ERP: Customization vs. Configuration

ERP: Customization vs. Configuration

erpCustomization is one of the most controversial topics surrounding ERP software.   Most companies start out with the full intention of leveraging plain vanilla, off-the-shelf software when they upgrade, replace or implement a comprehensive Enterprise Resource Planning (ERP) application.  However, as organizations get into implementation details,  requests to make one or more customizations to the software are inevitable.

According to a recent report by Panorama Consulting, only 23% of organizations implement vanilla ERP software without customization.  The majority of organizations make heavy or moderate customizations to ERP software as shown in the table below.  According to the same research study, large companies with over $500 million in annual revenue are even more likely to customize their software, as are companies in the aerospace, defense, and government industry verticals. In addition, an organization’s propensity to customize software seems to be at least partially driven by the specific ERP solution being implemented as shown in the table below.

ERP Software Vendors Average Rate of Customization

 

Heavy Customization

Moderate Customization

Vanilla Implementation

SAP

38.40%

40.60%

21.00%

Oracle EBS

34.40%

40.00%

25.60%

Microsoft Dynamics

32.80%

42.20%

25.00%

Tier II ERP Software Packages

23.50%

48.10%

28.40%

Whether or not to customize has been debated since ERP systems first came into existence. The controversy around customization is problematic for several reasons.

  • Customization increases the cost, complexity and risk of an implementation and makes it more difficult and more expensive to upgrade software in the future.
  • Customization makes it difficult or sometimes impractical to take advantage of best practices built into the software, which software vendors often spend significant R&D developing and pass onto customers through annual support costs.
  • Customization is often a symptom of bigger problems, including a solution’s mismatch with a company’s requirements or a lack of project controls during implementation.

Below are five tips to help manage and control ERP software customization during the implementation process.

  1. Understand the difference between software customization and ERP package configuration. Configuration is the normal set-up of the software, such as parameters, fields, and workflows.  These changes are a normal part of any implementation and do not require changes to the source code.  Customization, on the other hand, requires changes to the source code and also requires a higher level of technical sophistication.  Often times, business requirements and objectives can be met via configuration and set-up instead of customization.
  2. Select the Right Solution – Every organization is unique and no single ERP solution is going to meet 100% of a company’s requirements.  However, finding the right ERP software with the best functional fit will ensure that your customization needs are minimized. Finding the right software involves defining a clear set of requirements and choosing the best solution based on that set of requirements.
  3. Define a clear policy concerning customization. It is best to determine a clear policy for customization up front. Often customization can be avoided through changing the business process or using workflow features of the software. When customization is required, the modifications should be reviewed and approved by some type of control body such as a change control board. Customization requests should be clearly documented, concisely stating the reason for the customization, options that were considered to avoid customization, and include a cost-benefit analysis of the customization to ensure that modifications are only made to provide the company with a unique competitive advantage and where there is so viable workaround within the system.
  4. Ensure business requirements are clearly defined. One of the primary drivers of customization is lack of direction in developing and managing requirements.  When requirements are not well defined and managed, it is much more likely that project teams will make unnecessary and costly customizations to the software.  Requirements should be used to  define and manage configuration options, introduce business process changes, and implement customizations when needed.
  5. Apply effective project management and governance practices. Without strong project controls and governance, project teams are more likely to customize every item on the users’ wish list without prioritizing, rationalizing, or identifying potential solutions within the core functionality of the system or through making changes in business processes.  The project management committee and project manager need to clearly define criteria for determining when customizations are warranted and follow the policies described in step 3 above.

The Enfocus Requirement Suite from Enfocus Solutions is an important tool to help organizations define and manage requirements for commercial solutions. The tool may be used to define requirements, consider alternatives for delivering the solution  such as making process changes,  make configuration changes or making customizations. To find out more please download our product fact sheet.

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