How ERP failure could happen?
Those considering a new ERP system should be aware of the following statistics:
More than 75% of all ERP implementations fail, with prices drastically exceeding budgets, timelines not being reached, and improvements falling short of expectations.
One of the most costly mistakes a company can make is failing to implement an ERP system.
Failure to deploy ERP correctly can result in lost sales and operational paralysis in your organization, such as:
- significant delays in order fulfillment leadtimes,
- delivery shortages,
- manufacturing workflow issues, and
- the inability to report your financials accurately and on time.
There are several reasons for failures and disasters, but technology is rarely the root cause. In fact, post-implementation analysis has revealed that the most common causes of failure are not related to the technology.
Read: Finance Digital Transformation for Family Business with ERP
Examples of well-known ERP Failure
MillerCoors ERP consolidation project, Revlon and Elizabeth Arden merger project, and Lidl SAP deployment project are some of the most well-known ERP disasters on a global scale. Josh Josh Fruhlinger and Thomas Wailgum wrote an article for CIO Online in 2019 that listed the 15 most well-known ERP disasters.
MillerCoors - The program's goal was to combine seven distinct SAP instances into a single instance. Consolidation of the instances proved to be more difficult than anticipated, and rollouts failed, prompting MillerCoors and System Integrator to file litigation against one another.
Revlon and Elizabeth Arden are two of the most well-known cosmetics companies. Merger - As part of the merger, management planned to implement an entirely new ERP system for both companies. Revlon's production operations were damaged as a result of the failed acquisition, resulting in millions of dollars in lost sales. and even resulted in serious financial issues such as financial reporting delays, “material weaknesses” in internal controls, and a massive decline in stock prices. Finally, the investors filed a lawsuit against Revlon Inc. (Kimberling, 2019)
Lidl - Lidl encountered major problems with its SAP deployment, leading to the company's decision to abandon the project entirely. The difficulties appear to have stemmed from Lidl's unique pricing strategy compared to the rest of the market. This resulted in extensive system customization, which set off a chain reaction of implementation issues.
What is The Cause for The Failure if it is not Due to Technology?
When things get tough, we tend to look for simple solutions.
It's all too simple to blame the System Integrator and/or the Customer for the restricted budgets.
Even if all of the following were true, which is unlikely, we should investigate the core reason of the Project's difficulties.
Experience shows that there are 5 typical pitfalls that endanger ERP projects. Read on to find out how to avoid them.
Read: ERP as the Foundation for Digital Family Business Transformation
Behind ERP Failure #1: ERP Software Goals That Aren't Well-Defined
Many companies view ERP software as the silver bullet solution to all of their problems, but they don't spend enough time defining the specifics of what they're attempting to accomplish or how they'll measure success.
Because every department expects a different improvement, how can companies determine which criteria are most important?
It's critical to have a clear understanding of what you want to accomplish with the ERP system and where your priorities are.
Behind ERP Failure #2: Insufficient Management Commitment
Most businesses are aware that, in addition to managing day-to-day operations, an ERP project necessitates a significant level of effort and, at times, overtime labor from workers.
What about the management team, though? A project might be stopped in its tracks if the leadership is disengaged or too busy.
It takes time and careful attention to get an ERP deployment right: it's not as simple as pressing a button and everything happens automatically.
The project team will need strong (and loud) support from management in order to succeed with the ERP deployment.
Behind ERP Failure #3: Project Team Lacks Expertise
Every ERP installation should take a deliberate approach.
This begins with putting together the correct project team, which includes a project manager, key users, and IT personnel.
Key users should cover all important business sectors, including purchasing, marketing, logistics, sales, production, controlling, and service, to avoid knowledge gaps later.
A project manager from the software provider usually supports the project team, driving the process based on an implementation methodology, defining milestones with the team, and providing valuable input.
Solid responsibilities and competences, such as position descriptions and ground rules for settling differences, are also necessary. A clear framework of goals and expectations, as well as strong, proactive leadership, are required to build a great team.
Behind ERP Failure #4: Lack of open communication.
Inadequate communication between management, the project team, employees, and the software vendor plagues many ERP implementations.
If staff concerns and inquiries are not addressed, gossip and criticism can spread, posing another another challenge for the implementation team.
Instead, start communicating openly right away. Put the tools in place in the weeks leading up to the implementation launch to enable a constant flow of information and maximum project transparency.
Ensure that all paperwork, to-dos, and current project status are easily accessible to all parties involved.
It's far better to err on the side of over-communication than on the side of under-communication.
You have a communication problem if your employees don't grasp the ERP implementation's day-to-day progress or where it's heading next.
Behind ERP Failure #5: Production Processes Aren't Clearly Defined
The current processes in your firm must be clearly and completely documented in order for an ERP system to map them.
Because process modeling is a time-consuming process, enough time should be set for for this critical preliminary work.
It's time to get your optimization on!
Before your processes are mapped in your ERP, your software vendor should be able to assist you in evaluating them and identifying areas for improvement.
It's worthwhile to rethink and reorganize your workflows:
- Which procedures are truly essential and beneficial?
- With the new software, which processes can be made more efficient?
- Even though processes have changed, which workflows have not been modified recently?
Be open and adaptable as well; if the new software can't replicate a specific procedure exactly as you're used to, it can be more cost-effective to tweak your method rather than pay for bespoke programming.
It is critical to analyze and discuss all of this ahead of time.
Read: 10 Questions CEOs need to ask before finalizing an ERP application
Expertise is required for implementation!
Because the process necessitates the proper synchronization of your systems, processes, and people, the complexity and complexities of an ERP deployment should not be underestimated.
Obstacles can be removed and complexities simplified with strong planning and solid process management.
The software partner's support of an experienced ERP manager, as well as a validated implementation process, helps considerably to a successful ERP implementation. The ERP provider's experience and competence should be a crucial factor in the selection process for medium-sized businesses without in-house expertise.