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How to Avoid ERP Failure

How to Avoid ERP Failure

ERP failures are all over social media these days – from the SAP failure at National Grid to MillerCoors’ recent ERP lawsuit. How do you avoid the same mistakes made by these high-profile organizations?

Most mistakes made during ERP implementation don’t become evident until later – usually when it’s too late. With an understanding of common implementation mistakes, you can develop a project plan that prevents ERP failure.

Our experience as ERP expert witnesses has shown us how some of the biggest ERP failures transpire. In most cases, the projects involved very little change management and business process reengineering. Instead, organizations focused on finding the top ERP systems based on what their competitors were using. These organizations implemented new ERP software but did not improve business processes. Ultimately, the project failed.

Here are nine mistakes that could mean your ERP project will fail to meet expectations:

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Common ERP Implementation Mistakes

1. Not Involving Executives

Your executive team should be involved in key project decisions. We’re not just talking about budget approval. We’re talking about ongoing decisions about project goals and changes to business processes.

2. Treating the Project Like a Technology Initiative

The most successful ERP implementations are treated like digital transformations. Instead of losing sleep over SAP vs. Oracle, focus on people and processes. Think of ERP software as an enabler of change.

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3. Not Developing a Business Case

You won’t achieve what you don’t measure. In addition to justifying the ERP investment, a business case can help you measure business benefits during and after implementation. It aligns stakeholders around project goals and sets realistic expectations. Do you want to improve your organization’s customer service? Include this in your business case by quantifying the improvements you expect.

4. Not Establishing Strong Project Governance

ERP project governance ensures the project team makes decisions aligned with the project goals. Use a project charter to assign certain team members the responsibility of approving requests, such as customization requests. Executives and other employees may make requests that increase project scope and cost. If you have strong project controls, you will only approve requests that align with the organizational vision. This will reduce the risk of budget and timeline overruns.

5. Setting Unrealistic Expectations

Most organizations spend more time, money and resources on ERP implementation than they expected. They expect implementation will cost as much as their ERP vendor or systems integrator claims. However, most vendors don’t account for costs, such as customized training and communication.

6. Adhering to Budget and Timeline Expectations

Even the most realistic expectations may need adjustment throughout the project. For example, change resistance could be a bigger issue than anticipated. While you want to stick to your original budget, you also want people to adopt optimized processes. In cases like this, where you can justify the long-term gains, you must be willing to adjust your budget.

7. Allowing ERP Software to Define Your Future Processes

While most backend processes can be defined by ERP system functionality, other processes should be redesigned before software selection. For example, if you want to improve your supply chain, you should identify pain points during your requirement gathering workshops. Clear business requirements ensure your chosen software solutions align with your organizational goals. These requirements give ERP vendors a framework for their software demonstrations.

8. Neglecting Change Management

Most organizations don’t understand the impact end-users can have on ERP success. As a result, they don’t invest in change management activities, such as regular communication. To avoid this mistake, focus on overcoming change resistance. Develop a change management plan that includes a sponsorship roadmap, coaching plan and training plan.

9. Misusing ERP Consultants

While ERP consultants are helpful for guiding you in ERP best practices, too much reliance on consultants can backfire. Find the right balance by frequently seeking advice while ensuring your organization has the final say on important decisions. Your ERP consultant should help you develop a center of excellence so you’re not dependent on consultants in the long term.

How to Assess ERP Risks

Avoiding these mistakes will help you avoid ERP implementation failure. However, detecting these mistakes isn’t always easy. Small mistakes often aren’t noticeable until they accumulate into bigger problems. If you’re immersed in the project details, you may not be able to objectively assess risk.

Here are three tips for assessing project risks:

1. Find Unbiased, Third-party Resources

It’s important to involve someone outside of your organization as their view will be objective. This person should have experience conducting risk assessments for projects similar to yours. Assessments should be conducted regularly to identify probability, severity and impact.

2. View Potential Risks From All Perspectives

There are all different types of risks, so it’s important to assess your project through many different lenses. Risks can relate to people, processes or technology. Whatever framework you use, it should provide a comprehensive analysis of your project.

3. Develop a Risk Mitigation Plan

Most risk assessments identify more risks than you can address with existing resources. Prioritize risks so you can focus on those posing the most threat to your project. For these high priority risks, create a risk mitigation plan and contingency plan.

Avoiding ERP Failure

Developing a project plan that doesn’t commit the common mistakes made by most organizations will help you achieve ERP success. However, even with an effective plan, you will experience issues along the way. That’s why it’s important to conduct risk assessments throughout your project. The sooner you detect risks, the sooner you can adapt your project plan to mitigate these risks. For a thorough risk assessment, consider hiring an ERP consultant to benefit from their lessons learned.

