Understanding ERP Implementation Failure: Causes, Symptoms & Solutions
We often describe an ERP system as the backbone of an organisation. Implementing an ERP system has the potential to make or break your business and there are countless examples of both.
Gartner cites that between 55%-75% of ERP projects fail to meet their goals and objectives by going over budget, taking longer than expected to implement and/or not meeting the expected business benefits.
Self-reported stats for ERP failure, however, are significantly less and closer to 20%. This indicates that failure is subjective and ultimately comes down to the goals and priorities of the business, and whether these were clearly set ahead of the project.
A successful ERP implementation can significantly reduce administration and operational costs by improving businesses processes. Indeed, organisations can and do expect ERP implementations to deliver better reporting and visibility (67%), operational efficiency (65%), growth and competition (62%) and an update in their technology (15%). It is evident however that a successful ERP implementation does not just depend on the quality of software. Companies with very successful ERP implementations noted internal organisational elements like support from management, good change management programs and due diligence as primary reasons for success.
Understanding the causes and symptoms of ERP implementation failure is important in identifying the early warning signs and addressing them early in order to avoid ever needing to recover from a failed ERP implementation.
So, what is ERP implementation failure?
ERP failure is often defined as an ERP project that fails to implement on time, on-budget or fails to deliver to the expected business benefits.
Ultimately ERP implementation failure occurs when the ERP is not implemented correctly. This means that the software was installed incorrectly, data may have been entered incorrectly or the configuration settings were incorrect.
What causes ERP implementation failure?
Errors in ERP implementation could have been caused by many different factors, including lack of training, lack of knowledge about the ERP system, lack of understanding of how the ERP works, poor communication between departments and/or a lack of motivation from management.
All these factors combined or on their own can lead to a failed implementation.
Often, we work with clients who have already been through a failed ERP implementation. Whether it has occurred shortly before enlisting our help to recover from the failure or years down the track where they’re looking to improve upon a system that had never fully met the requirement.
These are the most common causes and early warning signs of enterprise resource planning (ERP) failure that we’ve encountered through decades of delivering ERP systems – that work!
Common Causes & Warning Signs Of ERP Failure
- Lack of onboarding & training
- Lack of ownership
- Failure in change management
- A technology first approach
Cause: Lack Of Onboarding & Training
Poor digital adoption results in a greater likelihood of ERP failure and most commonly, this is the result of inadequate onboarding and training.
Where employees are not effectively communicated with prior to an ERP project, onboarding and training becomes more difficult. Employees can become resistant to change when they fear new technology. Often feeling that their role is in jeopardy, or may become more difficult resulting in an avoidance of adopting the new system, reverting back to the ways things have always been done as it seems the easier option.
When an ERP system is deployed without proper training, it can lead to confusion, frustration, and ultimately, failure. Employees who do not know how to use the system properly are less productive and have a higher risk of making mistakes which further intrenches their dislike of change.
Early communication, proper training with ongoing and responsive support, combined with intuitive software is the key to continued success.
It doesn’t matter how many bells and whistles an ERP solution boasts. If your staff can’t (or won't) use it, consider it a fail. Communicate early and before the project begins. All organisations that communicated with employees before ERP implementation consider their projects a success. Only 86% of organisations that began communication during or after ERP software selection and implementation consider their project a success. (Panorama Consulting Group, 2020).
Employees need time to test the system, to build accurate expectations on how the system is going to help them and improve their daily work life. If they can get used to the system and understand it’s value, they will adjust their workflows accordingly.
Implement an ERP training plan that is just as effective after the go live date as it is during the implementation. Employees need to be prepared for the learning curve ahead but aware of how the new system will benefit them and improve their daily work life.
Lastly, consider the usability of the software and research ERP user satisfaction ratings.
Cause: A Lack Of Ownership
When companies rely too heavily on their partners’ recommendations, they often end up feeling overly dependant on them. Being overly reliant on your partners, either your system integrator or others, can be one of the biggest risks for your digital transformation project. Why?
