What do Hershey’s, Haribo, Nike, Revlon, MillerCoors, and Lidl have in common?
They’ve all suffered major financial losses while implementing a new ERP system.
Don’t let your business become another case study: Learn the common causes behind ERP failure, and what you can do to avoid them.
How common is ERP failure, and why does it occur?
Business software is designed to make your work life easier. But that’s not always the reality.
In 1996, Hershey’s lost $100m worth of sales due to a botched ERP implementation.
Add that to the $112m they spent on the implementation process itself and it’s no surprise SMEs are fearful of ERP software.
And it’s not just the big corps that are failing. A Mint Jutras survey from 2019 found that 38% of businesses fail to go live on schedule with their new ERP software, and 58% go over budget during implementation.
In the same survey, respondents said it took them, on average, two and a half years to see a 100% return on their ERP investment.
This begs the question: Why do so many ERP implementations fail?
5 common causes of ERP failure (and how to avoid them)
ERP implementation failure usually comes down to human error and the complex nature of implementing multifaceted software in a cost-efficient, timely manner.
Most ERP failures can be attributed to one or more of these factors:
- Poor planning
- Lack of focus on business processes
- Resistance to change from staff
- Little or no involvement from leadership
- Insufficient testing before deployment
Let’s explore how you can avoid these common catalysts of ERP failure.
1. Lack of appropriate planning
Poor planning is the root of most ERP implementation failures. It leads to missed go-live dates, extended timelines, worn-out staff, and ballooning costs.
The solution: Set appropriate expectations from the get-go.
Your team needs to know exactly how much time, money, and effort implementation will require. To ensure the success of your ERP roll-out, get a plan in place that forecasts these factors.
ERP implementation planning should include:
- Assigning a project owner to oversee the entire implementation.
- Setting a realistic scope.
- Setting goals for the project’s budget and timeline.
- Researching various ERP software options and choosing the best one for your business.
- Putting the right people on the project team, with the sufficient hours required to get everything done.
We recently identified that as much as 40¬–60% of the budget will likely go towards HR, that businesses typically need to add an extra 10% contingency, and the whole timeline could take six months to two years.
Talk to different vendors and ERP consultants to work out a reasonable budget and timeline based on your unique scope.
Learn more: What does ERP cost? An SME’s guide
2. Insufficient focus on business processes
If you try to insert new technology into old processes, you can hamstring adoption rates. Old processes encourage old ways of working, and ERP software is meant to fundamentally alter how your business operates.
The solution: Create and communicate an implementation strategy that outlines the processes individual employees must follow to execute their specific roles in the project.
A high-functioning enterprise needs reliable processes. Businesses that fail to embed their new tools into revised processes often find resistance to change much more severe, increasing the risk of missed go-live dates.
Follow these steps when planning your ERP implementation strategy and processes:
- Clearly define what success looks like. This is your ‘scope of delivery’, and it will tell you when you’re ‘finished’. Knowing how close you are to success will keep the whole team on track and allow for mid-project forecasting to validate your progress.
- Create processes based on the new way of thinking. Alongside implementation processes, you’ll need to build processes for adopting and using the new ERP system. These should be based on the major changes brought about by using ERP software.
- Set a realistic budget with room for emergencies. Consider all of the necessary costs involved in the implementation, including training, wages, loss of revenue, and any other overheads you can identify. Given how common ERP failures can be, it’s important to set aside part of your budget for mitigating emergencies should one arise.
- Ensure the project and processes have accountability. Designate a project management team to take responsibility for communicating and executing your strategy, and ensuring enough hours are allocated to get the job completed on schedule.
- Keep everyone excited about the change. Maintaining high levels of enthusiasm towards the implementation will help your processes to be carried out smoothly and inspire employees to contribute their ideas for improvements to the project.
Be sure to revisit your implementation strategy frequently to ensure you’re staying on track. Be prepared to make changes to your processes if bottlenecks start popping up.
