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 projects involve 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 terms of the overall project execution?”
We’ve learned several lessons from our ERP project recovery engagements, so we’d like to share seven common reasons for ERP failure:
Reasons for ERP Failure
1. 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. In fact, 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, our advice is to stop thinking so much about SAP vs. Oracle, and start thinking more about people and processes.
2. Unrealistic Expectations
Some ERP vendors lowball implementation cost and duration, which forces organizations to cut corners or absorb unexpected costs. Embarking on an ERP implementation with unrealistic expectations is often the beginning of ERP failure.
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?
The 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.
3. Lack of Executive Buy-in
The executive team may have approved the project budget, but their job is far from over. They also 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. This is importantn because 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.
4. Insufficient Business Process Management
When we work with clients, we help them map their current state before selecting ERP software. This not only helps organizations define ERP requirements to share with ERP vendors, but it also reveals opportunities for improvement.
If your organization isn’t planning a digital transformation but simply an ERP implementation, we don’t recommend conducting business process reengineering before ERP selection. However, we do encrouage companies to at least define overarching goals that will guide their choice of ERP software.
5. 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. However, they beleived that they could simply force employees to embrace change. This led to substantial change resistance.
6. 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 some customization.
ERP customization becomes a burden 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. We recommend decreasing the resistance instead of increasing the customization.
7. 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 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 seven mistakes by working with Panroama’s ERP consultants to develop a realistic project plan.
Our ERP Expert Witness experience enables us to identify risks early in the project. For more tips on how to avoid ERP failure, you can listen to our podcast featuring Bill Baumann, our Director of Expert Witness Services: