ERP, piece by piece

The verdict appears to be in on all those enterprise resource planning suites installed in agencies and departments since the mid-1990s: Some good, some bad …and something’s got to change.

ERP horror stories abound. Millions of dollars have been lost and organizations’ business processes thrown into turmoil, all in the pursuit of centralizing management of enterprise data.

“The path to success is littered with programs that have failed or where the plug has been pulled before they ever even get to a prototype of the system,” said David Lucas, chief strategy officer for Global Computer Enterprises, a system integrator. “There are many multi-$100 million failures.”

Terry Hurst, director of Information Systems Management Services at the Health and Human Services Department, agreed. “I’ve been doing ERP implementations for 15 years with various companies,” he said. “I’ve had good experiences, bad experiences and failures, so I’ve covered the gamut.”

And there have been successes. Hurst cited HHS’ recently completed, $219 million, six-year rollout of an Oracle E-Business Suite ERP to manage financials as a success, noting that it came in only 4 percent over budget.  “That’s excellent,” he said, “especially when you’re budgeting something six years out.”

Less successful, he said, was the department’s $30 million human resources system ERP from PeopleSoft. According to Hurst, the department wanted to keep initial costs down, and that resulted in only a “fairly narrow version of the functionality” being implemented. That, he said, resulted in less satisfaction with the system. 

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The outright failures of some ERP efforts and the dubious performance of others have prompted many analysts to question whether there’s something inherently flawed in the idea of building large, centralized ERPs. And that’s especially true in this era of rapid technology change and constricting budgets.

An ERP is an integrated set of applications and middleware designed to manage enterprise resources, including finances, human resources, assets and inventories. ERP abounds in government, but if it is to survive in the future, some analysts say, it will have to change dramatically.  “The days of the $36 million, 28-month ERP implementations are gone,” said Michael Fauscette, group vice president for software business solutions at IDC.  

Achilles’ Heels

Although it’s not clear what options agencies will have to choose from in coming years – whether modular suites or cloud-based services – analysts are getting a better idea of why large ERP systems have been so difficult to implement.

The leading cause of ERP angst, some analysts say, is the implicit notion that one system can fit all needs.
 
“ERP builds rigid processes into everything we do,” Fauscette said. Unfortunately, those processes often don’t match the needs of the organization. A study Fauscette conducted found that, in some cases, 80 percent of staff members' time is spent working around the system.  “That’s insane,” he noted.

What’s more, many organizations find they’re being drained of resources trying to make changes to the ERP system. His study of private company implementers found that post-rollout changes caused as much as a 20 percent drop in stock prices and lowered their bottom lines anywhere from $10 million to $500 million.  

Other analysts argue that, rather than changing the ERP configuration, organizations should seek to change their own business processes.

“You’ve got to drive your organization to engineer their processes around how these products work,” said Doug Lane, a senior vice president at Booz Allen Hamilton. “If you’re going to embrace ERP technology, you’ve got to try to engineer your operations around the products.  Eighty percent of what these organizations do is similar, and the products reflect that. They support the 80 percent. Let’s take advantage of that. Let’s not try to work around them.”

Which is fine, Fauscette said, except that ERP suites aren’t fast enough on their feet to keep up with changes in the way people work. “It’s not a Twitter-like experience” using ERP programs, he said. “We’ve had a shift in culture that says if I don’t get what I need to do my job, if you don’t get me the right things, I just go around you. We are seeing this more and more.”

And given the track record of some ERP implementations, some analysts warned against making too many fundamental changes in processes just to suit the ERP. “If the ERP fails and we have modeled and changed our business process to only support that, we’ve really done a disservice to the organization,” said Brian Chaney, director of IT strategy and architecture for Copper River IT, which is configuring ERP systems for the Air Force.

Another major problem with large ERP implementations, Chaney said, is the time they take to set up. A logistics ERP for the Air Force took six years to get up and running. “A lot changes take place in six years, especially with regulations,” he said. “New administrations are going to change things. So how do you implement things that are now six years old?”

Even if an organization is able to successfully get an ERP running, analysts warn it will still face several significant challenges.

“There are three main areas where everyone has troubles,” Lucas said. “Even if you build a perfect system, you will struggle with data migration. You will struggle with change management. Also, legacy systems are going to have to be integrated.”

And Chaney warned that even if the organization opts for a single vendor ERP solution, moving data across the organization can still be problematic. A large part of Chaney’s work with the Air Force is aimed at integrating stovepipes of data contained in three separate Oracle ERPs that were implemented to manage finances, human resources and logistics. “Just because you’re implementing Oracle does not mean but the stovepipes naturally integrate to each other,” he said.

The struggle to integrate the stovepipes of data is both technical and political. “There is actually a battle going back and forth with the large stovepipe ERPs because they don’t have a requirement to integrate,” he said. “Nobody at a higher level has said, ‘logistics needs to talk to finance because when you’re moving assets there are financial data tied to that.’ That only comes out when you take a step back and look at it from an enterprise level.”

Chaney said the hardest part of the process is change management. “The technology is relatively easy,” he said. “Getting people on board to make the changes is harder.”

