ERP Implementation Failure Facts
Two-hundred and thirty – a seemingly innocuous number that may just be large and significant enough to keep your C-Suite up at night. This foreboding figure is taken from a 2015 ERP Report from Panorama Consulting investigating the success and failure rates of ERP implementations. During a twelve-month period, Panorama found that 21 percent of 562 ERP implementations were deemed failures by their respective organizations – up five percent from the 2014 study. Likewise, another 21 percent were surveyed as being neutral or answered that they did not know if their ERP implementation was a success.
Last year, 63 percent of respondents of a similar survey from Panorama noted their ERP project was successful. This year, only 58 percent of executives said their project was a success. What could be causing the five percent drop in ERP project success rates? This leads us to an even more pertinent question: Why are we seeing an increase in ERP implementation project failure?
Reasons for ERP Failure
The alarming rise in ERP failure rates could be directly correlated to an increase in modern software customization and add-ons. Sixty-three percent of organizations recorded implementing some customization or significant customization, while 14 percent of respondents described their instance of ERP as extremely custom (over 50 percent), or completely custom, in-house developed or best of breed solution – an 8 percent increase from last year.
Technology for enterprise planning has amassed capacities that can provide solutions for nearly every corner, inside and out, of a modern business. As such, some customization is inevitable given the flexibility and scalability of new features and configurations provided by ERP vendors on the market today. Owning this type of infrastructure can certainly work in powerful ways for an organization by rendering a solution that best fits the business and its unique capabilities and goals, like automating unique processes and improving the quality of reports.
Yet many times we also find companies select a solution that may be ill fitted for the type of work they want to accomplish. Because of this, the solution inevitably needs to undergo immense reformations and further customizations that might not have been needed had the right system been selected, further elongating implementation time and the cost of the project.
How One Company Avoided the Risk of ERP Implementation Failure
To avoid unnecessary costs (the star ingredient in a recipe for failure), organizations must perform due diligence to uncover the right solution for the jobs they need to get done. First, they must begin by defining business processes models from end to end of an organization. This requires input from a diverse group of folks acquainted with the type of work required for jobs, performance narratives and who can distinguish where bottlenecks occur. Additionally, an internal survey will be able to uncover an organization’s capacity to perform ERP projects in house or if they may need to consider outsourcing for the skill set with the ability to define a software solution that will fit the specific profile of the business.
Generally, organizations that perform this work on the front end will select software that requires less customization. Just ask Datix client, Jay Epperson, IT Manager of Versa Tags – a producer of printed products for promotional, automotive and ad specialty distributors. He experienced a completely successful ERP implementation project first hand earlier this year. When a unified project committee at Versa Tags admitted a lack of understanding of their legacy ERP system and improper data input practice from users exposed a bottleneck in production capabilities, Epperson had to make a decision– perform an ERP project in house or source a second opinion. An internal SWOT analysis pointed to the latter; as Epperson soon realized that the success of their ERP project would require partner assistance.
After interviewing several groups that service ERP implementation projects Epperson chose Datix when they recommended a tailored approach to their project much different than their competitors. The Datix methodology focused on Versa Tag’s business models and the significance of their results data. Datix was keen to educate users that it is not the software itself contributing to ERP project failures, but rather a poorly planned approach to ERP implementation that fails to focus on business models or require the project committee be totally immersed in the project.
“Datix was very beneficial in the area of business processes,” Epperson said in an interview. “How to make the system work specifically for our company was a big strength we wouldn’t have got with some of the others (consulting services).”
Why ERP Projects Run Over Budget
The report also showed that more than 50 percent of respondents exceeded their implementation budgets; up one percent higher than last year. While the increase in the number of organizations exceeding budgets doesn’t exactly have us gasping for air, the fact that a majority of organizations are continuing to run over their initial budget might be a cause for concern.
Companies certainly want to avoid scope creep and adhere to the respective limitations of the project; but sometimes requirements change, different resources become available and new information will inevitably change the project. Yet, as long as there is a clear path that change does not have to risk funding of the project nor significantly delay go-live. Panorama reports 24 percent of respondents noted projects exceeded budgets by more than 25 percent, with some over budget by as much as 76 percent. Thirty-one percent of respondents went over budget by less than 25 percent. Likewise, the average project cost increased by $1.7 million over the last year.
