I have spent the better part of 20 years trying to help clients crack the code on why ERP implementations fail.
It first started to click 12 years ago when I was engaged for my first ERP expert witness engagement for one of the highest profile lawsuits that the industry has seen. In this and other cases I have been involved with, I was able to analyze every detail and nuance of the project that ultimately led to eventual failure.
Even with the benefit of rewinding history to watch the game film in slow motion, it can be hard to pinpoint the exact cause of failure. Especially when lawyers and finger-pointing are involved, there is usually plenty of blame to go around – along with many alleged culprits.
Some of the common themes in these expert witness cases and project recoveries we are involved with include:
These are all real problems indeed, but they don’t address the real reasons why ERP implementations fail. As this whiteboard video explains, they are merely symptoms with deeper root causes:
More recently, the industry has seen some dramatic and high-profile digital transformation and ERP failures. For example:
If you go back even further in time, you will hear about ERP implementation failures at Hershey’s, Waste Management, MillerCoors, and a host of other organizations that weren’t able to succeed.
While these high-profile failures are more common than they should be, they are not the most common types of failure. The more widespread ERP implementation failures, on the other hand, are those that you don’t read about.
The average mid-size company isn’t going to make the news when they fail. For example, a B2B industrial products manufacturer that can’t ship product for 90 days after its ERP go-live isn’t going to make headlines – simply because they aren’t a household name that draws media attention. But these are the realities of the client front-lines that our teams are called in to help remediate.
In other words, ERP implementation failures are a lot more common than we may think. The more moderate and lesser-known failures are the real threat to the industry.
This all leads us to the key question: why do ERP implementations really fail? It’s not because of the symptoms outlined above. Instead, ERP failure can typically be traced to three primary root causes:
Misalignment. If your team isn’t on the same page about what this digital transformation means to your company and how it supports a bigger-picture strategy, then it is likely to lead to the problems outlined above. Without alignment from the top of the organization on down, the project team simply cannot have clear direction and will struggle to gain consensus on decisions.
For example, we are working with a large manufacturing and distribution company that is struggling to decide which of its functions it should and shouldn’t standardize across its many global locations as part of its SAP transformation. This is a big decision that ideally would have been clearly define while creating its plan for an SAP S/4HANA implementation. In the meantime, the system integrator continues to build software, the meter continues to run on expensive consultants, and project milestones slip by.
Below is a summary of the approach we are using with this and other clients to help them internally align and gain consensus on key decisions that need to be made regarding the project. This iterative process helps define the parameters and guard rails for the overall digital transformation:
Bias. Internal bias is one of the most common root causes of ERP failure. As humans, we all have biases – but the problem is even more pronounced when you have several counterparties acting in their own economic self-interests rather than your own. This is one of the challenges within the machine of the digital transformation and ERP software industry.
Bias comes in many forms. Vendors and systems integrators will push their products first and foremost during your digital transformation, regardless of whether or not the technology fits. For example, if you are implementing SAP S/4HANA, you are likely to feel a strong push toward SuccessFactors and Ariba for your HCM and procurement systems. This is because both products are owned by SAP – not because they are necessarily the right fit for you.
Bias also comes in the form of time. Vendors and systems integrators have a vested self-interest in making sure you buy as much software as possible right now, along with as large of a consulting team as possible to help implement it. This often forces companies into rushed decisions, unclear direction, and ceding too much control of the project to your systems integrator.
There is a fine line between being aggressive with time versus being unreasonable. It is important to maintain control of your project and set the right tempo that works best for you – not the one that gives your sales rep the biggest commission check the fastest.
This whiteboard video explains how industry bias affects digital transformations – as well as what you can do to mitigate the risks:
Blind Spots. What we don’t know can indeed hurt us. We may think that our ERP systems integrator can handle our entire project, but they typically can’t. Sure, they may be able to design and build software really well, but they are often ill-equipped to handle the many dimensions of digital transformation that are required to be successful.
For example, organizational change management, risk management, and data management are three common deficiencies of systems integrators. But without these competencies, our project will fail. It is important to address and fill these deficiencies with independent ERP consultants like Third Stage to mitigate the risk of failure.
If we can fix these three root causes, we are much more likely to avoid digital transformation and ERP failure. Other symptoms and risks will still rear their ugly heads, but we will have a much stronger foundation to work with to resolve them.
So rather than focusing on putting band-aids on the symptoms, let’s focus on fixing the real root causes of ERP failure.
Feel free to contact me to discuss your project and how you can best fix a troubled situation, or better yet, create a plan to avoid these root causes in the first place. I am happy to be a sounding board as you continue your digital transformation and ERP journey!
One of the main reasons why ERP systems are difficult to implement is because they impact all the processes of an organization. To gain maximum benefits of the new system, organizations have to change the way it has been operating till then and adopt new ways, resulting in the replacement of longstanding manual processes and efficient automated systems. Getting different users and functional groups to get used to the new system is yet another challenge that makes the implementation so challenging. It requires smart planning and strategic management from the entire set of teams, especially the top management. All team members and the core groups must come together to ensure that the ERP system seamlessly gets integrated without any hassle. There are also many agendas involved in an ERP implementation, which is why it's critical to engage a technology agnostic and indenpent partner to ensure project alignment and successs.
A study by Gartner revealed that more than 75% ERP implementations failed due to several reasons. Another report by McKinsey indicated the number to be close to 70%. This failure rate can be reduced by clearly understanding the reasons behind the failure before making the shift. It will help in understanding the reasons and mitigating the risks. Once organizations get a complete understanding of ERP implementation, they can channelize the risks and effectively manage them.
Implementation of ERP can take anywhere between 6 months and 2 years depending on various factors. These include the size of the company, and the complexity of the systems being installed during the implementation like ISV add-ons, and other customizations. Furthermore, the number of concurrent users and independent instances setups, cloud or on-site implementation, and integration with legacy systems including data can also play a vital role in deciding the total amount of time taken for this implementation. With so many factors working in tandem, the implementation of ERP takes a rather challenging turn, resulting in a longterm investment of both time and resources.
Most ERP implementations fail due to a lack of planning and preparation. ERP implementation projects are complex, time-consuming, and costly endeavors. To ensure success, organizations need to carefully plan for the overall project goals, budget, timeline, resources needed, training requirements, system configuration details, data migration considerations, and more. Too often these considerations are overlooked or underestimated, leading to increased costs, missed deadlines, and a system that does not meet the company's expectations.
Additionally, proper change management is essential for successful ERP implementation projects. Without proper change management strategies and tools in place, employees may not embrace the new software and processes, resulting in resistance to utilizing the new system. This can cause the implementation project to fail or, at a minimum, take longer than planned and cost more than budgeted.
Finally, organizations often underestimate just how challenging it is to integrate ERP solutions into their existing business processes. The new system must be customized to fit each organization's unique needs, which requires a deep understanding of the current business processes, available technologies, and the desired system features. This customization often requires a lot of time and effort to get right. If it is not done correctly or thoroughly tested before going live, organizations may experience significant difficulties that delay the project timeline.