The successful implementation of an enterprise resource planning (ERP) system can transform abusiness, making its operations more efficient and scalable and better positioning it forgrowth. The benefits of ERP done right can be felt across an organization, from finance toshipping logistics, which is why the global ERP market is expected to reach nearly $125billion by 2030, according to Grand View Research.
But the all-encompassing nature of ERP systems also means that a botched implementation canhave serious implications for every business department, including accounting, inventory,manufacturing, sales, among others. What’s more, Gartner’s research reveals that 75% of ERPimplementation projects get derailed along the way, making failure quite common, especiallyamong businesses implementing an ERP system for the first time.
But failure is far from inevitable. To reap the full benefits of an ERP implementation andmitigate the risks of failure, it is crucial for businesses to plan, execute and manage theproject with care. In this article, we explain why ERP projects fail and how to preemptthese risks, as well as provide tips on how to complete a successful ERP implementation thatdelivers positive returns for years to come.
Why Do ERP Implementations Fail?
An ERP implementation involves three main phases: installing the new software, migrating datafrom 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 thepotential risks that can arise during each of these phases.
One cautionary tale involves amajor distribution company that embarkedon an ERP implementation before fully integrating its IT systems and data with those of anew subsidiary. The company quickly ran into significant operational issues that led tomajor delays and incurred significant project costs. By the company’s own admission, theseconsequences could have been avoided with better planning and risk management at the outsetof the ERP implementation.
Key Takeaways
- Costly and complex to resolve, ERP derailments occur when businesses fail to address themany potential risks that can present themselves during system implementation.
- The keys to avoiding ERP implementation failures are effective planning, proper datamanagement and continuous employee training through every phase of an ERP implementationproject.
- IT teams often hire external experts to train their company’s employees on the ins andouts 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 upbefore, during or after an ERPimplementation, they can be incredibly disruptive to a business’s operations once theymanifest. Businesses that can anticipate and address the issues outlined below will be in astrong position to complete a successful ERP implementation. In turn, they will haveprepared 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 singleand 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 newERP database. That data is often spread across the organization, stored in different formatsand owned by different stakeholders. While it might seem daunting to find, consolidate andclean up all this information, doing so before the new ERP system is installed will simplifythe implementation and position the business for gains in the long term.
Unrealistic Timelines
ERP implementations can deliver significant rewards to a business, but successful endeavorscan also be complex and time-intensive, especially for larger organizations that need toconsolidate multiple legacy systems into one. It is important to set realistic timelines foran ERP implementation so that there is sufficient room to manage surprises along the way andproject owners, stakeholders and employees know what is expected of them at differentimplementation phases.
Fluctuating Budgets
ERP implementations are notorious for going over budget. Known as “scope creep,” this usuallyoccurs when businesses choose to add features and capabilities to their ERP systems thatwere not included in their original scope. Another factor that can drive up costs isstaffing issues. Employees need to balance their ERP responsibilities with their everydayworkloads during the implementation process, so the amount of time they dedicate to theproject 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 requirebuy-in from the top down to be completed successfully and for employees to embrace new waysof working. With backing from an executive sponsor, project leaders will feel empowered tomanage the ERP implementation project effectively, setting realistic expectations andtimelines for implementation teams.
Poor Employee Training
An ERP installation does not end with the system’s go-live date. In fact, this is only thebeginning for the employees who will actually use the new ERP software each day. Theirability to use and draw value from the solution will ultimately determine the success of theERP implementation. To that end, they must be provided with continuous technical support andtraining during the go-live implementation phase,which is where the success of an ERP project isoften determined.
Poor Pre-Rollout Testing
ERP failures can manifest in different ways and at different stages of an implementation, butthey frequently occur after the new system goes live. Common issues include incomplete orpoor-quality ERP data, a lack of adequate training for employees and the inability to takeadvantage of key ERP functions. By testing, refining and optimizing their ERP processesbefore permanently switching over to their new ERP system, businesses can catch and addressthese issues before they become problematic.
