By Adam Drewes, KOPIS, GM of ERP Division
Note: Kopis is a Gold Infinity Partner of the South Carolina Association of CPAs
The high level of complexity required for Enterprise Resource Planning (ERP) has resulted in some dramatic case studies in the media in recent years. Let’s look at the factors and suggest ways to avoid (or anticipate) the pitfalls.
Four ERP Pitfalls You Can Avoid:
- Not Auditing Existing Processes and Procedures
Many ERP implementations fail because the business didn’t fully understand or properly document day-to-day business procedures.
For example, Woolworth Australia had a crisis arise during its implementation when weekly profit-and-loss reports weren’t generated for 18 months. Certain procedures weren’t documented and senior staff left the organization over the prolonged course of the rollout, causing the business to lose years of critical institutional knowledge.
Moral of the story? Audit your existing procedures before beginning an ERP implementation, and don’t allow for single points of failure within your organization. Make sure that your processes are documented and that numerous individuals at multiple levels of the organization share critical knowledge that enable the business to function.
- Not Dedicating Sufficient Resources to the Project
The Woolworth Australia example is one such instance of this problem. Another is Target Canada, whose supply chain collapsed when their SAP system was launched. The reason was because entry-level employees had input the inventory data into the system; their inexperience, coupled with tight deadlines, led to a proliferation of data errors. It was so bad that 70% of the data they entered was incorrect.
Waste Management faced different problems brought about by the same key mistake. They filed a lawsuit against SAP over their failed ERP implementation, claiming that the consultant had misled their team by showing a fake demo of their software. SAP countered by claiming that Waste Management didn’t “timely and accurately define its business requirements” and had failed to provide “sufficient, knowledgeable, decision-empowered users and managers” to work on the project, causing it to be drawn out and ultimately fail.
Moral of the story? Don’t underestimate the demands of an ERP implementation. If you plan on going through the process, you must set aside experienced resources that can make decisions and move the project forward.
- Not Properly Training or Managing the Transition
For any ERP implementation to work, those highly proficient employees we mentioned earlier must be trained, and that training must be thorough, methodical and conducted over an extensive period. In addition, both the organization implementing the ERP and the consultant must take steps to ensure that the updated system is thoroughly tested and will be accepted by existing users, as pushback is common and should be expected.
Although it’s been 20 years, Hershey’s ERP failure in 1999 is a great example of this mistake. A big reason for the flop was an unrealistic timeline. The project was originally slated to take 48 months, but Hershey insisted it be completed within 30. They also scheduled the rollout to occur during their busiest season, in July 1999. With critical parts of the system untested and Hershey employees not fully trained, the company was unable to process large numbers of Halloween orders, causing a loss of about $150 million in sales. Don’t rush the process.
A valuable partner will tell you if your deadline is unrealistic, even when that’s the last thing you want to hear. They’ll also help ease the pain of the transition by setting realistic expectations and providing quality training.
- Over-Promising and Under-Delivering
Everyone has experienced it in one form or another: you’re totally sold on a product or service. A killer sales team has painted a vision of what you can achieve with it, so you buy in. However, after signing the dotted line, you never see anything remotely close to that original vision. You’re disappointed with what you get and feel ripped off.
That’s how many people feel after implementing ERP. Sometimes it’s because the sales team has exaggerated the capabilities of the system, or perhaps outright lied (see the Waste Management example). Other times it’s because the project takes too long and organizations become disillusioned, thinking that they’ll never be able to achieve what they originally set out to do.
Most of these issues boil down to poor communication. Sales does a great job of communicating the end goal of ERP but doesn’t paint a realistic picture of what it takes to get there. Managers fail to set expectations for how long the project will take or do a poor job of demonstrating progress. Too many assumptions are made, and not enough clarifying questions are asked.
Two ERP Headaches You Can Alleviate:
- Stressful Experiences
- There’s a lot on the line – failure could doom the business, or at the least cause substantial losses. Jobs, reputations, time and money are all at risk.
- Organizations put a lot of pressure on their employees to get things done right, and a lack of knowledge when it comes to ERP and software results in a lot of anxiety around the unknowns. It’s a leap of faith, and that’s always frightening.
- ERP sales consultants paint a beautiful vision of what ERP can achieve, but it can be a long and hard road to reach the promised land. Organizations can become disillusioned along the way.
- You need to trust that your consultant is being upfront about what the process will look like and the status along the way, and your consultant needs to trust that you’re dedicating sufficient resources to make the project a success.
- Managing the Budget
- Prioritize which features to roll out first, and maintain a backlog for future work and ideas
- Place a strong project manager in charge of the decision-making process
- Create a budget “cushion” around the estimate in case new and urgent needs arise
Does ERP deserve a bad rap? There can be many reasons for bad ERP experiences. And while the challenges an ERP implementation presents are very real, they’re also things you can address by planning ahead.
You can avoid a failed implementation by auditing your current processes, dedicating a sufficient number of experienced resources to the project, and allowing for plenty of time to train and transition.