The most common reason projects exceeded their initial budget has remained the same over the last two years – the initial scope was expanded. Other reasons for project overages include initially underestimating project-staffing and additional technologies required to support new application. An internal committee doesn’t generally prepare for these kind of unforeseen inconsistencies. This is primarily due to a lack of internal business process modeling expertise, time and dedicated resources that can mitigate many other potentially scope-damaging risks.
Turn back to Versa-Tag’s case; outsourcing their ERP implementation relatively supported project goals with only a 10 percent cost overrun of the overall budget. This determination came after the Datix team uncovered an unclean database and other profound unforeseen risks that the producer would have undoubtedly missed without a second opinion. Many ERP projects are plagued with similar issues, but don’t have the manpower to discover each and every variable harmful to the project. Clearly, there are many contributing factors to ERP project failure. This is why the project requires an experienced skill set and defined processes to yield successful outcomes (ROI, reduced lead time and trained users).
How to Achieve ERP Implementation Success
After several months following Versa Tag’s ERP implementation, Epperson attended a software user’s group meeting to see what others were saying about their successful ERP systems. What he found was a band of disgruntled customers troubled with the ineffectiveness of their ERP software, and fed up with their vendor in general. Epperson told a very different story, recounting his pleasurable experience throughout Versa Tag’s ERP implementation and how well his team had adopted the new software. He went on to tell others about the value their system has captured for the entire Versa Tags organization.
Regardless, because go-live is a non-event for our clients it can be equally a nightmare for others whom may lack the resources and experience it takes to claim ERP implementation success. Here are three significant processes veteran consultants at Datix perform for each IT project that the aforementioned 230 organizations with ERP failures may have failed to consider:
Discovery Document Review
A discovery document review [DDR] is a process we undertake to understand the operations of our clients. There are essentially two types of DDRs – process and use case. Process DDRs define macro process levels and provide a 15,000 foot view of the organization. Here, our consulting team identifies potential customizations or custom reporting requirements. This part of the implementation acclimates Datix with the client’s business; industry, product offering and sources of revenue. Datix also investigates processes at the detail level to understand how your departments interact. This “audit” of business processes can carve a clear outline of expectations of the upcoming implementation. Those expectations are reviewed with the project committee and sent to all project participants so that everyone is up to speed on what’s to come in the project and what needs to be executed to keep the project from derailing.
The client review prioritizes identified use cases – the second type of DDR. The use case discovery provides an understanding of how the system will be published for specific user jobs and tasks. The client should understand why a specific step was identified as a use case and thus have complete power to make adjustments or ask for clarification about the use case to make sure they understand the intent of the particular use of the system. Essentially, the client (executive team) is given a choice of whether the defined cases for use are tasks critical to user jobs or could be lived without, eliminating unnecessary customization and possible scope creep. Only then can the client be truly ready for what’s to come in the project and understand what is required to guarantee implementation success.
This is also the point when our experienced team may suggest the technical requirements (data capacity, bandwidth, and hosting solution) that best support the choice solution at go-live and thereafter as the company inevitably grows.
Validation of the system is critical to an organization’s implementation and will aggregate comments about the system from project participants that may not have been involved in previous project phases. It is a point in the implementation focused on verifying the system is fully functional and delivers on behalf of the expectations of those who will use it. At this point all data is converted and should be purposeful for the organization going forward, along with putting a strategy in place as to how they’ll use that data to capture new value of the system. To this point and here after, communication is completely transparent between the company and the Datix team, while the client still retains full control and ownership of the project and has been involved in managing change across the organization by way of recommended deliverables from our leading experts.
As we mentioned in validation, new participants will be brought into the project temporarily to essentially play with the system. These “mini pilots of the system” are small-scaled versions of the software that allows users to experience the system and walk through a typical process they would perform. Generally this testing is performed in a separate test environment than the organization’s, so that the company remains profitable whilst undergoing new system configurations. Only when the system is validated both by users and the project committee is it truly ready for deployment.
Ultimately, businesses that diligently map their implementation project first will be best equipped to deal with the ebbs and flows of an ERP system implementation. This means understanding project goals, comprehending what realistic expectations are and fully grasping what the software can and can’t do prior to creating any deadlines or finalizing budgets. It is much easier to avoid failure than bouncing back from expensive disruption.
Businesses considering a new system that want to avoid ERP implementation failure should read our latest e-book. It contains essential 101 resources on how to extract ROI from a system, and mitigate the most common project risks along the way. If you’d like further help on how your business should approach an upcoming implementation, contact our experts today!