The Current State of ERP Services

The State of ERP Services

Contents 

The State of ERP Services 

Section 1 — Executive Summary ................................................... 1 

Key Findings ........................................................................................................................................2 

Study Methodology ........................................................................................................................... 4 

Section 2 — The Current State of ERP Services ........................... 5 

Current Market Conditions .............................................................................................................7 

Section 3 — Survey Analysis ........................................................... 9 

Respondent Profiles .......................................................................................................................... 9 

Regions .............................................................................................................................................. 10 

Industries .......................................................................................................................................... 10 

ERP Knowledge............................................................................................................................... 13 

ERP Vendor Breakdown................................................................................................................. 14 

Respondent Size .............................................................................................................................. 16 

Analysis: Firms With No Plans for ERP ..................................................................................... 17 

Reasons for Not Adopting ERP ................................................................................................... 18 

Funding Traits ................................................................................................................................... 23 

ERP Background ............................................................................................................................. 23 

Business Issues ................................................................................................................................. 23 

Section 4 — Analysis of Firms Planning to Acquire ERP ............. 27 

Client Readiness for ERP .............................................................................................................. 28 

Funding ............................................................................................................................................. 30 

ERP Implementation Objectives .................................................................................................. 32 

Business Issues for Firms Planning to Implement .................................................................... 32 

Client Concerns/Pain Points ........................................................................................................ 33 

ERP Services Purchasing Criteria (METAspectrum SM Weighted) ......................................... 34 

Implementation Timelines and Software Vendor Preferences ................................................ 36 

Systems Integrator Preferences .................................................................................................... 36 

Desired Service Provider Characteristics .................................................................................. 39 

Section 5 — Analysis of Firms With Installed ERP ...................... 41 

Age and Type of Installations ........................................................................................................ 43 

Success Measurements .................................................................................................................. 44 

New ERP Goals and Priorities: All Respondents ..................................................................... 45 

New ERP Goals and Priorities: Business Versus IT.................................................................. 47 

Systems Integrator Performance and Client Retention .......................................................... 49 

Reasons for Not Using Outside ERP Consulting .................................................................... 50 

Issues Arising From Implementation Mistakes .......................................................................... 51 

Responsibility for Implementation Mistakes .............................................................................. 53 

Appendix .......................................................................................... 55 

© 2004 META Group, Inc. All rights reserved. i


ii All rights reserved. © 2004 META Group, Inc.


Section 1 — Executive Summary 

For several years, the market for enterprise resource planning (ERP) services was one of the 

hottest in the history of IT consulting. A confluence of key events and disruptive technology 

gave rise to an unprecedented spending spree on the part of Global 2000 clients. 

The perfect ERP storm of the 1990s was created by: 

• A corporate fever for downsizing and re-engineering — most organizations wanting 

to downsize presumed that ERP software was the downsizing engine 

• A decrepit application base across North America (COBOL, legacy, in-house), with 

an estimated application age of 6.7 years for financial systems (as an example) 

• The synergistic arrival of multi-tier server technology and ERP software (with a 

plethora of ready vendors), which together promised firms the ability to regather 

their distributed processes into an integrated horizontal framework 

• A burgeoning economy 

Added to all this was the Y2K imperative, which led thousands of firms to compare the 

costs of Y2K remediation via a rewrite versus ERP implementation. In most cases, ERP 

implementation won out. For many years, it was a seller’s market par excellence. But it 

ended, with a crash, in 2000. 

We estimate that more than 400 of the Fortune 500 firms already have a core ERP 

installation, and a high percentage of these firms have completed geographic rollout. 

Many of these installations are six or more years old, and the ERP core has long since 

become the “backbone” of the overall application portfolio. META Group estimates the 

probable life cycle of an ERP installation as 15-20 years, which would preclude another 

wave of core implementations. The installations will continue to evolve, but the “application 

replacement cycle” of the 1970s and 1980s will not recur. 

Rather than replacing applications on a regular basis, as was once the case, organizations 

implementing or using ERP will increasingly be purchasing related services as part of 

corporate efforts to drive revenue, decrease costs, or improve employee efficiency. 

© 2004 META Group, Inc. All rights reserved. 1


This study was developed to find out how these organizations are purchasing and using 

ERP services, and how these users perceive the various provider capabilities and offerings 

that exist today. 

Key Findings 

The bottom line is that the ERP installed base now seeks to solve its problems internally 

or to outsource. New ERP adopters are as unprepared as their predecessors and ever 

more skeptical of systems integrators, who have done a terrible job of leveraging their 

acquired knowledge, best practices, accelerated methods, and more tellingly, the lessons 

learned from the installed base. Without the Y2K imperative, ERP value propositions 

are harder to prove, and the midmarket continues to look askance at ERP because 

of the impossible-to-hide high consulting costs. 

Firms that have resisted ERP to date have done so primarily for the following reasons: 

• High cost of ERP consulting 

• Perceived adequacy of legacy systems 

• Belief that ERP does not fit their industry 

• Any combination of the above three elements 

Implementation costs have already been vastly reduced from the levels seen in the 

mid and late 1990s as methods have become more accelerated, the consulting base 

has matured, and the flat economy has pressured rates downward. Without a dramatic 

change in consulting models (for example, the use of onshore/offshore implementation 

teams), ERP consulting costs cannot be reduced much further than they 

have already. Still, the high cost of ERP consulting is cited as a major impediment to the 

adoption of ERP. 

What does interest users is an ROI message that elaborates definitive and measurable 

benefits that cannot be achieved through legacy systems. Interestingly, the survey finds 

that organizations that are planning to adopt ERP within the next 36 months are poised 

to repeat the mistakes of the installed base, including: 

• Distinct lack of ERP readiness 

• Variable funding patterns 

• Probable lack of commitment to long-term ERP 

2 All rights reserved. © 2004 META Group, Inc.

Executive Summary 

In the main, an ERP implementation should address not only an organization’s stated 

goals, but also the goals that the organization may not anticipate. Once the implementation 

is complete, the enterprise will begin moving down the path of ERP awareness, and 

both business and ERP objectives will change radically. We are aware that the majority of 

new ERP projects tend to be overaccelerated and underfunded and that an expansion of 

scope to address longer-term goals may appear cost-prohibitive. 

Section 1 

Among firms that have already installed ERP, only 24% retain ERP services after implementation. 

This is the case even though there are any number of post-installation pitfalls. 

Organizations must consider the multiple consequences of application mistakes, such as 

the following: 

• After go-live, the implementation team is broken up, leaving IT to support the installation 

• Little or no planning is given to post-implementation support 

• There is no quantifiable measurement of business benefits derived from implementation 

• Scope is not managed 

• Knowledge transfer is insufficient 

• There are too many versions or instances to manage, without planned integration 

• Software is overcustomized, rather than adopting inherent business practices 

• End-user training is limited, due to time or budget constraints 

• The project is underfunded and finishes late and over budget 

Organizations must balance these mistakes against the priorities for ERP implementation, 

and realize that the post-installation period is as important as the planning process. 

ERP Implementation Priorities 

ERP Priorities 

Total Answering 165 

100% 

Drive cost reductions for business 21.8% 

Drive increased profitability 16.4% 

Integrate all enterprise applications 12.7% 

Enhance customer satisfaction 12.1% 

Enhance executive reporting 10.3% 

Drive cost reductions for IT 9.7% 

Integrate all ERP versions/instances 7.3% 

Increase end-user competency 5.5% 

Extend into other business applications 4.2% 



META Group believes organizations should develop an ERP center of excellence that 

will be driven by business performance measurement, incorporate both business and IT 

entities, and embrace continuous business improvement. 

Study Methodology 

The foundation for this study is a survey including 51 query topics for which 437 respondents 

provided information through a combination of multiple-choice responses, 

table data, parameters, and direct quotes. This level of response yields a margin of error 

of +/-4.7% at a 95% confidence level. Respondent data was gathered through the use of 

Web surveys. An Executive Summary of the results was offered to respondents as an 

incentive for participation in the study; all data was provided without fees or other 

charges. Not every respondent provided data for every query. 


Section 2 — The Current State of ERP Services 


The life span of large-scale ERP installations is estimated to be 15-25 years. As market 

demands for ERP solutions have reached a great degree of saturation and maturity, 

services to support these applications must evolve as well. 

Prior to the rise of the ERP vendors, users typically changed individual applications 

every two to five years. Although the great ERP wave of 1992-99 meant enormous 

expenditures on ERP, few firms installing ERP have replaced their initial software (except 

in cases involving M&A). 

While ERP consulting revenues remain substantial, new implementations now represent 

less than 50% of overall ERP spending. The bulk of ERP consulting revenues are now 

being derived from the following: 

• Upgrade assistance as the ERP vendors continue to roll out advanced versions (e.g., 

PeopleSoft 8, mySAP.com, JDE 5) 

• Extended applications (i.e., beyond the backbone) 

• Continuing integration efforts, most especially in the G2000 where global installations 

are poorly integrated 

• Competency centers or centers of excellence 

Our prior study of ERP, Deriving Value From Twenty-First Century ERP Applications, indicated 

that professional services costs predominate in the implementation cost of ownership 

(ICO) calculation. Thus, the performance of systems integrators has a major 

effect on the ERP market as a whole. 

The high cost of professional services in the ERP space led to a number of lawsuits, none 

of which proved that the performance of professional services providers was distinctly 

subpar. At issue were the following: 

• Clients had misplaced expectations regarding ERP. Most failed, at top levels, to comprehend 

the enterprisewide nature of their investments, and the majority rejected 

the absolute need for a considerable level of organizational change management. The 

result was that nearly all ERP projects were underfunded at the outset. 



• Systems integration implementation methodologies, at least until late 1997, were 

based on pre-ERP experience and did not address the overwhelming issues posed 

by ERP, including organizational change management, adherence to vendor/software 

best business practices (i.e., little or no customization), and data migration/data population 

from multiple legacy systems to a single integrated application suite. The result 

was that, even if the projects had not been underfunded, the systems integrators 

would have been overbudget. 

• A massive shortage of ERP-experienced consultants (particularly in North America) 

resulted in massive project incompetence, consulting firm attrition rates greater 

than 30%, and a pervasive culture of ERP greed. 

• The roaring North American economy enabled a large percentage of Fortune 500 

firms the wherewithal to invest heavily in IT — no matter how wrong-headed. 

Since the end of the Y2K ERP-acquisition driver, new client ERP implementations dropped 

by 70% from 1998 to 2001. The wave from 1994-98 will not be revived for one simple 

and undeniable reason: once a firm has implemented ERP, it will have far less need of 

high-volume systems integration for anywhere from 15 to 25 years. That is the projected 

life span of an ERP installation. 

Furthermore, industry consolidation has led to a current void in regard to the competitive 

landscape. Firms looking for ERP service providers have far fewer choices than they 

did just a few years ago. 

Industry Consolidation and Leading Vendors: 1996 Through 2003 

Leading Vendors of 1996 Leading Vendors of 2003 

IBM Global Services 

Deloitte 

IBM Business Consulting Services 

Deloitte 

Coopers & Lybrand 

KPMG 

BearingPoint 

Price Waterhouse 

Andersen Consulting 

Ernst & Young 

Accenture 

Cap Gemini Ernst & Young 

Cap Gemini 


The Current State of ERP Services 

In addition, a once thriving second-tier and boutique ecosystem has dried up. In 1996, 

there were more than 260 such SAP practices. Today, there are roughly 100. 

Section 2 

Current Market Conditions 

Firms making changes to key business processes will likely need outside assistance, 

typically from ERP service providers, to implement these changes effectively. 

One critical event that could have a dramatic effect on the need for ERP services is 

compliance, such as with the Sarbanes-Oxley Act. 

The deadline extension for compliance with Section 404 of Sarbanes-Oxley is November 

2004, and the imposing specter of all of Sarbanes-Oxley is similar to the Y2K imperative. 

To date, the solution offerings for compliance issues, most particularly the software 

offerings, are extremely superficial. Client understanding of compliance issues (and the 

impact on IT) is still immature. 

Client awareness of compliance issues will reach a point at which software offerings will 

be seen as too superficial, and market awareness of the pervasiveness of compliance 

requirements will grow dramatically. 

During 2004, there will be a common market understanding that compliance issues can 

only be addressed through revisions to key business processes. The result will be a wave 

of ERP reimplementations that require outside assistance. 




Section 3 — Survey Analysis 


The foundation for this study was a survey including 51 query topics for which 437 

respondents provided information through a combination of multiple-choice responses, 

table data, parameters, and direct quotes. This level of response yields a margin of 

error of +/-4.7% at the 95% confidence level. Respondent data was gathered through 

the use of Web surveys. 

Not every respondent provided data for every query. For example, of the 437 respondents, 

only 429 provided industry identification, 427 rated key business issues, and the like. 

Respondent Profiles 

Respondents from both IT (76%) and business (24%) are represented with an equal 

distribution of C-level/senior management and staff. 

Summary of Job Titles by Region and Revenue 

REGION 

REVENUES 

Total 

Response 

North 

America EMEA 

Asia 

Pacific 

South/Latin 

America 

Small 

(


Regions 

The respondent base is predominantly North American. 

Respondents by Region 

North America (72.8%) 

EMEA (18.7%) 

Asia Pacific (2.8%) 

South/Latin America (4.9%) 


Survey Analysis 

Industries 

Manufacturing (15.9%), IT services/computing (12.4%), government (local, state, federal 

— 10.7%), and telecommunications (8.2%) are the most represented industries, with 

this group combining for 47.2% of all respondents. We grouped respondents into five 

industry groups as follows: 

Section 3 

Industry Groupings 

Communications 

Distribution 

Industrial 

Public Sector 

Services 

Media/Entertainment 

Telecommunications 

Pharmaceuticals 

Retail Trade 

Transportation/Distribution 

Wholesale Trade 

Aerospace/Defense 

Automotive 

Electronics 

Energy (Including Oil and Gas) 

Manufacturing 

Utilities 

Education 

Government (Local, State, Federal) 

Banking 

Business Services/Consulting 

Financial Services 

Healthcare 

Insurance 

Investments 

IT Services/Computing 

Software Development 



Respondents by Industry Group 

Industrial (25.5%) 

Services (32.1%) 

Public Sector (14.8%) 

Communications (9.8%) 

Distribution (7.3%) 

ERP Status by Respondent Role and Involvement 

Total 


100.0% 

Organization Has No 

ERP Plans (Net) 15.3% 

Organization Plans to Implement 

ERP (Net) 21.5% 

Organization Has Implemented 

ERP (Net) 63.2% 



ERP Knowledge 

This respondent group is very ERP savvy, which may account for the preponderance of 

responses from the installed base, as nearly two-thirds of respondents have participated 

in an ERP implementation. In the analysis of firms that have no plans for ERP, we will 

include specific data regarding their knowledge of ERP and ERP issues. 

Section 3 

ERP Knowledge Among Respondents 

All Respondents 

20.6% 

34.1% 

45.3% 

Have never 

participated in an 

ERP implementation 

9.7% 

Plan to Implement 

37.6% 

52.7% 

Have participated in 

1-3 ERP implementations 

Have participated in 

more than 3 ERP 

implementations 

27.7% 

18.8% 

Have Implemented 

53.5% 



ERP Vendor Breakdown 

According to the survey, 276 respondents have already implemented ERP, and a majority 

of the 266 firms that identified their core ERP vendor use SAP. 

