If you are reading this, it’s likely you are about to begin an ERP implementation and want to avoid the common pitfalls. It’s possible you’ve already suffered a failure or are in the midst of a setback, and are hoping to recover. A web search on ERP implementation failures will contain dozens of hits, mostly to useful articles, some available for free and others for a fee. My objectives for this blog post are to:
- Focus on the claims supported by actual research.
- Provide you with a concise list of the most common pitfalls identified and ways to avoid them.
- Wherever possible, provide links to source data.
Before jumping into the list, it helps to understand the magnitude of the problem and establish the necessity for managing the risks involved in ERP and other enterprise systems implementations. A 2008 Gartner Group research publication identified that between 20% and 35% of all ERP implementations fail1. A 2013 publication analyzing results of a survey conducted by Panorama Consulting Solutions indicates that:
- Although 81% would select their chosen software again, 30% still classify their implementation outcome as a failure
- The average ERP implementation cost over $7 Million
- The average ERP implementation took almost 18 months
- 53% went over cost budget
- 61% exceeded their planned implementation duration
- 60% reported that they are experience 50% or less of the measurable intended benefits2
- ERP implementations represent a significant investment in direct cost and consumption of resource time
- The majority of projects exceeded their cost and time budget, and
- The majority of companies fail to receive the benefits they expected.
Given the costs and inherent risks of implementing ERP, managers need to enter into implementation projects with a proactive plan for avoiding and overcoming the common pitfalls.
Defining ERP Implementation Success:
First, we define ERP Implementation Success as:
- The system implemented delivered the measurable benefits intended
- Implementation was within budget
- Implementation was completed on time
The 7 Factors for Assuring ERP Implementation Success:
Following is Tridea Partners’ compilation of the 7 key factors for assuring implementation success, followed by a more detailed treatment of each factor:
- Provide adequate executive management sponsorship and commitment
- Assure adequate scoping by involving the expert user community in needs definition and product selection.
- Provide experienced project management resources and project team members
- Use a proven methodology
- Provide sufficient budgeting of cash and internal resource allocation
- Anticipate, embrace, and manage change
- Avoid extensive modifications and use proven 3rd party products when available
#1: Provide adequate executive management sponsorship and commitment
Companies invest in ERP systems because they believe the investment of cash and other resources will provide a greater return than committing those resources in a different manner. The first role of executive management is to define the key metrics of measurable value the system should provide and the budget for achieving the expectations.
Next management assigns the selection team and the implementation teams and communicates the expectations to those teams. When appropriate, executive managers may participate directly in the teams.
Additionally, executive management needs to provide consistent support and reinforcement throughout the entire implementation by:
- Requiring that timelines, project plans, and methodologies be implemented
- Requiring consistent follow-up and reporting of status and progress against the plan
- Assuring that promised cash and other resources are available when required
- Providing special incentives where warranted to motivate
- Remaining positive – not poisoning the well by expressing opposition to the project in front of the selection or implementation team. Any expressions of opposition should be kept in the executive conference room. Organizations resist change, and the resistance should never find an executive sponsor.
- Assessing the success of the project for each expectation, and following up with the rest of the organization to recognize success and assess the need for continued improvement.
#2: Assure adequate scoping by involving the expert user community in needs definition and selection.
Management’s main top level role is to define the expectation for increased productivity, increased sales, increased service levels, decreased expenses, and other quantifiable performance indicators. However, there is generally a group within the user community that understands the nuts and bolts of how a system can actually deliver those objectives, whose perspective is more valuable than managers that are not actually hands-on with the systems. It’s important to involve this expert user community in the scoping and selection process both because of the practical expertise they bring to the table and the increased user adoption experienced when skilled end-users feel their voice was heard.
#3: Provide experienced project management resources and project team members
Project management is a skill that requires training and experience. For implementation of core mission critical systems, qualified Project Managers (PM’s) more than pay for themselves. The PM:
- Serves as the primary intermediary between executive management and the implementation team
- Is the primary provider and enforcer of the project plan, implementation methodology, and project execution and communication infrastructure
- Should have the experience to spot early warning signs and risk indicators
- Should have the respect of executive management and the implementation team members
- Should be impartial and not have an individual departmental agenda. PM’s that serve dual roles as IT, Operations, Finance, or Accounting Managers tend to place emphasis on their own departmental needs.
