When ERP Projects Go Wrong: 5 key takeaways from Metcash's Costly Implementation Failure

Written By: Eric Kimberling
Date: May 20, 2024

ERP (Enterprise Resource Planning) systems are vital for modern businesses, integrating various functions like finance, supply chain, and human resources into a unified system. However, implementing an ERP system is notoriously complex, as evidenced by the recent experience of Metcash, an Australian retailer specializing in groceries, liquor, and home improvement goods. Metcash embarked on a Microsoft Dynamics 365 (D365) ERP implementation that ended up costing $200 million more and took two years longer than planned. This blog explores the key issues that led to this costly failure and what other organizations can learn from it.

The Challenges Faced by Metcash

  1. Underestimating Complexity
    Metcash, a diversified retailer with distinct business operations, aimed to transition to a standardized operating model on a single ERP platform. However, they underestimated the complexity of unifying the diverse processes of their liquor, grocery, and home improvement divisions. Standardizing business processes across varied operations proved far more challenging than anticipated.
  2. Unrealistic Expectations
    One of the critical issues was that Metcash set unrealistic expectations for the project. They were sold a vision of D365 as a highly integrated, plug-and-play solution. This led to internal expectations that the implementation would be straightforward and quick. In reality, ERP implementations are rarely simple, and over-optimism can result in extended timelines and budget overruns.
  3. Vendor Bias
    Metcash had a strong bias towards using Microsoft solutions. This bias stemmed from a previous, though troubled, implementation of D365 in a small part of their business. This internal success story created a false sense of security about D365’s suitability for the entire organization. Such bias can prevent organizations from objectively assessing the best solutions for their needs.
  4. Lack of Project Governance
    Initially, the project did not report directly to the CEO or the executive team, but rather to a lower level within one of Metcash's business units. This lack of high-level oversight likely contributed to misaligned priorities and inadequate governance, hampering the project's success. Proper governance is crucial for managing large-scale projects and ensuring alignment with overall business objectives.
  5. Over-reliance on Consultants
    At its peak, Metcash’s project had over 200 consultants from KPMG and additional oversight from PricewaterhouseCoopers (PWC). Despite having such high-profile support, the project faltered. The reliance on external consultants without building internal capabilities can lead to a lack of ownership and long-term sustainability issues.

Course Corrections and Lessons Learned

  1. Adjusting Project Oversight
    After realizing the project was off-track, Metcash's new CEO paused the implementation to reassess and recalibrate the project plan. The project team was restructured to report directly to the CEO, ensuring better oversight and alignment with corporate strategy. This change underscores the importance of executive sponsorship and visibility for major transformation projects.
  2. Building Internal Competencies
    The CEO also emphasized developing internal capabilities rather than relying solely on external consultants. By building in-house expertise, Metcash aimed to ensure they had the necessary skills to sustain and evolve their ERP system post-implementation. Organizations should balance external support with internal knowledge transfer to avoid long-term dependency on consultants.
  3. Realistic Planning and Phased Implementation
    Recognizing the unrealistic expectations set at the start, Metcash adopted a more phased and realistic approach. Acknowledging that ERP implementations take time and careful planning is crucial. Organizations should set achievable milestones and remain flexible to adjust plans as needed.

Key Takeaways for Other Organizations ERP Implementations

  • Thoroughly Assess Complexity: Understand the complexities of standardizing diverse operations and plan accordingly. Engage stakeholders early to define standardized processes.
  • Set Realistic Expectations: Be wary of vendor promises that seem too good to be true. Set practical timelines and budgets based on thorough research and pilot testing.
  • Ensure High-Level Governance: Establish clear governance structures with executive sponsorship to maintain alignment with business goals.
  • Balance External and Internal Resources: Use external consultants for their expertise but focus on building internal capabilities for long-term success.
  • Adapt and Course Correct: Be prepared to reassess and adjust plans as challenges arise. Flexibility and adaptability are crucial for large-scale ERP projects.

Metcash’s ERP implementation journey offers valuable lessons for any organization considering a similar transformation. By learning from these challenges and applying best practices, businesses can navigate the complexities of ERP implementations more effectively and avoid costly pitfalls

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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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