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.
Pinpointing why ERP implementations fail
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:
- Poor project management
- Organizational change management and resistance to change
- Non-functioning software capabilities
- Inability to minimize ERP implementation costs
- Inadequate internal and systems integrator resources
- Data quality issues
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 recent ERP implementation failures
More recently, the industry has seen some dramatic and high-profile digital transformation and ERP failures. For example:
- Revlon recently failed in its SAP implementation (read the case study here)
- Lidl spent hundreds of millions of dollars on its SAP implementation before finally cancelling the project
- National Grid sued Wipro over its ERP failure
- Candy-maker Haribo experienced severe supply chain disruptions after its SAP go-live
- Digital transformation failure led to Hertz’s lawsuit against Accenture
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.
The ERP implementation failures that you don’t hear about
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.
The 3 real reasons why ERP implementations fail
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.
Fixing the cause of why ERP implementations fail
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!