3. Internal resistance to change
Expect resistance anytime you introduce a new way for employees to do their jobs. This is a natural reaction to change across all industries and workplaces.
Reluctance or refusal to assist in the implementation of an ERP system can spread like wildfire among employees. Therefore, it needs to be stubbed out before it starts.
The solution: Create a change management strategy in advance and develop ‘change champions’ at all levels of your business.
Change management will help your employees overcome their misgivings and become advocates for the new way of working. Through good change management, you can build a forward-looking company culture with high adoption rates.
Best practice change management includes:
- Frequent, transparent communication regarding the status of all business-wide changes.
- Clear outlining of the benefits of new changes to the business and individual employees.
- The creation of ‘change champions’ to promote changes, train users, and serve as a go-to contact for problems.
- Re-engineered processes to discourage users from going back to old ways.
- Strong leaders leading by example.
Change champions are a vital component of change management. They should be respected people from all levels of the business who are considered competent in their field.
Carrying out the change management best practices is the duty of a change champion. They should function as the go-to contact person for employees with questions regarding the ERP implementation and help plan how their department will tackle its unique role in the process.
When you inevitably need feedback on the system to further optimise, you can go back to your change champions to help you gather survey results and honest opinions.
Learn more: Implement change management with new software
4. No buy-in from leadership
When leaders don’t play their part, mistakes are often overlooked, and deadlines get missed.
This will fundamentally change how the business operates, integrate systems across business units, supercharge decision-making, and allow key stakeholders to optimise their processes based on real data. The C-suite are crucial to ensuring the entire company understands these benefits.
The solution: Involve the leadership team as early as possible and ensure they understand the full scope of the project.
Your leadership team must understand:
- The business benefits of the project and how it might improve productivity or cut costs.
- The time, money, and people required to carry out the implementation process.
- The short-term impact ERP implementation will have on productivity.
- The key risks that could lead to failure.
Your leaders’ involvement is paramount to ensuring that every staff member understands what’s happening with the implementation, why it’s happening, and what their role will be in executing the project.
Their endorsement will also inspire confidence in the new system across the company.
5. Not enough testing
Insufficient testing post-implementation, or a lack thereof, can lead to devastating scenarios once your ERP system is officially operational.
It’s what caused the Hershey’s ERP failure we mentioned earlier and was cited as the number one reason for ERP implementation failures according to respondents of the MintJutras survey.
The solution: Add a testing stage for each of the functions your new ERP system will be performing, and only deploy the software for that purpose once it has satisfactorily passed all tests.
Testing is crucial to reducing the risk of a major ERP failure. You need to be completely aware of any potential bottlenecks before they have a chance to negatively impact your business.
This means coming up with a testing strategy that outlines each of the functions of your new ERP software, how they will be tested, what a successful test looks like for each function, and a contingency plan for amending failed tests.
The five solutions above will help you avoid an ERP failure once you’ve decided to go ahead with ERP software. However, it’s possible (and prudent) to avoid an ERP failure right from the start by first checking whether an ERP alternative may be a better fit for your business.
Prevent ERP failure by opting for an ERP alternative instead
Choosing the wrong software could set you up for failure or limit your level of success.
This leads us to an often-overlooked reason ERP systems fail: ERP was not the right software strategy in the first place.
ERP software tends to suit larger or more complex organisations that can afford a heavy investment in a large piece of software to bring all their disparate systems together.
But if you operate a smaller or simpler enterprise, you might find ERP too large or complicated for your needs. You could potentially get the same benefits by opting for smaller, specialised software packages that are better suited to your unique industry. This is known as a ‘best-of-breed’ solution.
A best-of-breed software stack allows you to choose the best software products for each area of your business at a price tag that meets the demands of your budget.
A best-of-breed ERP alternative solution might look like this:
- Prospect for managing customer data
- Shopify for running your online store
- Unleashed for managing inventory
- Xero for all your accounting purposes
To determine if a best-of-breed solution is best for you, check out our Best-of-breed vs. single-vendor software guide.