ERP Installed Base Respondents by Core ERP Vendor 

160 

140 

120 

100 

80 

60 

40 

20 

0 

IFS 

Intentia 

Great Plains 

QAD 

Baan 

Lawson 

JDE 

Oracle 

PeopleSoft 

SAP 

Other 

Although SAP has roughly 30% of the overall ERP software market, the 55% represented 

here is a reliable percentage for the respondent base. Approximately two-thirds 

(63%) of the responding firms with more than $1B in revenues use SAP. 



Revenue Breakdown by Core ERP System 

Section 3 

Total JDE Oracle PeopleSoft SAP Other 

266 13 24 34 148 30 

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 

$100-$300M 45 7 3 3 17 12 

19.9% 53.8% 12.5% 8.8% 11.5% 40.0% 

$300-


Respondent Size 

The aggregate data reflects a balanced distribution of different company sizes. Specifically, 

roughly one-third of the respondent firms have more than 1,000 employees, roughly 

one-half have 100 to 500 employees, and the remainder have fewer than 100 employees. 

As noted in the previous section, a very high percentage of our respondents (82.3%) 

with ERP already installed have employed one of the “big four” vendors (SAP, Oracle, 

PeopleSoft, and JD Edwards), none of which are used to any noticeable degree by firms 

with fewer than 100 employees. 

Respondent Firms by Number of Employees 

14.40% 

32.40% Fewer Than 100 

100-500 

21.80% 

501-1,000 

More Than 1,000 

21.40% 

More than half of all respondents have already installed ERP, with the greatest concentration 

(albeit fractional) being firms with 100 to 500 employees and the greatest ERP 

maturity (months since initial install) being firms with 501 to 1,000 employees (an average 

of six months more). 

Age of ERP Installation by Number of Employees 

Fewer 

Than 

100 

100 to 

500 

501 to 

1,000 

More 

Than 

1,000 

Total Respondents 58 127 86 131 

Total With ERP 

Installed 

29 68 44 65 

Percent With ERP 

Installed 

50.0% 53.5% 51.2% 49.6% 

Months Ago ERP 

Implementation Was 

Completed (Average) 

22.0 27.9 33.1 27.0 



Analysis: Firms With No Plans for ERP 

While ERP has been touted by many as the inevitable future, the fact is that the ERP 

“inevitable” future is far from reality. It has long been recognized that ERP (more precisely 

defined as integrated enterprisewide business functionality, mostly back office) 

has lent itself far more to a given collection of industries (e.g., energy, pharmaceuticals, 

discrete manufacturing) than to others (e.g., healthcare, banking, retail). 

Section 3 

Integrated enterprisewide business functionality may seem like a utopia to some, but it is 

clearly viewed as unimportant by a wide array of businesses. Consider the following table: 

Number of Firms by Revenue 

North America 

Europe, Middle East, and Africa 

Total $1B Total $1B 

291,508 245,027 3,127 3,322 63,697 43,758 1,925 2,358 

Source: World Companies, META Group 

In these two regions, there are well over 5,000 firms with revenues greater than $1B 

per year and another 5,000 with $500M to $1B, but nearly 300,000 with revenues of less 

than $500M. That is a 60:1 ratio. While SAP, Oracle, and PeopleSoft argue market predominance 

in ERP, CRM, and supply chain software sales, their combined installed base 

is roughly 40,000 companies. Most of these companies fall into two smaller company 

sizes, or an equivalence of around 14%. Within the other 86%, a certain minority has 

installed JD Edwards, Great Plains, QAD, Intentia, IFS, or other ERP software. META 

Group estimates that the overall ERP saturation level for these nearly 300,000 firms 

does not exceed 15% and will never exceed 40%. 

The midmarket is a source of great mystery. In various META Group studies, we are 

able to detect simple patterns of IT services behavior across firms in most revenue 

groups except for the $500M to $1B split. We have observed that there are finally three 

distinct kinds of firms in this group that address IT software, products, and services in 

three distinct ways: 

• Family-owned firms: These tend to delay adoption, underfund initiatives, and follow 

only a portion of consulting advice. Common areas of ERP neglect are organizational 

change management, end-user training, and adherence to standard business processes 

(e.g., high customization). 



• Incumbent firms: These only rarely adopt new technology and very rarely engage 

outside IT services. Such firms have reached the limits of senior management vision, 

do not make significant acquisitions, and are not, on the whole, fertile territory for ERP. 

• Fast-lane firms/startups: These behave very much like Fortune 500 firms, are eager 

to adopt new technology, are more inclined to establish horizontal business process 

flow (having a smaller legacy burden than firms in the other two categories), and 

tend to adequately fund their initiatives. 

Reasons for Not Adopting ERP 

In the survey instrument, we listed various potential reasons why a firm would not 

adopt ERP. Only 6% cited reasons other than the ones we listed for not adopting ERP, so 

we conclude that the reasons offered in our survey are cogent. Overall, the respondents 

that are not adopting ERP cited an average of 2.7 reasons. 

Reasons for Not Adopting ERP 

Consulting Costs Are Too High 

Lack of Measurable ROI 

ERP Does Not Apply to Our Industry 

Software Is Too Expensive 

Senior Management Resistance 

ERP Is Too Complex for Our Firm 

Legacy Systems Are Adequate 

Support Costs Are Too High 

Publicized ERP Failures 

Other 

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 



Consulting Costs Are Too High 

In the heyday of ERP implementations (and at the worst phase of execution), the ratio of 

consulting costs to software license costs exceeded 3:1. As it happens, client expectations 

of consulting costs for ERP were (and often remain) unrealistic, based as they 

often are on pre-ERP experience, where consulting costs were roughly equal to software 

license costs. The core issue is that enterprisewide scope raises the consulting bar 

beyond the 1:1 ratio. Why? Two key elements intervene: 1) the absolute necessity of 

organizational change management engendered by enterprisewide scope; and 2) the 

scope of enterprisewide integration. Clients who balk at consulting costs tend to compare 

the cost of ERP implementation to the costs of implementing individual, discrete 

applications. They do not take into account the magnitude of organizational change or, 

more tellingly, the change in business processes that an ERP implementation can entail. 

Section 3 

In a more enlightened sense, they do take into account the ERP necessity of horizontal 

business process viewpoints and the concomitant organizational change management 

and decide, for sound business reasons, not to proceed. 

Furthermore, the consulting models that work for large firms are less effective for 

smaller firms. In a mega-billion-dollar firm, service providers can assign multiple consultants 

to individual ERP modules (i.e., sales and distribution, purchasing, accounting), whereas 

in smaller engagements, a single consultant may have to span multiple modules, thus 

straining the fabric of a successful project. 

Measurable ROI Is Lacking 

In a related META Group study of ERP TCO, only 34 of 204 (16%) qualified respondents 

could provide reasonable data relating to benefits derived from implementation. Frequent 

reasons cited for lack of measurement were “Y2K compliance was a priority,” 

“management saw no need to track figures,” and “implementation chaos.” Notably, none 

cited a lack of benefits focus on the part of systems integrators. Overemphasis on 

speed to implementation contributes to measurement failure and usually undercuts the 

realization of business value. 

For various reasons, firms that have implemented ERP have largely failed to measure 

either their prior state or the state achieved at the conclusion of an ERP implementation. 

In the main, the notion of business return, as obvious as it may now seem, has not 

been a major component of IT investment rationale until recently. 



Service provider firms, notably IBM BCS and BearingPoint, have made great strides in 

providing gain-sharing fee models by which clients receive a substantial fee-rate discount 

in return for a percentage of measurable business benefits derived from an ERP 

engagement. However, we have only begun to scratch the business benefits surface of an 

ERP implementation because the vast majority of firms that implement ERP do so for 

reasons far and (often) too wide. 

ERP Does Not Apply to Our Industry 

One of the more annoying and distracting features in the ERP wave of 1993-99 was the 

insistence of many vendors that ERP was ideal for all industries. Indeed, industry focus 

yielded the highly valuable knowledge that ERP had its industry limits. 

Healthcare is not a viable industry for ERP. None of the vendors can offer a suite of 

applications that fit the processes needed. Although there are a great number of 

“healthcare” implementations completed, few are thriving. 

Retail has been an ERP dog from the beginning because of the vast diversity of retail 

segments. Any retail firm that has adopted ERP (SAP, Oracle, or otherwise) has found 

itself duty-bound to vastly customize its software to fits its particular model, thus hampering 

upgrades, maintenance, and evolution. 

None of the major vendors has put forth a “government” or “public sector” version of 

their software with the exception of PeopleSoft, which caters largely to state governments 

and has a major focus on education. Furthermore, 17 of 66 (26%) such respondents 

citing this reason are in “government (local, state, federal).” We are aware that 

ERP can and does serve the public sector, so this area may require more outbound 

communications on the part of vendors and service providers. 

It is interesting to note that none of the firms in automotive, energy, pharmaceuticals, or 

aerospace/defense cited this as a reason for not adopting ERP. 

Software Is Too Expensive 

The cost of ERP can be breathtaking when compared to the costs of individual applications. 

These respondents necessarily have a mix of package and homegrown software. 

When faced with what amounts to a multiapplication price tag, resistance sets in. The 

prospect of a 17% annual maintenance fee further dampens enthusiasm. 



Senior Management Resists 

We have seen untold cases in which senior managers resist ERP for all the right reasons 

(those noted above), but also a similar number of cases in which they simply will not 

study the merits. 

Section 3 

We note a distinct difference of reasoning for rejecting ERP between IT management 

and staff versus business and executive respondents: 

• A much higher percentage of IT respondents find ERP software costs, consulting 

costs, and support too high. 

• A much higher percentage of business and executive respondents cite “ERP does 

not apply to our industry” and their own “senior management resistance.” 

• Not a single one of the business and executive respondents checked “The company 

fully examined an ERP solution and decided against implementation” and only three 

(21%) checked “The company has done some independent research on ERP that has 

discouraged us from moving forward.” 

ERP Is Too Complex for Our Firm 

ERP is in fact too complex for a vast array of emerging firms. Integration, along horizontal 

lines, presumes a maturity of business process or a willingness to adapt that many 

firms do not possess. While they are making revenues and gains, many firms, especially 

in the $500M to $1B arena, are not yet at a point where redundant or recurring business 

processes might apply. They are thus still in the “opportunity” arena for which static, 

redundant, predictable ERP business processes are of small or no consequence. 

There is also a direct relationship between ERP complexity and client satisfaction. In a 

recent related META Group ERP TCO study of 112 client respondents, 80% rated their 

systems integrator performance as average, 11% above expectations, and 9% below 

expectations. The average engagement fees for the above-average group was only $3.2M, 

while the below-average group was at $19.7M. Thus, when project size is factored in, the 

above-average drops to 3% and the below-average rises to 17%, indicating that largeproject 

complexity has an enormous effect on both client perception and the reality of 

systems integrator performance. 



Difference in Reasons Cited for Not Adopting ERP 

IT Bias vs. ERP 

Business and Executive 

Bias vs. ERP 

Software is too expensive 

Consulting costs are too high 

Support costs are too high 

Publicized ERP failures 

Lack of measurable ROI 

ERP is too complex for our firm 

Other 

Legacy systems are adequate 

Senior management resistance 

ERP does not apply to our industry 

-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 



Funding Traits 

These firms do not have a good funding posture. While 66% of our ERP respondents 

adequately fund their IT initiatives, only 44% of the non-ERP firms do so, and only 15% 

always fund what it takes to fulfill their IT vision. Any move toward ERP within these 

firms would probably best be driven by the IT population. 

Section 3 

IT Budgeting and Expenditures Profile 

$100M to 


Business Issues 

We find a great amount of divergence between the business priorities of the next two 

years for firms that do not plan to adopt ERP, as opposed to those that are adopting or 

already have ERP. 

Whereas IT cost and resource management are at the top of every firm’s list, non-ERP firms 

are far less focused than ERP firms on supply chain management, application portfolio rationalization, 

outsourcing, integration of business applications, and business/IT alignment. 

Difference in Business Priorities: ERP Versus Non-ERP Firms 

Supply Chain Management 

Application Portfolio Rationalization 

Outsourcing 

Integration of Business Applications 

Business/IT Alignment 

CRM 

Collaborative Applications 

IT Resource Management 

IT Cost Management 

-0.35 -0.30 -0.25 -0.20 -0.15 -0.10 -0.05 0.00 

It is notable that firms not adopting ERP have less interest in all these issues than do 

firms that have ERP or are moving toward it. 

Among the drivers that might cause these firms to adopt ERP, credible ROI justification, 

senior executive commitment, and reduced implementation costs are critical. We employ 

the term “credible” with ROI justification. Historically, ERP acquisitions and implementations 

have been done with little or no attention paid to ROI. We had hoped that, 

after the Y2K rush, more attention would be paid to such measurement, but we find that 

this still is not the case in the emerging installed base 



One striking oddity is the fact that “reduced implementation risks” is last on the overall 

list and is last or next to last in all demographic breakouts we studied. This indicates 

another layer of maturity around ERP relative to prospect perceptions (and reality?) 

regarding the high risk of ERP implementations. Even a companion element, “more success 

stories from the field,” scores relatively low. 

Section 3 

Drivers That Will Lead Firms to Adopt ERP 

Credible ROI Justification 

Senior Executive Commitment 

Reduced Implementation Costs 

Software Costs Drop 

Legacy Systems Too Expensive to Manage 

New ERP Offerings Reduce Complexity 

Critical 

Qualifiers 

Reduced ERP Operational Costs 

Reduced ERP Vendor Support Costs 

More Success Stories from the Field 

Specific Emerging Industry Solutions 

Client 

Specific 

Reduced Implementation Risks 

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 




Section 4 — Analysis of Firms Planning to 

Acquire ERP 


An overwhelming percentage of the 94 respondents planning to implement ERP were 

firms with more than 500 employees, while nearly half were firms with revenues of 

more than $1B annually. 

The greatest percentage of imminent implementations (within 12 months) is in the small 

market, while a large percentage (44.4%) of the firms with more than $3B in revenues 

plan to implement in 36 months. 

ERP Implementation Horizon by Revenue 

Implementation Horizon 

Total 

12 Months 24 Months 36 Months Planning 

Total Answering 31 36 27 94 

Firm Revenues 100.0% 100.0% 100.0% 100.0% 

$100-$300M 45.2% 16.7% 14.8% 25.5% 

$300-


State of ERP Implementation by Revenue 

Revenues 

>$1B 

Revenues 

Analysis of Firms Planning to Acquire ERP 

Knowledgeable commitment from executive management is often cited as the ultimate 

key to success in ERP implementations. Although this is true, it is also imperative that this 

commitment be shared across the organization, or results will be less than satisfactory. 

Section 4 

However, META Group has observed the continual failure of clients to fully address 

their ERP readiness. ERP vendors, seeking to reassure prospective clients, tend to 

downplay the complexity of an ERP implementation. Systems integrators regularly stress 

the need for senior management buy-in and sponsorship, but do little to assess client 

readiness at the other levels. 

In the results from our survey, only IT management has an acceptable score, and the low 

scores for the other groups will have a negative effect on implementation success. 

Historically, executive management has confused budget approval with commitment 

while business management presumes that its role in implementation will be limited to 

defining requirements. These attitudes have a negative effect on funding levels (early on) 

and on the alignment of business and IT (down the line). 

The high percentage consigned to “lacking knowledge and commitment” to the end 

users suggests a high level of change management required early on in any ERP implementation. 

