Why ERP Transformations Fail and How Companies Can Succeed

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By continuing to change the world we live in, technology enables us to complete various tasks instantly and accelerate the speed at which we can, and must, do business. Today, companies have to quickly respond and provide information to make important business decisions if they want to compete in a fast-paced business landscape.

Many businesses have implemented new enterprise resource planning (ERP) systems, expecting business benefits to magically fall into place, only to be disappointed. According to recent studies, 25% of ERP implementations fail, and at least 80% exceed budget or take longer than the originally planned development time. This is not good for business in more way than one.  Additionally, the failure to fully understand and utilize the full benefits of ERP platforms unfortunately can lead to a failure to adequately support the system, recognize the business benefits and achieve return on investment.

3 reasons that ERP implementations fail

Companies unrealistically expect for new technology suites to transform previous economic inefficiencies into a streamlined operation with smoothly flowing processes across multiple sites and countries. Without understanding all of the moving parts, businesses are setting themselves up for failure. Here are three of the main reasons ERPs fail:                                                                                                                                                   

  1. Lack of support: Any project without support from its top management will fail, and an ERP project absolutely requires a senior executive(s) to champion the initiative and continue to be actively involved with other directors as the program progresses.
  2. No business buy-in during initiation: Whether the initiative comes from Finance, HR, IT, or elsewhere, if the stakeholders fail to understand and appreciate the new ERP business objectives, there will be push back instead of engagement. And, if the only decision maker is an external project manager, you’ll kill internal support for change.
  3. No clear strategic vision: If your organization fails to fully develop the scope of the program or understand how long it may take to realize its benefits, it will fail. There must be a realistic, detailed, a phased approach and sufficient resources for each step.

What does a successful ERP transformation look like?

The ultimate goal of an ERP transformation is to create a centralized reporting model. At the heart of the project are strong technology and business processes that promote efficiency and consistency.

The "centers of excellence approach provides an overall view of the system and ensures it adheres to the design principles agreed upon by decision makers at the beginning of the design cycle. The centers of excellence also act as gatekeepers for any changes requested by the business. These centers house subject matter experts who can respond to all queries, even those that are not covered by existing policy. Once an ERP platform has successfully been established, the business can be left to do what it does best, with transactional processing (e.g., back office and support functions) brought into a shared services environment. Similarly, the centers of excellence for group procurement, treasury, and HR functions can also be created.

It is important to have a fully developed case study to use as a reference in order to identify and crystalize the benefits that your organization aims to achieve. This will give the team a framework and help set a timeline for achieving the anticipated benefits.

3 additional steps companies need to take to ensure a success launch: 

  1. Identify the key individuals needed to make the project succeed. There needs to be a solid understanding of each stakeholder during each process of the ERP. After identifying those individuals, additional insight is needed into who their stakeholders are and how they may be impacted. 
  2. Obtain buy-in from the key executives, functions, and department heads so they take ownership right from the start and become a part of the process. This will ensure that the existing pain points are taken into account. At this point the stakeholders and how they are impacted have been identified, so it’s time determine the role they will play in the new process. Then the person in charge of implementing or organizing the ERP, needs to effectively communicate with the stakeholders and executives. If there is no communication, then important executives may draw their own conclusions and not be engaged in the plan. Engaging all the right people from the beginning will help build awareness and support for why the ERP is needed, while also opening up the floor for additional ideas and things to keep in mind during the process. No matter how well your project goes, there is going to be some pushback. Some people in the organization will challenge why they now have to do things differently, so it’s important to involve these people throughout the process. A strong business case, strong C-suite support and good communication will help ensure the project is a success.
  3. Set clear expectations of all parties involved and establish what each party needs to deliver to achieve success. If the parties make that commitment, buy-in on the ground becomes more assured. Furthermore, make sure to develop a strategy for training each different department on the new system. These could mean setting up in-person or online trainings, individual or group classes, fact sheets or videos.   

Ultimately, a company has to develop a strong change management plan to ensure that the new software solution is a success.

Last but not least, test it out!

Identify a small part of the company where you can test the new system after hours or over the weekend before the full rollout. This gives the company a chance to test whether the ERP works and make corrections if needed so the plan can gradually be rolled out to the rest of the company.

While the time it takes to complete an ERP project depends on the size of the organization, many take 2-3 years to complete, so patience is key. Usually, it takes only one pilot project involving a medium-size business that will cover the range of processes being rolled out. At that point, you can begin a phased roll out to the rest of the organization.

The best indication that the ERP is working is a smooth transition to the new processes without detriment to customer service. Another indication that the ERP is working is that the company has achieved the efficiencies and benefits originally set after examining the case study, and that timeline and budget expectations were met.