Avoiding ERP Failure: 8 Strategies for Successful Digital Transformation

Written By: Eric Kimberling
Date: July 20, 2024

ERP failures are a common phenomenon in the digital transformation space, but unfortunately, organizations have become normalized to this concept. But why is that? What can you do to avoid such failures? Let's delve into these questions and explore strategies to ensure successful ERP implementations.

The Reality of ERP Failures

It's estimated that anywhere between 70% and 80% or more of ERP implementations fail. With such high failure rates, you would think that organizations would be on high alert, recognizing that failure is a real possibility. However, many organizations justify excessive spending, prolonged timelines, and significant operational disruptions during go-live.

Why Does ERP Failure Become Normalized?

One major reason is that many organizations rush into ERP implementations without proper preparation. This rush is often driven by software vendors moving from on-premise solutions to cloud solutions and pushing their customers to do the same within a compressed timeframe. This hurried approach creates a shortage of necessary skills and resources, contributing to a high degree of failure.

Additionally, there’s a tendency for organizations to adopt a “herd mentality.” When they see peers struggling with similar challenges, they assume it’s normal and unavoidable. This mindset leads to a dangerous acceptance of subpar results.

Organizational Justifications for Failure

Organizations often justify ERP failures by rationalizing excessive spending, extended timelines, and operational disruptions as inevitable parts of the process. This normalization occurs because:

  1. Lack of Awareness: Many organizations are unaware of the high failure rates associated with ERP implementations. They embark on their digital transformation journeys without fully understanding the risks involved.
  2. Vendor Pressure: Software vendors often pressure organizations to migrate to new platforms within tight deadlines, creating a sense of urgency that leads to inadequate planning and rushed decisions.
  3. Resource Constraints: The shortage of skilled professionals to manage ERP implementations effectively exacerbates the problem. Organizations may lack the expertise required to navigate the complexities of ERP projects.
  4. Cultural Acceptance: Over time, organizations may develop a culture that accepts ERP failures as a norm. This cultural acceptance diminishes the motivation to seek better outcomes and higher standards of success.

Avoiding ERP Failure: Best Practices

1. Set Realistic Expectations

Begin with a clear, achievable timeline and budget. Unrealistic expectations lead to rushed decisions, often resulting in the exclusion of critical components like change management, testing, and training. Starting off with realistic expectations reduces the likelihood of making poor decisions later on.

Detailed Planning: Invest time in thorough planning to ensure all aspects of the project are considered. This includes defining the scope, setting realistic milestones, and allocating sufficient resources.

Risk Assessment: Conduct a comprehensive risk assessment to identify potential pitfalls and develop mitigation strategies. Being proactive in addressing risks can prevent unexpected issues from derailing the project.

2. Align Organizational Goals

Ensure everyone, from executives to end-users, understands and agrees on the project’s objectives. It’s crucial to take the time upfront to define what you want to achieve, what success looks like, and how you plan to get there. This alignment helps in maintaining a clear direction throughout the project.

Executive Sponsorship: Secure strong executive sponsorship to drive the project forward. Executive support ensures that the project receives the necessary resources and attention it requires.

Stakeholder Engagement: Involve all key stakeholders in the planning process to ensure their needs and concerns are addressed. This inclusive approach fosters a sense of ownership and commitment to the project's success.

3. Invest in Change Management

Investing heavily in organizational change management is key to mitigating risk. The people side of technology implementation is often the most challenging aspect. Effective change management ensures that employees are prepared, trained, and supported throughout the transformation, significantly increasing the likelihood of success.

Training Programs: Develop comprehensive training programs to equip employees with the skills they need to use the new ERP system effectively. Ongoing training ensures that users remain proficient and confident in their roles.

Communication Strategy: Implement a robust communication strategy to keep all stakeholders informed about project progress, changes, and upcoming milestones. Clear and consistent communication helps manage expectations and reduces resistance to change.

4. Define Success and Failure

Clearly define what success and failure mean for your organization. For some, success might mean implementing the ERP system on time and within budget. For others, it might mean achieving specific business outcomes or avoiding major operational disruptions. Knowing what you aim to achieve helps in setting realistic goals and benchmarks.

Success Metrics: Establish specific, measurable, achievable, relevant, and time-bound (SMART) metrics to gauge the project's success. These metrics should align with the organization's strategic objectives and provide a clear framework for evaluating progress.

Failure Contingency Plans: Develop contingency plans to address potential failures. Having predefined responses to various failure scenarios ensures that the organization can quickly recover and minimize the impact on operations.

5. Take a Phased Approach

Instead of a big-bang implementation, consider a phased approach. This allows for incremental improvements, reduces risk, and provides opportunities to learn and adjust before moving on to the next phase.

Pilot Testing: Conduct pilot tests in controlled environments to identify and resolve issues before full-scale deployment. Pilots provide valuable insights and help refine the implementation strategy.

Iterative Improvements: Embrace an iterative approach that allows for continuous feedback and improvements. Regularly review and adjust the project plan based on lessons learned and changing business needs.

Overcoming the Normalization of ERP Failure

To overcome the normalization of ERP failure, organizations must adopt a proactive and strategic mindset. Here are additional strategies to achieve success:

6. Leverage Expertise

Engage external consultants or experts with a proven track record in ERP implementations. Their experience and knowledge can provide valuable guidance and help avoid common pitfalls.

Consultant Selection: Choose consultants with relevant industry experience and a deep understanding of ERP systems. Their insights can accelerate the implementation process and enhance overall project outcomes.

Knowledge Transfer: Ensure that knowledge transfer occurs between external consultants and internal teams. Building internal capabilities is essential for sustaining the ERP system's success in the long term.

7. Foster a Culture of Continuous Improvement

Encourage a culture of continuous improvement where feedback is actively sought and acted upon. This approach ensures that the ERP system evolves with the organization’s changing needs and remains aligned with business goals.

Feedback Mechanisms: Implement mechanisms for collecting feedback from end-users, such as surveys and focus groups. Regularly review and incorporate this feedback to enhance the system's usability and effectiveness.

Performance Monitoring: Continuously monitor the ERP system's performance against predefined success metrics. Use data-driven insights to identify areas for improvement and optimize processes.

8. Prioritize Data Quality and Integrity

Ensure that data quality and integrity are maintained throughout the implementation process. Clean, accurate, and reliable data is crucial for the ERP system's effectiveness and decision-making capabilities.

Data Cleansing: Conduct thorough data cleansing activities to eliminate duplicate, outdated, or incorrect data before migrating to the new ERP system. Clean data sets the foundation for accurate reporting and analysis.

Data Governance: Establish robust data governance practices to maintain data quality and integrity over time. Define data ownership, establish data standards, and implement processes for ongoing data management.

Conclusion

ERP failures don’t have to be the norm. By setting realistic expectations, aligning organizational goals, investing in change management, clearly defining success and failure, taking a phased approach, leveraging expertise, fostering a culture of continuous improvement, and prioritizing data quality and integrity, organizations can significantly improve their chances of a successful ERP implementation. Avoid the herd mentality and aim for a higher standard. The success of your digital transformation depends on it.

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Kimberling Eric Blue Backgroundv2
Eric Kimberling

Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.

Author:
Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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