Why Do Digital Transformations and ERP Implementations Cost Too Much Time and Money?

It's no secret that a majority of digital transformations fail to deliver on time, on budget and deliver the business value that's expected. A bigger reason for this is because organizations have largely misaligned expectations on what it takes to be successful but why is this? How do we get implementation expectations so wrong? That's what we want to talk about here today.

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It's well researched and documented that over 80 percent of organizations that go through digital transformations struggle to implement on time, on budget and to deliver the expected business value. 

It's not just the initial implementation cost, time and business value that is missed by organizations, more often than not, organizations experience operational disruption that is unplanned and in many cases unacceptable at the time they go live with new technology. In fact, our research shows that just over 50 percent of organizations experience some sort of material, operational disruption at the time of go-live, meaning they can't ship product, they can't close the books, they can't run payroll, major showstoppers that bring their operations to their knees.

These operational disruptions oftentimes can cost exponentially more than the initial implementation itself, so the question becomes why do so many organizations fail in their implementations? There's one thing we can point to that is largely a root cause for this and that is most organizations have unrealistic expectations going into their implementations and therefore their estimated time, their estimated budget, their estimated resource requirements, the estimated risk is all off base. Frequently, it was never right to begin with, so it was inevitable that organizations were going to have problems or fail to realize those expectations.

What we want to do today is talk about the five sources of misaligned expectations that organizations commonly run into when planning for their digital transformations.

Digital Transformation Inexperience

The first way that organizations get their implementation expectations wrong is in the fact that they are largely inexperienced with digital transformations. Most internal project teams just don't do these digital transformations on a regular basis, they typically do it maybe once every 10 to 20 years, maybe even less and it's just not enough experience to know and have the foresight of what you should expect during an implementation. The fact that most people that are internal to an organization don't have the experience is something that causes them to go in with unrealistic expectations and really more blind spots than anything. This is why it's so important that if you do have people within your organization that have been through digital transformations, perhaps in other past lives or past organizations they've worked with, you want to make sure to leverage that experience and perhaps make them part of the team because the more internal expertise you can bring to the table, the more you're going to have realistic expectations to help you through the process.

Too Much Focus on Technology

One of the biggest ways that organizations have unrealistic expectations with their digital transformations is that they view their projects as technology projects and a way to view this is to view an entire bread box, an entire digital transformation looks like this, there's all this stuff you need to do that ranges from technology, people, process strategy, all kinds of different areas but the problem is, most organizations focus on the technology. Tech is important but it's not the entire project and what happens is because we focus on planning for a project that looks like this it's focused on technology, we miss all the other nuances, we miss all the business aspects of a transformation, we miss the change management, we miss the process improvement, we miss the architecture, the integration, the data migration and all the stuff that is perhaps indirectly related to the technology.

It's something that needs special attention in many cases, those areas outside of technology are what causes delays, is what causes risk. The biggest thing that organizations and their project teams can do to have realistic expectations is to go into their project not just looking at technology and not just planning for a technology implementation but rather looking at an entire digital and business transformation and making sure that your entire plan and strategy accounts for all of those different elements.

Conflicted Vendor Self Interest

When we combine the fact that most organizations are largely inexperienced with digital transformations, they're focused myopically on implementing technology rather than focusing on a larger more holistic business transformation. Now, you add to the fact that vendors enter the mix, software vendors, system integrators and implementers, they come in the mix with their own self-interest and their own motives, which is to sell you software and to sell you related services.

To do that, they often times unintentionally mismanage your expectations, in other words, they sell you on the positives, the optimistic view of their technology, all the bells and whistles and features that their technology provides but they aren't necessarily incentivized to show you the things that the software can't do or to tell you the risk that you're about to embark on or to share with you some of the challenges you will face when you go through an implementation of their product.

One of the biggest things you can do to overcome this challenge, is to go in with your eyes wide open and go in with a bit of healthy skepticism when you're hearing vendor proposals. When you're looking at the upside potential of the technology, you also want to dig deeper and make sure you're understanding what the risks and the weaknesses are because those risks and weaknesses are ultimately what's going to drive your implementation time, the cost, the risk, the expected business value. Make sure you have a realistic view going into these projects.

Biased Industry Data

Building on the concept of vendor self-interest is this concept of industry analyst and industry data that further mislead and further mismanages expectations that organizations have as it relates to their digital transformation. When you think about companies like Gartner or Forrester and other industry analyst firms that are there to provide expert opinions, advice and research their research, this data is largely formed and financed by software vendors, who again have their own self-interest and who again are very focused on making sure that you see the upside potential and not necessarily the risks of their technology.

The mismanaged expectations that are created by software vendors are further fueled by these parties that are perceived to be independent and objective and unbiased but in reality they are just as biased in many cases as a software vendors. When you read that next Gartner magic quadrant or that next Forrester report that tells you how great a certain software is, that's great, it's a good data point, you don't want to ignore it, it can be a helpful input into your process but you also want to understand that they are commissioned and paid oftentimes to provide that rosy, optimistic picture and view of the technology.  It's important to look at both the upside as well as the downside risks when you're looking at and evaluating some of this industry research and industry data that's out there in the marketplace. 

Poor Project Management and Governance

Much of the blame we have discussed as it relates to unrealistic expectations is really focused on the industry in general, it's focused outside of organizations and more on the software vendors and some of the other parties that are creating this misaligned expectations but there are some internal nuances that further perpetuate these unrealistic expectations. In particular, project management and project governance are two things that organizations typically don't have a good handle on and therefore they end up managing the project in a way that is slower, more expensive and delivers less business value than might be expected otherwise.

In order to overcome this, you want to make sure that you don't just simply outsource and delegate your program management in your program governance to outside parties, you want to make sure that you take ownership of the project and start to build those muscles and those competencies in-house so that you can manage the project aggressively and effectively so that you're more likely to finish the project on time and on budget in a way that delivers real business value to the organization. 

If you are looking to strategize an upcoming transformation or are looking at selecting an ERP system, we would love to give you some insights. Feel free to reach out to me here with any questions you may have eric.kimberling@thirdstage-consulting.com

Be sure to download the newly released 2023 Digital Transformation Report to garner additional industry insight and project best practices. https://www.thirdstage-consulting.com/reports/2023-digital-transformation-r

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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