(a total of 84% lacking in ERP knowledge and 52% lacking in commitment). 

Improving readiness (through ERP education) is an absolute requirement for success. 

The benefits of improved readiness are as follows: 

• Significant reduction in time and cost for the initial core implementation of ERP software 

• Ingrained enterprisewide awareness that the endeavor is intended to bring benefit to 

the firm and is not merely an “IT implementation” 

• Advance diagnostic of potential organizational and change management pitfalls, which 

may later compromise project progress and, ultimately, the realization of benefits 

• Upfront reality check 

In Section 5, we find that knowledge transfer is a major sticking point for clients and that 

they blame vendors and systems integrators as much as they blame themselves. 



We believe that an accelerated client learning curve will reduce both time and cost of 

implementations and contribute to more effective knowledge transfer. The latter is a 

prominent source of client disappointment. 

Funding 

ERP implementations have traditionally suffered from underfunding (SI point of view) or 

running overbudget (client point of view). Thus, we asked all respondents to characterize 

their firms’ traditional spending profile. For firms planning to implement ERP, the overall 

split between those that adequately fund and those that underfund was nearly identical. 

However, we observe a marked degradation of firm funding as the plans to implement 

are broken down by time frame, as proper funding drops from a confident 72% to a 

nerve-jangling 52%. Admittedly, a firm claiming the intention to move to ERP in three 

years is not exactly putting its feet to the fire, and their intentions should be taken with 

a grain of salt. 

Even worse, as can be seen in the overall table of results for funding traits, fully 18% of the 

respondents with plans for ERP in 36 months are in the least attractive funding posture. 

Proper Funding Versus Underfunding 

All 

Respondents 

Total 

Planning 

Properly Fund 62.9% 62.4% 

Underfund 37.1% 37.6% 



Funding Traits 

Section 4 

80.0% 

70.0% 

60.0% 

50.0% 

40.0% 

30.0% 

20.0% 

10.0% 

0.0% 

12 Months 24 Months 36 Months 

Properly Fund 

Underfund 

IT Budgeting Profile by Implementation Horizon 

Total 


Total Planning 12 Months 24 Months 36 Months 

Total Answering 423 93 31 35 27 

A. We Always Budget and Spend What Is 

Needed to Fulfill Our IT Vision 

B. We Generally Budget and Spend What Is 

Needed to Fulfill Our Vision 

C. We Generally Underfund IT Initiatives and 

Then Incrementally Spend What It Takes 

D. We Traditionally Underfund IT Initiatives and 

Fall Short of Our Vision 

100.0% 100.0% 100.0% 100.0% 

16.3% 14.0% 25.8% 5.7% 11.1% 

46.6% 48.4% 48.4% 54.3% 40.7% 

22.2% 26.9% 16.1% 34.3% 29.6% 

14.9% 10.8% 9.7% 5.7% 18.5% 

Total 


Total Planning 12 Months 24 Months 36 Months 

Properly Fund (A + B) 62.9% 62.4% 74.2% 60.0% 51.9% 

Underfund (C + D) 37.1% 37.6% 25.8% 40.0% 48.1% 



ERP Implementation Objectives 

Objectives were stated in nearly identical order for all three sets of firms planning to 

implement ERP (1-12 months, 13-24 months, 25-36 months), with cost reductions for 

business being the clear leader. 

ERP Implementation Objectives 

Drive Cost Reductions for Business 

Improve Financial Management/Performance 

Boost Employee Productivity 

Improve Customer Service 

Drive Cost Reductions for IT 

IT Consolidation/Legacy Replacement 

Increase Revenue 

Streamline Manufacturing and Supply Chain 

Increase Scalability 

0.0% 20.0% 40.0% 60.0% 80.0% 

Business Issues for Firms Planning to Implement 

Client concerns regarding their service providers change dramatically after implementation. 

In similar fashion, clients planning to implement ERP have a somewhat different 

set of business priorities than do clients who have already implemented. 

Business Issues Before and After ERP Implementation 

A 

B 

Plan to Already Difference 

Implement Implemented (B-A) 

Total Answering 94 274 

Supply Chain Management 3.38 3.72 0.34 

ERP Improvement, Implementation, and/or Rollout 4.32 4.58 0.26 

Outsourcing 3.09 3.25 0.17 

CRM 3.68 3.80 0.11 

Business/IT Alignment 4.72 4.78 0.05 

Applications Portfolio Rationalization 3.84 3.70 -0.14 

IT Cost Management 4.85 4.68 -0.17 

IT Resource Management 4.51 4.29 -0.22 

Integration of Business Applications 4.77 4.54 -0.23 

Collaborative Applications 4.09 3.83 -0.25 



Supply chain management moves higher up the list as do ERP improvement, outsourcing, 

and CRM as clients plan to spread their application wings. We note that, later in this study, 

we report that clients were only partially successful in streamlining manufacturing or supply 

chains, which suggests that clients have higher (and unmet) expectations with regard to 

supply chain improvements that will be achieved through ERP implementation. 

Section 4 

In addition, business/IT alignment moves from third on the list to first after implementation. 

One of the key mistakes clients claim to make during implementation is the 

breakup of their business/IT implementation groups at go-live, which hampers their continuing 

efforts to get business benefit from their ERP investment. 

Client Concerns/Pain Points 

We asked clients to rate their concerns or pain points on a scale of 1 (not a pain point) 

to 6 (extreme pain point). Clients facing more imminent ERP implementations show a 

heightened concern about organization transition complexity, business and IT alignment, 

and ease of integration, while those with later plans are still stuck on cost and duration. 

Nineteen of 30 firms (63%) implementing in the next 12 months listed “organization 

transition complexity” as either a 5 or 6. 

Implementation Pain Points or Concerns 


12 Months 24 Months 36 Months Total 


100.0% 100.0% 100.0% 100.0% 

Implementation Cost and Duration 4.1 4.6 4.7 4.4 

Organization Transition Complexity 4.7 4.2 4.1 4.3 

Business Operations/IT Alignment 4.2 4.0 4.2 4.1 

Ease of Integration With Other Business Applications 4.3 4.0 3.9 4.0 

Scope and Risk 4.0 3.9 4.2 4.0 

Business Strategy/IT Alignment 3.8 4.1 4.1 4.0 

Achieving Stated Business Goals 4.0 4.0 3.8 3.9 

Architecture/Infrastructure 3.8 3.7 4.0 3.8 

Application Maintenance Costs 3.5 3.8 3.9 3.7 

Application Maintenance Support Fees 3.4 3.7 4.0 3.7 

Vendor Capability 3.8 3.5 3.8 3.7 

Geographic Rollout 3.1 3.2 3.1 3.2 



ERP Services Purchasing Criteria (METAspectrum SM 

Weighted) 

META Group research has identified several key criteria areas for both presence and 

performance that are shared across markets. There are eight criteria areas for presence 

and seven for performance. When performing a METAspectrum analysis for a specific 

market, the META Group analyst provides weights for each criteria area to give them 

relative importance to one another. This is done by distributing 100 impact points among 

the criteria in each area. 

For the purposes of this study, we asked those respondents planning to implement ERP 

to provide us with their weighted criteria for choosing their systems integrator. The 

tables contain raw results. 

Presence Criteria 




100.0% 100.0% 100.0% 100.0% 

Awareness/Reputation 18.5 20.2 21.9 20.0 

Business Drivers 20.3 24.9 20.2 22.0 

Channels/Partners 7.1 5.0 6.5 6.1 

Focus on Your Industry 16.7 13.6 16.9 15.6 

Geographic Coverage 7.8 8.4 7.0 7.8 

Investments (Relevant to ERP Services Delivery) 6.6 6.0 6.8 6.4 

Share (ERP Services Market Share) 9.4 7.2 9.1 8.5 

Vision/Strategy 13.6 14.8 11.4 13.5 

Performance Criteria 




100.0% 100.0% 100.0% 100.0% 

Agility 11.3 22.9 14.3 16.7 

Execution 22.8 20.8 23.8 22.3 

Financial Strength and Results 7.9 9.2 11.2 9.2 

Personnel 15.2 13.5 15.7 14.6 

Pricing Methods or Options 14.6 9.3 10.2 11.4 

Services 12.7 12.3 12.1 12.4 

Technology 15.5 12.0 12.6 13.4 



Our respondents rated the relative performance to presence criteria for ERP services 

as 64% to 36%. Thus, we factor these respondents’ raw scores to arrive at a METAspectrum 

criteria weighting. 

Section 4 

Presence and Performance Criteria Redistributed Weightings 

Presence Criteria 36% 




100.0% 100.0% 100.0% 100.0% 

Awareness/Reputation 6.7 7.3 7.9 7.2 

Business Drivers 7.3 9.0 7.3 7.9 

Channels/Partners 2.5 1.8 2.3 2.2 

Focus on Your Industry 6.0 4.9 6.1 5.6 

Geographic Coverage 2.8 3.0 2.5 2.8 

Investments (ERP Services Delivery) 2.4 2.2 2.5 2.3 

Share (ERP Services Market Share) 3.4 2.6 3.3 3.1 

Vision/Strategy 4.9 5.3 4.1 4.9 

Performance Criteria 64% 




100.0% 100.0% 100.0% 100.0% 

Agility 7.2 14.7 9.1 10.7 

Execution 14.6 13.3 15.2 14.3 

Financial Strength and Results 5.0 5.9 7.2 5.9 

Personnel 9.7 8.6 10.1 9.4 

Pricing Methods or Options 9.4 6.0 6.6 7.3 

Services 8.1 7.9 7.8 7.9 

Technology 9.9 7.7 8.1 8.6 

There are no significant differences in the weighted criteria across the three groups of 

respondents. The ability of the ERP SI to execute is clearly the highest priority, while the 

channels and partnerships maintained by the SI are the lowest. 



Implementation Timelines and Software Vendor Preferences 

Primarily, the smaller firms are implementing short term (12 months), while the very 

large firms plan to implement in 24 to 36 months 

Firms Planning to Implement ERP 

50.0% 

45.0% 

40.0% 

35.0% 

30.0% 

25.0% 

20.0% 

15.0% 

10.0% 

5.0% 

0.0% 

$100 - 

$300 - 

$500M - 

$1B - 

$3B - 

>$5B 

$300M 


Systems Integrator Preferences 

Branding and mind share play an integral part in clients’ consideration and selection of 

ERP systems integrators. Thus, the frequency of respondent mentions in regard to their 

SI considerations is a reflection of branding and mind share. In our survey, we offered 

the 26 most prominent ERP systems integration providers and asked respondents to 

provide their level of consideration for each — “will not consider,” “will consider,” “have 

shortlisted,” or “have chosen.” 

Section 4 

We summarized all mentions except “will not consider.” The 76 respondents provided 

input for, on average, nine SIs. IBM Business Consulting Services received the most positive 

mentions (52), and altogether, nine of the SIs received at least 30 positive mentions. 

Hewlett-Packard, which performs little ERP implementation work, and SAP SI (a midtier 

provider that is separate from the main SAP organization) are both on this list, but 

Accenture (29 mentions) and BearingPoint (27) are not. 

To gauge the depth of preference, we scored responses in a way similar to that of 

vendor preference with -1 for “will not consider,” +1 for “will consider,” +2 for 

“shortlisted” and +4 for “already chosen.” Many respondents checked a number of 

firms as “will not consider” while leaving that box blank for others. We therefore consider 

it a negative response rather than neutral. 

The predominant firm, IBM Business Consulting Services received only 13 “will not 

consider” responses (20%, by far the lowest such rate of all firms included) while having 

4 “already chosen” and 13 “shortlisted.” 



The following table includes all the scoring and reveals relative market size strengths 

and weaknesses. 

SI Consideration Index by Number of Employees 

Midmarket 

Rank Systems Integrator Total 

Small 

($1B) 

Total 

Score 

1 IBM Business Consulting Services 63 8 18 37 63 

2 Oracle Consulting 53 13 14 26 53 

3 SAP Consulting 44 3 16 25 44 

4 PeopleSoft Consulting 43 6 11 26 43 

5 Deloitte Consulting 35 -1 23 13 35 

6 Cap Gemini Ernst & Young 29 2 14 13 29 

7 SAP SI 26 -2 11 17 26 

8 Hewlett-Packard Consulting 20 2 8 10 20 

9 JD Edwards Consulting 15 1 4 10 15 

10 BearingPoint (formerly KPMG) 14 -4 8 10 14 

11 Siemens Business Services 10 -1 7 4 10 

12 Accenture 8 -2 0 10 8 

13 EDS/AT Kearney 5 -4 0 9 5 

14 AMS 4 -8 17 -5 4 

15 CSC 2 -3 0 5 2 

16 itelligence -4 -8 2 2 -4 

17 Offshore Providers -6 -2 -3 -1 -6 

18 Atos Origin -7 -8 3 -2 -7 

19 Fujitsu Consulting -8 -6 0 -2 -8 

20 Intelligroup -8 -10 2 0 -8 

21 Rapidigm -9 -10 1 0 -9 

22 Logica CMG -9 -10 2 -1 -9 

23 Hitachi -11 -7 -1 -3 -11 

24 TSC -11 -7 1 -5 -11 

25 IDS Scheer -11 -10 -1 0 -11 

26 Plaut -14 -8 -1 -5 -14 



Desired Service Provider Characteristics 

Here, we focus on the characteristics sought by clients before their core implementation 

of ERP, as opposed to the characteristics sought by firms that have already implemented. 

Section 4 

Before implementation, clients seek a firm that can fully manage their ERP assets and 

provide support after implementation. However, once implementation is complete, these 

concerns fade in importance. 

Ideal ERP Service Provider Characteristics Before and After Implementation 

Offers a Wide Range of Services 

(CRM, ERP, SCM, Etc.) 

Provides Tangible Knowledge Transfer to Client Staff 

Understands Our Business and Adapts Their 

Proposals As a Result 

Has Proven Capabilities and Performance Records 

Supports After Implementation 

Can Fully Manage Our ERP Assets 

-0.60 -0.40 -0.20 0.00 0.20 0.40 

Before Implementation 

After Implementation 

Desired characteristics include the following: 

• Offers a wide range of services: After implementation, clients look outward from 

strict ERP concerns and embrace the full suite of their business applications. 

• Provides tangible knowledge transfer to client staff: As we have seen, this is a 

sore point with clients at all levels, and after implementation, they heavily blame their 

systems integrators for a failure to succeed at this task. 

• Understands our business and adapts their proposals as a result: Having implemented 

ERP, clients are more wary of blanket proposals that do not adhere to their 

specific situation. ERP service providers have to demonstrate greater agility and 

business context to succeed. 

• Has proven capability and performance records: Again, clients that have implemented 

ERP are more demanding the second time around in this regard. 




Section 5 — Analysis of Firms With Installed ERP 


Roughly one-quarter of the respondents among the installed base of 270 were implementing 

ERP systems (Group 1), while another 25% have completed implementation 

and have no distinct plans for upgrades or additional applications (Group 4). Another 

one-third are considering upgrades or additional applications (Group 3). 

Status of ERP Installation by Region 

Status of Install 

Installed 

Base 

Total Group 1 Group 2 Group 3 Group 4 


100.0% 100.0% 100.0% 100.0% 100.0% 

North America 73.5% 83.8% 70.5% 68.9% 71.4% 

EMEA 18.4% 10.3% 20.5% 20.0% 22.9% 

Asia Pacific 2.9% 0% 2.3% 5.6% 2.9% 

South/Latin 

America 4.8% 5.9% 4.5% 5.6% 2.9% 

Group 1 Are currently implementing ERP 

Group 2 

Have completed a base implementation of ERP software and 

are rolling out to other sites 

Group 3 

Group 4 

Have completed a base implementation of ERP and are 

considering additional applications or an upgrade 

Have completed implementation of ERP 

As in most areas of this study, the great majority of installed firms have more than 1,000 

employees and annual revenues in excess of $1B. 

