Over the past few years in ERP implementations across the Globe, I curiously browsed through a couple of case studies to understand why more than 50% of the ERP Projects either under-deliver value, take longer than expected or costs exceedingly more than the budget.
I read articles on what makes ERP solution really successful and during the course of the study tried identifying what really causes projects to fail. By ducking each of these elements takes no efforts to drive a project towards its objectives.
The success of the Project depends on 2 dimensions - Project Management Success and Product/Implementation Success.
It is important to understand why the specific Endeavor was undertaken and were the business outcomes achieved? Were the business outcomes even defined before undertaking the Endeavor? Did the Project add any strategic value?
For instance for an Tier 1 supplier of Automotive parts, an ERP implementation should drive the organization to basic outcomes likes Supply Chain effectiveness, Inventory Management, Cross Functional Integration, Reduction of overhead & operating expenses and Planning Accuracy.
If you do not consider the outcome of the Project, it means you are accepting the notion that ‘the operation was a success but the patient died’. Hence the outcome is very important.
Panorama Consulting published the results of a study comparing gaps between customer expectations and actual results achieved on ERP projects. The following are the key findings as per 2014
- About 57% of ERP implementations take longer than expected
- About 54% of ERP implementations cost more than expected
- About 41% of ERP implementations under-deliver business value. Around 22% of implementations fail to deliver at least some measurable business benefits from their ERP solutions.
- Companies do not effectively manage the organizational changes of ERP and Over 53% of implementing organizations assess their ability to deal with change as fairly poor or very poor.
- Root Causes of Project Failures
Root causes of Project failures can be broadly divided into 2 areas
- Project Related
- Business Related or People change related challenges
- Lack of User input – The input from the user may be incomplete during the requirement gathering phase
- Technology incompetence – Lacking qualities or skills from the core users for effective execution of ERP system.
- Lack of resources
- Unrealistic time frames
- New technologies – One of the project related reasons is that Project Resources may be unaware of new technologies
Business Related OR People Change related challenges
- Incomplete requirements
- Changing requirements – Customer may not anticipate the internal change that the organization is planned to go ahead with and midway through the project they realize that business process itself has changed
- Lack of Executive Support – leadership team is focused on solving more important problems
- Unrealistic expectations
- Unclear Objectives
Let’s say, I am the business unit head and I have revenue targets. So I might want to ensure that I meet the revenue milestones for the quarter and hence I plan the project in such a way that I am able to realize the revenues before the end of each quarter considering my targets.
This not only builds pressure on the internal and the external implementation team to deliver as per the aggressive or unrealistic timelines for the purpose of invoicing and realizing the revenue as per the BU targets but also impacts the quality of the deliverable.
This may not only lead to failure of the particular milestone but also take the effect in a cascading fashion to all the further phases of the Project.
Budget constrains could be internal and external. A standard reason of an Internal budget constrain could be unrealistic estimation of the Project itself.
Estimation of the project are at times performed or revised to ensure that the sales team closes the deal without considering that this may lead to a huge budget consumption crises.
To ensure that the deal is brought to closure, negotiations could go to a level where the ERP implementation team has to deliver the project Fast.
A team gets off the Project after a few days
The A team is involved in the initial business discovery , Business solution design and prototyping, however, when the project gets going to the further stages i.e the configuration or the Conference room piloting or the User acceptance testing, the A-team gets off the Project and junior business analysts are on-boarded to reduce costs. The agencies involved may also change. For example, the configuration and the UAT phases of the Project are carried out by low-priced implementation partners. This if not controlled effectively, may result in huge disconnect and colossal gaps.
Data Sanity issues
Redundant data, Old data, data with incorrect format could be some of the data issues. However, what really needs to be focused on around the data collection is an issue with educating the customer on the messaging of data before they provide the same to the implementation team. Prescriptive consulting is something that if missed, will definitely lead to data sanity issues. Although the sanity of data in not the responsibility of the implementation team, prescriptive consulting and educating the customer around the sanity definitely is.
No defined Outcomes
As discussed earlier, it is very important to identify the Key performance indicators and establish the outcomes even before undertaking any endeavor.
A project where outcomes are not defined will only take the project to a stage where the ERP becomes more like a data entry and transaction recording system than building any strategic value for the organization.
This is one of the major concerns in almost every emerging IT business. The headcount is kept minimal to reduce costs, resources are juggled between projects, the right skill-set mapping is not done and right number of resources are not provided to projects. The resourcing issue is not limited to internal implementation team. It is also the business or the customer who needs to provide the right no. of human resources, right skill-set and the right internal champion to the Project. There needs to be a dedicated Champion from the Business side throughout the project to ensure the monitoring and control.
A few other reasons why ERP implementations fail are
- Unaligned expectations between the Business and the IT, or between the customer and the implementation team or between the sales and services team, or within the implementation team itself
- Inexperienced resources doing estimation of projects or mismatch of the skill-set of the resources required on a particular project. For example a technical resource doing a business discovery workshop with the customer
- Untrained resources are one of the major reasons for ERP project failures. Learning in action to save or reduce training costs leads resources to deliver poor quality for their first few projects
- Team conflicts arising due to timeline pressure situations, unaligned resources or resource constrains. Team conflicts could also arise due to transparency issues or lack of clear communication channels.
- The customer and the implementation team has to work in collaboration. The US and them mentality will result in passing the buck during the entire implementation process and result in pinpointing issues and its sources rather than resolving them cooperatively.
- Lack of right methodology also results in failed implementation. For instance, a user acceptance testing with a big bang approach and too many customizations without an internal Conference Room Pilot with the core team will definitely be a recipe to disaster
- Self-assessment is another key element to determine the present state of the business and business processes. Without a Self-assessment, it is difficult to discover the hidden business needs.
- The People factor is the most important asset in IT organizations and the most important factor in the success of any IT project. For any business for an ERP Software, it is important to have a blend of cross functional resources and decision makers in the core implementation team, without which there are high chances of an implementation to fail. Also, lack of involvement of and the direction from strategic management will lead to a poor quality implementation.
- Ineffective change management and poor communication are certainly other major contributors to ERP failures.