Today we published our brand new 2018 ERP Software Report, which summarizes the results from nearly 300 recent ERP implementations across the globe. While the data tells a similar story to years past, it also contains a few surprises. First, it’s important to understand where we gathered the data. The average company in our sample generates $439 million USD in annual revenue, with a majority of organizations based in North America. Organizations in the study were in industries of all types, ranging from manufacturers, retail and distribution companies, construction firms, and a range of other industry verticals.
We summarized and analyzed this broad data set to arrive at some conclusions regarding trends in the industry, challenges companies face when implementing new ERP software, and lessons learned. This is the twelfth consecutive year that we have conducted the annual study. Some results aren’t surprising to those of us that have been in the industry for a while. Others were a big surprise to the Panorama team and I. Here are five surprising takeaways from this year’s ERP Software Report:
Cloud ERP software adoption may have finally reached a tipping point.
We saw a very large increase in cloud ERP software adoption this year compared to past years, with this year’s mix of SaaS and cloud deployments increasing to 85%, compared to 15% on-premise deployments. While this number may not be striking on the surface, it is a big difference from last year’s data, which showed less than 50% of organizations were deploying cloud and SaaS solutions.
The fact that the leading ERP vendors are pushing SAP S4/HANA, Oracle Cloud, and Microsoft Dynamics 365 cloud solutions so aggressively may finally be paying off for them. So, which is more surprising: the fact that cloud and SaaS adoption has reached 85%, or the fact that last year’s number was so low?
The grand illusion of lower ERP implementation costs.
Past years have shown that the average total ERP implementation costs anywhere from 4% to 5% of a company’s annual revenue. This number includes a project’s all-in costs, including software licenses, implementation costs, hardware upgrades, organizational change management, training, backfilling internal resources, and any other costs associated with the transformation.
This year, that number decreased to 3.6% of annual revenue. While this may sound positive on the surface, it actually reveals a flaw in our data: since most deployments are cloud solutions (see point #1 above), initial costs are naturally going to be lower. However, our implementation cost data only captures the initial implementation costs – not the ongoing costs. In most cases, cloud deployment costs less money up front, but can increase longer-term outlays due to higher annual subscription costs. It is important to take this data with a grain of salt.
ERP implementations are taking longer and resulting in more operational disruption.
Despite lower up-front costs, ERP implementation durations are increasing. While the total average duration increased a relatively innocuous 16.9 to 17.4 months, those that took longer than expected increased from 59% to 79%. Again, this can be largely attributed to the increase in cloud deployments, which creates a false sense of implementation speed and ease and results in unrealistic expectations along the way.
Operational disruptions saw a similar increase. Those that experienced a material disruption following go-live – such as being unable to ship product or close the books – increased from 56% to 66% last year. This isn’t comforting to most executives and points to some of the lingering deficiencies in the abilities of most ERP consultants’ and vendors’ ability to manage implementations well.
Despite relatively high satisfaction with ERP software vendors, overall ERP implementation satisfaction levels plummeted to 42%.
Customer satisfaction with their chosen and implemented ERP software increased to 68% this year. However, satisfaction with their overall implementations plummeted from 81% to 42%, which suggests that more companies are either struggling with their deployments and/or managing to unrealistic expectations surrounding those initiatives. Thought leadership such as Ten Tips to a Successful ERP Implementation, provide guidance on how to manage your digital transformation to success.
Organizational change management still reigns as the biggest challenge to a successful ERP implementation.
For the second straight year, organizational change management was atop the list of top reasons why projects took longer or cost more money than expected. Ironically, many organizations think they will actually save time and money by cutting this important corner, but our research tells a different story. You are more likely to find that you have underinvested in managing organizational change, and those that do find that they implement faster, less expensively, and with a higher ROI than those that don’t.