Rolling out new ERP software is a big project. It can cost a considerable amount of money, take a considerable amount of time, and demand considerable people power.
Of course, the flip side is that it seriously advances productivity, bringing real bottom line benefits to a business.
So, as you set out on your own ERP implementation journey, what are the risks and challenges you should be aware of – and try and mitigate?
In this guide to ERP implementation risks:
The eight most common ERP implementation risks
1. Lack of buy-in
ERP will fundamentally change how your business works – that is, of course, the point. But, to effect such serious change you need everyone to be on board, and that’s one of the big challenges of an ERP implementation.
Your leadership team must get behind the deployment. Employees tend to follow the examples set by their leaders (including C-suite right down to individual team leaders), and if those leaders don’t appear to be enthusiastic about the new system, why would anyone else?
2. Change management & adoption
The second part of the buy-in equation is getting buy-in from the broader team – also known as increasing adoption rates.
Change management is a complex process involving human psychology as much as it does technology or business processes. People tend to be inherently resistant to change, especially if it’s going to up-end how they work. As staff learn the new system, it will temporarily make them less productive which could increase that resistance – they may view their jobs as having been impeded by ‘meddling’ or ‘unnecessary change’.
So, not only will you need to gain leadership support, but you must create in-team ERP champions who can act as trainers, supporters, and contact people for any problems.
3. Data integration & quality
As a part of the ERP implementation process, you’ll migrate all of your old data into the new centralised system. It sounds easy, but it’s a tricky process.
For starters, you’ll have to find all of that old data. If your company has thus far been using disparate, ad-hoc systems, it could be in a lot of different places. Additionally, some of those old systems may not like you exporting their data, making it hard to get it out of the old and into the new.
Then there’s the issue of data quality. Data can’t be used all that effectively unless it’s cleaned and homogenised. You’ll likely find a lot of duplicate data that needs to be deleted, data stored in different formats that don’t all talk to each other, inconsistent names and spellings for things, and plenty of obsolete data that you just don’t need anymore.
Cleaning all of this up requires time, people power and money, not to mention someone with the skills and experience to do the work.
- Learn more: The Data Cleansing Process: Cleaning Up Bad Data
4. Project planning
Deploying ERP isn’t like buying a bit of software, installing it on some PCs and calling it a day. It’s a very big, very serious project, with a lot of potential for underestimation and scope creep (see below).
Many businesses, both SMEs and larger enterprises alike, fall into the trap of underestimating how much time and money their switch to ERP is going to take. Or perhaps they have a good understanding of timeline and budget, but don’t realise how much of their people power it’ll hog during the early phases, or how much it’ll impact productivity in the short term.
It’s utterly imperative that before you start rolling any new ERP initiative out the door, you first take time to create a realistic project plan, and assign an accountable person to operate it.
5. Project management
We want to touch a little more on project ownership – an ERP implementation absolutely requires a dedicated project manager, possibly more than one, depending on the scope. Implementations have several phases to go through, and at each phase there will be moving parts. Juggling these will be complex without someone dedicated to the job.
For your benefit, the common ERP implementation phases are:
- Implementation design
- Data migration & testing
- Support and training
6. Scope creep
Scope creep is where your business continues to add new features, modules or system capabilities to the project that weren’t a part of the original brief.
Now, scope creep is not inherently bad; there may genuinely be modules you require that you didn’t know about at first, but find as a part of the discovery or testing phases. However, when that scope creep starts to shift your feature set from ‘need’ into ‘want’, it can bloat the cost of the project.
This is another area where it helps to have a set, thorough deployment plan. That way you’ve defined what you need, and maybe added a few extras that you want, and you can stick to the path (while holding yourself and your vendor partner to the budget).
7. Unstable or broken final system
Due to the highly customised nature of a lot of ERP systems, the end product can turn out … less than functional. Even if the system works properly initially, customisations can lead to problems down the track.
Updates are the most common example – imagine trying to update the software but there are sixty different versions all running at once because most are custom jobs. Updating the base ERP could break all the modifications.
If you have a problem with the ERP you’re trying to deploy, attempt to fix it through configuration before customisation. And, if you must make customisations, ask your vendor (or ERP partner/expert) for their advice on what may or may not break later on.