Change management often is more difficult for federal organizations than for private companies.  “I’ve seen it a lot more successful in a commercial setting where you can just shut off everything and say, ‘You know what?  We’re going to archive the data and we’re going to start on this day using this system,’ ” he said. “Government has a lot more restrictions around data integrity, how long you have to archive, etc.”

And even if you work out all of the organizational hurdles, ERPs require constant upgrading.  “With ERP, just like with any major investment, there’s a certain amount of care and feeding,” Hurst said. “You’ve got to do upgrades. You’ve got to do technology refreshes. They’re a significant investment once you buy in.”

Sticking Around

The challenges notwithstanding, even critics of ERP acknowledge that the programs are going to be around for the foreseeable future.

“Companies have invested so much money that they’re not going to rip these out and replace them today,” Fauscette said. 

And vendors, while acknowledging problems with some previous implementations, are upbeat about the future and focused on delivering more modularity and better integration with third-party applications to allow organizations to tailor the ERP to suit their business processes.
 
“We’ve been through some growing pains,” conceded Wayne Bobby, vice president of Oracle's Industry Business Solutions for Public Sector in North America.  “We are moving to open standards. That’s where this industry is going. People won’t tolerate these huge behemoth implementations anymore.”

Mark Testoni, president of SAP Public Services, agreed. “The ERP business is alive and well,” he said. “It certainly has not always delivered exactly what it said it would deliver. But on the other hand, the implementations have evolved. It is still a very viable solution.”

Testoni said that it’s not just the major vendors who are writing to standards these days. “A lot of the third-party products that were hard to integrate are now building to standards,” he said.

Bobby said that Oracle is very clear on the importance of being open. “Oracle would like nothing more than for these agencies to buy everything from Oracle,” he said.  “But we live in a world where there is a mixed bag [of applications].”

In their effort to offer greater modularity and integration with third-party applications, major ERP vendors have also been busily buying up other companies, especially those that produce middleware, hardware and niche ERP applications. That has some clients worried.

“What worries me is seeing Oracle and SAP buying up all the middleware and hardware,” HHS’ Hurst said.  “You start to end up with end-to-end vendors and limited choices. That’s the real risk.” 

At the same time, he said there are still performance benefits to sticking with a single vendor.  And assembling a mix of products has potential management headaches. Hurst’s team employs two third-party applications along with Oracle ERP. “Both of them have their own upgrade cycles, independent of Oracle,” he noted. “You have to constantly juggle those upgrades. The integration issue doesn't really go away, it’s just less today than it used to be.”

Emerging Alternatives

So what to do?  “I think that there is some combination of, ‘we should’ve gone in a different direction’ and ‘we are where we are and now what do we do,’ ” Fauscette said.

Although those who have already implemented large ERP solutions are unlikely to suddenly abandon them, in most cases such drastic action isn’t called for. Vendors are gradually responding with more tailored applications and better integration of third-party solutions. 

And for those who have not yet implemented an ERP solution, there are alternatives emerging, including suites or cloud-based software-as-a-service offerings. Major vendors include NetSuite, WorkDay and Microsoft Dynamics. These products have been targeted primarily at mid-size and small business clients, but some analysts expect them to capture a growing share of federal clients, especially with smaller units that operate somewhat autonomously. 

“We’ve seen a lot a shift from the Obama administration to do some things smarter. Do more in the cloud.  Do more open source,” Fauscette said. “I think the big vendors could be in trouble if they don’t understand that more and more companies are starting to consume things in the cloud.”

Some systems integrators are also working to offer pre-configured suites – often based on the major ERP suites – aimed the federal market.

For example, Global Computer Enterprises offers pre-configured custom applications built around Oracle E-Business Suite. 

“The old way of doing this was literally to start with CDs out of the box and spend a couple of years going through requirements gathering, business process mapping, all of this stuff before you ever actually work in the system. You did years and years of work to configure the product before you could use it,” GCE’s Lucas said.  “We change that equation. Our product is already built. It is preconfigured to meet all of the federal business processes.”
 
Lucas said his company can deliver a full-fledged ERP solution in less than two years. 

And some organizations are turning to a somewhat different class of applications altogether; business process management suites. This type of software is designed to model applications based on the observed processes in an organization and to create workflows and forms more or less on the fly.

“As we model out those business processes to see how the organization works, there are certain tool sets that allow you to take that and turn it into a Web-based form, just like an ERP but without all the configuration. It’s much more flexible and offers faster implementation,” Chaney said.  “You get a lot of the same benefits of an ERP, but without the change requests. With BPM, within hours of making a change it can be deployed, unlike with an ERP, where you have to go back to the vendor and convince them that this change has to be made and it has to be customized.”

If a trend is emerging, it is that the old-fashioned, single-vendor ERP is a thing of the past.  As clients continue to nurture their existing systems, future add-ons and enhancements are likely to come from multiple vendors. 

“When [federal clients] do change things out they’re going to buy specific functionality, not wholesale rip and replace like in the old days,” Fauscette said. “The enterprise buying behavior we’re seeing now is add-ons, deep vertical and software-as-a-service in specific modules.  You’re going to see more hybrids. I’m going to keep my core ERP that I built on premise, but I’m going to do account management in the cloud, or travel and expense in the cloud.”