The successful implementation of an enterprise resource planning (ERP) system can transform a business, making its operations more efficient and scalable and better positioning it for growth. The benefits of ERP done right can be felt across an organization, from finance to shipping logistics, which is why the global ERP market is expected to reach nearly $125 billion by 2030, according to Grand View Research.
But the all-encompassing nature of ERP systems also means that a botched implementation can have serious implications for every business department, including accounting, inventory, manufacturing, sales, among others. What’s more, Gartner’s research reveals that 75% of ERP implementation projects get derailed along the way, making failure quite common, especially among businesses implementing an ERP system for the first time.
But failure is far from inevitable. To reap the full benefits of an ERP implementation and mitigate the risks of failure, it is crucial for businesses to plan, execute and manage the project with care. In this article, we explain why ERP projects fail and how to preempt these risks, as well as provide tips on how to complete a successful ERP implementation that delivers positive returns for years to come.
Why Do ERP Implementations Fail?
An ERP implementation involves three main phases: installing the new software, migrating data from previous systems to the new solution and training employees — especially finance teams — to use the new ERP system. ERP implementations fail when businesses don’t plan for all the potential risks that can arise during each of these phases.
One cautionary tale involves a major distribution company that embarked on an ERP implementation before fully integrating its IT systems and data with those of a new subsidiary. The company quickly ran into significant operational issues that led to major delays and incurred significant project costs. By the company’s own admission, these consequences could have been avoided with better planning and risk management at the outset of the ERP implementation.
Key Takeaways
- Costly and complex to resolve, ERP derailments occur when businesses fail to address the many potential risks that can present themselves during system implementation.
- The keys to avoiding ERP implementation failures are effective planning, proper data management and continuous employee training through every phase of an ERP implementation project.
- IT teams often hire external experts to train their company’s employees on the ins and outs of a new ERP system so they feel confident using the new software.
What Causes ERP Implementation Failures?
Numerous factors can derail an ERP implementation and cause it to fail. Whether ERP challenges creep up before, during or after an ERP implementation, they can be incredibly disruptive to a business’s operations once they manifest. Businesses that can anticipate and address the issues outlined below will be in a strong position to complete a successful ERP implementation. In turn, they will have prepared all their stakeholders to unlock the full potential of their new ERP system.
Lack of Data Hygiene
One of the main selling points of an ERP system is that it provides companies with a single and reliable source of truth for their organizational data. To gain that visibility, businesses first need to cleanse and migrate data from multiple legacy systems into the new ERP database. That data is often spread across the organization, stored in different formats and owned by different stakeholders. While it might seem daunting to find, consolidate and clean up all this information, doing so before the new ERP system is installed will simplify the implementation and position the business for gains in the long term.
Unrealistic Timelines
ERP implementations can deliver significant rewards to a business, but successful endeavors can also be complex and time-intensive, especially for larger organizations that need to consolidate multiple legacy systems into one. It is important to set realistic timelines for an ERP implementation so that there is sufficient room to manage surprises along the way and project owners, stakeholders and employees know what is expected of them at different implementation phases.
Fluctuating Budgets
ERP implementations are notorious for going over budget. Known as “scope creep,” this usually occurs when businesses choose to add features and capabilities to their ERP systems that were not included in their original scope. Another factor that can drive up costs is staffing issues. Employees need to balance their ERP responsibilities with their everyday workloads during the implementation process, so the amount of time they dedicate to the project might rise and fall depending on their other duties.
Lack of Leadership Buy-In
ERP projects are an exercise in complete business transformation. As such, they require buy-in from the top down to be completed successfully and for employees to embrace new ways of working. With backing from an executive sponsor, project leaders will feel empowered to manage the ERP implementation project effectively, setting realistic expectations and timelines for implementation teams.
Poor Employee Training
An ERP installation does not end with the system’s go-live date. In fact, this is only the beginning for the employees who will actually use the new ERP software each day. Their ability to use and draw value from the solution will ultimately determine the success of the ERP implementation. To that end, they must be provided with continuous technical support and training during the go-live implementation phase, which is where the success of an ERP project is often determined.
Poor Pre-Rollout Testing
ERP failures can manifest in different ways and at different stages of an implementation, but they frequently occur after the new system goes live. Common issues include incomplete or poor-quality ERP data, a lack of adequate training for employees and the inability to take advantage of key ERP functions. By testing, refining and optimizing their ERP processes before permanently switching over to their new ERP system, businesses can catch and address these issues before they become problematic.
No Change Management Procedures
An ERP implementation is more than just a software upgrade. It is a complete transformation of business processes that promises to help users across every department take full advantage of the efficiencies delivered by their new ERP solution. Change on this scale often encounters resistance from employees, especially if they feel blindsided by a mandate to adopt new ways of working overnight. That’s why it is essential to get buy-in from business leaders and ERP stakeholders across every department early in the implementation process and to communicate the advantages of the new solution to end users at each phase of the implementation.
