In terms of business processes and employees, the reach
of enterprise resource planning systems in large companies covers a
footprint of employees unprecedented compared to earlier
applications.
Like all assets, ERP must be maintained, but its scope has made
upgrades expensive and risky to the business.
Any upgrade of a large ERP system is a significant investment that
must deliver business value, requiring careful co-ordination of
upgrades with business change and expansion to avoid projects that
deliver little or no return on investment.
AMR Research recently updated a survey on ERP upgrades first done
in 2002. The results are described in the report Minimising ERP
Upgrade Costs Requires Synchronising With Business Improvement
Projects. Since the first survey, the ERP user base has gained
experience with upgrades, but it is divided on the best strategy
for balancing the costs and benefits of upgrades.
Upgrades are still expensive
As much as suppliers would love their customers to keep up with the
latest versions of their software, the cost of upgrades is still
too high, averaging £1,038 per business user. Put in perspective,
this is:
- 50% of the original software licence fee and 20% of the
original implementation cost per user - £5.2m for a 5,000-user
system.
- One person-week of internal or consulting labour per business
user.
- Eight to nine months of effort with a team the equivalent of
one full-time employee per 35 business users.
Even so, companies were found to be much more likely to finish
ERP projects on time and on budget today than in AMR's earlier
survey.
Even minor point release upgrades cost only 33% less than a major
functional upgrade. One reason for this is testing, which consumes
24% of the effort in an upgrade.
A lot of small steps are more expensive than a few big ones. Nearly
50% of the upgrades are forced by technology changes and the ending
of support.
Of the companies that responded, 45% said they wait until they are
backed into a corner to do an upgrade. Consider the following:
- Only 15% of upgrades in the study were forced by de-support of
the running version of software. Do not feel bad for these users.
Given the liberalisation of supplier support polices in the past
few years, the installations probably had not been upgraded for
four years or more.
- Another 6% were triggered by bug fixes or statutory changes.
Companies often found it was just as much work to take a new
version of software as to try to selectively patch the old
one.
- 24% were triggered by technology stack changes. Often companies
find they cannot expand their current hardware and newer larger
machines have new versions of operating systems and databases,
triggering an upgrade cycle.
- 55% of upgrades were voluntary business improvements triggered
by the need for new functionality, expansion or consolidation of
systems. Even if an upgrade is not required, most of the planning,
testing and training costs are the same. The result is that most
companies build an upgrade into their expansion plans.
Control the upgrade schedule
IT organisations trying to set a policy for how often to upgrade
enterprise applications are either wasting their organisation's
money or will be frustrated by an inability to get projects
funded.
To avoid a lack of return on investment because of de-support of
your current release, build upgrades into other business expansion
or improvement processes that require similar change management,
testing and training efforts.
Bill Swanton is a vice-president at AMR Research