Blog: Why CFOs and CEOs Hate IT: ERP

We're always trying to figure out why IT is vilified and demeaned by the "cost center" label uttered by CEOs, CFOs and other senior leaders. ("But, but...we're not really true business partners?!")

The way I see it, the number-one reason for such executive disdain is due to ERP systems, and what I'll refer to as the "3 C's"—cost, complexity and customization.

A new CFO Research Services survey of 157 senior finance executives, which specifically looked at initial and ongoing ERP system ownership costs, illustrates this point beautifully.

For starters, companies are more than likely shocked and awed by the initial acquisition and implementation costs of ERP systems. The CFO study focused primarily on midsize companies (with $100 million to $1 billion in annual revenues), and half of the respondents said they spent more than $1 million for the license, service and first year's maintenance on their current ERP system. Nine out of ten respondents said they spent a minimum of $250,000. (Of course, as the report notes, the actual costs are even higher: the estimates didn't include the internal costs for rolling out the system, such as for project management, user training and IT support.)

So if the CFO and CEO can stomach that kind of initial capital outlay—and most can—there's much, much more to contend with around the corner, namely thorny and expensive customization issues, upgrade decisions and annual maintenance fees.

Customization is a fact of life with ERP systems, so companies are supposed to take the good, take the bad, you take them both and there you have your ERP system. In fact, eight out of ten respondents reported that their companies "have customized their ERP systems either moderately or extensively in order to adapt the product to the company's unique business requirements," according to the CFO study.

What were they doing? States the study: Adding modules and functionality, rewriting core applications, modifying outputs, improving system performance and updating the technology.

In other words, these companies weren't customizing their ERP apps just for the fun of it. They were trying to stay in business.

"Companies grow and change, acquiring new business lines and divesting themselves of others," notes the CFO study. "They open new facilities or consolidate operations, add partners or outsource functions, centralize or decentralize the back office. Reporting requirements increase as regulatory bodies heighten oversight and as companies expand across borders.

"In short," it continues, "businesses change, and as they do, so do management's information needs."

So just how much does this cost? A typical company in the CFO survey will spend an average of $1.2 million each year (each year!) to maintain, modify and update its ERP system.

Desperate Times, Desperate Measures

ERP systems have become a noose around companies' necks which tighten as the business changes every year, each customization gets made to the system and costs continue to spiral upward.

Some CFOs, according to the survey, have had enough of customizations. Instead, they are following a new (and potentially dangerous, in my opinion) policy: Keep everything vanilla.

Said one manufacturing CFO, in the survey: "Change your processes to best practices and follow shrink-wrapped solutions." Another finance chief surveyed has taken an even more extreme position: "Our policy is that we will not make custom modifications to the software; we will modify the business process if necessary or create an offline procedure."

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Comments

Comments are now closed.

Most Popular Reviews

Follow Us

Best Deals on GoodGearGuide

Shopping.com

Latest News Articles

Resources

GGG Evaluation Team

Kathy Cassidy

STYLISTIC Q702

First impression on unpacking the Q702 test unit was the solid feel and clean, minimalist styling.

Anthony Grifoni

STYLISTIC Q572

For work use, Microsoft Word and Excel programs pre-installed on the device are adequate for preparing short documents.

Steph Mundell

LIFEBOOK UH574

The Fujitsu LifeBook UH574 allowed for great mobility without being obnoxiously heavy or clunky. Its twelve hours of battery life did not disappoint.

Andrew Mitsi

STYLISTIC Q702

The screen was particularly good. It is bright and visible from most angles, however heat is an issue, particularly around the Windows button on the front, and on the back where the battery housing is located.

Simon Harriott

STYLISTIC Q702

My first impression after unboxing the Q702 is that it is a nice looking unit. Styling is somewhat minimalist but very effective. The tablet part, once detached, has a nice weight, and no buttons or switches are located in awkward or intrusive positions.

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?