Mads Wijngaard knows all about the downsides of ERP customization.
Roughly 10 years ago, Wijngaard's employer, the giant Danish shipping company Maersk Line set about deploying SAP ERP Financials to replace an internally developed system and standardize financial processes.
The goal was uniformity, but what they got was anything but.
Over the years, Maersk added layer upon layer of customization meant to address a hodgepodge of country and customer-driven customizations, according to Wijngaard, senior director of business process operations for the Copenhagen-based company.
"We did a little change for Japan, we did something for Brazil. Germany wanted something separate," Wijngaard explained. To make things worse, the company never considered standardizing changes globally.
"We never went back and asked, 'so what happens when we make this change in the U.S. that's a little bit better, what about all these locations we've already been to? They don't have this…should they get it?'" Wijngaard said.
Even SAP no longer recognized its own software, he said. "It was customized beyond recognition."
The customizations were so burdensome, Wijngaard said, that the company had no choice but to reimplement SAP Financials, paying close scrutiny to whether each customization should stay or go, and putting in place a rigorous process for approving future customizations in an effort to move forward with a cleaner, more agile system.
"We, like everybody else, hit the financial crisis, and we came to a realization that the platform we had is not going to give us what we need for the future. If we can't standardize on this, we can't leverage industry best practices and in the benchmarking we did," Wijngaard said. "We could clearly see that the platform we had ain't that great."
Putting safeguards into place
Like Maersk Line, the county of Sacramento, Calif. also struggled with customizations. It recently took steps to regulate what customizations get made to its SAP ERP system, and why, according to Mark Musser, the county's business systems analyst. With over 10,000 employees, most of the customizations the county makes are in its SAP ESS (Employee Self-Service) and MSS (Manager Self-Service) software.
"What we've done is categorize them," Musser said. “It ranges anywhere from configuration, which is standard, all the way to where we're writing our own program using ABAP, and it just happens to be in the SAP system."
Approval depends on those factors, with senior management having to sign off on custom-made programs like Musser referenced.
The categories delineate things like the risk introduced by making the customization, the impact, and what level of support, if any, SAP offers for that customization.
"In other words, if we do that kind of customization, will SAP fully support us, do we have to back it out for SAP to fully support us, do you need consulting to get support?" Musser said.
A swinging pendulum
Maersk and the County of Sacramento are hardly alone in their attempts to balance customizations with unique business demands and processes.
Over the years, many others have also over-customized their ERP system, much to the same effect, according to independent analyst and diginomica co-founder Jon Reed. But that's no longer true, he said.
"There was a time when companies were much more aggressive about customizing their ERP systems, and they're starting to learn that that generally isn't a good idea," Reed said.
One of the major reasons for the change is that upgrades have exposed the problem with ERP customization from a cost and management perspective, according to Reed. "When companies are forced to upgrade their systems, which they often are, they're stuck will all this custom code that becomes a hindrance to moving ahead," he said.
The burden of maintaining extensive custom code leads to "technical debt," in which the total cost of ownership grows over time.
"It gets more and more difficult later on. So you upgrade, and some stuff doesn't work later on. Some stuff you have to redo," Reed said.
In some cases, the customization pendulum swings too far the other way, and companies convince themselves they must avoid customization at all costs. Typically, it’s not realistic, according to Eric Kimberling, president and founder of Panorama Consulting Solutions, a Denver-based consulting firm that specializes in IT deployments.
"There continues to be a dichotomy between expectations, and what happens when the rubber meets the road during implementation. For the most part, executive teams, and even project teams, when they're first considering new ERP software have the expectation, or the goal, that they're not going to customize the software at all," Kimberling said.
Roughly 90% expect to not customize their ERP system when they start. About the same number end up customizing anyway, he said.
"It kind of flips," Kimberling said. "It's pretty rare that we meet an executive teams, or product teams that are open to customization, but by the time you go to implement, something changes, or reality sets in, and they start to go down the path of some level of customization. "
For more on ERP software:
Read about seamless ERP-SCM integration
What is open source ERP?
The trick, he said, is to customize only when necessary, and only in areas where it can give a company a particular advantage or is otherwise key to how a business differentiates itself.
"When we're working with our clients, we try to get them to differentiate different processes, and requirements into two categories. One would be kind of those things that are generic, vanilla, and are just non-competitive types of things," Kimberling said. That might include processes such as accounts payable and accounts receivable.
"There's the other category, it's kind of your secret sauce, things that you do really well as a company. It's crucial to your competitive advantage, and speaks to who you are," Kimberling said. "[That's] where you'd want to focus your customization efforts."
Factors that help minimize customizations
Other factors are making it easier for companies to minimize the customization they have to do. For one, many ERP systems are far more flexible and configurable than they've been in the past, according to Kimberling.
"You can change the software without having to change the source code. Vendors are doing a good job of giving companies flexibility," Kimberling said.
Niche functionality -- including specialized cloud applications --also allow organizations to add new capabilities without having to customize their ERP code.
"You're getting more niche players in the market. You can take more of a best-of-breed approach," Kimberling said. "You're going to be less likely to customize your ERP system that's trying to be everything to everyone in your company."
Industry-specific ERP software for areas like banking, the public sector, and retail, also help minimize the need for customization, he added.
Unnecessary customization can sometimes be avoided by paying close attention to vendor road maps, according to Reed.
"If people are not intimately familiar with the roadmap, they might not know that such-and-such is being added to [a future] release," Reed said. "So you say to yourself, ‘why did we spend all the time building it if it was just going to be added?’"
Vendor services help manage customizations
Software companies and other vendors also offer a range of tools and services to help companies manage ERP customizations, including SAP.
In addition to its Solution Manager, which comes standard with the ERP and can be used to manage custom code, SAP now offers custom development services to help customers modify and extend their ERP based on SAP's standard ERP methodology and code, then still get support under SAP's premium support package, according to Hala Zeine, the chief operating officer who heads the custom development service.
"In that maintenance contract, we guarantee customers that we will support them and ensure that this custom code that has been built for them is then upgradeable whenever they apply a support pack or an enhancement pack," Zeine said.
SAP is also in the early stages of rolling out refactoring services that pull non-SAP custom code back into the core ERP in cases where that functionality now exists.
Build a contingency plan
Companies should build "buffers" into their ERP implementation plans that allow for some level of customization -- even if they're not sure how much customization to expect, according to Kimberling.
"That's probably the biggest thing that companies overlook," Kimberling said. "They expect that there'll be no customizations when they create their project plan, their time frame and their budget. If and when they do decide they want to customize their ERP, they realize they haven't planned for it, and the project goes off course, he said.
"One needs to recognize that it is going to take more time in terms of testing, and customizing training materials, and working out all the bugs," Kimberling said. "It's often unproven functionality. They've got to spend the time to test it."
- Intelligent ERP: The Software for Digital Transformation –SAP
- SAP S/4HANA: From Two-Tier ERP to the Nth-Tier Enterprise –SAP
- Build an Innovative ERP Platform with Google Cloud and SAP –Google Cloud SAP
- Vendor Assessment: SaaS and Cloud-Enabled ERP Applications –SAP