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Don’t blow your tech budget on ERP, it’s nothing 'special': LEF

Rebecca Merrett | July 1, 2013
Organisations are spending billions of dollars on ERP projects. Do they really have to cost so much money? research director Warren Burns asks.

The value of enterprise resource planning (ERP) in business transformation and competitiveness has faded into the background as trends such as cloud computing increasingly gain traction, according to the leader of the Leading Edge Forum (LEF).

However, that hasn't stopped many large organisations from forking out billions of dollars on establishing and maintaining their ERP environments, the research firm's region director, Warren Burns, said. LEF is a global research and thought leadership community affiliated with CSC.

"The pricing model is out of whack; the amount of money expected from companies for licensing ERP software no longer represents the value it used to," Burns claimed. "There are multiple projects over $1 billion and that's incredible to me. Where do you draw the line and say 'I can make this for $1 billion?'

"I don' think ERP is going to go away... but it's not something that's worth investing extensively in. It's just something that is an assumed cost of doing business that you should try to commoditise as heavily as you possibly can."

There has been some competition, supplier consolidation and ERP as-a-service offerings, but prices haven't fallen, Burns said. Also, while smaller businesses are taking up open source alternatives to big providers of ERP such as Oracle and SAP, these have not yet been a popular alternative with larger businesses.

CFOs need to sit down with their CIOs or IT leaders and have frank conversations about whether they need all the 'bells and whistles' in an ERP system, Burns said. With the CIO's desire to get out of the back office and in with the business, the CFO needs to work with them in making decisions together about what realistically is needed and what is not.

"Make this just the plumbing," Burns advised. "No one is going to buy a house because it has nice plumbing, so we need to think of ERP as plumbing. It doesn't have to be fancy, it doesn't have to be custom and it doesn't have to be gold plated. It just needs to operating in the background and taking care of all those transactional things we need it to do.

"Look at the value you are getting out of lots of the expensive add-ons ERP vendors will try and licence. Often they try to group largely useless, or certainly massively overpriced components, of their software in order to make you feel like you are getting a whole-of-business solution. But when you look at what some of these components do, if you were to think about buying that standalone there's no way you would pay that [amount] for the implementation."


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