Failed ERP implementation – what are the signs and how to prevent it?

“What a beautiful catastrophe” are the words from Nikos Kazantzakis’ novel “Zorba the Greek,” spoken by the protagonist at the sight of a structure collapsing after months of great effort. This phrase likely crosses the minds of those who think about implementing an ERP system with trepidation. Despite proven and well-known methodologies for implementing such systems, the risk of failure always exists, and the consequences of such a failure can be dire[i] [ii]. Regardless of the scale of the project, consistency and perseverance during the preparation phase, as well as precision and detail during execution, can help minimize anxiety about the final result. It is therefore worth considering several important issues right from the start[iii].    

What should a good ERP implementation look like?

Let’s assume that after several months of comparing available solutions, the one and best ERP system has been chosen. At the moment of starting its implementation, there are literally a few stages to complete:

1. Installation of databases, the ERP system, and auxiliary tools.
2. Transfer of historical financial and transactional data.
3. Process mapping
4. User training
5. Launching the ERP system on the live and functioning tissue of the organization.

Each of these seemingly trivial tasks carries many real risks to the success of the entire venture. Even answering such a fundamental question as what it means for an ERP system implementation to be a success can be difficult. A proper ERP system implementation should begin with building an implementation team, appointing a project manager, and establishing detailed rules for communication and information exchange with the vendor’s team. Many practitioners who have been involved in implementations for years point to this often underestimated factor, which can lead to a failed ERP system implementation. During the planning phase, documents are created that map business processes, show how they are implemented in the ERP system, and define implementation goals in a measurable way[iv]. This is especially important when replacing an old system with a new one, where business expectations usually exert strong pressure on the entire implementation team. No less important is the project plan and schedule, which assigns specific tasks to the appropriate teams and resources. Once implementation work begins, documenting changes and any deviations from the assumptions requires special care. Gap analysis facilitates subsequent programming work and allows for proper change management. This avoids disappointment if expectations diverge from the actual capabilities of the ERP system. Another very important factor for the success of an ERP implementation is testing. A variety of test scenarios, reliability in conducting them, and detailed User Acceptance Tests are the foundation of a proper implementation.

What problems can occur during ERP implementation?

A failed ERP implementation is most often a combination of several factors that seem insignificant at first glance. The most important of these include:

1. Lack of management support – with such a major change for an organization as launching an ERP, giving the head of the implementation team appropriate authority protects against decision-making inertia and sabotage by some employees.
2. Lack of employee involvement in the ERP system implementation process – the implementation team should consist of the best employees who know the organization and business processes inside out, understand its general needs, and are capable of making difficult and unpopular decisions.
3. Lack of a clearly and precisely defined project scope – without this, it is impossible to create an ERP system implementation plan and schedule, which is a direct path to a beautiful financial and organizational catastrophe. The full scope of the project must be documented, described, recorded, and any deviations from the plan must be analyzed and, if possible, eliminated.
4. Lack of a concept for business process optimization – an ERP system must bring a breath of fresh air to the business and provide additional momentum for company growth. The fuel for this is process optimization, which translates directly into satisfaction with the ERP system launch.
5. Underestimating change management rules – nobody likes change. An ERP system affects the company’s operations as a whole, and practically every employee feels it. Therefore, numerous trainings, coaching sessions, and explaining the essence of the changes build a sense of security. Ultimately, the entire staff can either support the implementation team or make their lives difficult if they only see obstacles in their daily work.
6. Lack of appropriate project management tools – with such a multi-threaded task, it is impossible to efficiently communicate between teams and exchange necessary information. The result is the duplication or omission of certain tasks, unnecessary costs, and frustration, which are symptoms of a failed ERP implementation.
7. Incorrect choice of an implementation partner – a lack of experience or lack of industry knowledge on the part of the vendor of even the best ERP system threatens the failure of the entire project. Each stage of implementation requires specialized knowledge and enormous commitment from both sides. Without this, it is easy to make mistakes, leave gaps, or have inaccuracies as early as the planning stage, which will certainly take its toll during the implementation work.

