Why ERP is still so hard

After nearly four decades, billions of dollars and some spectacular failures, big ERP has become the software that business can't live without--and the software that still causes the most angst. In Part I of CIO.com's analysis of the ERP market, we look at where ERP has been, where it's at today, and why it's still so hard to do these mission-critical projects well.

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ERP Costs Still Tough to Understand

The fine print and financial legalese contained within ERP application contracts can be alternately mind-numbing and head-scratching for the uninitiated.

"Of all the assets that an enterprise acquires, enterprise software brings with it the most unusual, onerous and restrictive set of constraints," writes Wang in a June 2009 Forrester report on software licensing. "In most cases, licensees may not resell, reuse or share their license. Licensees often encounter numerous grievances across the software ownership life cycle from selection to implementation, utilization, maintenance and retirement."

Oracle, for instance, will heavily discount license pricing upfront but will, rest assured, make that up on the backend-from its 22 percent maintenance and support fees, on which it does not negotiate. Oracle President Safra Catz told analysts on a conference call that maintenance is "very profitable part of our business, and as the number gets bigger and bigger it's really impossible for us to actually spend our way through it, and so in general that's the sort of overriding thing that guides our margins." Closing its most recent fiscal year, Oracle achieved nearly 90 percent profit margins.

Chiquita Brands' Singh understands and explains ERP this way when it comes to $1 million-plus purchases: "Your management team needs to understand that $1 million is not really $1 million. There are significantly higher costs as you look at the average lifespan of the purchase as well as resource implications," he says. "The CFO and CEO need to know that because they're going to see IT costs go up as a result. And you don't want them constantly asking the question: Why are year-over-year costs going up?"

That's all assuming ERP implementations are reasonably successful. Not surprisingly, with all the risks and all the multimillion-dollar projects, ERP implementations, when they do fail, can be spectacular events.

ERP, it seems, in one technology area in which a dose of Moore's Law does not apply. "It's sickening how ERP continues to be very expensive and very risky," says Mirchandani. "There is no reason why it should be. The software should be heavily discounted to start with. The maintenance [plans] should have several different options, offered both by the vendor and third parties. And the implementations should be more brain-dead implementations."