8. Insufficient training
As we mentioned when talking about buy-in and change management, people can sometimes be one of the biggest roadblocks to a successful ERP deployment.
While change management is an important barrier to overcome, you must also remember that people need training in order to actually use a system to its maximum potential. Even if it seems intuitive to use, people have such wildly different technological abilities that what seems simple to one person may be challenging for another.
Perhaps your individual staff members won’t notice their own lack of expertise, but your budget will over time. Advances in staff productivity are one of the keys to breaking even on an ERP project and gaining the full benefits of the investment. If your people are hamstrung by an inability to truly utilise the system that you’ve spent thousands of dollars building, you may never fully realise its potential.
Eight more ERP implementation challenges (that vendors WON’T tell you)
9. The sunk-cost fallacy (aka ‘good money after bad’)
The sunk-cost fallacy is a psychological quirk. It’s where we continue to do something because we’ve already started doing it, regardless of whether continuing the project outweighs the benefits or not.
Sinking money into something, especially if it’s big money, increases the chances that we will keep pushing through hoping things will “turn out alright in the end”. In tech, this makes us more likely to keep adding to or customising an ill-fitting product rather than scrapping it outright and starting again.
Some signs that you may need to pause and reconsider if you’re being sucked into the sunk-cost fallacy with regards to your ERP implementation are:
- The timeline keeps getting extended with no end in sight
- You over-budget with a lot of implementation left to go
- The maintenance requirements of the system keep increasing
- Productivity is being continuously hindered
- You haven’t achieved a positive ROI
Consider if you need to reassess the cost of the project, and compare it with an entirely new ERP system (or more cost-friendly alternative to ERP).
10. Product sunsetting
Software products often aren’t maintained indefinitely by their vendor. This is most notable in version-based ERP software, as opposed to the more fluid SaaS licensing model where there is really only one product and it’s updated regularly.
- Confused about the difference? Think about the difference between Microsoft Word 2007 and Google Docs. When they were both released, one was a ‘version’ which was made obsolete by future versions, and one was a browser-based SaaS product that still has only one version, updated regularly.
If you own a ‘version’ of an ERP platform, it’s almost a guarantee that someday it will be sunsetted and you’ll cease to gain access to modern features or important security updates.
When investing in ERP, you must check the vendor’s product development plan. Will the software receive continuous updates for the duration of your contract? What is the development strategy? What happens if your version goes out of date – will you be forced to buy a whole new licence, or will they upgrade you at a discounted rate?
11. Maintenance bloat
We’ve touched on this a few times already, but it’s important to call it out specifically. Maintenance bloat is a hidden cost that might hit you unexpectedly, depending on the scale of your ERP deployment. Vendors may be eager to help you customise your product while forgetting to mention that each of these customisations comes with a risk.
Basically, the more complex or involved the ERP ecosystem, the harder it will be to maintain. Some examples of this include:
- Lack of agility: If your business goes through a major change, it could render parts of the ERP solution no longer fit-for-purpose. It’s hard to be agile if you’ve got a complex, highly nuanced system. Updating may not be as simple as just ‘turning off’ the modules you no longer need, or tacking on new ones.
- Lack of stability: We mentioned this earlier, of course, but it’s relevant here too. The more complex the system, the more you risk creating an unstable software ecosystem. Trying to update it could break it.
- Lack of vendor support: With too many customisations, the vendor could struggle to help you. Many ERP users in the past have found that they can no longer receive adequate vendor support for their product because it’s too heavily customised – the vendor’s IT people, quite simply, no longer know how it works, or how to fix the bugs.
- Extra cost to vendor support: Creating a more complex ERP system could mean the vendor charges you more for support, because it requires extra time on their part to assist.
- Harder to train staff: Basic or standard ERP may lack some of the specific features your business needs, but it’s probably easier to train people on. The vendor will have resources available to assist, and it won’t be too tricky to pick up. Add complexity to that system and it makes it harder to teach, therefore more costly.
12. Cyber security exposure
‘Vendor risk’ is a growing problem in cyber security. As companies become more integrated with each other through the digital supply chain, it makes it easier for criminals to sneak into partner networks.
Why? Well, these days all a cyber attacker needs to do is break into your ERP vendor’s network, at which point they can try to gain access to yours as well. If the vendor’s security is not up to scratch, and yours is too trusting of its software partners, then the attacker could send your network malicious files disguised as innocent software patches. You would download them unwittingly.
