FSN: ERP software buyers stay put

ERP software buyers stay put

5th May 2008
A new survey suggests that despite higher implementation costs mid-market companies would rather stay with the ERP vendor they know than change horses. But such conservatism and unwillingness to change direction is potentially very costly. The survey, sponsored by Agresso and conducted by research company IDC highlighted that forty-seven percent of the respondents state that the cost of financial applications exceeded their planned budgets as much as 100 percent.

The results seem to fly in the face of customer needs. The IDC AppStats Quarterly survey questioned 251 respondents from mid-market companies (100 to 1000 employees) in the US and UK . It threw up that what companies really want out of their investment in enterprise applications, namely; business process improvements (59 percent) and cost reductions (50 percent). In fact there appears to be a clear rising trend in favour of these needs over, say, employee productivity which actually registered a fall over the same period to (35 percent).

Despite the apparent inertia to change the overall picture suggests that businesses are not cutting back on their IT investment. Half of UK respondents will increase their spend on financial investments. By comparison, the picture is less rosy for the US where, perhaps because of the credit crunch, only 27 percent will increase their spending. An industry perspective suggests that overall companies in different sectors will either stay the course or increase their investment in applications. There is no indication of significant cutbacks in IT.

Customers' reluctance to change ERP vendor could be rooted in concerns relating to unexpected or ‘hidden' costs post implementation with around half of all respondents reporting that they incurred additional costs after implementation. Ironically the technology service industry is the most likely sector to rack up additional costs.

According to the survey 38 percent of respondents estimate that more than half of their total cost is spent post implementation with 12 percent of respondents reporting spending at least 75 percent of their costs following software installation.

Unsurprisingly, the inability of legacy systems to cope with change is the main driver behind the decision to select new systems but it is the need for extra functionality or changed business processes that drive post implementation costs.

Although, more than one third of users say that they will buy a new financial system within three years, 83 percent of them say that they will still buy from the same vendor – despite cost over-runs and change issues. According to IDC, such buyer complacency, could be costing public and private sector businesses millions of dollars annually.

“Companies need to acknowledge the hidden costs of their ERP systems following initial implementations,” said Albert Pang, director of enterprise applications research, IDC. “Many users need to ask whether they should continue to stick to their current ERP system providers. If they don't, it seems to suggest that they are not willing to consider the options of using new, perhaps lesser known vendors. There is either a sense of complacency or one of hopelessness that costs can never be reined in.”

IDC's Pang adds, “there seems to be a widely held belief that there is a lack of viable alternatives on the market.”

Mark Thompson, managing director of COA Solutions says, “Businesses should never assume there's little differentiating one ERP provider from another and that regardless of provider, all ERP implementations over-run and exceed budget. This simply isn't the case. Software buyers that fail to shop-around for their ERP systems are potentially paying over the odds, not receiving the level of service they deserve and may be using a system that is wholly unsuitable for their business needs.”

“As well as ERP systems ranging in cost and functionality, it's important for the buyer to assess the suitability of the software provider. Are they financially stable? Can they provide the customer with strong local support? Do they understand the customer's business? Can they demonstrate a long track-record of providing successful implementations? All these factors should influence the buyer's choice of ERP and result in a system which is delivered on time, within budget and meets expectations.”

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