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A hidden cost of cloud ERP: Changing project risk

by Peter Joeckel
President & Founder, TurnOnDynamics
February 09 2020

The latest application of technology to enterprise resource planning software (ERP) is the magic of the cloud. Sales and marketing literature touts a long list of benefits derived from moving ERP and related software from on-premises hardware to the cloud.

The point of this article is not to discuss the technical benefits of a move to the cloud. Instead, it is to examine a serious unintended consequence having a dramatic impact on ERP implementation projects.

Traditionally there is a high rate of failure for enterprise ERP software projects that are glossed over by software publishers and implementation partners.

A quick internet search will confirm that billion-dollar ERP implementation project failures do occur. That is billion with a B. As Lewis Black famously noted in another context, “what were they doing, building their own space program”?

It has long been my contention that ERP project success is based on three simple criteria: on-time, on-budget, and delivering promised functionality. There has never been a successful ERP implementation project, and cloud ERP licensing will add to the problem.

How can license policies possibly affect implementation quality? In short, subscription licensing, and the resulting loss of attractive perpetual license margins, means less money for partners to defray the high cost of selling and marketing ERP projects. This shift puts significant downward pressure on implementation quality and success.

My first exposure to cloud ERP licensing models immediately raised the specter of higher rates of challenged and failed projects. Anecdotal evidence and empirical data starting to leak out from the partner community supports this premise, but at a much higher rate than initially thought.

Let’s look at ...

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Submitted by efishman71 on Thu, 03/19/2020 - 14:14 Permalink

Hi Peter, Your article is thought-provoking and makes some interesting points. It is true the the cloud licensing model changes the game for consulting partners in a variety of ways; chief among them is that services need to be client and outcomes driven more than ever before. In the past customers paid the entire cost of licensing upfront, often before they were live. The partner's margin was secure regardless of whether the customer achieved their desired outcomes. Cloud changes that equation in the customer's favor. Now, consulting partners need to deliver a successful implementation and keep capabilities evolving in conjunction with client needs over time, otherwise the customer will switch partners and the new partner will get the ongoing margin, however small. My point is simply that cloud aligns customer value with the economic model better than before. Your point about ERP being hard to sell is well taken. It's a big decision for customers and one they tend to make carefully. So it should be, I think. I have observed however that with the emergence of cloud software, the sales cycle has shortened significantly and a lot of the traditional work of the sales team - proving solution capabilities - is now achieved in marketing. Customers have access to a ton of high quality information, including pricing, that wasn't always available in the legacy on-premise days. In our business we are finding that prospects are showing up well qualified for Dynamics 365, and they are focused mostly on narrowing the field from 2-3 platforms vs 7-10, and choosing a compatible partner. The number of RFPs has also fallen off a cliff as customers seem more comfortable navigating the decision independently. Another perspective I'd like to share from our experience implementing Dynamics 365 Business Central after years of (successful) NAV implementations is ...

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In reply to by anonymous_stub (not verified)

Submitted by PJoeckel on Wed, 03/25/2020 - 12:16 Permalink

Elliot, Thank you for reading and the well thought out reply. For some background to add perspective to my reply, I started out my career implementing MAPICS (the SAP/Oracle of its day) in conjunction with IBM at a "Big Eight" accounting firm. That launched a long career in the PC world that included ACCPAC, Macola, Syspro, Platinum, Great Plains, Navision etc etc and finally Axapta/AX/D365 F&O. The world of ERP software as it exists today is ideally suited for "QuickBooks" implementations: no mods, no legacy integrations, no complex business requirements and importantly no in-house attorneys. The majority of my observations revolve around the enterprise ERP space and the partners working those deals. In that space the ERP implementation industry has historically suffered from challenged and failed projects at alarmingly high rates. Here are the numbers for ERP project "success": • 25% - Success, defined as being reasonably completed on time, within budget, and delivering on a majority of promised functionality. • 50% - Challenged, set as significantly over budget, over projected time, and delivering on functional expectations. • 25% - Failed, dramatically over-budgeted dollars, time, and severe misses on required functionality. Even worse odds than marriage but yet people keep getting married and starting new ERP implementations. The acute awareness of this has me focused on how to deliver better ERP projects while keeping an eye out for additional challenges that make ERP projects harder to execute. Here is something "interesting", the numbers on the Russian roulette wheel of pain that I outlined above...they are not getting better. You might be surprised where they are today.