Enterprise Systems: Do They Really Deliver Value?

by N. Raghavan    Oct 08, 2007

Do enterprise systems indeed streamline and simplify business processes? Are they sufficiently flexible to accommodate changing business needs? Do they truly help an organization that has deployed them at huge cost become truly agile? Experience of many companies seems to suggest otherwise. In fact, enterprise systems appear to have ended up creating more complexity, uncertainty, and risk - than mitigating them.

The trouble, more often than not, lies with the complexity of ERP systems themselves. ERP involves control over the planning and management of all facets of an operation, including accounting, manufacturing, and distribution. The goal is to integrate all data and processes of an organization into a single unified system. A typical ERP system uses multiple components of hardware and software to achieve integration. A key ingredient of most ERP systems is the use of a unified database to store data from the various system modules.

ERP software, among other things, seeks to combine the data of formerly separate applications. But typically in most large, well established organizations, you have a situation where you have many data bases and many more separate software programs running and they all happen to be interconnected by archaic, complex processes. Integration in this scenario can prove a challenge with a big ‘C’. So, many organizations would rather implement ERP in phases, department by department, in the process minimizing the human resources needed for the project and spreading the cost. Even such staggered implementation exercises in no easy task in billion-dollar enterprises.

ERP implementation requires organizations to re-engineer their key business processes in fundamental ways, revamp old ways of conducting business, redefine job responsibilities, and restructure the organization. It calls for a complete change of mind-set among employees across the organization, strong leadership and a clear vision. Easier said than done, obviously. Implementation expertise is often not found in-house. That means you end up hiring an army of outside consultants simply to get the software up and running. The consultants, needless to add, don’t come cheap. Indeed, the overall installation charges can outweigh the price you paid for the software. Then you need loads of patience and perseverance to see implementation through - a large multi-country implementation can take years.

Customizing an enterprise system, again, requires time - and money. It can be risky, too. And after you have taken the pains to customize, you discover that upgrading to a never vision to meet changed business needs is again going to set you back by a few million. Never mind upgrading, you could count yourself luck if you managed to get the implementation right the first time round. Data integration and other issues can be so challenging that successful ERP implementations are more the exceptions than the rule - 75% of implementations actually fail.

At the end of day, there’s little unambiguous evidence, statistically speaking, to show that the benefits of ERP implementation outweigh the cost and risks involved. Senior executives with years of first-hand experience of implementing ERP systems believe they might work for smaller companies who have already integrated their core business activities and would like to move on to data warehousing, CRM, reporting, and so on. But when it comes to billion dollar enterprises it’s a different story - more misses than hits. Big vendors of ERP systems, quick to read the writing on the wall, have been scaling down their expensive and complex products to make them attractive to customers in the mid-level market. They have also started offering special per-configured products for specific industries. When it comes to large organizations, though, ERP systems have hardly lived up to their promise. Whether Service Oriented Architecture (SOA) can help settle the problems associated with ERP systems is another matter.