In general, funding traits for the installed base are sound, with the exception of Group 3 

clients, who may fall into the category of overacquirers and underachievers. Such firms 

tend to acquire and implement software, find that they are not getting the results they 

wanted, and so acquire more software. Not surprisingly, they also report the lowest 

level of achieving their objectives. 



IT Budget Profile by Status of ERP Installation 

All Installed 


Respondents Base Total Group 1 Group 2 Group 3 Group 4 

Total Answering 423 267 68 43 86 70 

We Always Budget and Spend 

What Is Needed to Fulfill Our IT Vision 

We Generally Budget and Spend 

What Is Needed to Fulfill Our Vision 

We Generally Underfund IT Initiatives and 

Then Incrementally Spend What It Takes 

We Traditionally Underfund IT 

Initiatives and Fall Short of Our Vision 

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 

16.3% 17.2% 17.6% 11.6% 14.0% 24.3% 

46.6% 50.2% 58.8% 53.5% 40.7% 51.4% 

22.2% 19.1% 14.7% 23.3% 24.4% 14.3% 

14.9% 13.5% 8.8% 11.6% 20.9% 10.0% 

Installed 


Total Base Total Group 1 Group 2 Group 3 Group 4 

Properly Fund (A+B) 62.9% 67.4% 76.5% 65.1% 54.7% 75.7% 

Underfund (C+D) 37.1% 32.6% 23.5% 34.9% 45.3% 24.3% 

Group 1 

Group 2 

Group 3 

Currently Implementing ERP 

Have Completed A Base Implementation Of ERP Software And 

Are Rolling Out To Other Sites 

Have Completed Our Base Implementation Of ERP And Are 

Considering Additional Applications Or An Upgrade 

Group 4 

Have Completed Our Implementation Of ERP 

Business Goal Achievement by Status of ERP Installation 

Installed 


Base Total Group 1 Group 2 Group 3 Group 4 

194 43 29 68 54 

Total Answering 100.0% 100.0% 100.0% 100.0% 100.0% 

100%: Achieved All Business Goals 17.0% 25.6% 17.2% 13.2% 14.8% 

75%: Achieved Many of Our Goals 43.8% 41.9% 41.4% 35.3% 57.4% 

50% or Less: Achieved Some of Our Goals 28.4% 20.9% 27.6% 41.2% 18.5% 

NA: Implemented Without This Business Goal in Mind 10.8% 11.6% 13.8% 10.3% 9.3% 

Group 1 Currently implementing ERP 

Have completed a base implementation of ERP software and are rolling 

Group 2 

out to other sites 

Have completed our base implementation of ERP and are considering 

Group 3 

additional applications or an upgrade 

Group 4 Have completed our implementation of ERP 


Analysis of Firms With Installed ERP 

Age and Type of Installations 

The average age of the installations for 218 respondents in this group is 27 months. We 

presume that we received more responses for more recent installations than for those 

that occurred three or more years ago, because respondents who recently installed are 

in a better position to reply to survey questions. Thus, we do not consider the ratio of 

installations across our age span as reflective of overall installations across the market. A 

majority of the installed base represented here is SAP. 

Section 5 

Installed Base: Core ERP Software Vendors 

4% 

18% 

SAP 

PeopleSoft 

9% 

56% 

Oracle 

Others (Not Specialized) 

13% 

JD Edwards 



Success Measurements 

Clients had mixed success in regard to the following: 

• Driving cost reductions for business 

• Increasing revenues 

• Streamlining manufacturing or supply chains 

It is no surprise that “IT consolidation/legacy replacement” was very successful (80% of 

183 respondents with 75%-100% success reported). 

Goals Achieved Through ERP Implementation 

Overall 

(Weighted) 

Boost 

Employee 

Productivity 

Drive Cost 

Reductions for 

Business 

Drive Cost 

Reductions for 

IT 

Improve 

Customer 

Service 


100.0% 

176 

100.0% 

163 

100.0% 

160 

100.0% 

100%: Achieved All 

Business Goals 

25.6% 19.1% 17.0% 23.3% 22.5% 

75%: Achieved Many 

of Our Goals 

44.8% 49.1% 41.5% 39.9% 51.3% 

50% or Less: Achieved 

Some of Our Goals 

29.6% 31.8% 41.5% 36.8% 26.3% 

Improve 

Financial 

Mgmt./Perf. 

Increase 

Revenue 

Increase 

Scalability 

IT Consolidation 

Legacy 

Replacement 

Streamline 

Mfg. or 

Supply Chain 


100.0% 

131 

100.0% 

162 

100.0% 

183 

100.0% 

129 

100.0% 

100%: Achieved All 

Business Goals 

28.5% 19.1% 35.8% 39.3% 22.5% 

75%: Achieved Many 

of Our Goals 

49.5% 40.5% 40.7% 41.0% 50.4% 

50% or Less: Achieved 

Some of Our Goals 

22.0% 40.5% 23.5% 19.7% 27.1% 



New ERP Goals and Priorities: All Respondents 

From several angles, it appears that business issues, rather than pure IT issues, are predominant, 

and the most pressing issue is for ERP to drive cost reductions for business. 

Section 5 

ERP Goals and Priorities 

What Are Your New Goals for Your ERP Installation? What Is Your Most Urgent Goal for Your ERP Installation? 

ERP Goals 

ERP Priorities 

Total Answering 194 Total Answering 165 

100.0% 100.0% 

Drive Cost Reductions for Business 77.3% Drive Cost Reductions for Business 21.8% 

Drive Cost Reductions for IT 69.1% Drive Increased Profitability 16.4% 

Enhanced Executive Reporting 68.0% Integration of All Enterprise Applications 12.7% 

Enhance Customer Satisfaction 66.0% Enhance Customer Satisfaction 12.1% 

Drive Increased Profitability 65.5% Enhanced Executive Reporting 10.3% 

Increase End-User Competency 61.3% Drive Cost Reductions for IT 9.7% 

Integration of All Enterprise Applications 61.3% Integration of All ERP Versions/Instances 7.3% 

Extension Into Other Business Applications 53.6% Increase End-User Competency 5.5% 

Integration of All ERP Versions/Instances 48.5% Extension Into Other Business Applications 4.2% 

We note a relatively low priority is to “increase end-user competency.” This is significant 

for a number of reasons: 

1. A high percentage of firms cited the fact that they shortchanged end-user training 

due to time or budget limitations as an implementation mistake (see “Issues Arising 

From Implementation Mistakes”). 

2. Results from another recent META Group study, “ERP End-User Competence,” 

reveals that, of 112 firms responding, 76% rate their end users as suboptimal or 

failing. Of those 76% of firms, 57% had never had a second wave of training, and most 

relied on “user trains the user” methods. 

In the figure below, we highlight all goals cited by 70% or more of respondents and boldline 

the leading goals for each age group. 



ERP Goals by Age of Implementation 

ERP Implementation Age 

Within 1 1 to 2 2 to 3 3 to 4 4 to 5 

Year Years Years Years Years >5 Years 

Year Implemented 2002 2001 2000 1999 1998 1997 > 

Total Answering 199 60 41 19 16 14 21 

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 

Drive Cost Reductions for Business 75.4% 80.0% 73.2% 73.7% 75.0% 78.6% 71.4% 

Drive Cost Reductions for IT 67.3% 75.0% 63.4% 47.4% 75.0% 64.3% 81.0% 

Drive Increased Profitability 63.8% 58.3% 65.9% 63.2% 75.0% 42.9% 57.1% 

Enhance Customer Satisfaction 64.3% 70.0% 58.5% 57.9% 62.5% 50.0% 57.1% 

Enhanced Executive Reporting 66.3% 65.0% 61.0% 78.9% 68.8% 64.3% 61.9% 

Extension Into Other Business Applications 52.3% 61.7% 51.2% 52.6% 37.5% 50.0% 52.4% 

Increase End-User Competency 59.8% 63.3% 58.5% 47.4% 68.8% 50.0% 57.1% 

Integration of All Enterprise Applications 59.8% 70.0% 58.5% 47.4% 56.3% 42.9% 57.1% 

Integration of All ERP Versions/Instances 47.2% 53.3% 39.0% 47.4% 25.0% 28.6% 52.4% 

Sum of All Goals 556.3% 596.7% 529.3% 515.8% 543.8% 471.4% 547.6% 

Highest Ranked Goal by Age Group 

>70% Response 

Firms in their third to fourth year of ERP are in an aggressive mode, seeking cost reductions 

for business and IT while driving increased profitability. As we note later in this 

report (see “Issues Arising From Implementation Mistakes”), firms in their second to 

third year of ERP deployment come to a fuller realization of what it takes to manage and 

drive an ERP installation. It stands to reason that these would therefore become more 

aggressive in terms of gaining cost reductions in succeeding years. 

Most Urgent Goal by Age of Implementation 

ERP Implementation Age 

Within 1 1 To 2 2 To 3 3 To 4 4 To 5 > 

Year Years Years Years Years 5 Years 

Year Implemented 2002 2001 2000 1999 1998 1997 > 

Total Answering 165 50 34 15 12 12 18 

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 

Drive Cost Reductions for Business 21.8% 22.0% 11.8% 40.0% 50.0% 25.0% 22.2% 

Drive Cost Reductions for IT 9.7% 12.0% 11.8% 6.7% 16.7% 16.7% 

Drive Increased Profitability 16.4% 14.0% 20.6% 6.7% 16.7% 8.3% 11.1% 

Enhance Customer Satisfaction 12.1% 16.0% 8.8% 6.7% 8.3% 

Enhanced Executive Reporting 10.3% 4.0% 8.8% 13.3% 8.3% 8.3% 11.1% 

Extension Into Other Business Applications 4.2% 6.0% 6.7% 16.7% 11.1% 

Increase End-User Competency 5.5% 12.0% 5.9% 

Integration of All Enterprise Applications 12.7% 6.0% 29.4% 8.3% 16.7% 22.2% 

Integration of All ERP Versions/Instances 7.3% 8.0% 2.9% 20.0% 8.3% 8.3% 5.6% 

Highest Priority 



When these same respondents choose their highest priority, the follow results surface: 

Section 5 

• Driving cost reductions for business is at the top for Years 3-5 and beyond 

• User competency is forgotten after the second year 

• Enhanced customer satisfaction drops out after the fourth year 

• Integration of all enterprise applications becomes a growing priority 

New ERP Goals and Priorities: Business Versus IT 

In the never-ending quest for business and IT alignment, we find that there is a sharp 

divergence of new ERP goals and priorities between our business respondents and 

those involved in IT. 

Overall ERP Goals by Role 

Total Business Decision Decision 

Answering & Executive IT Difference Influencer Maker 


100.0% 100.0% 100.0% 100.0% 100.0% 

Other 2.5% 11.1% 2.2% 9.0% 2.4% 2.9% 

Enhanced Executive Reporting 66.3% 71.1% 64.0% 7.1% 65.9% 68.6% 

Extension Into Other Business Applications 52.3% 55.6% 50.4% 5.2% 50.0% 62.9% 

Increase End-User Competency 59.8% 60.0% 57.6% 2.4% 57.3% 71.4% 

Integration of All Enterprise Applications 59.8% 55.6% 59.7% -4.2% 58.5% 65.7% 

Enhance Customer Satisfaction 64.3% 57.8% 65.5% -7.7% 64.0% 65.7% 

Drive Cost Reductions for Business 75.4% 68.9% 77.7% -8.8% 73.8% 82.9% 

Integration of All ERP Versions/Instances 47.2% 37.8% 51.1% -13.3% 48.2% 42.9% 

Drive Cost Reductions for IT 67.3% 53.3% 69.1% -15.7% 68.9% 60.0% 

Drive Increased Profitability 63.8% 46.7% 67.6% -21.0% 64.6% 60.0% 

Sum of Goals 558.8% 517.8% 564.7% 553.7% 582.9% 

Not all respondents defined their roles which explains the totals discrepancy 

Most Urgent ERP Goal by Role 

Total Business Decision Decision 

Answering & Executive IT Difference Influencer Maker 


100.0% 100.0% 100.0% 100.0% 100.0% 

Enhance Customer Satisfaction 12.1% 18.8% 8.0% 10.7% 13.2% 6.9% 

Increase End-User Competency 5.5% 10.4% 3.6% 6.8% 2.9% 17.2% 

Enhanced Executive Reporting 10.3% 12.5% 8.9% 3.6% 10.3% 10.3% 

Extension Into Other Business Applications 4.2% 4.2% 4.5% -0.3% 3.7% 6.9% 

Drive Increased Profitability 16.4% 14.6% 16.1% -1.5% 17.6% 10.3% 

Drive Cost Reductions for IT 9.7% 6.3% 8.9% -2.7% 9.6% 10.3% 

Integration of All Enterprise Applications 12.7% 8.3% 14.3% -6.0% 11.8% 17.2% 

Integration of All ERP Versions/Instances 7.3% 0.0% 10.7% -10.7% 8.8% 0.0% 

Drive Cost Reductions for Business 21.8% 12.5% 25.0% -12.5% 22.1% 20.7% 

Other 21.8% 12.5% 25.0% -12.5% 22.1% 20.7% 

Not all respondents defined their roles which explains the totals discrepancy 



To the first question, respondents could include as many goals as they chose. We note 

that IT’s sum of goals clearly exceeds that of business and executives. We also note that, 

in 7 of 10 areas, there is sharp divergence between the two groups. Other goals/priorities 

cited by IT had to do with IT-related issues. 

For the second question, respondents could only check their single highest priority. In 

this, the misalignment between IT and business is pronounced. One area of absolute 

agreement is that extension into other business applications is a very low priority. 

We also observe that business and executives rank increased end-user competency as 

a high priority, whereas IT ranks it last — yet another indication that, in the ERP installed 

base, IT is failing its user community. This same priority was tied for the top spot for 

those respondents claiming to be decision makers. 

Furthermore, while the high priority assigned to driving cost reductions for the business 

(which was observed in the study by age of installation) appears to have been authored 

by IT staff rather than business and executives, decision influencers and decision makers 

rate it at the top. 

The most desired new applications/functions for the next three years are business intelligence, 

product life-cycle management, customer relationship management, industryspecific 

applications, and strategic sourcing. 

New Functions Planned (Software Acquisitions) Over Next 3 Years 

Business Intelligence/Data 

Product Life-Cycle Management 

CRM 

Industry-Specific Applications 

Strategic Sourcing 

Maintenance Management 

Professional Services Automation 

Human Resources/Payroll 

Private Trading Exchanges 

Warehouse Management 

Supply Chain Planning 

Transportation Management 

Order Management 

Finance 

Manufacturing 

Hot 

Moderate 

Saturated 

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 



Systems Integrator Performance and Client Retention 

We asked respondents to indicate which firm had been the lead consultancy during the 

ERP implementation and to provide a rating from 1 (poor) to 6 (excellent) across a 

number of performance criteria. The main criteria include technology, personnel, agility, 

execution, services, and pricing methods or options. In addition, we examined subsets 

— or focus criteria — related to services and execution (knowledge transfer, value 

drivers, and methodology and tools). For details regarding META Group’s Professional 

Services Strategies viewpoint on these criteria, see “In Search of Relevance: Evolved 

Characteristics of an Ideal IT Service Provider,” in the Appendix. 