No Change Management Procedures
An ERP implementation is more than just a software upgrade. It is a complete transformationof business processes that promises to help users across every department take fulladvantage of the efficiencies delivered by their new ERP solution. Change on this scaleoften encounters resistance from employees, especially if they feel blindsided by a mandateto adopt new ways of working overnight. That’s why it is essential to get buy-in frombusiness leaders and ERP stakeholders across every department early in the implementationprocess and to communicate the advantages of the new solution to end users at each phase ofthe implementation.
Insufficient Resources
Depending on the size and scope of a business, ERP implementations can take months or yearsto complete. Knowing that core implementation teams will need to dedicate at least half oftheir time to the project and that staff might come and go during the implementationprocess, businesses must plan and ensure that they have enough resources to bring their ERPvision to life on time without affecting their other business objectives, such as meetingseasonal sales targets. Businesses should also factor training times into their resourceplanning, as different employees and teams will come on board at different stages of the ERPimplementation.
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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 manyproject leaders can lead to confusion as to who is responsible for different elements of theimplementation, which leads to further inefficiencies, duplicated work and costly delays. Inthe worst case, a lack of accountability can result in crucial ERP functionality beingforgotten during the implementation, which is a leading cause of failed implementations. Toavoid this, businesses can establish a clear project owner to oversee their ERPimplementation from start to finish. In turn, the project owner can delegate tasks toreliable project managers and maintain a steady dialogue with these managers to ensure thatall 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 anERP project can save businesses a great deal of pain later in their implementation. One wayto develop this list is by conducting a thorough business analysis before establishing anERP project’s scope. This analysis should involve stakeholders from every department thatwill use the new ERP system to ensure that their needs are factored into the requirementslist. For the best outcomes, it is also helpful to be specific when establishing systemrequirements. For instance, a warehouse manager will benefit more by saying they need an ERPsystem that can automate inventory management than by simply saying they want an ERP systemthat 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 toa successful implementation. From data cleansing, to realistic budgeting, to effectiveleadership and training strategies, here are some of the most effective measurescompanies can take to maximize the success oftheir 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 ERPenvironment is a major project that requires strict data hygiene. It is not enough to simplyshift old data to the new ERP system. Businesses must validate that data for accuracy, plugany gaps, eliminate duplicates and make sure that all information is up to date. Forinstance, there is no point in migrating obsolete information about suppliers with which thecompany no longer works. While a data-crunching exercise on this scale can betime-consuming, it alsomakes a business’s ERP operations more accurate, efficient and less prone to error in thelong-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 departmentspotentially involved, businesses must take the time to properly set up and test the newsystem to deliver on its full potential. For instance, accounting teams will want to ensurethat automated reporting processes are accurate and draw on all the right data sourcesbefore going live. Warehouse managers, for their part, will want to make sure the new ERPsystem 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 arenot only setting themselves up to miss project timelines, but also to incur the additionalcost 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 tooperate the new ERP system and any customizations required to tailor the solution to theirneeds. It is also prudent to add a buffer of 20% to 25% for contingency costs to cover anyunexpected delays and changes in scope throughout the ERP implementation, as well as anyassociated 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 atcompanies that leave it entirely to their IT department to choose which ERP solution thebusiness will adopt. The problem is that IT teams will not be the ones actually using theERP 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 ineveryone’s priorities when choosing a system to ensure that the implementation is executedwith 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 thesolution is live but before the implementation even begins. Effective training gives teamsmore time to prepare and adapt to their new reality. It also makes them feel like they arepart of the business’s transformation journey from day one, rather than having a new set ofdemands placed on them seemingly overnight. Once the ERP system is live, it is equallyimportant to support employees with continuous guidance,support and training so that they can exploreevery capability in their ERP environment and discover new opportunities to work moreproductively.
