ERP failures: Myth or mythunderstood?

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Last Monday, Jim Shepherd of Gartner wrote a First Things Monday article titled “The Puzzling Myth of ERP Failures” (registration required) in which Jim lays out his thesis that the vast majority of ERP projects do not "fail" by any conventional definition of the term. The first question I had when reading the article was what does Jim mean by ERP? The systems or the vendors? In response my question Jim replied by email that:

For me the ERP system is that collection of tightly integrated apps that manage and support transaction processing. I believe that such a system creates a valuable foundation for companies to build or buy applications that can deliver insight, process differentiation, and process innovation. Kinaxis’ applications are a very good example of using an ERP foundation (or what Gartner now calls Systems of Record) to provide insight and innovation.

This is consistent with my perspective and, not surprisingly, with several of Jim’s colleagues at Gartner. Tim Payne, for example, classifies solutions into ‘process automation’ and ‘process innovation’ in an article titled “The SCP for Process Innovation Landscape” (May 27, 2010).

By Jim’s definition then ERP would fall into ‘process automation’. Dennis Gaughan, in another First Things Monday article from June 20th, 2010 and titled “Is It Time to Rethink Your Enterprise Application Portfolio Strategy?” outlined an approach to reclassify applications based on the role they play in the organization (with the goal of accelerating the pace of change for IT). Those categories were (see the original post for full descriptions):

  • Systems of record — These are the systems that form the foundation for your enterprise and manage the information necessary to run your business.
  • Systems of differentiation — These are the systems that help drive differentiation for your company. They connect to customers and trading partners, as well as help speed time to market and overall agility. They're more collaborative in nature, and while they leverage data from systems of record, they capture and maintain additional information.
  • Systems of transformation — These systems create innovation for your organization. They're often developed out of ad hoc processes and tied to specific initiatives, so they can have very short life cycles.

We are happy to be classified, as per Jim’s email, in the ‘systems of differentiation’ and ‘systems of transformation’ categories defined by Dennis. There is no doubt that, as Jim states, systems of record are an important aspect of the IT infrastructure. One has to take orders and issues invoices, balance the books, and keep the employees happy and the org chart updated. Stability and regulatory compliance are key attributes, as is risk avoidance. Tim, in the article referred to above, ranks different characteristics of automation and innovation as follows:

But as Dennis writes, it is the systems of differentiation and innovation that allow companies to behave in a different manner, which provide agility and respond dynamically to changing business needs. I would argue that this space requires a different DNA, not one commonly found in ERP vendors, which are focused on things like risk avoidance and regulatory compliance. Innovation cannot be bound by these, but of course innovation must respect them.

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