Beating the Clock:
Meeting the Staffing, Budget and Deadline Challenges of ERP Upgrades

For many companies, 2004 will be a busy year for upgrading their enterprise resource planning (ERP) systems. A number of ERP software vendors have published their end-of-support deadlines on older versions, forcing companies to upgrade or face losing support for the entire system. Others have published extended support dates that come with exorbitant maintenance fees.

For IT departments still struggling to make due with limited staff and financial resources, those deadlines are forcing them to divert resources away from projects with strong returns on investment (ROI) and dedicate them to an ERP project that offers little or no ROI.

A Catch-22
Some companies have been quick to point fingers at the ERP vendors, claiming the pressure to upgrade is an attempt to shore-up sagging revenues caused by the drop-off in software sales. A recent survey by AMR Research Inc. found that a sizeable number of respondents were angered by ERP maintenance costs and upgrade policies, to the point where 12 percent planned to stop paying maintenance fees altogether while 38 percent plan to train internal IT staffs to handle the technical support.

To a certain extent, their anger is justified; some respondents said they've seen their annual maintenance costs increase by 15-25 percent over the past five years with no increase in service or features, while nearly 25 percent said they were dissatisfied with the upgrades they did undertake because the new features didn't justify the expense.

Unfortunately, bringing support in-house or taking a stand against maintenance fees isn't a viable option. Most companies can't afford the risk of an unsupported ERP system, and few, if any, have the capability to fully support the vendor's software.

It's important to note that ERP vendors aren't necessarily out of line in playing hardball with customers who have failed to upgrade. Most existing ERP systems were installed between 1998 and 2000. Since then, vendors have released multiple upgrades of core products, which few companies have taken advantage of. In fact, less than a year ago, Gartner Group reported that 50-75 percent of ERP customers were operating with older versions of their ERP products. Even today, that figure is as high as 40 percent of the current install base -- more than a year after the first critical deadlines were issued.

For the vendors, supporting those older versions is costly. For customers with ERP systems anywhere from three to five years old, it's simply time to upgrade.

As clear-cut as the upgrade decision may seem, however, it's just not that easy. The challenges range from limited financial resources to limited human resources. For example, another AMR survey found that end-users spent an average of $1.5 million on their ERP upgrades, or about 18 percent of the cost of the initial implementation. After several years of budget and personnel cuts, many IT departments are struggling simply to keep up with core responsibilities and projects that offer immediate ROI. They simply cannot dedicate the necessary resources to an ERP upgrade that is not only costly, but can take more than a year to complete.

An Outside Solution
For those companies, the solution to the upgrade dilemma can often be found in the form of outsourcing or staff augmentation. Both allow the internal IT staff to remain focused on core responsibilities while still meeting upgrade deadlines put in place by vendors.

However, when it comes to which option is best for an individual company, the final choice depends largely on their comfort level and available resources. The following questions can help determine if outside help is appropriate and, if so, which direction to go:

• What other projects are currently on the back burner and do they offer a higher ROI than the ERP upgrade? Pulling resources for an upgrade at the expense of ROI should be avoided, even if it means bringing in outside consultants. The decision to use outside resources should not be viewed as purely a cost issue, however. It should be viewed as a way to realize ROI from other projects in a timely manner. If that justification doesn't hold up, you'll probably be doing the upgrade with all internal resources.
• Does the company have a history of using outside IT resources and, if so, how are they used? While some companies prefer to completely outsource projects, others are more comfortable with augmenting staff but retaining project management responsibilities internally. This is a great way to lower the cost, yet still maintain control. And while you'll still need to commit some internal resources that could be used elsewhere, it's a good compromise.
• When the company does outsource, is it typically to the software vendor or another resource such as a staffing company? Vendors have the most expertise and familiarity with their applications, but they can cost up to three times more than an IT staffing company. Too, many of the consultants who were laid off by vendors in the lean years are now with staffing companies or contract with the vendors to handle upgrade projects. That means that consultants with recent upgrade experience are readily available without having to pay vendor prices.

Finding the Right Partner for Staff Augmentation
Once the decision to seek outside help for an ERP upgrade is made, it's important to pick the right partner. To help identify who that is, there are a number of things to look for:

• Familiarity and experience with the ERP software: Whether the upgrade is PeopleSoft, Oracle or SAP, look for a staffing firm that has a solid track record of placing consultants in projects involving that software.
• Experience with upgrades of a similar size and scope: ERP upgrades come in every shape and size, including migrations from one version to another; implementation of new modules; conversion from one software to another; and even complete conversions of legacy applications to web-based components. Make sure the staffing firm you ultimately select can show you not only consultants who are very experienced, but who also have successfully completed similar projects. That includes showing you resumes of consultants who have recent experience upgrading to the same version as you're moving to.
• A sufficient pool of qualified IT talent from which to draw: Whether the ERP upgrade calls for project managers, functional or technical talent or a combination of all three, make sure the firm you select has the appropriate level(s) of talent for your particular project and that they are able to dedicate them for the duration of the project and even longer. Whenever possible, request local candidates to eliminate or reduce travels costs, but realize that finding candidates with specific experience levels can require looking at regional and national candidates. Even with the additional expense of travel and per diem fees, the cost of using a staffing company instead of vendor or Big 4 implementation teams can be one-third to one-half the costs.
• References: Make sure that the staffing firm can provide references for the consultants' specific to the upgrade in question.

In a little more than a year, most major ERP vendors will have accomplished their objective of getting their clients to the newest supported level of their product or they will be charging them significantly higher maintenance fees to continue supporting older versions. For the 40 percent of companies that are lagging behind, time is running out to start the upgrade process.

However, whether the issue is financial, personnel or both, ERP upgrades can still be completed on time and within budget by taking the time to identify the best mix of internal and external resources.

Kevin Hudson is vice president of product management for information technology for Kforce® Inc. Based in Tampa, Kforce (NASDAQ: KFRC) is a full-service professional staffing firm providing flexible and permanent staffing solutions in more than 40 North American markets as well as through online services.

Copyright 2004. Kforce, Inc. All rights reserved. Used by permission.