Insufficient Resources
Depending on the size and scope of a business, ERP implementations can take months or years to complete. Knowing that core implementation teams will need to dedicate at least half of their time to the project and that staff might come and go during the implementation process, businesses must plan and ensure that they have enough resources to bring their ERP vision to life on time without affecting their other business objectives, such as meeting seasonal sales targets. Businesses should also factor training times into their resource planning, as different employees and teams will come on board at different stages of the ERP implementation.
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Too Many Project Leaders/Cooks in the Kitchen
Without a clear chain of command, an ERP implementation lacks direction. Having too many project leaders can lead to confusion as to who is responsible for different elements of the implementation, which leads to further inefficiencies, duplicated work and costly delays. In the worst case, a lack of accountability can result in crucial ERP functionality being forgotten during the implementation, which is a leading cause of failed implementations. To avoid this, businesses can establish a clear project owner to oversee their ERP implementation from start to finish. In turn, the project owner can delegate tasks to reliable project managers and maintain a steady dialogue with these managers to ensure that all project objectives are addressed through every implementation phase.
Flimsy System Requirements
It may sound basic but having a clear and mutually agreed upon list of requirements for an ERP project can save businesses a great deal of pain later in their implementation. One way to develop this list is by conducting a thorough business analysis before establishing an ERP project’s scope. This analysis should involve stakeholders from every department that will use the new ERP system to ensure that their needs are factored into the requirements list. For the best outcomes, it is also helpful to be specific when establishing system requirements. For instance, a warehouse manager will benefit more by saying they need an ERP system that can automate inventory management than by simply saying they want an ERP system that cuts time from managing inventory.
How to Avoid ERP Implementation Failures
Once they understand the risk factors that can contribute to an ERP implementation failure, businesses can take measures to address or avoid these issues altogether and pave the way to a successful implementation. From data cleansing, to realistic budgeting, to effective leadership and training strategies, here are some of the most effective measures companies can take to maximize the success of their ERP rollouts and realize the greatest return on investment.
Clean Up Your Data Before Implementation
The process of migrating business data from multiple legacy systems into a single ERP environment is a major project that requires strict data hygiene. It is not enough to simply shift old data to the new ERP system. Businesses must validate that data for accuracy, plug any gaps, eliminate duplicates and make sure that all information is up to date. For instance, there is no point in migrating obsolete information about suppliers with which the company no longer works. While a data-crunching exercise on this scale can be time-consuming, it also makes a business’s ERP operations more accurate, efficient and less prone to error in the long-term.
Schedule Enough Time to Set Up, Implement, Test and Cut Over to a New ERP System
A new ERP solution is a powerful business tool, but with so many processes and departments potentially involved, businesses must take the time to properly set up and test the new system to deliver on its full potential. For instance, accounting teams will want to ensure that automated reporting processes are accurate and draw on all the right data sources before going live. Warehouse managers, for their part, will want to make sure the new ERP system correctly integrates every process involved in inventory management, from receiving, to storing and picking, to fulfilment.
Budget for Contingency Costs
When businesses underestimate the amount of work involved in an ERP implementation, they are not only setting themselves up to miss project timelines, but also to incur the additional cost of these delays. In addition to accounting for the cost of the ERP software itself, businesses should budget for any additional hardware and network infrastructure required to operate the new ERP system and any customizations required to tailor the solution to their needs. It is also prudent to add a buffer of 20% to 25% for contingency costs to cover any unexpected delays and changes in scope throughout the ERP implementation, as well as any associated payroll costs.
Get Everyone on the Same Page Beforehand
One of the main reasons for a failed ERP implementation is a lack of alignment, especially at companies that leave it entirely to their IT department to choose which ERP solution the business will adopt. The problem is that IT teams will not be the ones actually using the ERP system daily. With so many departments affected by the rollout of a new ERP system — from accounting, to HR, to procurement — businesses must be sure to understand and factor in everyone’s priorities when choosing a system to ensure that the implementation is executed with a shared vision of success.
Train Employees Early and Involve Them in the ERP Implementation
Employee training is integral to the success of an ERP implementation, not just once the solution is live but before the implementation even begins. Effective training gives teams more time to prepare and adapt to their new reality. It also makes them feel like they are part of the business’s transformation journey from day one, rather than having a new set of demands placed on them seemingly overnight. Once the ERP system is live, it is equally important to support employees with continuous guidance, support and training so that they can explore every capability in their ERP environment and discover new opportunities to work more productively.
Test Everything Before ERP Cutover
It is impossible to overstress the value of testing and retesting an ERP system to mitigate the many risks that can creep up before, during and after it goes live. Testing a new ERP solution involves numerous stages, starting with point testing of individual business processes, followed by testing at high workload volumes to identify and resolve any capacity issues. Finally, businesses should run a mock go-live, similar to the beta launch of a new technology platform, to see how the new ERP system performs under the full spectrum of demands it will face once live.
Prep Your Whole Company Culture to change With ERP
The transition to a new ERP system, especially in companies that have never worked with one before, can feel like a dramatic change for employees. To preempt their resistance to change, companies should be as transparent as possible about the reasons for implementing a new ERP system and how the technology will help employees perform their jobs each day. This process should begin long before the implementation begins and continue after the new ERP solution goes live in the form of continuous training and support for end users.
