Post on 11-Jan-2015
description
Why ERP implementations failWhy ERP implementations fail
and the and the 10 Key Steps 10 Key Steps required for required for
implementation implementation SuccessSuccess
Philip Keet, CEO Millennium Consulting Philip Keet, CEO Millennium Consulting
White PaperWhite Paper
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Why ERP implementations fail and the 10 Key Steps required for implementation Success
As an organisation grows, turnover increases, new business lines are established and overseas expansion appears on the
agenda, it is likely that existing business systems may need to evolve to meet new control and reporting demands.
Information logjams may arise, systems may no longer communicate effectively with each other, business processes may
become inadequate, the supply chain may no longer function as efficiently as when there were fewer products and the
relationship between raw materials, the production line, finished goods and customers was simpler. If operating overseas,
then new legal and language needs may need to be addressed.
The Board of Directors may decide that conditions warrant the introduction of an Enterprise Resource Planning (ERP)
system as the business progresses to the next stage. They may recognise that where, currently, a diverse mix of systems is
in operation, rationalisation towards an integrated enterprise-wide solution is required if the organisation is to continue
growing efficiently to achieve greater success. However, introducing ERP is fraught with difficulties and should not be
undertaken lightly. ERP implementations are notorious for failing to deliver the results expected of them. They also have a
tendency to take longer to complete than originally planned and cost significantly more than originally budgeted. Gartner,
the IT market research organisation estimates that between 55-75% of IT projects (including ERP) fail to meet their
objectives. However, in reality, most implementation projects are viewed as a failure, simply because they do not meet the
unrealistic expectations originally set. Unless objectives are realistic, relevant and realisable, a higher risk of perceived
failure will be built in to the implementation process from inception.
What is ERP expected to deliver?
The introduction of ERP should deliver better business management, encourage improved business processes, result in a
reduction in operating costs and lower systems maintenance charges and offer a vehicle for embracing cultural shift
required by an expanding organisation. It is also a statement that the organisation has attained a certain size and
complexity. To succeed, ERP will need to be embraced by every part of the business. Buy-in by the organisation is a key
requirement for success. ERPs are intended to improve performance by upgrading the organisation's ability to generate
timely and accurate information throughout the enterprise and its supply chain. They promise seamless integration of all
information flows - financial and accounting, HR, operations, supply chain and CRM systems. They are expected to
provide a unified view, encompassing all functions and departments by establishing a single enterprise-wide data centre in
which all transactions are entered, recorded, processed, monitored, and reported upon. A successful ERP implementation
can shorten production cycles, increase the accuracy of demand forecasts, improve customer service, reduce operating
costs and may lead to a reduction in overall IT costs by eliminating redundant information and computer systems. ERP
can also improve electronic links with suppliers and customers giving mutual savings over other forms of communication
for orders, billing, etc, as well as improved accuracy and flexibility of data across the extended supply chain. Clearly there
are considerable benefits to be had by using ERP. So why do so many ERP implementation projects end in failure and
what can be done to ensure success? If the following 10 Steps are followed then the ERP implementation has every chance
of achieving its goals and delivering results.
Step 1. Expectations Setting
Above all else, realistic expectations must be set. Implementing ERP is a highly complex process that takes a great deal of
time, costs a significant amount of money and shortcuts cannot be taken if it is to be carried out successfully to achieve the
desired result. A common error is to underestimate the anticipated time and cost required to deploy a new system and the
perception of delay and overspend can potentially cause the ERP to be viewed in an unfavourable light. Projects can take
considerably longer than originally planned, causing costs to escalate and be significantly higher than budgeted. The
expected benefits may not be achieved due to inadequate business analysis and product selection, poor project
management and inefficient delivery. Setting realistic expectations is essential so that the organisation fully recognises the
implications of the path it has embarked upon and the project will not be viewed in a negative light on account of over
ambitious hopes.
Step 2. Board Commitment
Commitment to change at the highest level and throughout every part of the business is essential as the introduction of
ERP marks a significant stage in an organisation’s evolution. Implementing new ERP is a strategic initiative which should
be fully supported at all levels to ensure it is a success. Senior Executives should demonstrate their commitment to change
so that the organisation as a whole is fully united and there is support across all parts of the business. A clear and
unambiguous communication from the Board to all key players that the project is to go ahead is a significant contributor
to project success. Conversely, its absence is a significant contributor to project failure.