Section 5 

We received 211 responses, which is an insufficient number to provide detailed competitive 

analysis across the many vendors. We therefore isolated a key group (with a minimum 

of 9 responses) of nearly all the major systems integration firms. BearingPoint (with 

5 responses), Hewlett-Packard (2), and Oracle Consulting (8) did not make this cut. We 

compare each of the top firms individually as well as collectively versus all others. 

Performance Scores by Systems Integrator 

This 

Total Others Group Accenture CGE&Y Deloitte EDS/ATK IBM BCS IBM GS PeopleSoft PwC SAP Cons. 

Total Answering 237 87 124 16 9 14 12 10 10 13 15 25 

Technology 4.20 4.33 4.12 4.00 3.50 3.43 4.83 5.00 4.40 4.08 3.53 4.38 

Personnel 4.12 4.17 4.05 3.56 3.25 3.79 5.18 4.70 4.11 4.23 3.20 4.38 

Methodology and Tools 4.00 4.01 3.97 3.75 2.88 3.57 4.75 4.88 4.10 3.69 3.27 4.52 

Agility 3.97 4.04 3.88 3.75 2.88 3.43 4.58 4.44 4.10 3.85 3.47 4.20 

Execution 3.94 3.99 3.91 4.19 2.88 3.43 4.33 4.78 4.10 4.23 3.07 4.08 

Services 3.94 3.91 3.92 3.69 3.00 3.54 4.50 4.78 4.20 4.08 3.27 4.20 

Knowledge Transfer 3.83 3.95 3.73 3.19 2.33 3.64 4.83 4.50 4.00 3.92 3.07 4.00 

Value Drivers 3.80 3.84 3.75 3.69 2.63 3.36 4.55 4.56 3.78 3.85 3.07 4.04 

Pricing Methods or Options 3.62 3.77 3.47 3.38 3.13 2.77 4.58 3.75 3.75 3.54 2.79 3.67 

Average 3.94 4.00 3.87 3.69 2.94 3.44 4.68 4.60 4.06 3.94 3.19 4.16 

> Total Average for Criterion 

Complete scoring criteria were as follows: 

• Agility (ability to respond to client needs and work well with other services) 

• Execution (ability to deliver and adhere to time/budget constraints) 

• Knowledge transfer 

• Methodology and tools 

• Personnel (experience and expertise) 

• Pricing methods or options 

• Services (support, training, span of services) 

• Technology (product knowledge, technical expertise, software, etc.) 

• Value drivers (measurable, visible business benefits/value) 



Overall, 67% of the projects undertaken by the select group were SAP (usually greater 

scope and complexity than other software). In the related META Group study, Deriving 

Value From Twenty-First Century ERP Applications, of 112 client respondents, 80% rated 

their systems integrator performance as average, 11% above expectations, and 9% below 

expectations. The average engagement fees for the above-average group was only 

$3.2M, while the below-average group was $19.7M. Thus, when project size is factored 

in, the above-average drops to 3% and the below-average rises to 17%, indicating that 

large project complexity has an enormous effect on both client perception and the 

reality of systems integrator performance. 

Reasons for Not Using Outside ERP Consulting 

Only one in four of the firms in the installed base engage ERP service providers. Decision 

makers (who cite more reasons than others for not engaging outside ERP services) 

are fairly adamant that they have sufficient internal ERP resources and that ERP consulting 

costs are too high. 

Reasons for Not Using Outside ERP Consulting 

17% 

17% 

12% 

39% 

25% 

45% 

We have worked with an ERP consulting service since our 

go-live date 

We have sufficient internal ERP skills to meet our need 

ERP consulting is too costly 

Dissatisfaction with past providers of ERP services 

Insufficient ERP consulting knowledge in our industry 

There are no services offered that meet our specific needs 

It is also disquieting that nearly one in five decision makers believe that there are no 

services that meet their specific needs. With 39% overall claim that ERP consulting is too 

costly, we have even more evidence that measurable value has not been demonstrated. 

Furthermore, one in five decision makers cite “dissatisfaction with past ERP service 

providers.” This percentage is equal to the percentage of decision makers still retaining 

outside services, which strongly suggests that past performance is still an issue. Compounding 

this issue is that half the decision makers also think ERP is too costly. 



Issues Arising From Implementation Mistakes 

Since roughly 1995, a pattern of common implementation mistakes or weaknesses has 

emerged, and great numbers of clients have voiced disappointment in their ERP systems 

integrators. To gauge the level and nature of the mistakes made and to determine the 

depth of blame for these mistakes, we asked our respondents two questions: 

Section 5 

• Please indicate if your organization experienced any of the following problems/issues 

with your base ERP implementation project? 

• For those problems/issues your organization experienced with your base ERP implementation 

project, who do you believe is most responsible? 

We listed the following common mistakes: 

• After go-live, we broke up the implementation team and left IT to support the installation 

• Little or no planning was given to post-implementation support 

• There was no quantifiable measurement of business benefits derived from 

implementation 

• We failed to manage scope 

• We had insufficient knowledge transfer 

• We have too many versions or instances to manage and are not getting integration 

as planned 

• We overcustomized the software rather than adopting inherent business practices 

• We shortchanged end-user training due to time or budget limitations 

• We underfunded the project and finished late and overbudget 

A surprising 46 of 198 respondents (23%) claimed to have made none of these mistakes. 

However, 15 such respondents had completed their implementation within the past 

year. We posit that they would respond differently one year from now, given our findings 

of issues by age of installation. 

The remaining 152 respondents reported a total of 390 such mistakes (2.56 on average) 

with “There was no quantifiable measurement of business benefits derived from implementation” 

leading at 40.1% for respondents citing mistakes. 

“We had insufficient knowledge transfer” was second among all respondents, but a 

resounding first for firms in the revenue range of $500M to $1B. 



When we look at the same data by age of ERP installation, we detect significant change 

in perception and level of concern over issues as the installation matures. 

In the first year, clients have no over-riding sense of issues arising from implementation 

mistakes other than with regard to knowledge transfer, which is perfectly understandable. 

By the second year, when questions are being raised about the return on investment, 

there is a great regret that quantifiable measurements do not exist, and the first effects 

of breaking up the implementation team are noted. 

It is between the second and third year that issues arising from implementation mistakes 

come to the fore. Failure to manage scope, little or no planning given to 

postimplementation support, overcustomization, the breakup of the implementation team, 

and other factors are all viewed at their peak (or nadir) during this time frame. 

We note as well that the sum of all issues is by far the highest for this age group. 

Potential factors leading to this group being the most challenged include the following: 

• In the first few years, clients are still “shaking out” their ERP implementations and 

presume that success will follow. 

• The first upgrade usually occurs after two years of ERP utilization, and 

overcustomization of software is revealed as an impediment. 

• With a broken implementation team, it is more difficult to correct or undo 

customizations. 

In Years 4 to 5, client self-knowledge sinks in. Knowledge transfer failures and end-user 

competence issues are revealed, and a second year of awareness about the failure to 

measure adds to a renewed sense that little or no planning was given to 

postimplementation support. 



Responsibility for Implementation Mistakes 

In the main, clients blame themselves for implementation mistakes or oversights, shouldering 

the majority of responsibility for eight of nine miscues. 

Section 5 

Software vendors are generally whitewashed, except for their role in insufficient knowledge 

transfer and instance/integration difficulties. 

Systems integrators are held accountable for a lack of postimplementation planning, 

poor knowledge transfer, and (to some degree) overcustomization of software. 




Appendix 





Taking the Measure of ERP Implementations 

Application Delivery Strategies, Enterprise Application Strategies 

Barry Wilderman 


Before undertaking ERP projects, companies must estimate key measures such as total 

cost of ownership. To do this correctly and to guide selection of ERP vendors, analysis is 

needed regarding the key variables that drive project cost and time as well as benefits. 

META Trend: During 2003/04, Tier 1 ERP vendors will focus on the small and medium business 

(SMB) market, vertical extensions, and technology infrastructure. During 2004/05, vendor viability 

concerns will drive SMB ERP market consolidation as these vendors become increasingly 

threatened by Tier 1 vendors and Microsoft. By 2005/06, Tier 1 ERP vendors will leverage their 

application breadth and component architectures to reduce application complexity significantly. 

META Group has recently completed a major multiclient study titled Deriving Value From 

21st Century ERP Applications, sponsored by JD Edwards, Lawson, Oracle, PeopleSoft, 

QAD, and SAP. The basic measures that drive the report include: 

• Total cost of ownership (TCO): In this category, we have included software, hardware, 

professional services, and internal staff costs, as well as two years of postimplementation 

cost. We believe an accurate analysis of TCO should include the 

costs of building and running the system. 

• Time to implement (TTI): This represents the time frame from project inception 

to going live. 

• Time to benefit (TTB): This represents the average time until benefits were achieved. 

For example, if the preparation time for going live was 20 months (as results of the 

2002 study indicated) and two benefits were achieved — one immediately, and one 

18 months after going live — the average TTB would be 29 months. 

We also asked our 204 respondents to quantify their benefits, but the quality of results 

was poor. We believe many of these projects were started during the Y2K era, and 

clients were not particularly focused on business plans and benefits analysis. The study 

contains significant data about the timing of benefits, and we have computed net present 

values for 34 cases (hardly statistically significant). 

Our study indicates respondents will increase their number of applications by 16% through 

2003, and by 12% per year through 2005 (see Figure 1). By 2005, the average respondent 



will own four applications from an ERP vendor and two best-in-class applications (see 

Figure 2). This indicates clients should buy an ERP backbone for the architecture and 

core functions but still carefully examine the ERP versus best-in-class decision. Moreover, 

the range of ERP-centricity (as shown in Figure 2, Column 5) varies from a low of 

61% (PeopleSoft) to a high of 74% (SAP). Through 2006/07, we believe clients will still 

view SAP as an enterprise purchase, but PeopleSoft and Oracle will become increasingly 

viewed as “more enterprise” (i.e., their percentages will rise). 

Clients must consider a variety of variables to measure dimensions of cost and time, including: 

• META Trend: During 2003/04, Tier 1 ERP vendors will focus on the small and medium 

business (SMB) market, vertical extensions, and technology infrastructure. During 

2004/05, vendor viability concerns will drive SMB ERP market consolidation as these 

vendors become increasingly threatened by Tier 1 vendors and Microsoft. By 2005/ 

06, Tier 1 ERP vendors will leverage their application breadth and component architectures 

to reduce application complexity significantly. 

TCO alone has no value for comparative analysis: Looking at the population of our study 

and the average TCO results by ERP vendor (see Figure 3), the average SAP respondent 

had much higher TCO than any other ERP vendor. It is no surprise, however, that SAP 

had the highest average numbers for TCO (many of the largest projects were done with 

SAP software). We believe that vendor charts that show only TCO should generally be 

ignored, because we view that approach as flawed and believe other variables must be 

considered. It should be noted that, in this chart and in all charts that follow, the data is 

represented twice: once to represent the entire population and again to remove a series 

of outliers (two cases per ERP vendor). 

• Adding revenue improves the TCO calculation: Use of the variable “TCO as a 

percentage of revenue” (which we define as relative TCO) provides a more normalized 

view of how TCO varies by company. Moreover, in the ERP study, we divided 

the companies into three strata according to revenue size: 1) Tier 1 (revenues of 

more than $1B); 2) Tier 2 (revenues of $200M-$1B); and 3) Tier 3 (revenues of less 

than $200M). As shown in the first table of Figure 4, the relative TCO numbers seem 

much more manageable. Indeed, SAP still has the highest relative TCO results — 

about 20% higher than Oracle (with outliers removed). Nonetheless, this data provides 

a better scale of analysis and naturally leads to an examination of additional 

variables. In the second chart, it is interesting to note that Tier 3 companies spend 

twice as much on ERP as a percentage of revenue. We believe this points to the fact 

that there is a “cost of admission” for ERP, regardless of company size. For compa- 


Appendix 

nies in the top two tiers (assuming ERP spend is about 1% of revenue on average), 

since the time to implement averaged 20 months and we included two years of 

post-implementation cost, a $500M company, for example, could assume that its 

cash outflow ($5M) would be over the course of four years. 

• Other variables provide insight into measures of time and cost: 

⎯ Named users and concurrent users: “Named users” typically represent users 

who are licensed to access the ERP software; “concurrent users” represent the 

maximum number of simultaneous logons. We had good success in the 1999 ERP 

study with the variable “cost per named user.” However, in the current study, 

user counts are dramatically higher, since many companies have large populations 

of self-service users. Therefore, we recommend use of “cost per headsdown 

user” as a measure of the part of the user base that would define ERP 

usage as an aspect of a normal day job. Still, managing self-service users and 

trading partners adds to costs. 

⎯ Additional user dynamics: The number of applications being installed for these 

users has an impact on cost. Of greater consequence, perhaps, to measuring 

TCO are the number of separate physical locations where the users are located. 

Multiple locations on a single continent are more manageable than physical locations 

spanning a number of continents. In the 2002 study, one respondent had 

users in 126 countries. Clearly, this will have a significant impact on the postimplementation 

costs (e.g., “follow-the-sun” help desk). In addition, companies 

must determine whether a template will be created first and then rolled out to 

multiple locations. 

⎯ Data centers: Having one production instance in a single data center is the least 

expensive approach. Costs increase when there are multiple instances in a single 

data center. Clearly, multiple instances in multiple data centers (across three 

continents) can be quite expensive. 

⎯ “Environmental” complexity: We defined five variables — re-engineering, data 

migration, customization, legacy/best-of-breed interface development, and enduser 

training) — which, as an aggregate measure, were highly correlated to TCO. 

We believe re-engineering should be kept to a minimum, and the system should 

be built around best practices of the ERP packages. Moreover, current ERP systems 

have numerous capabilities to configure the system (i.e., change the system’s 

behavior without coding), and customizations should be kept to a minimum. 

Section 6 



Business Impact 

Understanding and managing the components that drive TCO will help drive a project 

toward real benefits that will lead to a significant ROI for the company. 

Bottom Line 

Total cost of ownership is a useful measure for selecting ERP software, but only relative 

to key corporate variables. Companies should compute an overall TCO figure based on 

revenue, dynamics of the user base, and environmental complexity. 

