Projects to upgrade enterprise software platforms can be challenging to sell to senior management, primarily because it is difficult to show what they will be getting for their money.
Many IT managers and project leaders use the threat of an end to supplier support to sell upgrades, but system maintenance is often the primary reason.
As firms become software-savvy, management is less likely to buy into the myth of a lack of supplier support. Companies recognise that a substantial portion of a supplier's revenue comes from maintenance fees and that suppliers are more likely to cave in to their demands for continued support than relinquish those fees.
Therefore, IT managers are increasingly required to defend the upgrade with a compelling business case. Many organisations surveyed by research firm AMR cited access to new functionality as a primary benefit. Half of the companies added functionality such as internet procurement, employee self-service for human resources, portals or business intelligence and customer management.
These functional areas extend beyond traditional ERP and can help with supply chain efficiency, operational excellence or improved customer and employee service.
ERP upgrades are expensive. Although the cost varies and will depend on the amount of new software and the scope of the upgrade, the companies surveyed averaged £820,000 for a primary ERP system upgrade.
Suppliers and consultants have done a good job setting expectations about the costs. The organisations surveyed spent 7% more than they anticipated, which was about 18% of the original implementation cost.
The cost of professional services, internal headcount, training and hardware investments were the two largest line items, where 82% used the upgrade as an opportunity to invest in new systems.
The average ERP upgrade project takes about seven months from planning to the go-live date our study showed, with little variance by company size.
Larger system upgrades take longer (seven to nine months), but small system upgrades are only marginally quicker (five to six months).
Many firms spend more time talking about an upgrade than actually doing it. In our experience, companies have said that the approval process took longer than the actual upgrade. Developing a plan to determine how the upgrade will affect the enterprise is the most crucial part of the upgrade project and the reason it takes the longest.
The scheduling and appointment of resources handling customisation are essential to success. Nearly 75% of the companies went the big bang route, as incremental upgrades can be more expensive.
Planning and organising an upgrade
When building a business case, remember that although many companies can reduce costs, the benefit of additional functionality can far exceed this. Don't be reactive. Go beyond the technical upgrade and add functionality.
Define performance metrics before starting the upgrade process. Look at people issues such as training and business process support.
Itemising existing customisation to the system and determining your plans on how to handle the customisation is a tremendous task that should be part of the crucial planning process. Experienced consultants can help companies determine which customisations to keep, which to update and which to replace. Nearly half of the companies surveyed benefited from consultants in the planning phase.
- Keep in place an ERP project team in between upgrades. Companies that maintain internal competencies spend much less time and money on upgrades
Nigel Montgomery is European research director at AMR Research
This was first published in February 2004