Negotiating ERP Implementation Failure

I had two conversations with prospective clients in the last few days seeking help with their ERP implementation failures. With recent news of the SAP failure at Lidl and the SAP failure at National Grid, these conversations caught my attention.

Overview of the ERP Implementation Failures

The first was reaching out for help with ERP project planning and quality assurance for their ERP implementation. They had completed software selection and had purchased the software and hired a system integrator. They had basic process maps and requirements documents from the selection activities. However, the system implementation team stated they already knew best practices and would build the system based on those.

The second client was reaching out for help with a project recovery after a failed attempt at implementation. In asking what happened, they stated that their system implementor didn’t hold up to expectations. The resources didn’t seem to understand some very basic industry processes and struggled to match business requirements to the system build.

Root Causes of the ERP Implementation Failures

In digging deeper around their selection and procurement process, I learned that both companies had some similarities. Specifically, both had bragged about how aggressively they negotiated for both the software license fees and the system integration hourly rates. A lot of companies push to get the absolute lowest hourly rates, but this is rarely in their best interest.

Here is what happens when you push too hard with the intent of getting the best deal:

1. You get the “B” team. Most system integrators have varied levels of experience and charge accordingly. If you negotiate a lower rate, you get the lower resource level. They may even tell you that you are getting the “A Team”, but this means nothing as they will tell you they only hire “A” players. This is rarely the case. There is a “B” team.

1. You become less important. When things get tough, you need your SI on your side. You need them to bend backwards to get your implementation to the next phase. If you have burned them too hard on negotiations, they may not have the profit level or desire needed to go above and beyond for you.

1. Your PM gets pulled for another project. We hear horror stories every day how rotating resources has stalled projects. This happens when better opportunities come.

The severity of the above risks is often tied to the specific system integrator you are considering. For example, if you are considering Deloitte vs. Accenture vs. Capgemini, these risks may be more significant than if you are working with a mid-tier or smaller system integrator.

Reducing Short-term Costs Can Lead to ERP Implementation Failure

While the initial goal was to save some dollars on hourly rates, the result of pushing your system implementer too hard is that you ultimately put your project at risk and potentially increase project time and cost.

There is nothing wrong with asking for a better rate or getting comparative quotes, but be cautious when requesting to pay professional resources less than they are used to making. They may take the job if they need some immediate cash flow, but you are risking a mutually beneficial long-term relationship.