ERP implementations reveal a lot of pain before the gain

Certain IT initiatives fall into the "bet the company" category. Setting up an ERP system from SAP AG is one such choice. These complex undertakings carry both greater opportunities and greater risks than other enterprise software projects. Done right, an SAP deployment can transform an organization by streamlining operations, cutting costs and opening up new business opportunities. Done wrong, it can become a multiyear nightmare.

For BWXT Y-12, converting legacy systems to SAP has been a decade-long project. The company -- a partnership between nuclear and high-security facilities manager BWX Technologies and engineering giant Bechtel Group -- manages the US Department of Energy's Y-12 National Security Complex. The project began in 1996 as a means of addressing Y2k issues, and parts of the organization are still being moved over to the ERP system. Yet each step along the way has delivered a tangible benefit.

"With our first series of implementations, we replaced 80 to 90 legacy systems and reduced our IT costs for those systems by about $US7 million per year," says Charlie Barton, manager of enterprise solutions. "We had an initial investment of $12.5 million, so midway through the second year, we realized a payback."

Not all implementations, however, have gone as smoothly, and SAP has developed a reputation for being difficult to implement. Over the past decade, however, tools and practices have emerged to ease the process and improve the chances of success.

Several failed SAP deployments have made the news over the past few years. The Hershey Co. began a $115 million deployment of SAP, Siebel Systems and Manugistics Group software in 1997. Two years later, the food company experienced massive distribution problems that cut into its profits.

In August 2004, Hewlett-Packard reported that backlogs and lost revenue resulting from an SAP rollout for its enterprise servers cost it $160 million. Whirlpool and Nike had similar experiences. What doesn't make the news is that these projects wind up working in the

"There is an urban myth out there that a high percentage of SAP systems fail; that simply isn't true," says Jim Shepherd, an analyst at AMR Research. "In almost every case, when you encounter a story about an SAP customer that had a problem -- including Nike, Hershey and HP -- if you went back a year later, you would find that they are happily using the system."

Nevertheless, even if the projects do finally return a result, it takes a lot of work to get to that point. "What we have found is that SAP seems to take more investment in customization, more investment in training, more time and cost to get off the ground than a lot of other solutions," says Rebecca Wettemann, an analyst at Nucleus Research.

"ERP implementation problems almost never have to do with the software," says Shepherd. "They have to do with poorly run projects, people rushing or not doing adequate testing -- but it is extremely rare for it to turn out that the software doesn't work."

In the late '90s, SAP began investing in tools to help with the deployment of its systems. Collectively called ASAP, they cover areas such as project management, governance and risk mitigation. SAP continues to refine the tools and comes out with upgrades every year, according to Gene Eichman, a vice president at SAP Consulting. In the past two years, for example, the vendor has released the SAP Safeguarding portfolio of services for implementing or upgrading SAP software. It includes services for high-level planning, feasibility checks, technical integration checks, system configuration verification and the training of staffers so they can take over support.

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More about Accenture AustraliaAMR ResearchHewlett-Packard AustraliaHISHPIBM AustraliaManugisticsMicrosoftMidwayNikeOracleSAP AustraliaSiebel SystemsSun Microsystems

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