Yesterday, I questioned some undocumented research that SAP claims shows its customers are much more profitable than other companies. Today, the Financial Times reports on research from the Hackett Group, a benchmarking firm, which indicates that it doesn’t matter whether your enterprise resource planning system is from SAP or Oracle or PeopleSoft: “they’re basically all the same.”
Hackett examined a big group of large companies. It culled out the 25% that had the most efficient back-end processes (the ones automated by ERP) and found that about a third of those companies used Oracle, a third used PeopleSoft (now owned by Oracle) and nearly a third were SAP users. (Just a few had other vendors’ ERP systems.) It then looked at the other 75% of companies and found that the proportions using each of the main vendors’ packages were about the same. The lack of variation suggests, as the FT reports, “that their impact on efficiency and effectiveness is the same.”
Here’s how Hackett’s research guru Philip Carnelley sums up the findings: “Every way you look at it, it doesn’t make a difference. There are aspects that are quite different in terms of the architectural side but in terms of features and functions they are all very comparable products.” Is this news? Not really. Back in 1998, Oracle’s then-president Ray Lane said, “customers can’t find 5% difference among SAP, PeopleSoft, and us.”
So what does matter? Standardization and simplicity. A lot of big companies run different ERP systems in different units, a messy problem that can be exacerbated by mergers and acquisitions. Such fragmentation leads to complexity, confusion and high costs, and consolidating the systems offers the opportunity for big gains. As Carnelley says, “It doesn’t matter which way they simplify, but simplifying is a good thing. The ‘world class’ organisations tend to have only one ERP system.”
ERP is infrastructure. Rationalize it.
Nicholas,
Interesting article and it confirms my line of thinking. Normaly ERP systems are used at companies in which the primary proceses is not totally depended on information, for example car-manufacturers. Would you argue that the key message of this post is also true for insurance and banking companies? If so, do you have analysis to support this?
Two things on this posting:
1. This is similar to what I wrote a while back on my blog.
2. For the comment by Albert, I guess we can use a solid theoretical framework, and that can apply to all industries seamlessly. I wonder if that is already there in Nick’s book (I havent had a chance to read it), but per my understanding, Henry Mintzberg’s Organizational Theory can be applied to see how can various industries be impacted by IT. Email me at nit_goyal@yahoo.com for more details.
As a one-time techie and working in the ERP vendor industry, I can confirm that for years we have known that feature-wise there is very little to distinguish. So by all means rationalise – but with reason.
I have seen big head offices running SAP and then trying to get small subsidiaries in other countries to run the same thing. But those small offices don’t have the same IT support and SAP becomes a millstone for their business.
I am glad to see that the article validates what Mr. Carr has been saying since the HBR article. ERP in a large corporation – like the assembly line in the automotive world – is now a cost of doing business – and as Mr. Carr has repeatedly stated – it is how it is managed that will generate benefits and advantage, not just the fact it “exists”.
If a corporation is instituting best practices and actively managing its processes to generate efficiencies and improvements – the tool you use “doesn’t matter”.
Interesting to learn that ERP is cost of doing business! May be ERP vendors have mesmerized big corporations about that.
I wonder how Toyota is able to do business even by not using any ERP in its manufacturing operations?
A comment on my blog about this blog:
“I prefer the Microsoft solutions, they are cheaper than the SAP offerings and are more customizable and can be supported by any .Net dev house, which will make maintenance cheaper as well.
Navision, Axapta and Great-plains are all pre-defined for specific requirements based on the size of a company and can be customized further from that point.”
Why are we in the 21st centaury still relying on “hard coded” fixed systems “ERP” or custom builds? Business fundamentals have not changed io over a 100 years? ALL business is driven by “tasks” undertaken by People – SO logic says create “generic” configurable tasks have muilti choice links – put into a datacentic environment – and you have the ultimate flexible quick build solutions – TOA “Task Orientated Application” Nick was right IT does not matter any more it is about how you run your business with a TOA forget technology……!Rationalise you ERP save money!
Interesting review and comments.
That shed light on some a bit obscure points to me.
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