Figure 1 — Applications Currently Installed and Planned 

Application Current Install Plan Plan 36 Growth 12 Growth 36 

12 

CRM 69 11 21 15.94 46.38 

Manufacturing 89 5 6 5.62 12.36 

Buy Side 40 22 25 55.00 117.50 

Enterprise Asset 

71 12 22 16.90 47.89 

Management 

Enterprise Portal 30 23 18 76.67 136.67 

Finance 198 4 1 2.02 2.53 

Human Resources/Payroll 146 10 7 6.85 11.64 

Industry-Specific 

53 6 4 11.32 18.87 

Applications 

Private Trading Exchanges 16 3 7 18.75 62.50 

Prof. Services Automation 17 4 7 23.53 64.71 

Sell Side 41 13 24 31.71 90.24 

Strategic Sourcing/SRM 26 12 9 46.15 80.77 

Supply Chain Planning 54 10 14 18.52 44.44 

Transportation Mgmt. 35 6 12 17.14 51.43 

Warehouse Mgmt. 59 11 9 18.64 33.90 

Total 944 152 186 16.10 35.81 

Figure 2 — Applications Currently Installed and Planned: 

ERP Vendors Versus Others 

Application Primary ERP Other 

Only 

Respondents Primary % Prime per 

vendor 

Other per 

vendor 

JD Edwards 175 81 44 68.36 3.98 2.00 

Lawson 94 46 29 67.14 3.24 1.66 

Oracle 152 68 34 69.09 4.47 2.24 

PeopleSoft 105 67 33 61.05 3.18 2.03 

QAD 98 50 30 66.22 3.27 1.77 

SAP 183 63 34 74.39 5.38 1.91 

Total 807 375 204 68.27 3.96 1.95 


Appendix 

Figure 3 — ERP Vendor Statistics 

Section 6 

Average Revenue by ERP Vendor 

JDE Lawson Oracle PSOFT QAD SAP 

# Responses 44 29 34 33 30 34 

Average $690.8 $585.8 $1,829.9 $2,291.6 $129.1 $2,875.1 

TCO Statistics by ERP Vendor 

All Responses 

JDE Lawson Oracle PSFT QAD SAP All 

# Responses 44 27 26 28 28 31 184 

Average $5.93 $4.99 $15.62 $20.50 $1.50 $104.98 $25.39 

Median $3.60 $2.88 $4.21 $7.33 $0.74 $13.30 $3.71 

Smallest $0.65 $0.61 $0.07 $0.96 $0.20 $2.05 $0.07 

Largest $45.84 $38.00 $255.00 $155.00 $4.90 $875.00 $875.00 

Data Excluding Outliers* 

# Responses 42 25 24 26 26 29 172 

Average $5.99 $4.94 $16.15 $15.84 $1.41 $82.73 $20.99 

Median $3.43 $2.84 $3.51 $6.78 $0.67 $13.30 $3.47 

Smallest $0.65 $0.61 $0.07 $0.96 $0.20 $2.05 $0.07 

Largest $45.84 $38.00 $255.00 $110.00 $4.90 $875.00 $875.00 

*For each vendor, the two highest Relative TCO responses have been removed 

Dollars represented in US millions 

v032603 



Figure 4 — TCO Statistics 

Relative TCO Statistics by ERP Vendor 

All Responses 

JDE Lawson Oracle PSFT QAD SAP 

# Responses 44 27 26 28 28 31 

Average 1.36% 0.56% 1.75% 1.38% 0.73% 2.27% 

Median 1.02% 0.48% 0.98% 0.72% 0.61% 1.00% 

Smallest 0.06% 0.05% 0.01% 0.01% 0.00% 0.05% 

Largest 5.02% 1.67% 12.23% 7.75% 3.50% 18.85% 

Data Excluding Outliers* 

# Responses 42 25 24 26 26 29 

Average 1.20% 0.48% 1.12% 0.90% 0.58% 1.36% 

Median 0.83% 0.38% 0.88% 0.63% 0.58% 0.87% 

Smallest 0.06% 0.05% 0.01% 0.01% 0.00% 0.05% 

Largest 3.21% 1.13% 3.58% 2.65% 1.40% 5.00% 

*For each vendor, the two highest Relative TCO responses have been removed 

Numbers represented in percents 

v032603 

Relative TCO by Company Size 

Company Size Number of Responses TCO as a Percent of 

Revenue 

All Responses 

Tier 1 (>$1B) 62 1.10% 

Tier 2 ($200M-$1B) 79 1.03% 

Tier 3 ($1B) 60 0.60% 

Tier 2 ($200M-$1B) 77 1.01% 

Tier 3 (

Appendix 

Best Practices for Delivering ERP Applications 

Enterprise Application Strategies, Application Delivery Strategies 


Section 6 

Although ERP projects often represent the largest projects undertaken by 

IT and line-of-business executives, when best practices are followed, they 

can lead to on-time, on-budget results that meet project scope. 


(SMB) market, vertical extensions, and technology infrastructure. During 2004/05, vendor 

viability concerns will drive SMB ERP market consolidation as these vendors become 

increasingly threatened by Tier 1 vendors and Microsoft. By 2005/06, Tier 1 ERP vendors will 

leverage their application breadth and component architectures to reduce application complexity 

significantly. 

Many Global 2000 (G2000) companies have completed one or more large ERP projects, 

often resulting in a corporate ERP backbone, but in many cases, multiple ERP systems 

exist across disparate lines of business (LOBs). The above notwithstanding, we believe 

many large ERP-related projects are still in the offing, such as: 

• Consolidation of data centers and ERP instances 

• Renovation (creation) of ERP centers of excellence 

• Rationalization of ERP/best-in-class applications with the current application portfolio 

• Reconciliation of metadata (especially for a single view of the customer) 

• Large projects in CRM, supply chain management, and administrative applications 

(often driven by Sarbanes-Oxley or Basel II) 

• Coordination of a data warehouse architecture and analytical applications 

In addition to these projects, there is considerable activity among small and medium 

businesses (SMBs), which often create wholesale replacements of their entire application 

stacks. 

Through 2008 and beyond, companies will struggle to get ERP projects “right.” Through 

2004/05, a class of integrators will emerge with a focus on the critical elements of organizational 

dynamics and application design. By 2005/06, a complementary group will emerge 

with specialization in developing post-implementation centers of excellence. During this 

entire time frame, successful companies will be forced to create a blended team for 

most implementations. 



For successful delivery of ERP projects, companies must follow a series of best practices: 

• Executive sponsorship: The CEO or a direct report must be the executive sponsor. 

These projects require the commitment of resources and cash on a timely basis, 

and the executive sponsor must have the clout to move quickly and decisively. 

• Business ownership: ERP projects are business projects, not IT projects. There are 

many crucial roles for IT staff to play, but the project must be owned by the business. 

Business and IT executives must work together on a business plan. IT staff can help 

educate the business on what the ERP system is capable of doing, and the business 

must then establish the value of what the system is expected to do (e.g., reduce 

inventory, increase customer contacts that leads to sales). IT staff has responsibility 

for determining the time and cost for delivering the system, as well as the requisite 

post-implementation costs. 

• Organizational dynamics: ERP systems (and other major business implementations) 

are concerned with implementing key business processes across LOBs and geographies. 

To be successful, LOB executives must be willing to compromise and work 

toward a core set of business processes. At the beginning of the project, it is crucial to 

achieve alignment and to identify areas where LOB processing must be “one-off.” 

• Program management/project management: The ERP project is likely to consist 

of multiple related projects (e.g., data center expansion), and a program office will be 

required to oversee these multiple projects. In addition, it is valuable to assess the 

current application portfolio, and consider auditing the current set of applications as 

a precursor to the ERP project. Project management is also a crucial skill, and project 

managers familiar with multiproject analysis, earned value, estimates to complete, 

etc. are invaluable. 

• ERP package selection: A systems integrator or advisory organization can be 

quite helpful during the package selection phase. In particular, the advisor must be 

quite familiar with all the steps previously mentioned, and develop a detailed understanding 

of the future state the company hopes to achieve. There should be an orderly 

process in going from a long list of packages (perhaps six), to a shortlist (two to 

three), and then to the final selection. Under no circumstances should a consulting 

organization be guaranteed the implementation work. Moreover, it is also a mistake 

to have a consulting organization recommend an ERP vendor as a partner or vice 

versa (which is the technology equivalent of the fox in the henhouse). 

• Design for post-implementation: During the design phase, companies should give 

serious thought to what happens after the “go-live” date (it does happen!). This means 

infrastructure and operations executives must be consulted as the system is designed. 

Critical issues must be coordinated across the help desk, testing, quality 


Appendix 

control, database administration, backup/recovery, output management, security, and 

other areas. 

• Implementation teams: Generally speaking, implementation teams are organized 

across process areas (e.g., finance, possibly even be general ledger), with integration 

teams tasked with cross-functional areas (e.g., order to cash). These teams are business-driven, 

and the business people are responsible for the configuration of the 

system. As a key corollary, these people are also responsible for post-implementation 

configurations, as part of their new job responsibilities. Decisions should be 

made at this time regarding where IT and LOB staff will be going next. There are 

generally three possibilities: 

⎯ The application center of excellence 

⎯ Join the template team to roll the system out to different geographies/LOBs 

⎯ Perhaps join the team that will work on the second phase of the project 

• Post-implementation center of excellence: This group has responsibilities that 

include the help desk, configuration, customizations, testing promotion to production, 

training, documentation, new user ID creation, security, database administration, 

support for reporting/business intelligence, infrastructure, and operations. 

Section 6 


Well-executed ERP projects help ensure real benefits for the corporation, within a project 

framework that minimizes cost and manages time estimates. 

Bottom Line 

Attaining alignment between IT and line-of-business executives is crucial for project 

success. Attention must be paid to involving infrastructure and operations staff early on 

in the project. Business people who work on configuration should remain attached to the 

project after the “go-live” date. 



The Cost of Managing ERP Applications 



In most cases, it is impossible to tell when an ERP development project 

truly ends and the post-implementation period begins. That notwithstanding, 

clients must develop a clear picture of post-implementation costs, as 

well as service delivered, tied to key service-level agreements. 


(SMB) market, vertical extensions, and technology infrastructure. During 2004/05, vendor 

viability concerns will drive SMB ERP market consolidation as these vendors become 

increasingly threatened by Tier 1 vendors and Microsoft. By 2005/06, Tier 1 ERP vendors will 

leverage their application breadth and component architectures to reduce application complexity 

significantly. 

It is a myth that a company ever “really” goes 100% live with its ERP implementation. 

Indeed, many companies stretch to make the go-live date but leave some tasks for later. 

A fully implemented system implies: 

• All required business processes are tested 

• The business processes meet 100% of the requirements 

• The business processes must satisfy users (which can also include suppliers and 

customers) in all geographies (read: multiple languages) and all lines of business 

• All interfaces to other applications have been built and tested 

• All legacy data has been imported for system initialization 

• All e-commerce systems have been designed and tested to interact correctly with 

suppliers and customers 

• Infrastructure and operations have all their procedures and processes in place to 

maintain the system 

• All documentation is available online 

• All users have been trained 

• A complete center of excellence has been designed to deal with help desk issues, 

new business processes, new reports and queries, infrastructure and operations 

issues, patches from the vendor, database tuning, etc. 


Appendix 

In our recent study, “Deriving Value From 21st Century ERP Applications,” we asked 

respondents about their post-implementation costs. On average, the respondents’ costs 

in the first year after go-live were 26% of the original project cost and 20% in year two. 

These costs are not insubstantial and must be closely monitored. 

Section 6 

It is still astonishing that there are no ERP vendors or consulting firms that have either 

any data to benchmark these costs or a clear methodology to understand how many 

staff members are required for each area. During 2005/06, we believe this will begin to 

change as more companies go live (mostly) and demand a rigorous methodology on 

how to do ERP management well. 

For now, clients must understand the types of costs and resources they will incur in a 

steady-state ERP environment and plan accordingly. Indeed, an understanding of the ERP 

post-implementation world should drive the overall planning of the ERP project. We 

began to describe some of the staffing costs in previous research (see ADS Delta 1044), 

but will expand that discussion here. 

Hardware Considerations. ERP vendors (especially Oracle), have often discussed 

the merits of a single production instance. In principle, this can be quite effective for 

establishing and maintaining a single version of the truth. However, consideration must be 

given to the duplication required to shadow the production processors and storage 

requirements — development landscape, testing/quality assurance landscape, disaster 

recovery capabilities, data mirroring, etc. In fact, creating redundancy for two smaller 

systems might actually be cheaper than doing so for one megalandscape. The ERP team 

must create service-level agreements with end users regarding to availability as well as 

scheduled and unscheduled downtime. A true 24x7 environment may be possible, but it 

will certainly be expensive. In particular, this analysis should include an investigation of a 

range of activities from minor bug fixes to major upgrades. 

In addition to the redundancy issues, allocations must be made for the use of desktop 

machines (if dedicated), processors, storage, and network capability. Capacity management 

should be a key function within IT operations, and the allocation of capacity to the 

ERP system should be tied to ERP value. 

Operations Staff. In general, since more work will be required to support a new ERP 

system (even when legacy systems have been retired), IT operations staff must make 

decisions as to what new personnel or special training will be required. Areas to consider 



will include security, database administration (some ERP vendors take unconventional 

approaches to storing data), print management, output management, performance management, 

and the entire “promote to production” process (e.g., how configuration changes 

wind up in the production system). In addition, the ERP vendor will want direct access 

to the production system to support troubleshooting (e.g., SAP’s Solution Manager), and 

the operations staff must determine how to allow this while maintaining secure control 

of the production environment. 

Following the Business Process. A crucial decision should be made early in the ERP 

implementation as to what role business users will play during and after implementation. 

We believe business superusers should configure the software and have part or all their 

jobs defined around ERP in a steady-state organization. There are alternatives to this 

theme — a heavier involvement by IT staff and an outsourcing approach, where the 

consulting firm implements a design/build/run approach (e.g., Accenture, IBM e-business 

on demand). Once a well-defined approach for the business users has been defined, a 

number of other areas become more clear: 

• Help desk: The help desk needs to take trouble tickets and will include the business 

superuser as Level 1 support before problems become further escalated. In addition, 

help desk calls should be reduced because the business users spend time helping 

their colleagues. 

• IT application specialists: These specialists will have more of a concentration on 

system customizations (which should be minimized anyway), but the IT application 

specialist should know the basic system functionality well enough to take off-hours 

help desk calls (it is difficult to get the end users to wear beepers). 

• Business liaison staff: This could be done by application specialists, but it is often 

efficient to have dedicated IT personnel who “live” with the end users and represent 

their interests. 

• Documentation, training, and simulation: These functions are mandatory for 

system go-live, but if they are not maintained regularly, changes to the system will 

not be reflected correctly in documentation and users will not be trained. 

• Process (and other) changes: Users will require (or hope to get) new business 

processes, forms, etc. As they are developed (by business users and perhaps IT 

staff), the formal process of “promote to production” must be maintained. 

• The ERP program office: Staffing will be required by IT and line-of-business staff, 

even in steady state, to negotiate system changes. Governance is crucial in an ERP 

post-implementation world. 


Appendix 

Following the Data. Most ERP implementations have a companion data warehouse 

(which must be maintained over time by IT) and a set of production reports. Moreover, 

end users will create an “adhocracy” to continue developing reports and queries. This ad 

hoc world must be monitored by IT staff (e.g., how many resources are being consumed 

by full-table scans), and when new reports are production-ready, the IT staff must tune 

them and add them to the production library. IT and line-of-business personnel must 

negotiate the level of service delivered and the level of monitoring required, and agree 

on key workflows. 

Section 6 


The post-implementation environment must be monitored carefully to continue delivering 

the kind of value that was achieved (hopefully) when the ERP system went live (mostly). 

Bottom Line 

The strategy for the post-implementation organization should be decided as part of the 

overall ERP strategy. IT and line-of-business roles must be clearly defined. IT staff roles 

for operations, business process maintenance, and reporting/analysis must be defined, 

communicated, tied to value, and coordinated through service-level agreements. 



The Migratory Patterns of ERP Customers 



Enterprise resource planning (ERP) migrations within the same product family 

(e.g., PeopleSoft 7 to PeopleSoft 8) can be complex, but migrations from one 

ERP vendor to another are more like installing a new ERP package. 


