I've been thinking about Enterprise IT for a long time, but haven't really verbalized my thoughts. After reading and commenting on a post on Obie's blog, I think I'm ready to put some of these thoughts down.
Any sufficiently large business needs some kind of an ERP- a cohesive software system that essentially manages all of the data of the business. Doing without an ERP system is possible, but leads to a crazy amount of excel spreadsheets and paper pushers. Efficiency at a large scale is, nearly without exception, impossible without such a system. [Note that whether it is called an ERP or not, some kind of cohesive data management system is necessary. Google, for instance, essentially has an ERP- they just don't call it that.] There are certain industries where a business can survive without this kind of a system, but obviously companies in these industries will left out of the conversation.
Also, ERP implementations are notoriously expensive. For a large business (>50M/yr revenue), ERP implementations regularly pass the $5M mark. Estimates for the cost of these things are usually a little lower- $2 or $3 million seems to be the common estimate. However, once the vendors screw the pooch enough, businesses will be lucky to get out of there losing less than $10M, all things considered. ERP "vendors" are notoriously bad, in every sense of the word. They are slow, they are liars, they are expensive, and they fail way too often.
Some research has been done on ERP implementation failure rates, and the common wisdom is that only 30% of ERP implementations succeed. Even the rosiest studies propagated by ERP vendors talk about 50% success rates. Can this possibly be true? Take a look at this from the perspective of a business:
I need this system or else my business is likely to die due to inefficiency. Implementing such a system will cost five million dollars and take about two years. At the end of this five million dollars and two years, I have a 70% chance of walking away with nothing.
Man. That sounds like a really raw deal. If I were running a large company, I would seriously resist taking such a risk. It is no wonder most large businesses are still pinnacles of inefficiency- getting rid of the fat is a slow, expensive, and insanely risky proposition.
It goes even beyond this, however. Even if these ERP implementations are successful- i.e., the business somehow doesn't declare bankruptcy as a result of the ERP implementation- the systems are still really, terribly awful. They are horribly unusable systems that are slow, impossible to change, and a huge burden on 90% of the company. Just look at the screenshots for some of these systems. Do a Google search for "SAP Screenshot" (or substitute any other ERP vendor, you'll get pretty much the same thing.) Do any of these look like systems you'd want to use?
So why are these ERP vendors still in business? Because even a slow, horrible, unusable ERP system is an incredibly huge win for a company. There are two reasons for this. First, the amount of power these systems put at the fingertips of decision makers is incredible. Essentially, the data provided by an ERP gives managers ammunition to overcome the status quo in order to make necessary improvements. Never underestimate the power of something that helps a business overcome internal equilibrium. Second, ERP systems nearly completely eliminate the need for paper pushers. Paper pushers, in a pre-ERP company, serve a vital role as a check on abuse and (ironically) waste. Managers simply cannot keep track of all of the activities of the company, and the paper pushers are set up as gates so that they can prevent things from going haywire. Once managers have the ability to keep an eye on things themselves and with software acting as this gate, paper pushers become largely unnecessary. The result? A much more efficient and strategically powerful organization.
Let us recap all of this so far:
- There's a product which tens of thousands of businesses need, or else they will die.
- Businesses are willing to pay insane sums of money for this product.
- Existing suppliers are failing. Hard.
You know what that smells like to me? Opportunity.
Next, I'll cover the reasons behind the endemic failure of ERP vendors, and how that can be fixed and profited from.