Why Do ERP Software Implementations Fail? [Top 5 Root Causes of ERP Failures]

Written By: Eric Kimberling
Date: July 17, 2023

Implementations fail. However, the secret lies in understanding why those implementations fail. That's the topic I intend to discuss today.

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Numerous studies indicate that a significant percentage, ranging from 70% to 80% or more, of ERP implementations fail. Remarkably, this statistic has remained relatively unchanged throughout the 25 years I have been helping clients with their ERP implementations.

While technology and the world have undergone significant changes, companies continue to struggle with their ERP implementations. Today, I aim to delve deeper into this issue, exploring the common root causes behind ERP implementation failures. Moreover, I will provide insights into what you can do differently to ensure the success of your project. Fortunately, this is not rocket science, and there are no major surprises. By understanding these root causes and actively avoiding them, you can significantly increase your chances of success while minimizing the risk of failure.

Unrealistic Expectations

One common reason for ERP implementation failures is organizations having unrealistic expectations from the outset. This is particularly powerful because technology advances rapidly, giving rise to a false hope that organizations can swiftly adapt to new software and realize immediate business value. Don't get me wrong, ERP software today can bring significant benefits to most organizations. However, the problem lies in the fact that most organizations underestimate the difficulty of transitioning from their current state to the potential benefits offered by new technology.

As a result, when organizations realize that a project will take longer, cost more, and require more resources than initially expected, they often scale back on critical success factors necessary for project success. For example, let's consider an organization that believes it can complete its ERP implementation in 18 months. In reality, it might take 24 or even 30 months for them to complete the implementation. When the organization reaches the halfway or two-thirds mark of the project, they start to recognize that they have compressed the timeline unrealistically.

At this point, they face two options: either delay the project and allocate more time and money than anticipated (which may not be feasible given accountability to boards of directors and executives) or force the ERP implementation into a shorter timeframe by scaling back on project activities. Unfortunately, the latter approach often results in cutting critical success factors. Organizational change management efforts may be reduced, iterations of user acceptance testing might be skipped, and less time may be allocated to requirements gathering upfront.

These are just a few examples of how organizations make poor decisions later in the project due to their initial unrealistic expectations. To avoid this pitfall, it is crucial to have realistic expectations. Take proposals from software vendors, system integrators, and implementation partners regarding timeframes and budgets with caution. Incorporate your own objective perspective to ensure the project is allocated the appropriate time, budget, and resources.

Poor implementation Planning 

Another common mistake that organizations make, leading to failure, is inadequate time and effort dedicated to the implementation planning process. Throughout my career, I have observed this fascinating organizational dynamic repeatedly. Here's how it typically unfolds: An organization commits to a digital transformation and ERP implementation. They go through an evaluation process and select the software they believe will be the right solution for their future. And indeed, it likely is a good or even the best choice moving forward. At this stage of the project, momentum and excitement for the implementation are at their peak, never to be that high again. Consequently, the team rushes into the implementation phase due to their enthusiasm. They want to start building, experiencing the technology firsthand. This eagerness is positive and necessary, but it comes with a drawback.

The problem arises when organizations jump into the implementation phase too quickly, without a robust plan and a clear vision of their desired future state. As a result, they end up wasting significant time and resources later, struggling to define what they aspire to become during the implementation process. To mitigate this, it is crucial to allocate dedicated time in the project timeline for what I call a "Phase Zero" or implementation planning phase. This phase comes after the software selection phase but before the actual implementation begins. During this phase, you should invest time in establishing a project blueprint, defining your business processes, envisioning the future state of the organization, determining which modules to deploy and when, and mobilizing the necessary resources. It is also essential to develop a change strategy.

The more time and effort you devote to this implementation planning phase, the more time and resources you will save in the long run. Therefore, it is critical to prioritize defining this phase.

Lack of Executive Vision and Alignment

Another common reason for ERP implementation failures is the lack of a clear vision from executives or the failure to articulate that vision to the organization. Additionally, executive teams often lack alignment on the vision, exacerbating the problem. When executives don't have a shared understanding of the ERP implementation's purpose and fail to communicate it clearly to the organization, it leads to confusion, chaos, and misdirection throughout the implementation.

While it is common for executives to state that they are undergoing an ERP implementation due to vendor requirements or the need for updated technology, these reasons alone cannot serve as the sole justification for the entire project. It is crucial to establish and articulate a more comprehensive vision for the ERP implementation. For example, how will it improve the customer experience? How will it enhance employee experience? What specific improvements and operational efficiencies will it bring? Will it contribute to increased sales and revenue generation? It is essential to define not only the benefits but also provide detailed insight into the future operating and organizational models.

Mere mention of deploying software like SAP, Oracle, or Microsoft is insufficient. The vision must go beyond that and clearly describe the desired project outcomes. Spending time and effort on defining this vision, and being effective in its communication, will provide valuable support and momentum for the project team during the ERP implementation.

To avoid ERP implementation failure, one of the most critical steps is to ensure that before commencing the implementation, there is clear alignment and a shared vision among the executive team.

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Poor Organizational Change Management

One of the most common root causes of ERP implementation failure is a lack of focus on organizational change management or ineffective implementation of change management strategies. This particular root cause can give rise to various issues within the ERP implementation, leading to symptoms that hinder its success. Simply put, if the people side of change is not adequately addressed, including ensuring full adoption of new processes and tools, the result will be a collection of unused technology investments that fail to deliver business value. This raises the fundamental question of why the project was initiated in the first place if the expected value is not being realized.

To address this issue, it is crucial not to become overly fixated on the technological aspects of the ERP implementation. Instead, allocate more time and effort to focus on organizational change management. The better the organization manages change at the people level, the higher the likelihood of success. When examining ERP implementation failures, particularly those involving lawsuits where our expertise has been sought for testimony, we consistently find a common theme: a lack of organizational change management. These organizations did not prioritize or adequately address the human aspect of change, instead placing excessive emphasis on the technological aspects.

To increase the chances of success, it is essential to develop a robust and effective change management strategy and plan before commencing the ERP implementation.

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No Clear Definition of Success

The fifth and final reason I will discuss today regarding ERP implementation failures is the lack of a clear definition of success for the organization. It is essential to determine how we will define success in our ERP implementation. For some organizations, success may be achieving the project on time and within budget, which in itself can be a challenging goal that many organizations fail to achieve. However, beyond that, most organizations lack a clear vision of what they aim to achieve from the ERP implementation. In other words, what is the business case? What is the expected return on investment (ROI)? Where will the business value come from in terms of tangible benefits? These aspects must be clearly defined not only to maximize the post-implementation business value but also to provide a clear direction throughout the implementation process.

Having a clear vision of success serves as a guide and guardrail for the project. It acts as a North Star, leading the way during the implementation. ERP implementations involve numerous decisions, often numbering in the hundreds or thousands, that impact how the business will operate, its appearance, and the technologies to be deployed. Decisions regarding software configuration, customization, and integration with third-party systems have a significant effect on project scope, cost, and risk. Without a clear vision of what success looks like for the project and the desired future state of the organization, the implementation process becomes a aimless journey into the uncertain realm of digital transformation and ERP implementation.

These are the five most common reasons why ERP implementations fail. I hope I have provided you with some tips and guidance on how to avoid these common pitfalls.

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I would enjoy brainstorming ideas with you if you are looking to strategize an upcoming transformation or are looking at selecting an ERP system, so please feel free to contact me at eric.kimberling@thirdstage-consulting.com. I am happy to be a sounding board as you continue your digital transformation journey.

Be sure to download the newly released 2023 Digital Transformation Report to garner additional industry insight and project best practices.

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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.

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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