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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. If you haven’t yet begun ERP implementation, you can avoid these six mistakes by developing a strategic and realistic implementation plan.

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