They don’t know you or your business as well as you do. Of course, any partner that is worth your time (and investment) is going to immerse themselves in your company to discover the ins and outs of your processes and those elements of your company that are unique to you. However, they don’t have the same skin in the game as you do, nor will they understand your company culture in the same way you do. Your partner should certainly contribute interesting insights and share helpful contexts when making a decision, but your internal team needs to take the lead.
A valuable partner will support your internal team, offer new angles, new perspectives and spark ideas you may have never considered before. After all, it is their role to challenge the status quo where necessary and assist in optimising your business processes for greatest efficiency. However, the decisions should rest in your hands, allowing you to steer the ship according to the trajectory of your business needs today and in the future.
Before the implementation begins, ensure you have executive alignment on the vision, goals and objectives of the project. Communicate with all project participants a crystal clear definition of success and maintain active participation and ownership of the project throughout. This will ensure your successful outcome doesn’t become a moving target.
Cause: A Failure In Change Management
A failure to plan is a plan to fail. This couldn’t be more true when considering the role of organisational change management throughout an ERP implementation.
Change is the only constant in life and implementing an ERP system is a major change for the entire organisation. Employees will be affected, roles may be redefined and jobs may change. This is a reality that should be planned for and communicated throughout the organisation to ensure the system is adopted as intended.
Set out a solid change management team and plan that defines the end goal and has the team excited about the change ahead. Some people may see small shifts, while others may see their entire work system change. Pre-empt the impact of your changes on each team member and prepare their expectations for the training and change that will be involved.
Cause: A Technology First Approach
ERP software comes with many exciting and innovative technological features.
A technology first approach is an approach that easily distracts focus from the desired business outcome.
Rather than looking at the business and the processes first and thinking outside the current way of doing things, you risk implementing technology that basically automates existing processes, helping you do broken processes faster, or more effectively than they might have in the past.
The primary focus in the search and choice of an ERP implementation partner and/or software should be your business, not technological features.
There are many cases in which an ERP software system must be customised to adapt itself to business processes. If that ERP software is too rigid to adapt and is not easily customised, it will result in a technology first approach. Digital transformation integrators, software vendors, and consultants working with such ERP software are likely to suggest changing business processes when what they should change is the ERP software.
A business driven approach will ensure the needs of the business drive and dictate the choice in technology. Through a true understanding of your business, an experienced ERP vendor will make the technology work for you. Automating processes where necessary but also challenging the status quo and offering innovative solutions, with ERP customisation where necessary for true optimisation and innovation.
It's great to learn from others mistakes, and there are many to learn from. Here’s 3 infamous failed ERP implementation examples.
3 Infamous Examples Of ERP Implementation Failure
Hershey’s much-publicised ERP, CRM, and supply chain implementation failure occurred in 1999, following two critical mistakes in their ERP implementation.
First, they tried to pushed a complex ERP implementation project into an unrealistic timeline.
Second, the cutover time was scheduled during the busy Halloween season, before employees had been adequately trained on the new system.
These mistakes lead to Hershey’s being unable to process $100 million worth of Kiss and Jolly Rancher orders. Even though most of the inventory was actually in stock. Consequently, it suffered a 12% drop in sales, and lost market credibility.
In 2018, candymaker Haribo spent millions of dollars on implementing and ERP across it’s 16 candy factories and 10 countries.
Not long after the go-live date, supply chain issues began. The company was unable to track inventory or raw materials and this resulted in a delay in their ability to stock their stores. As a result, shelves remained bare, and sales dropped by approximately 25%.
If Haribo had clearly mapped business processes before ERP selection, they could have ensured they selected a system that more closely aligned with their needs.
In 2019, Revlon implemented a new ERP solution that was riddled with bugs. In addition, the company’s poor preparation and lack of planning turned the entire implementation project into an almighty fail.
Among many flaws reported by the company of the ERP solution, a major flaw was poor design. Almost immediately after implementation, the new system handicapped Revlon’s ability to produce enough goods. Consequently, the company failed to fulfil some of it’s largest retail orders.
The fallout of the failed ERP implementation cost the company in loss of valuable retail sales and hampered their operations.