Questions: 1. Why does ERP customization lead to so many headaches when it is time to upgrade? 2. Why were the systems customized in the first place? 3. Cutting payments outright to ERP vendors may not be possible for smaller companies without the in-house resources that larger organizations have. Are they at the mercy of the software providers? What other alternatives do small companies have? Provide some recommendations. 4. Kennametal CIO complains that they “paid maintenance for nothing.” Who do you think is responsible for that state of affairs? Kennametal? The ERP vendor? Both? Justify your answer. Case : Kennametal, Haworth, Dana Holding, and Others: ERPs Get a Second Lease on Life. Kennametal, a $2 billion maker of construction tools, has spent $10 million on ERP maintenance contracts during the past 13 years and not once could the company take advantage of upgrades, says CIO Steve Hanna. The company’s implementation was too customized: The time and effort needed to tweak and test the upgrade outweighed any benefits, he says. But Hanna kept trying. Recently, he priced the cost of consultants to help with an ERP re-implementation and was shocked by estimates ranging from $15 million up to $54 million. The major ERP suites are “old and not as flexible as some newer stuff, and they can’t build flexibility in,” Hanna says. “Modifying it takes our time and money and training.” His ears practically steam from frustration. “You tell me: What am I missing here?” Kennametal is like many companies when it comes to ERP. The software is essential but, unlike when it was new, it now offers scant opportunity for a business to set itself apart from its competition. It certainly doesn’t help bring in new revenue, and running it eats up an increasing share of the IT budget. Yet longtime ERP users aren’t pitching the technology. Companies still need it for managing supply chain, financial, and employee data. As Hanna and other CIOs are finding, however, behemoth ERP systems are inflexible. Meanwhile, high-priced maintenance plans and vendors’ slowness to support new technologies such as mobile and cloud computing mean that, without careful management, the ERP technology woven through your company can become a liability. Your ERP system probably won’t collapse if you do nothing; it’s not like legacy mainframe applications were a decade ago. But just as you had to adapt your approach to managing mainframes in order to maintain their value in an age of faster, cheaper Web-based apps, you now need to do the same with ERP. So it’s time to rethink business processes, drive a harder bargain on maintenance fees, and find ways to marry ERP to emerging technologies. Achieving an ERP system that delivers future value means managing it differently here and now. New ERP license revenue dropped by about 24 percent, according to Forrester Research—one effect of the general decline in software spending during 2009. This means vendors are hungry for new business. They’ll offer software deals to tempt CIOs who had put off upgrades or who want to install completely new systems to get the latest capabilities. Yet CIOs need to tread carefully: What used to be a good deal may not be anymore. Steve Stanec is vice president of information systems at Piggly Wiggly Carolina, a privately held supermarket chain with 105 stores, most in the southeast United States. Stanec says he and other CIOs must depart from the traditional ERP script, where, after lengthy negotiations, vendors hand over software and charge hefty ongoing fees. CIOs must avoid falling into the same ERP traps they once did, he says. Buying and installing ERP was never a cakewalk. Today, though, ERP is the Jack Nicholson of software: With a hackneyed repertoire, the old and expensive dog finds it hard to learn new tricks. It’s become a legacy technology, and CIOs are now finding new ways to manage ERP projects and the ongoing upkeep. Their best advice: Draw a clear project map and modif…

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