As we have outlined in our research over the years, most ERP projects take longer than expected, cost more than expected and fail to deliver the expected business benefits. According to our 2014 ERP Report, this trend hasn’t changed much in the last wave of ERP implementations, so most would assume that a majority of executives at organizations that have recently finished an ERP implementation would be fairly dissatisfied with their results.
When we dig deeper into the data, we find that this is not the case. In fact, roughly 80% of organizations categorize their ERP software initiatives as being successful – despite the dismal quantitative results in other areas outlined above. This year was the first time in the history of our annual studies that we asked the more subjective question about success, so we were a bit puzzled when we first saw the data.
The disconnect between quantitative implementation results and qualitative satisfaction brings up a number of questions:
What does ERP implementation success mean? First of all, our data and experience suggest that most organizations don’t know how to define “success” when it comes to their ERP implementation. For some, it means that their operations are incrementally better off now than before the new system went live. For others, it could mean that they didn’t bring the company to its knees and they didn’t get fired in the process. And for other CIOs, defining the project as a success may be a self-preservation tactic since no one wants to admit to overseeing a failure. I submit that most executives and project teams don’t have a clear idea of what success actually means.
Why is the bar set so low? Perhaps the most common reason for this disconnect is that so many organizations expect so little out of their ERP projects. They are relieved that they didn’t lose their jobs or screw up the company’s operations – never mind the fact that they are leaving millions of dollars of lost benefits on the table. ERP implementations have become so complex, difficult, and fraught with peril over the last few years that “not failing” has become the yardstick of success for most organizations.
This mentality is costing the average organization millions of dollars per year. For example, the average $100M organization realizes just north of $1M of tangible business benefits from their ERP systems, which is roughly one-third of the benefits that they had expected. Using these numbers, it would appear that the average $100M organization is leaving roughly $2M of business benefits on the table as a result of not managing their ERP implementation well – or $20M over the ten-year useful life of the ERP system. Similarly, the average $1B organization experiences $200M in lost business benefits over the same ten-year period.
What can we do to avoid a similar story? There are a number of things that organizations can do to avoid these expensive challenges and disconnects. First of all, start with a measureable business case that is used to manage business benefits – not just thrown on the shelf after justifying the project. The business case should be very tangible, specific, realistic and actionable to ensure that various stakeholders in the organization can be held accountable for achieving those results.
Second, ensure that you engage in business process reengineering, rather than the “paving the cowpaths” approach that most organizations take. This means ensuring that you have adequate time built into your project plan to identify and implement significant operational improvements. Most ERP consultants and ERP vendors severely underestimate or completely exclude this task, so it is important that you take their proposed implementation plans and timelines with a grain of salt.
Finally, ensure that you have a solid organizational change management strategy in place. If you had to pick one single strategy and tactic to optimize business benefits, it should be organizational change management. Without employee acceptance and adoption of new business processes and software, the new ERP system is exactly that: just an unused system. Only organizational change strategies will ensure that your implementation delivers the business benefits that your organization expects.
At the end of the day, everyone wants their ERP implementation to be successful, but they typically lack the experience and skill set to make their project a true, slam-dunk success. Most industry incumbents have a myopic and flawed view of how ERP projects should look, so it is important to take the matter into your own hands to ensure success.
Learn more by downloading our 2014 ERP Report.