10 Reasons Why ERP Projects Fail & How to Avoid a Disaster
As an ERP partner, we understand how daunting an implementation project can be – we’ve been through one ourselves. And for small to mid-size companies that have never been through an ERP project before, the fear of the unknown is even greater. It doesn’t help that there are so many horror stories about ERP projects gone wrong – an estimated 55–75% fail to meet objectives.
What does a failed ERP project look like for SMEs? It depends on how you define failure.
An abandoned project is a clear failure – where the ERP system never goes live. Or worse, the system is live but isn’t fully functional and generating results. These situations pose significant risk to the business. In other cases, budget overruns or delays that are beyond your control could be considered a failure – this is often a result of a mismanaged project. While some will tell you that an increase in budget or scope equals a failed project, be sure to consider the context of those increases. Sometimes budgets and timelines increase because your internal stakeholders agree to changes in scope that are aligned with your project objectives. This isn’t a failure at all, but rather a strategic decision to drive greater results.
It might sound scary, but it’s important to keep in mind that not all ERP projects fail. Many are successful. The key is learning from the horror stories and taking the right steps to set yourself up for success. With that in mind, let’s help you avoid the top 10 mistakes that lead to ERP failure.
1. Lack of executive support
Securing executive support at the outset of your ERP project is crucial to success. Often in smaller companies, the CEO or owner is leading the project, so the support is already there. But this is a mistake we see more often in larger companies – the Project Champion (the person pushing for ERP and leading the project) sees the need for a new system, but they don’t have full support from the executive team. Obviously, this can cause challenges when it comes to budget – if the person signing the cheque isn’t convinced they’ll see a return on their investment, your project will fall flat on it’s face. But the impact doesn’t end there. Without buy-in at the top, your employees are less likely to get on board, focusing on the disruption of switching systems, rather than the benefits. And you’ll need the full support of your executive team behind you to dedicate the necessary resources to the project. Pulling people away from their work to contribute to the selection and implementation process isn’t always easy to do. You need backing from leaders who are dedicated to not just running the business but growing it.
2. Poor project planning
Implementing an ERP system is no small task. It’s not enough for one or two people in the organization to say, “We need ERP”, heading straight to Google to find potential solutions and scheduling demos. Projects that start this way are more likely to fail – or at the very least, be painful to get through. You should treat this as you would any other major project in the organization – with proper planning. That means dedicating resources, setting a budget and timeline, outlining objectives for the project and coming to a consensus on system requirements. In a nutshell, when you skimp on project planning, you’re more likely to make the other mistakes in this list that lead to failure.
3. Missing expertise on the project team
Having a dedicated ERP project team is central to a successful project. Where companies fall down is not assigning the right people to the project team. You need at least one super user that understands processes across the business, not just in their own functional area. But don’t discount functional users. They’re the ones in the system every day, so they know better than anyone where the bottlenecks are. You want to make sure you have insight into every area of the business to ensure you’re getting the big picture view. Finally, assign a Project Champion with strong project management skills to guide the group and keep things on track.
4. Unclear objectives
To determine if your ERP project is a success, you need something to measure against. Many companies skip this step or gloss over it with some generic statements like, “We want to improve efficiency”. This is so broad that it won’t help you prioritize your requirements and it will be tough to evaluate whether you’ve achieved your goal. The other big mistake we see here is only focusing on current business needs. When setting your ERP project objectives, think long term. Consider what you want to achieve now, but also what you want your business to look like in five or 10 years – that can change what you look for in a system. Once you’re clear on your objectives, you have a strong framework to outline and prioritize your requirements. This will prevent you from being distracted by additional features that demo well but really don’t contribute to your goal.
5. Setting unrealistic expectations
Companies that go into an ERP project expecting a fast, cheap and top-quality result are likely to be disappointed. It’s all about striking the right balance. Given that your ERP system is central to your business, we don’t advise compromising on quality – it can have significant impacts down the road. To find the right balance, you and your partner need to be on the same page about requirements, roles and responsibilities, and timelines. Keep in mind this is the system the runs your entire business – if you do it right, you’ll reap the benefits for years to come.
6. Underestimating the importance of data migration
When you get into the ERP implementation, there’s a lot of work that your partner will handle, like installing the software, configuring the system and importing data from your existing system. You’ll be involved to varying degrees throughout this process. The mistake some companies make is assuming they can just export data from their existing system and import straight into their new ERP. Or at the very least, that a quick review of the data will suffice. Data migration is a critical step in your implementation that requires time and attention from your team. While you can rely on your partner for support, they won’t be able to review the data for quality and accuracy the same way you can. The people that handle the data daily are best equipped to handle this task and it can take more time than people estimate. Be realistic about how much time you need to review your data thoroughly and build in a buffer just in case you need it.
7. Insufficient testing
When companies are behind schedule with their ERP implementation (usually because of the above-mentioned mistakes), they become so focused on going live that they try to scale back on testing to makeup the time. Don’t fall into this trap! Going live only to find out that the system isn’t working exactly as expected is frustrating and can be deflating for your team. Remember that you aren’t just replicating your old processes in a new system. That might be the case in certain scenarios, but there will be plenty of new or changed processes as well. This is the time to thoroughly check that everything is working properly. That means performing each process – start to finish – using real data and confirming that the result is correct. It takes time, but it’s worth it.
8. Not enough training
Operational disruption is common and to be expected to a certain extent – 56% of ERP implementations result in disruption of some sort. Quite often, inadequate training is a contributing factor when companies see large-scale disruptions to the business. The good news is that you have the power to control that. Here again, companies try to pare back training to save time near the end of the project. This will not only lead to day-to-day operational problems when you go live but will also leave your people feeling frustrated. Work with your partner to come up with an appropriate training plan early in the project. You know your people best – if you feel they would benefit from extra one-on-one training with your partner, find a way to build that into the budget. The system itself can only take you so far – your people need to know how to use it to truly get the value.
9. Trying to boil the ocean
In the early stages of the project, when you’re defining requirements, nearly every company will come up with a massive wish list. But it’s important to remember that not every item on your list is essential for the initial implementation to be a success. And more importantly – unless you have an unlimited budget and a long timeline, it’s not realistic to tackle everything at once. Companies that try to do this end up feeling overwhelmed by budget increases, extended timelines and unrealistic demand on their people. This is why it’s so important to identify your critical success factors – the requirements you must fulfill to consider the project a success. The other items on your list become a roadmap for future development.
10. Fear of change
Change is scary. There’s uncertainty involved for your people. Will this new system change their role? What if they’re not comfortable learning new technology? How much extra work will they have to take on throughout the project? Your people will have questions, and if you don’t answer them, the discomfort will only increase over time.
Having a solid ERP change management plan, backed by executive sponsorship is key – when your leaders are communicating the benefits early and often, people will feel more at ease. They’ll also be more likely to adopt the system if they have an opportunity to provide input. Ask what’s causing bottlenecks in their day or what processes they think could be improved. Involving employees throughout the process will help them own the system, rather than feeling like the change has been forced upon them. And finally, don’t underestimate the importance of training. We’ve talked about this already, but it’s worth stating again. Your people will be much more comfortable with the change when they have time to become familiar with the new environment and learn the processes inside out.
Prepare for success
It might seem like there’s a lot that can go wrong, but our intent here is to help you learn from others, so you don’t repeat the same mistakes. The results you’ll see from an ERP system are well worth the effort – our customers are living proof. They’ve achieved success with the support of our team. Our implementation projects aren’t just about software. We guide our customers through every step, helping them manage the transition for their people as well.