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The situation poses a serious dilemma for IT departments that are still struggling to make due with limited staff and financial resources. They are faced with the real possibility of having to divert precious resources away from projects with strong returns on investment (ROI) and dedicate them to an ERP project that offers little or no ROI.
Who is at fault?
Some companies have been quick to accuse the ERP vendors of attempting to replace revenues lost to a drop-off in software sales by pressuring them to upgrade. A recent survey by AMR Research Inc. found that a sizeable number of respondents were angered by ERP maintenance costs and upgrade policies, to the point where 12 percent planned to stop paying maintenance fees altogether, while 38 percent plan to train internal IT staffs to handle the technical support.
To a certain extent, their anger is justified. Some respondents said they’ve seen their annual maintenance costs increase by 15 percent to 25 percent over the past five years with no increase in service or features, while nearly 25 percent said they were dissatisfied with the upgrades they did undertake because the new features didn’t justify the expense.
Unfortunately, bringing support in-house or taking a stand against maintenance fees isn’t a viable option. Most companies can’t afford the risk of an unsupported ERP system, and few, if any, have the capability to fully support the vendor’s software.
On the other hand, ERP vendors aren’t necessarily out of line in playing hardball with customers who have failed to upgrade. Most existing ERP systems were installed between 1998 and 2000. Multiple versions of core products have been released since then, although few companies have taken advantage of them.
In fact, more than a year after the first critical deadlines were issued, as much as 40 percent of the current installed base continues to operate on older versions of ERP software.
For the vendors, supporting those older versions is costly. For customers with ERP systems as old as five years, it’s simply time to upgrade.
As clear cut as the upgrade decision may seem, however, it’s just not that easy. The challenges range from limited financial resources to limited human resources.
For example, another AMR survey found that end users spent an average of $1.5 million on their ERP upgrades, or about 18 percent of the cost of the initial implementation. After several years of budget and personnel cuts, many IT departments are struggling simply to keep up with core responsibilities and projects that offer immediate ROI. They simply cannot dedicate the necessary resources to an ERP upgrade that is not only costly, but can take more than a year to complete.
An Outside Solution
For those companies, the solution to the upgrade dilemma often can be found in the form of outsourcing or staff augmentation. Both allow the internal IT staff to remain focused on core responsibilities, while still meeting upgrade deadlines put in place by vendors.
However, when it comes to which option is best for an individual company, the final choice depends largely on their comfort level and available resources.
The following questions can help determine if outside help is appropriate and, if so, which direction to go:
The decision to use outside resources should not be viewed as purely a cost issue, however. It should be viewed as a way to realize ROI from other projects in a timely manner. If that justification doesn’t hold up, you’ll probably be doing the upgrade with all internal resources.
And while you’ll still need to commit some internal resources that could be used elsewhere, it’s a good compromise.
Vendors have the most expertise and familiarity with their applications, but they can cost up to three times more than an IT staffing company.And many of the consultants who were laid off by vendors in the lean years are now with staffing companies and/or contract with the vendors to handle upgrade projects. That means consultants with recent upgrade experience are readily available without having to pay vendor prices.
Continue on to find out how to pick the right partner…
Once the decision to seek outside help for an ERP upgrade is made, it’s important to pick the right partner. To help identify who that is, there are a number of things to look for:
Make sure the staffing firm you ultimately select can show you not only consultants who are very experienced, but who also have successfully completed similar projects. That includes showing you resumes of consultants who have recent experience upgrading to the same version as youre moving to.
Whenever possible, request local candidates to eliminate or reduce travels costs, but realize that finding candidates with specific experience levels can require looking at regional and national candidates. Even with the additional expense of travel and per diem fees, the cost of using a staffing company instead of vendor or Big 4 implementation teams can be one-third to one-half the costs.
In a little more than a year, most major ERP vendors will have accomplished their objective of getting their clients to the newest supported level of their product or they will be charging them significantly higher maintenance fees to continue supporting older versions. For the 40 percent of companies that are lagging behind, time is running out to start the upgrade process.
However, whether the issue is financial, personnel or both, ERP upgrades still can be completed on time and within budget by taking the time to identify the best mix of internal and external resources.
Steve McMahan is group president for major markets for Kforce Inc. Based in Tampa, Fla., Kforce is a full-service professional staffing firm working in more than 40 North American markets, as well as through online services.