Test Everything Before ERP Cutover
It is impossible to overstress the value of testing and retesting an ERP system to mitigatethe many risks that can creep up before, during and after it goes live. Testing a new ERPsolution involves numerous stages, starting with point testing of individual businessprocesses, followed by testing at high workload volumes to identify and resolve any capacityissues. Finally, businesses should run a mock go-live, similar to the beta launch of a newtechnology platform, to see how the new ERP system performs under the full spectrum ofdemands 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 onebefore, can feel like a dramatic change for employees. To preempt their resistance tochange, companies should be as transparent as possible about the reasons for implementing anew ERP system and how the technology will help employees perform their jobs each day. Thisprocess should begin long before the implementation begins and continue after the new ERPsolution 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, companiesneed to put together the best possible ERPimplementation team. They also need to ensure that every team member has thecapacity to meet the obligations of their ERP-related work while also handling the dailyresponsibilities of their core business functions. For instance, an accountant should not beso overloaded with ERP implementation tasks that they cannot meet their business’s quarterlyreporting deadlines.
Name a Project Lead
Choosing a point person to lead an ERP implementation project will ensure that timelines aremet 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 bestERP 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 fragrancebrand , whose ERPimplementation project was initiated byits co-founders. Thanks, in part, to their engagement, the company saw a 50% boost in salesfollowing 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 asuccessful implementation and a failure. Without a benchmark of where the business standstoday and what it hopes to achieve with its ERP system, it is difficult to complete animplementation that meets all requirements and stays on time and on budget. Once the list ofsystem requirements is complete and factors in the needs of all ERP stakeholders, a businesscan 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 theirlimits. Moreover, few have the bandwidth or expertise to train employees in how to use a newERP system before, during and after implementation. This leaves end users to look elsewhereif 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 supporttheir employees with 24/7 guidance and learning resources. These experts often work for thebusiness’s chosen ERP vendor, which means they have unparalleled knowledge of the ERPsoftware that has just been implemented. Access to always-on support also empowers end usersacross every department to take control of their ERP training and learn at their own pace.
NetSuite Learning CloudSupport (LCS) ticks all these boxes,providing businesses with subscription-based training that helps their employees to fullybenefit from their new NetSuiteERP system. From on-demand online courses, to interactive webinars, to hands-on labsand 24/7 access to NetSuite’s product experts, LCS offers a variety of learning stylesdesigned 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 everyindustry appreciate the value that an ERP system can deliver, such as operationalefficiencies, greater control over business data, improved scalability and growth potentialfor their organization. By planning strategically and mitigating the risks that can manifestat every phase of an ERP implementation, businesses can avoid the pitfalls that lead tofailures and deliver on the promise of their investment for teams and stakeholdersthroughout their organization.
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ERP Failure FAQs
What is ERP failure?
Enterprise resource planning (ERP) failure occurs when an ERP system implementation getsderailed, falls short of expectations or fails altogether. The root cause can generally beattributed to poor planning, a lack of awareness of ERP implementation risks or a company’sunwillingness 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 effectiveplanning. That includes creating a clear list of ERP system requirements that meet the needsof every team and end user that will ultimately use the new software, as well propertraining for these employees so that they can hit the ground running once the new ERP systemgoes live.
How long does ERP implementation take?
Enterprise resource planning (ERP) implementations vary in length depending on the size ofthe business in question and the scope of its business requirements. Smaller startups havebeen known to implement a new ERP system in just a few weeks, while large legacycorporations typically require months or even years to complete a successful ERPimplementation 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 theimplementation project itself. For instance, a medium-sized business that falls two weeksbehind an implementation deadline due to workforce capacity issues will incur smaller coststhan a large corporation that has finished its ERP implementation only to discover dataquality issues throughout its ERP database. The latter can incur costs reaching into thetens 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 processesand 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 theirERP 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 ERPsystem does not anticipate, plan for or preempt the many risks that can arise at the variousstages of an ERP implementation project. These risks range from the technical, such as poordata hygiene, to the managerial, such as not appointing clear project owners to ensure thatERP 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 includepoorly defined system requirements, a lack of data hygiene, unrealistic project timelines,fluctuating budgets, a lack of executive buy-in, poor employee training and incomplete ERPtesting before the system is officially launched.
