In the second in our recent series of excerpts from his book The Next Wave of Technologies: Opportunities in Chaos (Wiley, 2010) tech guru Phil Simon made this astonishing statement:
"The failure rate for IT projects is conservatively estimated to be 60 percent."
Failure is rampant even in implementations of older, "Enterprise 1.0" software packages, such as enterprise resource planning tools, despite the fact that "particularly in the ERP sphere, these systems and their technologies have been relatively well understood for at least the past decade. …The political and financial costs of a failed IT endeavor are enough to deter many senior executives from improving their organizations' applications, systems, and architectures."
There's plenty of confirmation for Simon's view in a new report from Panorama Consulting Group, a consulting firm that specializes in the ERP market for midsize companies across the globe (the 2011 ERP Report is available here; requires registration).
Here are some pretty startling figures for 2010 from Panorama's cross-industry sample of ERP adopters of various sizes. The percentage of ERP implementations in which:
- The effort took longer than expected -- 61 percent
- Cost exceeded budget -- 74 percent
- Benefits realized were less than 50% of those expected -- 48 percent
It's possible, of course, to see the fingerprints of a dodgy economy all over these results -- a case of companies trying to reduce budgets as much as possible before embarking on an implementation. And in fact, average project costs actually declined last year from 2009. But how to explain that disappointing benefits realization figure?
I asked Haoyan Sun, analyst with Panorama and author of the report. "ERP projects are fairly complicated and involve considerable risks," Sun pointed out. "They may very possibly go awry, bringing in other issues like going over-budget, having to pay overtime, and so on, which will lead to low benefits realization. Many companies don't have realistic goals for their ERP projects or realistic projected benefits before the implementation."
Panorama also found that the software-as-a-service (SaaS) delivery model has yet to make deep inroads into the ERP space. Just 17 percent of respondents chose this model, though another 24 percent chose a traditional ERP system hosted off-site. "We saw an increase of SaaS adoption during 2010," Sun reports. "Although on-premise ERP still dominates the market, SaaS vendors do have a very optimistic outlook. We also see a lot more client requests that they want to put some SaaS vendors in their long list during the software selection process."
Whether SaaS implementations will be able to deliver more consistent and predictable returns remains to be seen.