Why Digital Transformation and ERP Failures are on the Rise

Written By: Eric Kimberling
Date: September 15, 2018

The last few months have brought news of some high-profile digital transformation ERP failures. The high-profile SAP failures at Lidl and National Grid are just two examples of recent failures.

Though these are just two examples out of thousands of transformations that happen each year, I am convinced that where there is smoke there is fire. In other words, I believe digital transformation and ERP failures are on the rise – and will continue to be for the foreseeable future.

A year or two ago, I thought that failure rates might actually be declining. But there have a been a few disturbing trends that lead me to think that this isn’t the case.

Here are a few things that lead me to believe that ERP failures are on the rise:

Our ERP expert witness practice is exploding with demand

When we see an uptick in expert witness engagements as we have seen in the last few months, we know this is a leading indicator of broader failures in the market. Lawsuits represent just the tip of the iceberg – representing just the most extreme examples of failure.

When this sample increases, it is reasonable to assume that more moderate and less publicized failures are on the rise as well. In the last 60 days, we have received several inquiries and new engagements to be an SAP expert witness or ERP expert witness of other sorts.

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The focus is on the technology

The four biggest ERP vendors – SAP, Oracle, Microsoft, and Infor – have recently rolled out flagship cloud solutions. For many organizations, these cloud technologies represent a quantum leap in technical and functional capabilities.

But, the technical focus is diverting attention and resources from the more important activities. Every dollar and hour spent deploying technology is one less dollar and hour spent on critical success factors such as organizational change, business process management and other critical success factors.

Organizations are deploying new technology because they “have” to

The current spike in ERP deployments reminds me when I started my career in the late ‘90s amid the frenzy of organizations to replace their pre-Y2K systems. Back then, companies had no choice but to replace their systems to avoid the sky from falling when their legacy systems switched over to the year 2000. This produced a wave of failures that led to some of my first expert witness engagements in the early 2000s.

Like then, companies are now largely replacing systems because of the migration to cloud systems. In other words, there is a sense of urgency to move to a more modern platform. Also like the Y2K situation, companies are myopically focusing on quick-hit deployments rather than doing it right. This doesn’t bode well for future success rates.

Current cloud ERP systems are relatively immature and largely unproven

This is the first time in my career where all the leading ERP vendors have replaced their flagship products at essentially the same time. This is a huge risk to the industry and buyers of enterprise software.

SAP S/4HANA, Oracle Cloud ERP, Microsoft Dynamics 365, and Infor CloudSuite are all relatively new and unproven systems. There isn’t yet a huge customer install base. System integrators, resellers, and consultants are still trying to figure out the products. The products have yet to be proven at scale across thousands of different organizations. In short, there are a lot of unknowns about today’s modern cloud ERP systems.

The sheer volume of deployments means vendor and system integrator resources will be spread thin

A handful of our clients are ramping up large SAP implementations and other ERP systems, and in these extreme cases, many are finding that even the big system integrators such as Deloitte, Capgemini, and Accenture are having trouble staffing appropriately.

This wouldn’t be a huge concern if the consulting industry had a good track record of successful digital transformations, but it doesn’t. Compound this with the fact that knowledgeable resources are becoming even more scarce and that there is a spike in demand for ERP consulting services, and you can see how this could contribute to more failures in the future.

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Consulting firms without true transformation experience will be exposed

There aren’t a ton of really good consulting firms out there that know what they’re doing. Many are stuck in outdated ways of doing things and field teams without relevant experience or battle scars (contact me for my opinion on the ones to steer clear of). These companies will likely be exposed in the form of high-profile failures. The key is to find good consulting support that demonstrates the knowledge, thought leadership, and track record to help make your transformation successful.

Good news: How to avoid ERP failure

This landscape may sound discouraging. It may also give you reason to rethink your sense of urgency to move forward with your digital transformation. But, don’t fear: there are clear ways to avoid ERP failure.

Here are a few ways to mitigate the risks outlined above:

  • Don’t focus too much on technology without equal or greater focus on people and technology.
  • Choose your system integrator wisely.
  • Acknowledge that even the best system integrators can’t be everything to everyone. Identify their weaknesses and augment accordingly.
  • Carefully vet your system integrator team members.
  • Recognize that cloud ERP isn’t a silver bullet. You still have to do the heavy lifting of people and process change, which is the hardest part.
  • Don’t rush into implementation without a clear strategy and pre-implementation readiness.
  • Leverage independent third-party consulting support such as Third Stage to help provide implementation quality assurance, organizational change management, and other services that most consultants don’t do well, but will be critical to your success.
  • Don’t forget that effective organizational change management is the #1 key to your digital transformation success.

The below video outlines some tips to execute an effective digital transformation readiness strategy.

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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.

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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