THE MANY FACES OF FAILED ERP IMPLEMENTATIONS (AND HOW TO AVOID THEM)

Let’s face it, an ERP implementation is a major project that carries undeniable risks.  The horror stories of failed implementations have become both legends and nightmares for those considering a new ERP project.  These failures are often caused by the complexity, risk, and integrated nature of the business processes the systems support, as well as the organizational and management challenges of any major business-wide project.  Today’s ERP systems have the ability to touch every major aspect of an organization, so whether it’s a completely new system or just a major upgrade, there are a number of common pitfalls to avoid.

What Does a Failed ERP Implementation Look Like?

Typically, ERP implementation failure is defined by projects that fail to implement on time, on-budget or fail to deliver the expected business benefits.  Gartner is often cited as estimating that between 55% and 75% of all ERP projects fail to meet these objectives.  But these numbers are a bit misleading.  After all, we’ve all seen business projects that have run long but ultimately delivered successful results and a prompt project completion is not a guarantee of success.

The truth is that the difference between success and failure is often subjective, more of a perception than a quantifiable measure.  This perception often relies on the unique goals and priorities of the organization, and whether or not these were clearly defined at the onset of the project.  In studies that allow customers to self-define what “failure” means, the percentage of ERP projects that fail often fluctuate around the 20% range, while “neutral” outcomes are often somewhere around 25%-35%.  These numbers aren’t exactly reassuring, but they’re slightly less panic-inducing.

Since ERP implementations require a considerable amount of company resources and are intended to support such a wide range of processes, failures can be truly devastating when they do occur, and big-name ERP failure stories are widely reported on and can truly strike fear into the hearts of those intending to implement or upgrade an ERP system.  However, it’s much cheaper to learn from the failures of others than to experience them yourself, and there are a lot of lessons to be learned from the most high-profile ERP failures.

A few Famous ERP Failures

• Hershey’s Halloween Horror Story

This story is nearly 20 years old but is still discussed today because it comes close to answering the age-old question: Can a failed implementation take down a Fortune 500 company? In the fall of 1999, Hershey Foods (one of the largest North American chocolate manufacturers) took a major hit during their busy Halloween season due to a $122 million ERP/CRM/Supply Chain solution implementation project that didn’t go according to plan.  The project resulted in nearly $100 million worth of Kisses and Jolly Ranchers for Halloween, a 19% drop in profit, 12% drop in sales, and lost credibility throughout the market.  In fact, stock prices declined 8% in a single day when it was revealed the company’s new system had malfunctioned.  CIO.com reports that analysts didn’t fully trust Hershey’s ability to deliver candy until the following fall when things had long been back to normal.

• Avon’s Order Management Fiasco

In 2013, Avon’s $125 million ERP/CRM/eCommerce project failed after failed after four years of planning, development, and employee testing in the company’s Canadian regions.  The direct-selling makeup giant reported that the new system lacked promised functionality and actually created extra work for its critical sales representatives rather than streamlining processes.  This is a perfect example of how end-users suffer the most when software projects go wrong.  Informationweek.com reports that upon launch, the system was unusable and is full of glitches to this day.  As a result, more than a third of the independent sales reps in the affected region quit.

• Target Misses the Mark

Between 2013 and 2015, Target opened 133 stores in Canada and company leadership decided to implement a new ERP system for this region.  Their goal was to set up their new system and have it running smoothly in two years, which was a bold (some would say impossible) plan for an implementation of this size and scale.  Due to this incredibly aggressive timeline, and unreliable information from vendors (which is common in the retail industry), the data going into the system was riddled with errors from simple typos to incorrect inventory counts and currency.  The implementation obviously didn’t go well, and in early 2016 Target announced that they would pull out of the Canadian market after plunging their supply chain into chaos and losing millions.  This implementation broke nearly all of the cardinal sins of ERP projects. Target set unrealistic goals, didn’t leave time for testing, and neglected to train employees properly.

These horror stories are well-known because of the disastrous effects they had on other-wise hugely successful enterprises.  However, there are a lot of lessons that can be taken from these stories and applied to organizations of any size hoping to avoid ERP implementation issues.

Just as there is no one-size-fits-all ERP strategy, there is no one-size-fits-all ERP failure.  As said above, the concept of “failure” is often subject to interpretation.  Projects of this size and scope can fail for any number of reasons.  While each failure is unique, there are common themes that emerge as leading causes of project failure.

7 Reasons Why ERP Implementations Fail

1. No Clear Definition of Success

One of the most common reasons for implementation failure is that goals, expectations, and plans were not clearly defined and communicated to all project participants.  Without a crystal clear definition of success outlined at the beginning of the project, a successful outcome becomes a moving target.  Having a clear destination means defining and agreeing on important business processes, financial benefits, KPIs and deadlines up front.  Project plans need to be realistic and detailed while leaving room for inevitable bumps in the road.

2. Underestimating Required Resources

Another common issue is underestimating both internal and external resources required to complete projects.  For internal resources, time and attention from multiple department representatives, as well as upper-management for planning, project management, and training is often underestimated or forgotten altogether.  For external resources, having a detailed agreement with your ERP partner, implementation team, consultants, or other contractors about the specific duration, skills, and activities needed is crucial.

3. Cutting Corners to Cut Costs

In an effort to keep upfront costs down and recover ROI from implementation costs, sometimes company cut corners and look for shortcuts.  However, cutting corners is never a good idea with something as consequential as an ERP implementation.  Whether your way of saving is choosing a less functional system because it costs less, or rushing through testing and training, the short-term savings are very rarely worth the potential for long-term issues.

4. Delayed Decision-Making

Projects rarely die from starvation.  Instead, they die from indigestion.  ERP implementation projects come with hundreds, if not thousands of decisions big and small.  Delays in decision-making are cumulative and often become bottle-necks that slow progress and gradually derail the project altogether.  It’s vital to distribute decision-making during large-scale projects in order to keep individuals at every level of an organization involved and to keep the project moving forward.

5. Insufficient Testing before Go-Live

The purpose of the testing phase of implementation projects is to ensure that the software is working correctly, meeting business needs, and producing intended outputs.  This is the time to discover defects and issues before they can affect your data, your operations, and ultimately your business.  Insufficient testing increases the possibility that your system will be missing important functions, run incorrectly, or be received negatively by end users.  Yet, this is usually one of the first areas that get cut when schedules get tight.

6. Inadequate Training of End-Users

Your system is only ever as good as the people using it.  Rushing to implement the system while neglecting to adequately train end users across departments is a recipe for disaster (see Target above).

7. Failure to Manage Organizational Change

The only constant in life is change, and implementing an ERP system is a major, organization-wide change.  Proper training is a good first step to ensuring a smooth transition, but Organizational Change Management goes deeper to a cultural level within the organization itself.  When end users aren’t engaged, process changes aren’t communicated clearly, and expectations haven’t been set, implementations generally go poorly.

How to Survive an ERP Implementation

It’s undeniable that ERP implementations carry substantial risk.  (Post)Modern solutions have the functionality to touch nearly every aspect of your business.  So, when implementations projects go well, the benefits can carry your organization to new levels of efficiency and success.  When they go wrong, like in the cases mentioned above, they can be devastating to businesses of any size.  By examining ERP horror stories and identifying common themes, you can better prevent your organization from becoming the next big ERP horror story.

After 21 years of implementing ERP solutions for our clients, we’ve put together our list of Top 10 Tips for ERP Implementation to help you set your implementation project up for success.

For advice on ERP implementations or a helping hand during your next project contact one of our expert consultants today.