Why do ERP Implementations Have a Bad Reputation?
The promise of ERP is an alluring one: software consultants promise that such a solution will allow your business to integrate all your disparate systems, reduce tedious and error-prone tasks, and provide the most accurate data possible, ultimately so you can minimize costs and maximize profits.
Over the years businesses have become more skeptical of such claims, brought on by a combination of high-profile failed ERP implementations and reports of organizations struggling to find value in the systems they’ve setup. Despite that fact, ERP comes in second in new technology investment.
The fact of the matter is that an ERP implementation is a complicated and difficult undertaking. Incorporating a new system that makes day-to-day operations of the business possible, all while replacing long-standing processes that your employees are proficient in, is a significant goal and one that should not be taken lightly.
This high level of complexity and bad press has caused ERP to build a negative reputation in recent years. So let’s take a look at the factors that have led to this reputation and ways to avoid (or anticipate) the pitfalls that have given ERP its bad name.
Things You Can Avoid
Some of the factors that contribute to ERP’s bad name are completely avoidable, the result of poor planning, less-than-transparent communication, or some other mistake that can be caught and remedied.
This is the most obvious contributor to ERP’s reputation, but also the most complex. ERP implementations can fail for countless reasons, but we can use some examples to distill the most common reasons for these failures.
Not Auditing Existing Processes and Procedures
Many ERP implementations fail because the business didn’t fully understand or properly document day-to-day business procedures.
For example, Woolworth Australia had a crisis arise during its implementation when weekly profit-and-loss reports weren’t generated for 18 months. Certain procedures weren’t documented and senior staff left the organization over the prolonged course of the rollout, causing the business to lose years of critical institutional knowledge.
Another organization that failed to properly assess its processes was the Air Force. The implementation of its Expeditionary Combat Support System (ECSS) cost over $1 billion in taxpayer dollars and ended unsuccessfully for several reasons, including a failure to “baseline existing practices” and because they deviated “from the DoD’s business process guidelines.”
Moral of the story? Audit your existing procedures before beginning an ERP implementation, and don’t allow for single points of failure within your organization. Make sure that your processes are documented and that numerous individuals at multiple levels of the organization share critical knowledge that enable the business to function.
Not Dedicating Sufficient Resources to the Project
The Woolworth Australia example above is one such instance of this problem.
Another is Target Canada, who’s supply chain collapsed when their SAP system was launched. The reason was because entry-level employees had input the inventory data into the system; their inexperience, coupled with tight deadlines, led to a proliferation of data errors. It was so bad that 70% of the data they entered was incorrect.
Waste Management faced different problems brought about by the same key mistake. They filed a lawsuit against SAP over their failed ERP implementation, claiming that the consultant had misled their team by showing a fake demo of their software. SAP countered by claiming that Waste Management didn’t “timely and accurately define its business requirements” and had failed to provide “sufficient, knowledgeable, decision-empowered users and managers” to work on the project, causing it to be drawn out and ultimately fail.
Moral of the story? Don’t underestimate the demands of an ERP implementation. If you plan on going through the process you need to set aside experienced resources that can make decisions and move the project forward.
Not Properly Training or Managing the Transition
For any ERP implementation to work, those highly proficient employees we mentioned earlier must be trained, and that training must be thorough, methodical, and conducted over an extensive period. In addition, both the organization implementing the ERP and the consultant must take steps to ensure that the updated system is thoroughly tested and will be accepted by existing users, as pushback is common and should be expected.
Although it’s been twenty years, Hershey’s ERP failure is a great example of this mistake. A big reason for the flop was an unrealistic timeline. The project was originally slated to take 48 months, but Hershey insisted it be completed within a 30–month timeframe. They also scheduled the rollout to occur during their busiest season, in July of 1999. With critical parts of the system untested and Hershey employees not fully trained, the company was unable to process large numbers of Halloween orders, causing a loss of about $150 million in sales.
The Air Force’s ECSS also failed because of poor change management. Over 250,000 users would have been affected by the software, and leadership was never able to develop an effective plan for overcoming resistance to this significant change.
Moral of the story? Don’t rush the process. A valuable partner will tell you if your deadline is unrealistic, even when that’s the last thing you want to hear. They’ll also help ease the pain of the transition by setting realistic expectations and providing quality training.
