In 1998, the U.S. Navy embarked on a set of four enterprise resource planning (ERP) pilot projects focused on SAP software. However, by 2005, the effort was scrapped, costing the Navy $1 billion.

How did this high-profile ERP project go so far off track? More importantly, what lessons can your organization learn from this failure so you can avoid project setbacks? 

Today, we’re taking a closer look at the Navy ERP failure to understand what happened and how it could have been avoided. 

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The U.S. Navy ERP Failure: What Happened?​

From the beginning, this ERP project was slated to be a big one. When it launched in 1998, the Navy had three major systems integrators engaged with the project: IBM, Deloitte, and Electronic Data Systems (acquired by Hewlett-Packard in 2008). 

The Navy hoped that these four ERP systems would streamline and consolidate all the organization’s functions, including financials.

However, over time, the scope was eventually reduced to just cover the financial component of the organization. By narrowing the focus, the Navy expected the project to be more manageable and affordable, yet even that reduction wasn’t enough to save it. 

As the systems rolled out, it soon became evident that they were too limited in nature and would fail to meet the military’s performance expectations. According to a report from the Government Accountability Office (GAO), the installations were both redundant and incompatible with one another. As such, they were insufficient to meet the Navy’s requirements. 

In all, the failure affected 90,000 Navy employees globally, who struggled to gain efficiencies from these ill-fated systems. 

To correct the problem and salvage the project, the Navy restructured its approach. The entity spent around $800 million to consolidate all four projects into a single, monolithic ERP platform. This system was supposed to go live in 2011, but it is still under development. 

4 Lessons Learned From This Government ERP Failure​

The Navy’s ERP project was riddled with a few critical mistakes that ultimately derailed the entire effort. Let’s look at what went wrong and the lessons your organization can learn from those missteps. 

1. Select the Correct Software​

For an ERP implementation to be successful, the software you select must align with your organization’s goals and objectives.

We recommend taking the time to define your needs, so you don’t end up with a solution that sounds great on paper but is actually incapable of taking your organization where you want it to go.

Consequently, the software requirements gathering stage is a critical one. During this time, your project team should identify pain points and map your future state.

Defining your future state often requires business process reengineering as organizations’ existing processes are typically inefficient and non-standardized. These types of processes are not suited to make the most of a new ERP solution.

2. Choose the Right Systems Integrator​

The systems integrator you choose is just as important as the software you select.

In the Navy’s case, they had three of the biggest players in the industry by their side, but none of them was able to save the project. This goes to show that name recognition alone doesn’t make a system integrator immune to failure. 

You need the right partner (or partners) by your side from the very beginning of the implementation.

That’s not to say that ERP success isn’t a collaborative effort. While your systems integrator will impart knowledge and guidance, this is only valuable if they work alongside an experienced project manager – ideally an internal resource from your organization.

However, at the end of the day, hiring the wrong partners can make even the most experienced project manager stumble. 

3. Take Corrective Action When Necessary​

If you realize there’s an issue (or multiple issues) with your ERP software implementation, there are always actions you can take to make it right.

For instance, if you notice that your systems integrator isn’t following your project plan, you can set them on the right track by making sure they understand exactly what you expect from them. If they still can’t align their efforts, it might be time to remove them from the project.

Your organization is responsible for identifying and mitigating project risks as soon as they become apparent. If you rely on your systems integrators to take the reins on risk management, then core issues may go undetected until it’s too late. 

4. Prioritize Organizational Change Management​

When ERP projects fail, it’s usually because the “people” side of the change went unsupported in some capacity.

Therefore, we recommend adequately investing in organizational change management (OCM) to make sure your employees feel supported throughout the project. This means setting a timeline and budget that allows you to invest in the communications, training, and evaluation tactics required to prepare your workforce for the transition. 

You may think you’ll save money and conserve resources by scrimping on OCM. Yet, organizations that do this usually find that it costs much more to resolve disruptions once the system is in place. 

The Keys to ERP Success

With the right implementation approach, ERP software can help you unlock new efficiencies and improve data insights. Yet, as we’ve seen in the Navy ERP failure, the opposite can hold true.

While the fate of your project lies in your hands, having the right partners goes a long way. Hiring an ERP consultant is the best way to ensure your team is on the right path.

To speak to our ERP consultants, please request a free consultation below. 

About the author

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As Director of Panorama’s Expert Witness Practice, Bill oversees all expert witness engagements. In addition, he concurrently provides oversight on a number of ERP selection and implementation projects for manufacturing, distribution, healthcare, and public sector clients.

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