling says FDs have had their fingers burned by ERP and are now reluctant to reinvest in large financial systems. “At the moment, corporates are holding back and that has been the continuing demise of the software industry. There is no compelling reason to change (systems) at the moment,” he says.

The latest research from Hackett Group finds that the average large global company has 2.7 ERP systems. The problem for corporates may not be when to reinvest, but which 1.7 systems to dispose of.