Over-Promising and Under-Delivering
Everyone has experienced it in one form or another: you’re totally sold on a product or service. A killer sales team has painted a vision of what you can achieve with it, so you buy in. However, after signing the dotted line, you never see anything remotely close to that original vision. You’re disappointed with what you get and feel ripped off.
That’s how many people feel after implementing ERP. Sometimes it’s because the sales team has exaggerated the capabilities of the system, or perhaps just outright lied (see the Waste Management example above). Other times it’s because the project takes too long and organizations become disillusioned, thinking that they’ll never be able to achieve what they originally set out to do.
It can also be a language issue. Software companies often use terminology that laymen are unfamiliar with, and laymen make assumptions about what nomenclature to use when talking about software systems. A consultant may be asked to add a feature, and assume they know what the client wants, but then realize after the fact that they misunderstood the request and added an unnecessary capability.
Most of these issues boil down to poor communication. Sales does a great job of communicating the end goal of ERP but doesn’t paint a realistic picture of what it takes to get there. Managers fail to set expectations for how long the project will take or do a poor job of demonstrating progress. Too many assumptions are made, and not enough clarifying questions are asked.
Things You Can’t Avoid… But can Alleviate
While certain difficulties associated with ERP implementations are unavoidable, there are steps you can take to minimize the pain they cause, or to properly anticipate the challenges they present so you can plan for how to overcome them.
There’s no doubt that moving your business to ERP is a scary endeavor. Stress is an inevitable byproduct of this effort, for several reasons…
- There’s a lot on the line – failure could doom the business, or at the least cause substantial losses. Jobs, reputations, time, and money are all at risk.
- Organizations put a lot of pressure on their employees to get things done right, and a lack of knowledge when it comes to ERP and software results in a lot of anxiety around the unknowns. It’s a leap of faith, and that’s always frightening.
- ERP sales consultants paint a beautiful vision of what ERP can achieve, but it can be a long and hard road to reach the promised land. Organizations can become disillusioned along the way.
There are some clear, practical steps you can take to reduce these stressors or eliminate them entirely. Assigning senior staff that know your current processes inside and out will help reduce the number of unknowns, ensure the most critical information is being communicated to your consultant, and greatly increase the chances of success. Your consultant can be honest and realistic about what it will take to reach the vision they’ve cast, so that the inevitable speed bumps that pop up don’t catch you off guard.
A lot of it comes down to transparent and consistent lines of communication – a common theme with many of these challenges. You need to trust that your consultant is being upfront about what the process will look like and the status along the way, and your consultant needs to trust that you’re dedicating sufficient resources to make the project a success.
Managing the Budget
Anyone who has managed a project knows how difficult it is to keep a budget in check. This is especially true for software projects, because the capabilities of software are virtually limitless. Almost anything can be achieved – it’s just a question of how long it’ll take to get there.
If on a scale of 1-10 managing a software budget came in at a 10, ERP implementations crank that difficulty up to 11. There’s always room to improve your business processes, so you could spend years uncovering new ways to increase efficiency. And without a strong manager, that’s a very real possibility.
In the end you have to prioritize rolling out certain features over constantly adding things on. You should certainly have a backlog in case you ever want to address those items down the road, but constantly assessing your priorities and ensuring all your stakeholders are in alignment will help create a sense of progress and keep the budget in line.
Having a strong project manager on both sides, who is empowered to make decisions, should make managing the budget a lot easier.
Does ERP Deserve It’s Reputation?
As you can see, there are a lot of reasons for ERP’s bad name. And while the challenges an ERP implementation presents are very real, they’re also things you can address by planning ahead.
You can avoid a failed implementation by auditing your current processes, dedicating a sufficient number of experienced resources to the project, and allowing for plenty of time to train and transition. If you’re a consultant, you can ensure your sales, operations, and customer service teams are in alignment with the language they use and vision they cast, so everyone agrees on what to expect.
While you’re bound to experience some level of stress during these types of projects, you can reduce it by creating consistent and clear lines of communication, and by doing your due diligence when choosing a consultant. And managing a budget is never easy, but assigning strong and experienced project managers will help to keep it in check.