#4: Use a proven methodology
Do not reinvent the wheel. Most companies only implement new core enterprise systems a handful of times during the lifetime of the company; therefore, internal experience may be thin in systems implementation and team members may not even realize there are proven methodologies and project management disciplines that they can adopt. Tridea Partners practices Microsoft’s SureStep Methodology for its Dynamics ERP and CRM products, and most other ERP vendors have their own methodologies. Additionally, a certified Project Management Professional (PMP) will be knowledgeable in various generic methodologies.
Additionally, outside consultants that are certified on the ERP system spend their careers implementing systems and can assist in the use of the methodology best suited for your implementation. Tridea Partners ERP and CRM consultants are trained and experienced in the use of Sure Step for Dynamics GP, Dynamics AX, and Dynamics CRM implementations, as well as other common best practices, and can assist with use of the Microsoft’s proven implementation methodology.
#5: Provide sufficient budgeting of cash and internal resource allocation
Once a company has scoped out its needs, determined the value that delivery of those needs will provide, assessed the amount it’s willing to invest to meet those needs, and identified the system that best meets those criteria, executive management needs to make the required cash funds and resources available to the implementation team.
Cash budget issues arise when projects go over budget. Management should create a budget risk management plan prior to implementation so that they are not faced with making decisions in the heat of crisis and springing surprises on the board of directors or investors.
Resource allocation issues mostly originate from management underestimating the amount of time that will be required of the implementation team and the end users for process design, implementation, testing, validation, and training. Everybody on the staff at the beginning of a project already had a 40 hour job, and management must anticipate the need for additional human resources or lower their expectations of productivity during the implementation.
#6: Anticipate, embrace, and manage change
People resist change. Often the users that are being given a new system emotionally own the legacy system (or it owns them), and experience fear of the unknown. Even users that are frustrated with the legacy system, if left out of the loop on the requirements analysis and selection of the new system, will resist adoption of the new one, favoring the known evil over the unknown.
Management has a key role in creating an environment that fosters continuous improvement and rewards reasonable experimentation. Managers can foster user adoption by recognizing and rewarding successful process reengineering as much as normal operational performance.
Finally, organizations need to avoid the classic trap of simply re-creating the legacy system procedures and business practices in the new system. Many of the legacy practices exist due to the need to contort the workflow to fit within the constraints and limitations of the old system. Managers need to learn to separate the desired end result from the path leading there, and be willing to look at the best new path exploiting the strengths of the new system.
#7: Avoid extensive modifications and use proven 3rd party products when available
This factor comes in two forms. The first was largely addressed by factor #6 where we encourage companies to adopt the best business practices using the features of the system selected, and not try to customize the new system until it is a re-deployment of the legacy system.
Sometimes, however, even the best fit lacks some special feature that is a critical requirement. In this case, first priority should be given to finding an existing 3rd party product that integrates well with the new system, before considering major customizations or developing a custom bolt-on. This means that part of the selection criteria for any system should be that it is deployed on a widely supported stack (operating system, database, application architecture) and that the system has a good ecosystem of 3rd party products available.
The main advantage of a well-established 3rd party product is that you can purchase and begin deployment immediately without going through an extensive design, develop, validate, deploy cycle. Your company likely already has its hands full with the core ERP deployment.
The top tier ERP systems have all been successfully deployed in thousands of organizations of every shape and size. The most common reasons for failure are all within the power of management to control. Success starts with top management and flows downward, and ultimately success comes when management puts the right resources in place and keeps their eye on the ball. I’ve provided links to the excellent source articles by the organizations that performed the actual research cited. I hope that this overview opened your eyes to the risks inherent in ERP implementations and your ability to manage them. I offer my thanks to the professionals and scholars that performed the original research.
1 Denise Ganly, “Address Six Key Factors for Successful ERP Implementations”, Gartner Group Archive, 24 March 2011, http://www.gartner.com/id=1603415
2 Panorama Consulting Solutions, “2013 ERP Report”, The Prescott Group, LLC, Copyright 2013, http://Panorama-Consulting.com/resource-center/2013-erp-report/
Panorama Consulting Solutions, “Clash of the Titans | An Independent Comparison of SAP, Oracle, and Microsoft Dynamics”, The Prescott Group, LLC, Copyright 2012, http://panorama-consulting.com/resource-center/clashof-the-titans-sap-vs-oracle-vs-microsoft-dynamics/
This post was written by George Sagen, Senior Application Consultant for Tridea Partners, a Microsoft Dynamics GP
and Dynamics AX consultant serving Southern California and the Salt Lake City
region. For more information on Tridea Partners’ ERP implementation methodology and how we can ensure a successful project for your company, contact Sales@trideapartners.com.