Over the last two decades, companies have plowed many billions of dollars into enterprise resource planning (ERP) systems and the hardware required to run them, and the largest purveyors of the complex software packages, notably SAP and Oracle, continue to earn billions every year selling and maintaining the systems. But what, in the long run, will be the legacy of enterprise systems? Will ERP be viewed as it has been promoted by its marketers: as a milestone in business automation that allowed companies to integrate their previously fragmented information systems and simplify their data flows? Or will it be viewed as a stopgap that largely backfired by tangling companies in even more systems complexity and even higher IT costs?
In The Trouble with Enterprise Software, an article in new issue of the MIT Sloan Management Review, Cynthia Rettig deftly lays out the case for the latter view. Enterprise systems, argues Rettig, not only failed to deliver on their grand promise, but often simply aggravated the problems they were supposed to solve. “The triumphant vision many buy into is that enterprise software in large organizations is fully integrated and intelligently controls infinitely complex business processes while remaining flexible enough to adapt to changing business needs,” she writes. The reality is very different, says Rettig:
But these massive programs, with millions of lines of code, thousands of installation options and countless interrelated pieces, introduced new levels of complexity, often without eliminating the older systems (known as “legacy” systems) they were designed to replace. In addition, concurrent technological and business changes made closed ERP systems organized around products less than a perfect solution: Just as companies were undertaking multiyear ERP implementations, the Internet was evolving into a major new force, changing the way companies transacted business with their customers, suppliers and partners. At the same time, businesses were realizing that organizing their information around customers and services – and using newly available customer relationship management systems – was critical to their success.
The concept of a single monolithic system failed for many companies. Different divisions or facilities often made independent purchases, and other systems were inherited through mergers and acquisitions. Thus, many companies ended up having several instances of the same ERP systems or a variety of different ERP systems altogether, further complicating their IT landscape. In the end, ERP systems became just another subset of the legacy systems they were supposed to replace.
Given the high cost of the systems – around $15 million on average for a big company – it’s unsurprising, writes Rettig, that despite much study, researchers have yet to demonstrate that “the benefits of ERP implementations outweigh the costs and risks.” In fact, in a revealing twist, the mere ability to install an ERP system without suffering a major disaster or disruption has come to be viewed as a relative triumph: “It seems that ERPs, which had looked like the true path to revolutionary business process reengineering, introduced so many complex, difficult technical and business issues that just making it to the finish line with one’s shirt on was considered a win.”
Rettig’s conclusion is a dark one:
enterprise systems were supposed to streamline and simplify business processes. Instead, they have brought high risks, uncertainty and a deeply worrying level of complexity. Rather than agility they have produced rigidity and unexpected barriers to change, a veritable glut of information containing myriad hidden errors, and a cloud of questions regarding their overall benefits.
Rettig doesn’t see any quick fix on the horizon. Realizing the promise of a more modular and flexible service-oriented architecture (SOA), she argues, may take decades and will itself be fraught with peril. “The timeline itself for this kind of transformation may just be too long to be realistically sustainable and successful,” she writes. “And to the extent that these service-oriented architectures use subsets of code from within ERP and other enterprise systems, they do not escape the mire of complexity built over the past 15 years or so. Rather, they carry it along with them, incorporating code from existing applications into a fancy new remix. SOAs become additional layers of code superimposed on the existing layers.”
So what’s the solution? Rettig doesn’t offer one, beyond suggesting that top executives do more to educate themselves about the problem and to work more closely with their CIOs. That may be good advice, but it hardly addresses the underlying technical challenge. But Rettig nevertheless has provided a valuable service with her article. While some will argue that her indictment is at times overstated, she makes a compelling case that the traditional approach to corporate computing has become a dead end. We need to set a new course.
UPDATE: Harvard’s Andrew McAfee takes issue with Rettig’s article, arguing that managers have been rational in investing large amounts of cash in enterprise systems and pointing to a recent study which indicates that, for the customers of one ERP vendor at least, the successful installation of a system produces, on average, subsequent performance gains. McAfee’s critique, however, doesn’t address Rettig’s larger point, which concerns the effect of ERP’s complexity on companies’ choices going forward.