Top 6 Reasons for ERP Failure

Top 6 Reasons for ERP Failure

When recovering from a failed ERP implementation, the most common question organizations have is, “Who is at fault?” Organizations struggle to answer this question as the project involved many stakeholders, from the project team to the ERP consultant to the ERP vendor. A better question to ask is, “What were the root causes of failure in the overall project execution?”

We’ve learned several lessons from helping organizations with ERP project recovery and ERP litigation. Following are six common reasons for ERP failure:

Technical Focus Instead of Business Focus

The most successful organizations view their ERP implementations as business transformations rather than technology projects. They understand that a new ERP system has much more impact on the business than a Windows upgrade. ERP implementations have a significant impact on employees, business processes and the organization’s overall strategy. However, many ERP consultants are more focused on technology than people and processes. In contrast, our research shows that software functionality is actually one of the least important criteria for ERP success. So, stop thinking so much about SAP vs. Oracle, and start thinking about people and processes.

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Unrealistic Expectations

Embarking on an ERP implementation with unrealistic expectations is often the beginning of ERP implementation failure. Some ERP vendors lowball implementation cost and duration, which forces organizations to cut corners or absorb unexpected costs. Project plans should be realistic and not overly-aggressive. How can you tell if your plan is realistic? Start by determining the critical success factors that will make or break your project. What has worked for other organizations of similar size and industry? What challenges do organizations usually encounter? Chances are you will find that change management and business process reengineering are critical success factors that ERP vendors overlook. The recent SAP failure at Lidl demonstrates the importance of realistic expectations. The retailer defined strategic goals at the beginning of the project but didn’t consider the success factors necessary to achieve these goals. Seven years and 500M Euro later, it became clear that the budget for a successful implementation was more than the company could afford.

Lack of Executive Buy-in

The executive team may have approved the project budget, but their job is far from over. They need to form an executive steering committee to clarify the overall digital strategy and make decisions about resource allocation, timeline, budget and benefits realization. Executive involvement ensures the ERP implementation doesn’t become a technology project but fits into the organization’s overall strategy. Organizations that use ERP software to enable a long-term digital strategy are more likely to realize benefits, such as improved customer service and sustainable competitive advantage.

Insufficient Business Process Reengineering

Some ERP vendors will say you don’t need to focus on business process management because their software is built with industry best practices and can be implemented out of the box. While best practices may be appropriate for some areas of your organization, they may erase your competitive advantage in other areas. Focusing on business process reengineering prior to selecting an ERP system helps you design future-state processes that will determine your functional requirements. Today’s ERP systems are far too flexible to provide clear direction on how to run your business. Organizations that fall into this trap end up automating their existing processes rather than optimizing them for efficiency and competitive advantage.

Lack of Change Management

If there’s one thing that’s sure to prevent ERP failure, it’s organizational change management. In each of the 30+ ERP lawsuits for which we’ve testified or written expert reports, change management issues contributed to project failure. These organizations didn’t build a change management team and viewed change management as simply an end-user training exercise. They could have invested in organizational assessments, employee communications and customized training, which would have ensured that their employees effectively used the new ERP software and followed new processes and procedures. You can’t force employees to embrace change; it’s their choice and they may choose to resist it. Usually, this is subtle and non-malicious, but it can still undermine your ERP implementation.

Too Much Software Customization

Most organizations begin ERP implementations expecting little to no software customization, but in our experience, most clients end up needing at least moderate customization. While some customization is always necessary, customization gets dangerous when you customize functionality that should be standardized. For example, many back-office processes are not competitive differentiators, so standard software functionality is usually sufficient. If employees are pressuring you to customize processes like this, it’s a sign of change resistance. Decrease the resistance instead of increasing the customization.

Hiring Inexperienced Resources

Your systems integrator and your ERP consultant should both have relevant ERP experience within your industry. This goes back to the point about realistic expectations. How will you know what’s required for success unless you review lessons learned from similar organizations? An ERP consultant with industry-specific experience understands the challenges your organization might face and can ensure you have access to the right expertise. National Grid recently experienced an SAP failure due to the inexperience of its systems integrator. The systems integrator did not have experience implementing SAP in the US utility industry, so their work caused technical defects within the system that led to significant operational disruption. Systems integrators can easily misrepresent their capabilities, so it’s important to ask for relevant references.

How to Prevent ERP Failure

You can prevent ERP failure by looking for warning signs. If any of the above issues sound familiar, it’s not too late to change course. Or, if you haven’t yet begun ERP implementation, you can avoid these six mistakes by working with Panroama’s ERP consutlants to develop a strategic and realistic implementation plan.