Step 3. The Project Sponsor
The role of the Sponsor is vitally important if the implementation project is to be a success. The Board of Directors will
need to appoint a Sponsor who should be a Senior Executive with the power and authority needed to drive effective
change across the organisation. The Sponsor will be a key participant in the change programme and must be fully involved
and visible during the implementation project adding their input and ensuring that the strategic plan is followed. The
Sponsor should be an excellent communicator, able to manage stake-holder expectations and with the necessary authority
to take difficult decisions. Sponsors cannot stand on the sidelines, they must visibly, vocally and actively demonstrate
leadership qualities, commitment to the project and support for project team members. They must quickly intervene to
resolve problems and champion the project.
Step 4. Requirements Definition
The Definition of Business Requirements is important to ensure the organisation’s needs are fully understood before the
solution is chosen. If this process is not carried out properly the organisation may find that the most appropriate ERP has
not been selected. Selecting an inappropriate solution may lead to the need for developing customisations and work-
arounds which will add to cost and lengthen project timescales. More significantly, confidence in the solution will be
compromised. Conducting thorough business analysis will ensure that the new system does not simply replicate old system
processes but takes the opportunity to make significant improvements. The new system will provide an ideal opportunity
to dramatically improve processes, stream line operations and reduce operating costs. As well as the processes and old
systems that the new ERP will replace it is vital that a full assessment of the interfaces that will be required between the
new ERP and retained legacy systems is rigorously analysed and built into the time/cost plan. IT infrastructure must also
be assessed as the new system may have new hardware and platform implications that may lead to additional cost and
longer timescales which will have to be factored in to the overall project plan.
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Step 5. Package Selection
Selecting the most appropriate ERP system is essential for project success. While the Business Requirements Definition
will drive the software functionality to be delivered, the organisation must also consider the financial status of the software
author. Financial stability, reputation and long term product strategy will require investigation because if an ERP vendor is
experiencing financial difficulty then there is the risk they may fail or be taken over and therefore the long term future of
the product will be uncertain and this would present a risk. If the principal customers of an organisation all use a particular
ERP system then they may encourage it’s use to ensure preferred supplier status is retained. It is not uncommon for
senior Executives, familiar with an ERP system from a previous role to decide to implement the same system in their new
organisation without defining the functional requirements and going through a comprehensive selection process. This is to
be avoided as it is unlikely the product will meet the organisation’s specific needs and there are likely to be other products
available that are more appropriate.
Step 6. The Project Team
The Project Sponsor should decide how the project will be run and the composition of internal versus external resources.
The software vendor or a consulting partner may be selected to perform the deployment and is likely to work alongside an
internal project team. There will normally be several Program Managers handling multiple project streams and internal
staff may be seconded from the business or recruited on either a full time or interim basis to take part in the project.
Internal and external teams must fully understand their responsibilities and there should be a strict division of labour. It is
important that the length of time that needs to be devoted to the project is not underestimated and internal teams should
comprise some of the organisation’s best people and not junior staff or those who have spare time available. Considera-
tion must also be given t how the business will operate when these resources are no longer carrying out their day job?
Backfilling these positions may add considerable cost which should be included in the budget. It is recommended that the
internal team is dedicated entirely to project delivery and released from their day jobs for the duration of the project. The
internal implementation team should also be recruited from across the organisation so each part of the business is
represented and their interests taken into account. Internal and external teams will need to work collaboratively and avoid
conflict. The existence of a blame culture is a significant contributor to project failure.
Step 7. Project Management
Effective Project Management is vital for implementation success. Realistic project timescales are the responsibility of the
Project Manager and should be adhered to and any deviance from plan should be addressed immediately to ensure the
correct sequence of events is followed and to avoid bottlenecks. The project should be carefully defined and controlled
and additional project scope (project creep) resisted (unless carefully factored in), otherwise the project will over run, cost
more and lose focus. Key implementation deliverables and milestones will be needed to measure progress, identify hold
ups and ensure on time delivery. A lack of checkpoints with periodic deliverables is a sign of potential trouble and
although deadlines can slip for a variety of reasons, a team that repeatedly misses them demonstrates a lack of discipline
which can dramatically increase project risk. With well organised project management, sufficient time should be allowed
for documentation, redefining and integrating processes and systems testing before "go live”.
