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The ERP Total Cost of Change “Open Secret”

 

June 26, 2013

Doug Hadden, VP Products

There is a fascinating white paper from technology analysts IDC sponsored by Unit4 on the costs associated with changing ERP systems to meet changing business requirements. This is the second time that I’ve commented positively on a Unit4 sponsored white paper. (The first was on the high cost for ERP customization.)

Unit4 is an Enterprise Resource Planning (ERP) vendor whose claim to fame is change agility. FreeBalance is a Government Resource Planning (GRP) software vendor. We claim to support progressive activation based on a configuration model. And, we claim to do so based on our focus in the government domain. Regardless of what Unit4 and FreeBalance claims, it is very clear to those in the market that most ERP applications have a high “total cost of change.” This is somewhat of an open secret that many vendors would prefer that you didn’t know.

Government versus Enterprise Agility

Our experience is that government organizations undergo more changes, on average, than private sector enterprises. This is particularly true in the case of developing countries and emerging economies that are modernization at a rapid rate.  Why is there a higher burden of change in government compared to the private sector?

  • Governments cannot implement many process changes without legal reform. So, updating process to support accrual accounting, electronic signatures on cheques, HR recruitment or digital signatures requires legislative approval.
  • Government undergo organizational changes frequently. That’s because there isn’t a fundamental agreed structure in government like there is in the private sector. Ministries are split up or consolidated.
  • Private companies can acquire other companies. New management can perform an organizational shake-up. After elections, though, there are sweeping management changes that ranges from Cabinet (as in the Westminster system), to Cabinet plus top public service positions (as in the United States) to comprehensive changes down to management. Shake-up is de rigeur in government because you’re not elected to replace the incumbent government to keep the status quo.

Can we trust the “key findings” from the white paper?

My view is that the white paper is fair, perhaps conservatively so. The survey used to generate the results does not appear to have been skewed by the way questions were asked because the statistics fit well within what I would expect.

  • High customization burden to get horizontally-focused software to operate in specific vertical markets. (Likely a broad customization standard deviation across verticals.)
  • Some ERP customers required abandoning and re-starting the implementation. We’ve seen that happen where governments have chosen ERP systems. (I have only knowledge of one Unit4 implementation in government, so I can’t comment on any issues that they may or may not have.)
  • Problems are encountered integrating multiple ERP systems or consolidating ERP systems is a significant problem in governments. Many developed governments have implemented the same ERP package in multiple ministries – all of which are so completely customized that they bear little resemblance to each other.
  • Newer systems do not appear to resolve the agility problem. My sense is that, despite all the marketing by ERP vendors about innovation, there is old legacy technology under most of these recent versions.

Those looking at financial systems in government should not view this white paper as a fluff piece done on behalf of a vendor. You should read the bottom two paragraphs on page 4 more than once, in my opinion.

My sense is that the agility problem is higher in Tier 1 ERP than Tier 2. But, the price points mentioned in the study seem to suggest that some respondents were using Tier 2.

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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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