Plan for Your Employees to Spend Chunks of their Time on Implementation
To give themselves the best chance of completing a successful ERP implementation, companies need to put together the best possible ERP implementation team. They also need to ensure that every team member has the capacity to meet the obligations of their ERP-related work while also handling the daily responsibilities of their core business functions. For instance, an accountant should not be so overloaded with ERP implementation tasks that they cannot meet their business’s quarterly reporting deadlines.
Name a Project Lead
Choosing a point person to lead an ERP implementation project will ensure that timelines are met and that the implementation stays within scope. The best candidates are respected, experienced and detail-oriented, with in-depth knowledge of how ERP systems work. The best ERP project leads also know how to build strong relationships with internal stakeholders, from executive sponsors to the employees completing the implementation on the front lines. Committed project managers also motivate their ERP implementation teams. Take fragrance brand Fulton & Roark, whose ERP implementation project was initiated by its co-founders. Thanks, in part, to their engagement, the company saw a 50% boost in sales following their ERP implementation without increasing headcount.
Know Your System Requirements Before You Commit
A realistic and well-planned list of ERP system requirements can be the difference between a successful implementation and a failure. Without a benchmark of where the business stands today and what it hopes to achieve with its ERP system, it is difficult to complete an implementation that meets all requirements and stays on time and on budget. Once the list of system requirements is complete and factors in the needs of all ERP stakeholders, a business can find the best ERP solution and vendor to meet its specific needs.
Do Your ERP Implementation Right the First Time With ERP Experts
Despite their best intentions, IT departments in many businesses are stretched to their limits. Moreover, few have the bandwidth or expertise to train employees in how to use a new ERP system before, during and after implementation. This leaves end users to look elsewhere if they want to get comfortable with their new ERP system and reap its full benefits.
To overcome this challenge, companies increasingly lean on ERP product experts to support their employees with 24/7 guidance and learning resources. These experts often work for the business’s chosen ERP vendor, which means they have unparalleled knowledge of the ERP software that has just been implemented. Access to always-on support also empowers end users across every department to take control of their ERP training and learn at their own pace.
NetSuite Learning Cloud Support (LCS) ticks all these boxes, providing businesses with subscription-based training that helps their employees to fully benefit from their new NetSuite ERP system. From on-demand online courses, to interactive webinars, to hands-on labs and 24/7 access to NetSuite’s product experts, LCS offers a variety of learning styles designed to help users at all levels improve their ERP knowledge and proficiency.
Implementing a new ERP system is a complex but rewarding exercise. Businesses across every industry appreciate the value that an ERP system can deliver, such as operational efficiencies, greater control over business data, improved scalability and growth potential for their organization. By planning strategically and mitigating the risks that can manifest at every phase of an ERP implementation, businesses can avoid the pitfalls that lead to failures and deliver on the promise of their investment for teams and stakeholders throughout their organization.
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ERP Failure FAQs
What is ERP failure?
Enterprise resource planning (ERP) failure occurs when an ERP system implementation gets derailed, falls short of expectations or fails altogether. The root cause can generally be attributed to poor planning, a lack of awareness of ERP implementation risks or a company’s unwillingness to embrace new ways of working at the cultural level.
How can ERP failure be overcome?
The best way to avoid enterprise resource planning (ERP) system failure is with effective planning. That includes creating a clear list of ERP system requirements that meet the needs of every team and end user that will ultimately use the new software, as well proper training for these employees so that they can hit the ground running once the new ERP system goes live.
How long does ERP implementation take?
Enterprise resource planning (ERP) implementations vary in length depending on the size of the business in question and the scope of its business requirements. Smaller startups have been known to implement a new ERP system in just a few weeks, while large legacy corporations typically require months or even years to complete a successful ERP implementation project.
How much can ERP implementation failure cost?
Enterprise resource planning (ERP) implementation failures can incur significant costs, depending on the nature and timing of the failure, as well as the size and scope of the implementation project itself. For instance, a medium-sized business that falls two weeks behind an implementation deadline due to workforce capacity issues will incur smaller costs than a large corporation that has finished its ERP implementation only to discover data quality issues throughout its ERP database. The latter can incur costs reaching into the tens or even hundreds of millions of dollars.
What happens when an ERP project fails?
Failure of an enterprise resource planning (ERP) implementation can have many ill effects, but the most damaging are fast-rising ERP implementation costs, ineffective ERP processes and demotivated employees. That said, ERP implementation failures are relatively common, especially among first-time ERP users, and most businesses will have a chance to turn their ERP implementations around before these issues spiral out of control.
Why do ERP projects fail?
Enterprise resource planning (ERP) projects fail when a business implementing a new ERP system does not anticipate, plan for or preempt the many risks that can arise at the various stages of an ERP implementation project. These risks range from the technical, such as poor data hygiene, to the managerial, such as not appointing clear project owners to ensure that ERP implementation teams stay on track and on budget.
What are the failure factors in implementing ERP?
The failure factors in implementing an enterprise resource planning (ERP) solution include poorly defined system requirements, a lack of data hygiene, unrealistic project timelines, fluctuating budgets, a lack of executive buy-in, poor employee training and incomplete ERP testing before the system is officially launched.