Step 8. Change Management and Business as “Driver”
An ERP deployment involves significant change. People fear change, it brings uncertainty and a threat to jobs. The project
team needs to comprise individuals known to be open to change and expected to be positive when speaking to functional
colleagues. Change management seminars should be organised and open debate encouraged to address concerns about
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organisation and role changes. The ERP deployment should be driven by the Business rather than the IT department. The
requirements of the Business are paramount even though IT issues will need to be addressed. For a common information
system to work across the organisation, every user must adopt, adhere to and support potentially new work methods
supported by the new system. Any department or business unit which fails to conform to the processes dictated by the
new system will become the weak link that ultimately renders the enterprise-wide system ineffective. It is advisable to have
'early adopters' fully test the system and sign it off before “go-live” across the enterprise. There should be a documented
list of people needed to sign that they are confident the system will work as prescribed when it goes live. If a serious fault
is identified prior to “go-live” then it is advisable to delay it although a contingency should be in place for this unlikely
eventuality.
Step 9. Communication
The existence of good channels of communication across the organisation will help ensure buy in and keep everyone in-
formed and involved. There should be regular communication between HR, Finance, Supply Chain and Marketing as the
new ERP may be regarded with trepidation and worry by staff who may believe their roles are threatened. It needs to be
shown that the new system may result in operating efficiencies and role changes but as the driver for change is likely to be
corporate growth, longer term career prospects should improve. There should be clear communication of the
organisation’s strategic goals and how the deployment of ERP will meet them. Before the implementation starts, senior
management must create a clear, compelling vision of how the company should operate in the future to gain the support
of customers, employees, and suppliers. This vision, along with a clear picture of expectations and deliverables, must be
communicated to all functions and all levels of the organisation. In most organisations, many people do not fully
understand their organisation's strategic goals and how their individual or departmental activities support those goals.
Thus, it is likely that these individuals will not understand why ERP is being implemented and what critical business needs
the company is trying to address. The project should embrace people throughout the organisation and all staff should rec-
ognise the benefits of the new system.
Step 10. Training
A comprehensive training program is a necessity however implementation teams are well known for underestimating the
amount of user training that will be required. This may mean that the capabilities of the new system are not fully utilised
and users may even revert to legacy systems if they do not have confidence in the new system. 'Early adopters' should be
identified and encouraged to acquire knowledge rapidly and they are likely to grasp the changes quickly and help and
encourage their colleagues. It is important that user training continues after go live to ensure that user learning is
consolidated and augmented. The training process should generate goodwill for the new solution and familiarity with the
software will contribute to its acceptance across the business.
Summary
The desire to implement ERP indicates that an organisation has achieved a certain level of success and complexity, is
expected to grow and believes that by deploying a new integrated corporate wide system further success will be achievable.
If expectations for the new ERP system are correctly managed, a correctly resourced and realistic deployment project is
nurtured and the principles discussed above are followed then there is every reason to expect that the deployment will be
a success.
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About the Author
Philip Keet is CEO of Millennium Consulting the Enterprise
Software Consulting and Head-Hunting firm. He has been
providing multinational organisations with Enterprise Software
deployment solutions for over 15 years.
Millennium Consulting
A long established (1995) professional Change Management
Consultancy that helps clients gain competitive advantage by
deploying and re-engineering Enterprise Software.
Establishing relations at Board level working with Project
Sponsors, understanding their needs and providing bespoke
resourcing solutions to ensure project success. Providing
client s with hand picked, experienced, quality-assured Project
Managers and Consultants many of whom have been software
vendor/Big 4 trained. We have deep applications knowledge
combined with well-honed consulting skills and the ability to
work effectively with clients to introduce change and ensure
buy-in. Delivery focussed and a valuable, cost-effective
contribution to any Enterprise Software deployment or
re-engineering programme.
Millennium Consulting
1 Heathcock Court, 415 Strand, London WC2R 0NS, United Kingdom
+44 (0) 845 604 4262 millenniumconsulting.co.uk