Summary: ERP software was supposed to increase operational efficiency at large organizations, but in most cases the opposite has happened. You can get more out of your technology investments without throwing them away, but you need to change your perspective on their underlying ecosystems and embrace new technologies.
NOTE: To protect the privacy of some of the individuals quoted in this article, I have removed their names and companies and substituted with their job title and industry. If you would like to speak to them, message me and I will arrange a meeting if that person deems it appropriate.
The Productivity Crisis
The United States and Europe have been in a productivity slump for more than a decade. In fact, in 2016 in the United States, we almost dipped into negative territory:
At first glance, this might seem impossible. You’re seeing amazing new innovative products in your news feed every day right? How can it be that companies are not getting more efficient if these amazing products exist? Neil Irwin covers global economic trends for the New York Times and one of his articles posits that the culprit could be one of 3 things:
- Technology has already been applied across corporate America.
- Economists are measuring productivity incorrectly.
- Corporations are currently investing in R&D and the results won’t been seen for a decade.
But capital spending has been weak, which kills #3. And we’ve been measuring productivity pretty much the same way for decades, which kills #2. So that leaves #1, which is what I’m seeing every day with my customers. We spent the 1990s and 2000s getting on to ERP systems and other best of breed technologies and since then we haven’t done much improve our situations. To quote the great James Hetfield, it’s “sad but true.”
Bret Swanson is a productivity expert who is bullish that we will bust out of this drought by embracing things like cloud services and artificial intelligence. I completely agree. But for those of you running on-premise ERP software with very little experience in the cloud, this may seem like a giant leap. It’s not, read on.
What You Were Promised
When you bought and implemented ERP software, you were promised by your ERP vendor and systems integrator a wide array of benefits, most notably:
- Direct Benefits
- Reduced operating expenses through automation
- Increased inventory turns
- Accelerated response time to customer issues
- Lower Accounts Receivable days outstanding
- Indirect Benefits
- Better staff retention through ease-of-use and productivity
- Timely and economical error resolution
- A single source of truth
- Faster decisions due to increased visibility
ERP software was supposed to make you run better as a business.
What Actually Happened
For most of you, none of those benefits were ever realized. And your systems integrator is still on site 10 or 15 years later, leaving you wondering when the consultants are going home.
“Before we implemented our ERP there were 50 people in our call center, now there are 150. Our AP department went from 5 to 25. And our IT department is 10 times bigger.”
Chief Accounting Officer, Oil & Gas Company
ERP vendors and systems integrators simply haven’t delivered on their promises. This can be very easily measured in the Direct Benefits above. Has your OpEx gone down since implementing your ERP? Have you increased inventory turns? How are your aged receivables doing? Run your reports, I guarantee you won’t like what you see. A number of firms out there, including Nucleus Research, have great reports on the ROI (or lack of ROI) achieved by customers on many different ERP platforms.
As for the indirect benefits, no one will argue that ease-of-use and ERP are oxymorons. Productivity issues abound in ERP software, which I’ll cover in the next section. As far as having a single source of truth for better decision making, the rise of platforms like Tableau and Domo shows you that ERP vendors have glaringly underachieved.
“We’ve spent over $2 billion in the last 15 years on consulting fees related to our ERP.”
Chief Technology Officer, Pharmaceuticals Company
What this all means is that if you’re feeling ripped off by your ERP vendor and systems integrator(s), you’re not alone. There are thousands of executives out there who feel the same way. Feel free to share your frustrations in the comments section.
Unfortunately the consulting ecosystem thrives on billable hours related to the complexity of ERP systems and their lack of modern integration protocols. Systems integrators are the last people you should turn to in order to fix this mess – they got you in this mess in the first place.
What Can I Do About It?
I’m not trying to completely trash ERP vendors. Each one has a great ecosystem with tremendous potential, it just needs to be unleashed so that you can finally realize all of the benefits that you were promised. There are 2 fundamental issues preventing organizations from realizing this potential:
- Poor User Experience
- Siloed Functionality and Systems
Poor User Experience
User experience is the primary culprit in the productivity loss faced by ERP customers, resulting in staffing increases and high turnover. ERP screens are clunky and confusing. Users often have to jump through 20 – 30 screens to get a relatively simple business process completed, like creating a new customer and sending them an invoice for their new order.
“It used to take 2 minutes to balance a customer account in our mainframe system. Now it takes 20 minutes in our ERP.”
Business Analyst, Health Insurance Company
Your workforce needs a single pane of glass for each of their business processes. This single pane of glass should not have redundant or unused data fields, just the data fields they need to get their jobs done quickly. This will allow processes like balancing a customer account to go from 20 minutes back to 2 minutes.
There are many ways to create a better user experience for your workforce:
- You can have your own IT team build a custom web application on top of your ERP. It will take them many years and it will probably only be slightly less clunky than your ERP. But at least you did it yourself and saved some money, all while your OpEx continued to increase.
- You can have your systems integrator build a custom web application on top of your ERP. It will take them a few years and it will probably look pretty nice. But It will also be very expensive and nearly impossible to maintain once your integrator is gone.
- You can have your own IT team or your systems integrator implement your ERP vendor’s do-it-yourself user experience tool. All ERP vendors have at least one DIY tool, some have dozens. It will require a ton of custom development in your ERP software’s source code (see next section), cost a lot of money, and be just as difficult to maintain, if not more difficult, than #1 and #2.
- You can implement a 3rd party solution built specifically to tackle ERP user experience. There are many out platforms out there – do your research. There are pros and cons to each platform, but what they all share in common is a much better user experience, rapid time to value, and lower total cost of ownership.
Siloed Functionality and Systems
Tackling user experience is only one part of the equation. A single pane of glass for your business process will need to be able to access functionality across a system or many systems. This is driven by 2 separate problems:
- ERP systems were designed in modules where data and functionality are segregated by an arbitrary job function. Your workforce almost always needs data and functionality in other modules that they don’t have access to, such as inventory data needed by your sales team to estimate a delivery date for a customer.
- ERP vendors have acquired dozens of “best of breed” software applications over the last 20 years and failed to integrate them with their core product. That means 20 years ago, your entire business was probably running in your ERP. Now your customer and financial data sit in your ERP, your vendor and procurement data somewhere else, your time and expense reports somewhere else, etc. The list could go on forever.
The issues have given rise to the API economy and Robotic Processing Automation (I’ll cover RPA in a separate article in a few weeks). Salesforce’s $6.5 billion acquisition of Mulesoft shows how seriously some ERP vendors are taking the interoperability of systems. Getting systems to talk to each other can be very complex and very expensive. Fortunately, there are fewer options you need to consider than in the UX space:
- You can write a ton of custom code in your ERP system to automate processes across modules and to REST-enable functionality in your ERP system to get it to talk to other systems. This is unfortunately what most organizations have done to themselves or had done to them by their systems integrator(s). It’s expensive, difficult to maintain, and all but locks you in to that ERP vendor.
- You can implement a 3rd party middleware solution built specifically to tackle ERP automation and interoperability. Again, there are many out platforms out there – do your research. There are pros and cons to each platform, but what they all share in common is platform agnosticism, rapid time to value, and lower total cost of ownership.
ERP software was supposed to increase operational efficiency at large organizations, but in most cases the opposite has happened. You can get more out of your technology investments without throwing them away, but you need to change your perspective on their underlying ecosystems and embrace new technologies.