Generally, the biggest problems are caused by this multi-faceted and multi-threaded nature of the implementation and the need to involve relatively large teams. The more people involved, the greater the risk of misunderstanding. On the other hand, an insufficient number of team members guarantees inefficient work, overload, stress, frustration, and ultimately, project failure. Balancing these factors requires the experience that the implementing company should possess.

Is it possible to prevent a bad ERP implementation?

It is certainly possible to prevent a bad ERP system implementation, especially since these solutions have been implemented for over thirty years. Numerous case studies, best practices, hard-earned effective implementation methodologies, and efficient project management tools create an extensive knowledge base and provide solid grounds for avoiding pitfalls at every stage of implementation work. A preventive measure is also proper internal communication, explaining the goals of the implementation, and appropriate selection of people for the implementation team. Natural leaders can be very helpful or very harmful if they are not convinced of the project’s value. Every employee has the right to see what will change at their workstation and whether they will have enough training to feel confident. This is not something to save money on. It is also important to show why the ERP system is necessary for the company’s further development, whether it relates to work quality or individual employee income. Underestimating resistance to change has already harmed many projects. Other actions to prevent a “beautiful catastrophe” simply require planning and attention to detail in areas already long described in ERP implementation best practices. Technical knowledge, information flow, and the experience of the implementation team are perhaps the right vaccine against potential project failure. There is one condition – everything, every action, agreement, or discrepancy must be documented and made available to the appropriate people on the implementation teams. Sweeping problems under the rug with the hope that they will resolve themselves or lose significance over time is a recipe for the aforementioned “beautiful catastrophe”.

How to prepare an enterprise for ERP implementation?

Preparation for an ERP system implementation begins the moment business expectations are formulated. Separating an implementation team, with the full support of the board, sooner or later leads to the selection of a system, a vendor, and the creation of a work schedule. At every stage of implementation, i.e.:

1. planning,
2. process analysis and modeling,
3. preparation and mapping of historical data,
4. data migration and creation of a functional prototype of the complete solution,
5. testing, validation, and training,
6. system launch – Go Live!

the company must be prepared to allocate appropriate resources, both human and financial. Every ERP implementer must be aware of their tasks, the time and deadline for their completion, and the scope of necessary cooperation with other team members. All of this requires persistent efforts aimed at communicating changes. Preparation for implementation also includes an extensive business planning stage – what will change in the organization’s operations, what benefits it will bring, in what time frame, will new product introduction times be shortened, will customer service quality improve, etc. Defining the criteria for achieving set goals is often more difficult because it is closely related to the specific industry and organization. Here, only the experience of a business partner – the ERP system vendor – can help.

Why is ERP system customization[v] important?

Beyond simple ERP system configuration, which usually involves defining language, currency, time zones, page layouts, standard options, email clients, database fields, or even data access security rules, the implementation team must perform customization. This involves modifying and parameterizing the ERP system so that it meets business requirements. Most often, as part of customization, existing functions are changed, improved, and optimized; new options that were not in the system but are necessary from the point of view of the organization’s operations are added; or the way selected processes are handled is added or deeply changed. In practice, this is the most important part of the entire ERP system implementation process because it determines the ability to use the available functionality and translate it into business results. Without proper ERP customization, it is impossible to radically improve the company’s operational efficiency. Yes, there are situations where it is better to rely on built-in functionality, as it was created based on years of experience, but these are rather exceptions found in smaller organizations or industries perfectly understood by ERP system manufacturers and vendors. Sometimes, using ERP systems based on open source code is enough for a company to get a second wind and new momentum, but such decisions are very individual and require caution. [i] https://www.cio.com/article/278677/enterprise-resource-planning-10-famous-erp-disasters-dustups-and-disappointments.html [ii] https://blog.360cloudsolutions.com/resources/top-six-erp-implementation-failures [iii] https://www.erpfocus.com/erp-implementation-plan.html [iv] https://www.youtube.com/watch?v=LSVsZg2XNkE [v] https://psierp.com/understanding-the-difference-between-erp-customization-and-erp-configuration/