As a part of your ERP planning stage, before you ever sign the contract, you should check the contract with help from a cyber security expert and, in addition, probe the vendor with questions about their security practices.
It doesn’t matter how good the software is. If it’s a cyber security risk, it’s a business risk.
13. Incorrect product tier or version
ERP software – and all SaaS software, really – is often tiered. Lower tiers get fewer features, less support and/or reduced user licences in return for a lower price. The opposite is true for higher tiers, who may also receive additional benefits such a custom roll-outs, dedicated customer service representatives, tailored training, and so on.
It’s important that you do your own research into what you get from each tier independently of the vendor’s recommendations. A software vendor may encourage you to upgrade as a part of their sales upselling programme, or more innocently, may simply misunderstand your unique needs. It happens!
However, if you get the wrong tier, you may cause yourself a variety of problems, such as:
- No product support: Some lower tiers don’t come with live customer support or training.
- Wasted budget: If you have access to features that you never use, the budget is being wasted.
- Not enough or too many users: Too low a tier and you may not be able to get enough user licences to fit your needs, or perhaps you have purchased too many and are wasting money as a result.
- Lack of prioritisation: If you purchase too low a tier, you may not get the attention your company requires. Your tech support tickets, training calls, integrations … all of it may be considered a lesser priority compared to a higher-paying customer.
The same goes for product versions. Get the wrong version and you may see some of the same issues, or issues of sunsetting as described earlier.
Another problem that can come with purchasing the wrong software version is a lack of scalability or flexibility; a lower-priced version may come with restrictions that hinder your ability to be agile. You’ll need to know what those restrictions are before signing the dotted line.
14. Process re-engineering costs
This can be a big hidden cost of ERP implementation, which a vendor may not tell you about as it’s not quite their wheelhouse, as it were.
Basically, whenever a business purchases new software that fundamentally changes the way it works (like ERP will), it must undergo process re-engineering in order to ensure its workflows encourage the use of the new software. New software tacked onto old processes can lead to problems with change management and a lack of ERP usage. If people are encouraged to do what they’ve always done, then they’ll do what they’ve always done!
But process re-engineering costs yet more time and money. Of course, it’s time and money that’s generally well spent, but time and money nonetheless. It must be factored into not only your budget but also your implementation plan, so it doesn’t come as a shock (and so you put aside the resources and expertise required to succeed here).
15. Lack of data skills on the market
ERP is inherently a data-based technology. Its use of big data, automation, AI and centralisation has enormous power, but it takes a certain level of ability to get the most out of it.
While simpler ERP dashboards do exist, you’ll likely find that, in order to gain the greatest benefits from this data-based way of working, you will need a degree of data science expertise at your company. Whether this is a dedicated person or an add-on to an adjacent role will be up to you.
However, data-based skills are in hot demand and sometimes the supply of talent just isn’t there. To put it in numbers, 19% companies just starting out in areas like AI and data science noted that they had a major or extreme skills gap in this area, and 42% said they had a moderate skills gap (Deloitte)
In order to secure the skills your company needs you may have to:
- Identify what skills you’ll need during the implementation discovery phase, identify if you have a skills gap, and start your search early.
- Look to up-skill existing staff so you don’t need to fight for new talent.
- Discuss whether a consultant or contractor may fill your data needs in the short term, giving you more time to look.
16. ERP consultant technology agnosticism (or lack thereof)
During your ERP implementation journey, you may choose to start with a consultant and then look for software based on their recommendations (rather than starting with software and finding a consultant to help the roll-out). There’s nothing wrong with this way of doing things, but you should check their technology agnosticism first before agreeing to a relationship.
Some consultants prefer certain software brands over others because they get a commission whenever they sell that solution. This means their recommendations will not strictly be objective, or tailored to your needs, as their advice is specific to their preferred vendor.
Of course, if you like the look of that vendor then this isn’t a problem. Additionally, their lack of agnosticism could mean they’re a greater expert in that particular vendor’s software. But, if you want a tailored solution with objective advice on which ERP is best for you, this may not be the right course of action.
Before agreeing to a partnership, take a moment to ask about their commissions so you gain a truer understanding of what the relationship would look like.