Vendor support main reason for buying ERP system

By ADAM GIFFORD

Supply chain, e-commerce capability, customer management. These are what companies look at when buying an enterprise system.

Well, no. According to a new report from research firm Meta Group, the most important criteria for firms buying enterprise resource planning (ERP) applications are the vendor's stature as a long-term partner and the vendor's support capabilities.

"This confirmed our belief that companies are more focused on the quality of the vendor's organisation and less focused on detailed comparisons of feature/function checklists, said the report, Deriving Value from 21st Century ERP Applications.

This is good news for the vendors, as they go into the annual round of conferences aimed at convincing users and prospective clients that they have made the right choice.

The bunfights mix product announcements; technical sessions; keynotes from senior executives on financial health and the company's technology vision; and inspirational speeches from outsiders, which can range from former politicians giving their view of the state of the world to futurists saying how the world might turn out.

Most importantly, they are a chance for users to network and find people who are having the same problems as they are, or are likely to have.

After all, once a company has a system installed, it is likely it will keep it.

The advantages of switching systems are likely to be fewer than making what you have work.

According to Meta, which surveyed more than 200 companies worldwide, the average implementation cost of ownership was US$14 million ($22 million), with the largest being US$464 million and the smallest US$56,000. The median was US$2.6 million.

Software accounted for about 25 per cent of total implementation project cost, with professional services running at 1.6 times software costs.

Relative total cost of ownership, which included the first two years of operating costs, averaged 1.4 per cent of a company's revenue.

The largest was experienced by an SAP customer who reported total cost of ownership at 5 per cent of revenue. The smallest were shared by Oracle and PeopleSoft, where cost was just 0.01 per cent of revenue.

The average relative total cost of ownership for PeopleSoft customers was 0.9 per cent, and 1.12 per cent for Oracle customers.

JD Edwards, which is now part of PeopleSoft, came in at 1.2 per cent and SAP 1.36 per cent.

The other two vendors surveyed, Lawson and QAD, averaged 0.48 per cent and 0.58 per cent respectively, but they have a smaller presence in the New Zealand market.

On average, smaller companies tended to spend a higher percentage of revenue on ERP projects than larger ones, but they also tended to undertake more comprehensive projects.

Meta said the ERP market heated up during the nineties.

A booming economy, the Y2K scare and e-business hype "gave many chief information officers carte blanche to undertake the significant time and expense involved in ERP implementation", Meta said.

Millions were spent on systems without anyone stopping to measure benefits or return on investment.

"The pendulum has now swung back the other way. New project funding remains extremely tight, and almost all spending must be justified with rigorous financial analysis," it said.

JD Edwards reported above-average satisfaction with product and support, a situation new owner PeopleSoft is trying to take advantage of with new packages and partnerships around the World product.

PeopleSoft's own customer base was rated "fairly well satisfied", with respondents often using the term "friendly" to describe their relationship with the vendor.

Oracle, which still wants to buy PeopleSoft, got a mixed report card.

Large organisations with centralised financial management were most favourably disposed, while smaller companies operating in a more decentralised fashion "seemed to have issues".

Industry leader SAP earned average-to-above-average satisfaction ratings from users.

"In light of SAP's sheer size and the fact that the vendor supports an inordinately large percentage of huge projects (the kind of projects most likely to be subject to major disappointment), the ability to achieve an overall satisfaction rating of "average" is a positive achievement," Meta said.