(SMB) market, vertical extensions, and technology infrastructure. During 2004/05, vendor viability 

concerns will drive SMB ERP market consolidation as these vendors become increasingly 

threatened by Tier 1 vendors and Microsoft. By 2005/06, Tier 1 ERP vendors will leverage their 

application breadth and component architectures to reduce application complexity significantly. 

With the recent acquisition flurry (e.g., PeopleSoft/JD Edwards, Oracle/PeopleSoft), there 

has been considerable discussion about ERP migrations. In the simplest case, two companies 

merge and leave both product lines relatively intact. Over time, the client might be 

able to use components from one ERP package to enhance the capability of another. In 

the more radical case, one ERP vendor might buy another ERP vendor and announce a 

strategy to retire the second vendor’s software. In that situation, the client must consider 

how to achieve this migration and plan accordingly: 

• Reassembling the team: The company with an installed ERP package should be 

relatively happy with its assignment of staff to post-implementation jobs. Once the 

migration has gone live, typical staff teams support the migration, travel to sites to 

get the software working, and work on the next phase of the ERP project. These 

teams must be disassembled and a new team put in place (many members of which 

may have just recovered from the trauma of a difficult ERP implementation). 

• Hiring a systems integrator (SI): The creation of a new ERP system is a complex 

task, and the client must interview, select, and manage the SI (again). Moreover, the 

suggested vendor implementation approach (e.g., ASAP from SAP) will vary from 

vendor to vendor and must be relearned. 

• Planning the future state: A new ERP system represents an “opportunity” to once 

again plan the future state of the organization. The current state is represented by the 

current functions performed in the current ERP system. The organization needs to 

go through a formal design phase to re-establish this future state within the confines 

of the new ERP system. The most challenging aspect will occur where the new ERP 

system does not perform functions that existed in the old system (e.g., global trade 


Appendix 

logistics). In this case, the client can customize the new package or forgo the functionality. 

This phase is likely to take at least three months. 

• Configuring the software: Current business processes may be modestly useful toward 

a new configuration, but the work of configuring the software and re-establishing 

the workflows (along with associated identities, roles, permissions, etc.) remains. Once 

the basic system has been reassembled, it must be tested iteratively by end users to 

ensure the correct functionality is present. This phase can easily take six months. 

• Establishing the data model: There will be new data architecture, and the client 

will have to migrate data from the old ERP system (and other systems) to establish 

the data foundation for the new application, regardless of whether the underlying 

DBMS remains the same. 

• Warehousing the data: Each ERP vendor has a unique approach to data warehousing, 

and the client must re establish an approach to populating the new ERP data warehouse. 

The architecture is likely to be different as well (e.g., OLAP, ROLAP, MOLAP, 

relational tables). In addition, each vendor has a different approach to business intelligence, 

complex reporting, and which reports are “canned.” Time must be allocated to 

establish a new decision support environment, what reports are to be canned, and how 

end users will be empowered (yet again). Moreover, the new ERP data warehouse 

must be made part of larger data warehouse architecture for the enterprise. 

• Re-establishing analytical applications: The two vendors will have different outof-the-box 

approaches to analytical applications (e.g., business performance management), 

and the new collection of analytical applications must be re-established. 

• Integrating with other applications: There will be a requirement to integrate this 

application to perhaps dozens of other applications in the enterprise, and a middleware 

strategy (including potentially application servers, EDI mappings for partner integration, 

etc.) must be re-established. 

• Determining or retrofitting portal strategy: The new ERP system will come with 

its approach to portal technology, and the strategy for empowering end users must 

be re-established. At the very least, new “widgets” to integrate the new applications 

will be required. At worst, third-party applications must be reintegrated, dashboards 

established, and a closed-loop approach decision support must be rebuilt (whether 

through the portal or otherwise). 

• Reconfiguring infrastructure and operations: IT staff members will have to resize 

the application and create an approach for areas like servers, network, database, 

security, backup and recovery, disaster recovery, systems management, output management, 

etc. This will require a thorough understanding of the internal architecture 

of the new application (e.g., application servers). 

Section 6 



• Testing: The new application must go through single and multithreaded testing. Moreover, 

an approach to “promote to production” must be established to enable the 

testing of post-implementation patches, new configurations, etc. 

• Re-establishing the center of excellence: The functions of a center of excellence 

must be reestablished, as well as the approaches to help desk, continuous testing, 

customization, integration, etc. 

• Training and documenting: The new ERP system will require a unique approach to 

training and documentation. Classes must be planned for both IT and line-of-business 

staff. Moreover, there is an expectation that the ERP vendor will offer training 

software that can be installed and maintained by the client. 

• Teaching: In most cases, the client must assemble a traveling team to go to multiple 

locations to teach the usage of the software. This problem is made more complex, of 

course, if there are “N” installations of the software in data centers around the world. 


ERP migrations must take into account the ability to “perform while transforming,” ensuring 

that businesses continue to operate during the migration’s various phases. This will 

include not only IT planning and execution, but also business preparedness. 

Bottom Line 

Swapping one ERP system for another is a complex project that should not be underestimated. 

Most Global 2000 companies should allocate at least one year for the transition. 


Appendix 

Three Out of Four ERP End Users Raise the 

White Flag 

Enterprise Application Strategies, Professional Services Strategies 

Michael Doane 

Section 6 

Although organizations that installed ERP lurched through their initial years 

of operations, IT service providers continue to offer assistance for greater 

integration, extended applications, geographic rollouts, and operating efficiencies, 

usually with a marketing mantra that features return on investment. 

However, client end-user bases exhibit eroding skills, thus compromising 

business benefits of ERP, and few viable, continuous end-user monitoring 

and training offerings are on the horizon to address this erosion. 

META Trend: Clients will continue to seek post-implementation services for both IT management 

and business process enhancement from software vendors through 2003/04, but lack 

of adequate service availability will drive them back to third-party consultants or internal 

means. By 2005/06, all major software vendors will offer suites of post-implementation services 

or service-level agreements in direct competition to their alliance partners. 

Our research reveals that 76% of organizations surveyed find that the competency level 

of ERP users is substandard or failing. Only 22% of such organizations instituted a comprehensive 

plan, and 56% have provided no end-user training beyond the training that was 

provided at the conclusion of the ERP implementation. These same organizations also 

show an unhealthy reliance on a “user trains the user” approach (57%). 

Among the 24% of organizations claiming their user base is highly competent (11%) or competent 

(13%), 87% provide regular refresher training or new training after system changes or 

upgrades, as opposed to 43% of organizations with substandard or failing end users. 

For both groups, ERP end-user training has been accomplished through various external 

sources, often in combination with the following: 

• ERP vendor-supplied trainers: ERP vendor-supplied trainers often have extensive 

product/software knowledge but are not as business-savvy as their counterparts, 

and tend to provide more product-generic training rather than training that focuses 

on actual client business processes. 



• Third-party ERP training organizations: Third-party ERP training organizations 

usually provide a combination of product knowledge transfer and tangible “how to” 

information by leveraging design documentation in training documents. 

• Third-party ERP systems integrators: META Trend: Clients will continue to seek 

post-implementation services for both IT management and business process enhancement 

from software vendors through 2003/04, but lack of adequate service 

availability will drive them back to third-party consultants or internal means. By 2005/ 

06, all major software vendors will offer suites of post-implementation services or 

service-level agreements in direct competition to their alliance partners. 

Third-party ERP systems integrators are more costly and are not always professional 

trainers but they are often more able to teach end users their roles within each business 

process because of prior involvement in both business process design and configuration. 

• Independent consultants: Independent consultants are less costly than systems integrators 

but are not always professional trainers. If they have had prior involvement during 

development phases, they may, like systems integrators (SIs), help end users understand 

their roles within each business process. However, the results of our study suggest that 

the use of independent consultants may be negative. Only 5% of the respondents with 

competent or highly competent end users engaged independent consultants, while 24% 

of the respondents with substandard or failing users did so (see Figure 1). 

Budgets have traditionally been limited to one-time ERP end user training (with this training 

occurring at the end of a project) and 56% of the firms with sub-standard or failing end users 

have never provided any subsequent training. Given the life-span on an ERP installation (many 

are already 10 years old), this failure to return to training has obvious consequences. 

The preferred combination of end-user training methods/sources (at 48%) was “a combination 

of peer instruction, professional instruction, and distance learning.” The next two 

preferences at 18% each were “a combination of instruction and distance learning” and 

“peer instruction only.” 

In any case, the current state of ERP end-user competency is unacceptable, and both 

clients and IT service providers need to address the problem. Therefore, clients must 

do the following: 

• Take a long-term view of ERP end-user training (83% of the organizations with competent 

or better end users instituted a comprehensive training plan, as opposed to 

22% of the organizations with substandard competence) 


Appendix 

• Institute a cycle of continuous or refresher training, with the right combination of 

outside and inside training resources and distance learning (preferably a simulator) 

• Establish a process to capture and disseminate best practices and lessons learned 

throughout the organization (71% of successful organizations have done so, as opposed 

to 44% of unsuccessful organizations) 

Section 6 

SIs are urged to recast their implementation methodologies to include a deeper focus 

on end-user training and link organizational change management to the development of a 

comprehensive training plan (extending well beyond the implementation duration), in 

which the following occurs: 

• End-user performance monitoring and performance criteria are established 

• Training means are identified (e.g., combination of periodic outside training agents, 

internal “trainer trains the trainer,” and software simulation tools) 

• Ongoing ERP competency is included in clients’ operational budget 

End users fulfill the business processes that are supported by ERP software, and their 

competency, or lack thereof, has a direct effect on the efficacy of those processes. 

Although ERP leaders continue to swing the ROI “baton,” too few of their users can read 

the “music.” A continuing failure to address end-user competency will condemn organizations 

to continuing cacophony and operational disappointment. 


ERP training organizations should enter into recurring fee or repeat contracts with clients 

in order to supply the continuous end-user training that an ERP client must possess 

to achieve lasting ROI. 

Bottom Line 

Although other investments in the ERP installed base may well bring excellent returns, 

raising the level of end-user competency is imperative. If this does not occur, gains made 

through other means may be ephemeral. 



Figure 1 — Combination of Resources Used for End-User Training 

A 

(Highly Competent + 

Competent) 

B 

(Substandard + Failing) 

ERP vendor-supplied 20% 17% 

Third-party ERP training 10% 13% 

Third-party systems integrator 15% 5% 

Independent consultant 5% 24% 

Internal staff 90% 78% 


Appendix 

Using a Center of Excellence to Revitalize 

Business Through Enterprise Applications 

Enterprise Application Strategies, Outsourcing & Service Provider Strategies, Professional 

Services Strategies 

Michael Doane 

Section 6 

FOCAL POINT 

Clients focusing solely on day one of “go live” rollout of enterprise applications — at the 

expense of the long-term perspective — have been increasingly disappointed in the results 

of their implementations. These firms suffer from decreased business benefit and 

an erosion of user competency, thus compromising the value of the enterprise application 

asset as well as customer relationship and supply chain management. To avoid such 

disappointment and gain continuous business improvement over the life cycle of an enterprise 

application installation (i.e., 20+ years), we recommend that clients create a 

center of excellence (COE). 

META Trend: Clients will continue to seek post-implementation services for both IT management 

and business process enhancement from software vendors through 2003/04, but lack 

of adequate service availability will drive them back to third-party consultants or internal 

means. By 2005/06, all major software vendors will offer suites of post-implementation services 

or service-level agreements in direct competition to their alliance partners. 

CONTEXT 

Persistent Enterprise Application Disappointment and Increased Application Complexity 

Along with immature enterprise application methods and consulting skills, the Y2K deadline 

led to a vast number of rushed enterprise application integration projects, leaving 

hundreds of client firms still searching for visible benefit. In addition, fully 80% of the 

firms in the enterprise application installed base formally or virtually created some form 

of enterprise application support environment within 18 months following their initial golive 

date. Few of these firms express satisfaction with the process followed and even 

fewer are satisfied with their results. In most cases, the users had little or no consulting 

assistance, since few professional services include post-implementation support services 

in their enterprise application solution portfolio. Clients have moved inexorably to day 

one of enterprise application go-live rollout and have reverted to pre-enterprise applica- 



tion IT maintenance processes that fail to take advantage of enterprise application functionality 

and evolution. 

Two key failures have led directly to enterprise application disappointment (see Figure 1): 

1. The “wedding” viewpoint of enterprise application investments and returns 

2. Failure to institute business-based targets and measurements 

Enterprise application clients, alarmed by the high cost of implementations, have traditionally 

insisted on speed and economy to the detriment of business benefit. A parallel 

failure to include business performance measurements leaves firms unable to determine 

the value of the implementation or to reliably identify the subsequent business gains that 

can be achieved. 

Current Implementation Methods: Failing to Provide 

Long-Term Business Benefit 

During the early stages of an enterprise application implementation, users ask the following 

two questions, which are not easily answered by systems integrators (SIs) and require 

further conditional investigation or prior completion of interim implementation steps: 

• For post-implementation, how should we reorganize our IT group? 

• When and how do we transition to this new organization? 

In response, enterprise application implementation consultants usually provide only parenthetical 

responses relating to an “it depends” axis and the variables of: a) number of 

users; b) business entities; c) geographies; d) ambitions; and e3) budgets. 

Figure 1 — The Enterprise Application Lifespan 

Vendor/SI View: The ERP Wedding 

Client Reality: The ERP Marriage 

1-3 Years 

15-22 Years 

Investment Scope 


Appendix 

The “post-implementation” vision provided by consultants is too often centered on 

the intended business benefits as established during the planning stages, at which point 

clients are only at the beginning of the enterprise application learning curve. The “to be” 

vision established during the design and blueprint phases is seldom fully mastered by 

client staff, and too often this vision is viewed as an end state rather than a launch state. 

Indeed, the greater vision of “continual business evolution” is seldom mentioned in 

implementation methodologies. 

Section 6 

The error is in the linear “start-stop” philosophy of implementation methodologies. The “planning,” 

“design,” and “build” activities are covered right up to day one of “run” (with“run” having 

purely operational meaning, while ignoring the key notion of continuous business improvement 

— see Figure 2), yet scant attention is paid to day two through day 1,000. 

Evolution of an enterprise application installation from day two through day 300 

usually includes: 

• Geographic rollout: Additional hardware, software instances, and users 

• Business process redesign: From tinkering to wholesale business process changes 

(usually spurred by a mastery of the enterprise application learning curve based on 

live experience) 

• Extended applications: Either within the realm of enterprise applications or in 

buy-side (SCM) or sell-side (CRM) spheres, requiring integration or interfacing 

These considerations are only casually addressed in nearly all enterprise application implementation 

methodologies. 

Figure 2 — Superseding Incremental Improvement 

Go Live 

Continuous Business 

Improvement 

B 

E 

N 

E 

F 

I 

T 

To Be 

As Is 

COE 

Incremental 

Improvement 

Core 

Implementation 

TIME 

Performance Curve 

Go Live = The end of the beginning 



By the go-live date, client training has included: 

• Enterprise application orientation for senior and middle management 

• Project team training (regarding the software and methodology) 

• End-user training 

• IT support training 

All of this training is geared toward a static “future state” vision (most commonly referred 

to as the “to be” vision) developed during the planning and design phases of the 

core implementation project. It is presumed that this vision will be fulfilled on or about 

day one of the go-live rollout (see Figure 3). Yet it is common knowledge that few firms 

fulfill their vision at this point. Also, implementation methodologies fail to address the 

twin facts that: a) organizational requirements change faster than software can be implemented; 

and b) successive “to be” visions must be generated and pursued. This failure 

leaves clients stuck in a rut of incremental, snail-paced evolution. 

Figure 3 — Implementation Methodologies Stop at Day One 

Plan Design Build Run 

Go Live 

Project Charter 

Funding 

Commitment 

Scoping 

Staffing 

Benefits 

Targeting 

Enterprise 

Model 

Definition 

Process 

Design 

Data 

Analysis 

Project Installation 

Software 

Configuration 

Reporting 

Interfacing 

Data 

Cleansing 

Sizing 

Integration 

Testing 

Data Migration 

Interfacing 

User Testing 

User Training 

Production 

Platform 

Help Desk 

Interface 

Support 

Benefits 

Monitor 

Process 

Improvement 


Appendix 

Overview of a Center of Excellence 

A center of excellence resides at the heart of an IT/business organization and replaces 

the traditional relationship between IT and business, in which business advocates 

request IT services, define needs to IT representatives, and then test and 

implement new or revised software. The key organizational difference for a client 

firm moving to a COE is the shift of some traditional IT functions into the center of 

excellence, including business process design, integration management, and enterprise 

application business functional configuration/programming. The essential function 

of the COE is to drive continual business benefit through: 

1. Optimization of business processes that drive business benefit 

2. Optimization of end-user competency and employee fulfillment of business processes 

3. Continued coherence and integration of functionality and data through all process chains 

Section 6 

The center of excellence is run by the enterprise program management office (EPMO), 

which reports to the CIO and the IT steering committee while receiving its project 

initiatives from the various lines of business. Ideally, these initiatives will be driven by key 

performance indicators (KPIs) as well as traditional business imperatives such as mergers, 

organizational changes, and event-driven programs. In essence, the EPMO is responsible 

for an evolving “to be” vision. 

Although the COE may reside within the greater IT organization, it is made up of elements 

from various domains (see Figure 4), including: 

• Application management 

• Vendors 

• The client lines of business 

• The client IT organization 



Figure 4 — The Center of Excellence: Its Own Entity Within the 

Traditional IT Organization 

IT Steering 

Committee 

CIO 

Sourcing & 

IT Financials 

IT Human 

Resources 

Change 

Management 

IT 

Architecture/ 

Planning 

Quality & 

Measurement 

Program 

Management 

Security 

Business 

Groups 

Process Delivery/ 

Maintenance 

Integration Mgmt. 

Center 

Technology 

Domains 

• Database 

• Host 

• Middleware 

• Network 

• Desktop 

• etc. 

Infrastructure 

Development/ 

Engineering/ 

Technical 

Support 

Operational 

Services 

of 

Excellence 

Technical 

Support 

Operations 

Although other terms for an entity similar to a COE have been used (e.g., competency 

center, support center, customer care center), we view “center of excellence” as a 

superior label because it presumes that the focal point and purpose is business-based 

rather than IT-based. A successful COE must include the full contribution of business 

staff, which often balks at being “assigned to IT” and thus may shun assignment to a 

“competency center.” A disadvantage to using the term “customer care center” is that 

the customer as well as everyone else in the firm is viewed as the end customer. 

It is important to note that the COE may well be a virtual organization with component 

members in various divisions and geographies. Whether local or virtual, the COE functions 

according to the governance and drivers described in the following sections (see Figure 5). 


Appendix 

Enterprise Program Management 

The EPMO drives the vision, strategy, budget, and prioritization for application management. 

This may include formal software implementation projects or directives for specific 

business process changes or improvements. On a day-to-day basis and in project 

mode, process owners drive business process improvements to the software configuration 

and support team for execution and unit testing. The highest priority for this group 

is continuous business improvement. 

Section 6 

Figure 5 — Center-of-Excellence Domains 

Client IT Domain 

Enterprise Program Management 

Users 

Application Management Domain 

Process Owners 

Users 

Users 

Users 

Client 

Line-of-Business 

Domain 

Software Vendor 

Domain 

Help Desk 

Continuous Education 

Finance 

Sales 

Logistics 

Software Configuration & Support 

Production 

… 

Extended apps 

New apps 

Upgrades 

Custom Applications 

Integration Management (Functional, Cross-Application) 

Integration Management (Technical) 

Production Control/Change Management 

Client IT Domain 

Application Management 

The application management team is responsible for help desk support. Unresolved calls 

relative to applications are reported to the software configuration and support team or 

to relevant vendors. Help desk functions may also be shared by specific application software 

vendors for issues that exceed internal capacity or expertise. 

Responsibilities of the software configuration and support team, which resides within 

application management, include: 

• Effecting non-customized changes to application software 

• Providing functional specification to the custom application engineers 



• Performing unit testing of software changes 

• Ensuring continuous education of the end-user base 

Also in the realm of application management are custom applications such as reporting, 

bolt-ons, and interfacing. 

Integration Management 

The integration management team is responsible for cross-application integration testing 

and the handover of results to the IT domain for technical integration, change management, 

and production control. This level of integration management is the nexus between 

a business-centric application management group and the IT support entity. 

The Enterprise Application Value Chain 

For any enterprise, business results are directly reflected in a profit-and-loss (P&L) statement. 

Key performance indicators that most directly affect P&L results should be identified 

as well as the business processes that drive these KPIs (see Figures 6 and 7). For 

example, order fulfillment turnaround time and costs have a direct effect on both costs 

and revenues, and therefore drive KPIs such as revenues per employee and cost of 

finished goods, as well as other key performance indicators. 

Figure 6 — Driving Business Improvement Through Key Performance Indicators 

Profit & Loss 

Key Performance Indicators 

Sample Sample 

Business Business 

Performance Performance 

KPIs 

KPIs 

8Return 

8Return on on 

sales 

sales 

8Return 

8Return on on 

assets 

assets 

8Net 8Net sales sales 

per per 

employee 

employee 

8Ratio 

8Ratio of of 

assets/liabilities 

assets/liabilities 

Business Process Drivers 

Order 

Order 

Fulfillment 

Fulfillment 

Procurement 

Procurement 

Production 

Production 

Application Software 

1. When targeting KPI improvements, use industry and peer performance as a relative 

benchmark 

2. Identify business processes that drive KPIs 

3. Redesign these processes and configure the software 

4. Train relevant users 

5. Go back to step 1 above 


Appendix 

End users have traditionally been trained only for enterprise applications functions. They 

should now be trained according to their roles in fulfilling business processes and how 

such fulfillment drives business performance improvement. 

Section 6 

Figure 7 — An Example of KPI Targeting 

Industry 

Peer 

KPI Current Average Average Target 

Cost/sales order processing $14.66 $12.25 ($2.41) $12.66 ($2.00) $12.00 

Annual Annual Target 

Business process ERP Modules 

Volume Cost Gain 

Order Fulfillment Sales, materials management 

100,000 $1,466,000 $266,000 

Transforming the “Build” Team iInto a Continuous Business Evolution Team 

During enterprise application implementation projects, SIs join with client IT and business 

staff to form a project team primarily dedicated to business process design and 

subsequent configuring of software to fulfill that design. This team is usually complemented 

by other IT build teams that address reporting, interfacing, data warehousing, or 

custom applications. 

Most clients erroneously dissolve these teams shortly after going live and revert to a 

traditional IT maintenance mode, which results in the incremental improvement rut 

mentioned earlier in this Practice. To ensure continuous business evolution, these teams 

should remain largely intact, with sufficient resources to not only maintain the initial “to 

be” vision but also drive evolution through extended applications, renewed business 

process improvement, and extended user competency. 

During an implementation project, most of the COE elements are already in working 

order. Process owners define business design with the application management team, 

whose software changes are moved to integration management and then to production. 

Just prior to the go-live date, the remaining elements are added, namely the help desk 

and the end-user population. Help desk staff and end-user groups should be trained not 

only for the software being implemented but also for the continuous business evolution 

methodology inherent in the COE. 

Building a COE During or After Implementation of Enterprise Applications 

Nearly every enterprise application consulting firm studied by META Group lists “ROIdriven” 

at the top of its list of differentiators, but none of these organizations has demonstrated 

consistent ability to help clients move past day-one implementations to drive 



continuous business improvement. We believe consulting firms should upgrade software 

implementation methodologies, most specifically for enterprise applications, to include 

the planning and creation of an internal center of excellence. This would result in: 

• Clients being better served 

• New consulting business being generated 

• The way being paved toward “continuous service” 

For clients who have already implemented enterprise applications and are seeking to 

create a COE, the task will be more difficult, since the impetus for organizational change 

may be lacking and the traditional business/IT misalignment may appear daunting. For 

such firms, a commitment to continuous business improvement and the empowerment 

of business will be the means by which such barriers will be overcome (see Figure 8). 

A center of excellence should fulfill four functions (see Figure 9): 

1. Maintenance and support of enterprise applications and related functions 

2. Optimization of current system usage 

3. Continuous business improvement 

4. Preparation of the company for transformational change 

Figure 8 — Knowledge Requirements for Transition 

From Project Mode to COE Mode 

Group 

Direct Users 

• System exploitation 

• Training and re-training 

• Exceptions reporting 

• User testing 

Help Desk 

• (Front end) call Center 

• Functional assistance/referral 

Process Owners 

• Monitor business results 

• Define business process improvements 

Application Management 

• Help desk assistance (business process level) 

• Executive business process improvements 

• Unit testing 

• Continuous end-user training 

Integration Management 

Production Control/Change Management/ 

Middleware Administration 

Architecture and Infrastructure 

Knowledge Required 

Business/IT integration principles, process flow, module 

functional mastery, help desk procedures 

System navigation and connectivity troubleshooting, 

security tracing, typical application functional questions 

to query users when reporting problems 

Business/IT integration principles, process flow, module 

mastery, help desk procedures, methodology 

Line-of-business business knowledge, business/IT 

integration principles, integration, process flow, workflow, 

module mastery, help desk procedures, methodology 

Business/IT integration principles, software package 

integration, workflow, database, legacy architecture, 

methodology 

Transport control, change management, hierarchy, 

instance management 

Enterprise application hierarchy, instance/version 

management, client/server architectures, security, 

database 


Appendix 

Figure 9 — Levels of COE Aims 

Section 6 

To Be 

As Is 

Prepare the company for 

transformational change 

(all the time) 

Continuous 

business improvement 

Optimization of current 

system usage 

Maintenance and support of 

ERP and related functions 

(ERP/CRM/SCM) 

Effective planning and implementation of a center of excellence as part of or following an 

enterprise application implementation will include the following steps. 

During Planning 

A high-level vision for a post-implementation COE should be created. This vision will 

address: 

1. The scope of the center of excellence: Will the COE support just the enterprise 

application installation, or will it also support legacy systems, bolt-ons, and interfaces? 

2. Organization/structure: There are at a minimum four basic variants for a COE 

organization, depending on a client’s size, geographic locations, and support requirements 

(see Figure 10). 

3. A transition plan (high level): A calendar must be defined for migration of legacy 

systems to enterprise applications as well as for the migration of legacy IT staff to 

new roles in the COE. Organizational change management during enterprise application 

implementations tends to embrace only business organizational changes and 

usually fails to include changes to the IT organization. Therefore, if a firm has already 

implemented enterprise applications, the main organizational changes will probably 

be in the IT organization. 



Figure 10 — COE Organization Variants and Characteristics 

Variant 

Single-instance support 

Multiple-instance support 

Small organization 

Remote flex support 

Characteristics 

Centralized IT and continuous evolution functions; can 

embrace remote functional expertise 

The COE provides the technical and functional hub to the 

galaxy of instances 

IT support and continuous evolution functions can be 

combined 

Continuous evolution functions are assigned to rolling, 

separate teams united by program management 

During the Design Phase 

1. Create an initial roster for the application management team: This team will necessarily 

be comprised of business-centric individuals who are willing to make the transition 

from pure business to the COE and will be required to complete a career transition 

program. This roster typically is made up of members of the internal project team. 

2. Establish post-”going live” role definitions: These should be established for the 

EPMO, application management, and integration management teams. 

3. Determine which COE functions will be outsourced 

4. Launch outsourcing negotiations with chosen vendors 

5. Create a staff transition plan: This transition plan should include: a) product training; 

b) methodology training; c) team orientation; and d) change management. 

These activities are usually also included in the implementation methodologies for an internal 

project team. The sole variant in this regard is that post-implementation responsibilities 

will be addressed as well as project responsibilities, according to the role definitions. 

During the Build Phase 

1. Complete transition education for COE staff 

2. Integration and orientation of outsourced COE functions: This should commence 

as the build phase reaches the final preparation phase. 

3. Initial end-user training: This should include an introduction to COE user-support 

functions, and the help desk should be in place. 


Appendix 

Going Live 

1. Operational COE: The center of excellence is operational, with all elements in 

place for continuous business evolution. 

2. Transition and re-assignment of legacy IT staff: After going live, the balance of 

legacy IT staff will be: a) transitioned to the new enterprise application-centric organization; 

b) re-assigned within the organization; or c) terminated. 

Section 6 

“Selling” the COE to Enterprise Application Clients 

Ideally, consulting firms will upgrade core implementation methodologies to include the 

steps required to help a client establish a center of excellence at the “go live” stage of an 

enterprise application endeavor. A significant impediment to this inclusion is the increased 

cost of enterprise application implementation. Although building a COE will probably add 

less than 3% additional consulting costs, it will dramatically increase the change management 

burden for clients. The additional steps required to build a COE may have little 

impact on the duration of an implementation, but the power curve that clients will need 

to surmount may have a serious effect on project progress. 

Internal selling points that will help overcome these obstacles include the following: 

1. Maximizing the investment: the installation of a viable engine for continuous business 

improvement provides a client with benefits that extend well beyond those defined 

in the initial business case. Potential systems integrators should contrast the 

additional cost of building a COE during the implementation (with the on-site guidance 

provided by an SI) with the probable cost of building one after the implementation. 

2. Having a responsive IT organization: An enterprise application implementation is 

intended to remove the wall between business and IT by providing the business with 

the means to directly address IT support for business processes. META Group 

estimates that fewer than 20% of the firms in the enterprise application installed base 

have actually removed this wall. An SI’s greatest appeal is to the business side of the 

client in demonstrating how, post-implementation, it will be able to drive its business 

through program management and process ownership. 

3. Reducing cost: Various traditional IT functions, such as functional/technical design 

and programming, are vastly reduced in scope as a result of an enterprise application 

implementation. The inclusion of a COE during the planning phase enables more precise 

cost planning for the post-”go live” phase. 

4. Increasing user competency: End-user training prior to going live does not ensure continuous 

user competency, nor does it cater to continuous training based on the inevitable 

evolution of applications (through improvements, upgrades, or standard revisions). 



5. Leveraging client testimony: The testimony of knowledgeable clients from the 

vast installed base can be used to support the COE initiative. 

All of these internal selling points for a center of excellence are valid not only for new 

enterprise application clients but also for clients in the installed base. 


For clients implementing enterprise applications for the first time, we recommend that 

the building of a COE be included as part of the implementation. Clients who have already 

installed enterprise applications should retrofit a COE and establish a recurring 

cycle of “to be” visions that will be fulfilled by the COE. 

Bottom Line 

Exaggerated cost-consciousness during enterprise application implementations may lead 

to insufficient funding and a lack of focus on long-term maintenance and extension of the 

enterprise application asset, thus eroding user competency and business benefits.

The Current State of ERP Services

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