Getting IT Right in ERP
By V. Mehra, Consulting Practice Leader, Phase 5 Group
“The horror stories of failed ERP projects are now the stuff of legend. According to one recent report, more than 29% of ERP implementations fail to achieve even half the planned business benefits. Some well-known examples include Waste Management suing an ERP vendor for $500 million for a failed ERP implementation, Hershey Foods’ 19% drop in profits from a failed ERP implementation at Halloween time a few years ago, the complete bankruptcy of FoxMeyer Drug, a $5 billion pharmaceutical distributor over a failed $100 million ERP implementation, and, perhaps most troubling, the over $1 billion spent by the US Navy on four different ERP systems, all of which have failed. There are many lessons to be learned from these failed ERP implementations.”
-- BistaSolutions Blog
Enterprise resource planning (ERP) systems have been implemented globally, yet benefits from these systems vary greatly, not due to the system itself but due to how they have been implemented. The organization’s journey, the executive leadership commitment, and the management of change during the journey count much more toward a successful implementation than does the system itself.
This pattern of challenging implementations and often elusive benefits has continued from the 1990s to today. In the 1990s, more than $300 billion was spent on ERP implementations worldwide, but documented benefits were few and far between. In December 2010 and December 2011, Computerworld reported:
“No year in the IT industry would be complete without a number of high-profile ERP (enterprise resource planning) project failures, ones that burn through mountains of cash, bring company operations to a standstill, generate bad publicity for vendors and toss careers in the trash. There's no one reason why ERP projects run off the rails. In fact, you can equate a typical project to a three-legged stool, with the customer, vendor and systems integrator each serving as a leg.”
-- Computerworld, December 2010
“With the year drawing to a close, one thing seems abundantly clear: There are still an awful lot of ERP and other software projects running off the rails out there.”
-- Computerworld, December 2011
A COSTLY PROBLEM
In the recent past, the problem of ERP failures has been bad enough to result in some costly lawsuits. Furthermore, in several cases, whether or not litigation was an outcome, the company going through the massive ERP implementation suffered severe top or bottom line repercussions as a direct impact of the failure of the ERP project. Several of the cases covered in the media in recent years include the troubled ERP implementations at Ingram Micro, Montclair State University, and the UK government.
So why do so many companies fail in their ERP journeys, and what separates the “winners” from the “losers?” Is there a repeatable set of patterns to look out for, or are both the success stories and the failure stories simply random outcomes? If you ask the experts in the ERP equation, some common themes emerge.
Companies that get it right go about the ERP implementation journey in a dramatically different manner than the companies that get it wrong. The winners implement ERP systems as a solution to a business problem, and they recognize that the ERP system or the ERP software is just the smallest part of the equation: the much bigger part is that of organizational change management, business processes revamp, cross-functional integration and the overall how “horizontal” the enterprise is. In all of this, the ERP system or software is just a tool, but it is never a solution by itself. Companies that have reported significant business benefits from ERP implementations have embraced this reality. Some of the world’s more complex and notable ERP success stories include the implementation of SAP at BASF, the implementation of SAP at Colgate Palmolive, and the implementation of Oracle at Alcoa, just to name a few. These companies have successfully tackled their ERP implementations as a business challenge, instead of merely a software implementation.
The companies that get it wrong go about their ERP journey in a fundamentally different manner. They think that the ERP system or software will solve all their business problems. They fail to recognize that while ERP systems can automate business processes, they can’t just “fix” these business processes. They also fail to recognize that developing a strong and effective cross-functional working culture that reinforces collaborative decision making across functional boundaries is a business challenge and an executive leadership challenge. No system on the planet can solve this problem by itself. Furthermore, implementing an ERP system without ensuring that the underlying business processes are streamlined, and without developing the right behaviors to enable effective trade-off decisions across the functional silos of a business, will inevitably end in failure. Against this backdrop, when a misguided ERP systems project goes belly up it is typically the ERP system and perhaps the integrator that carries the brunt of the blame for not working properly or not being competent. Typical complaints range from: the system does not process orders correctly, the data in the system is bad, the software is defective, the systems integrator did not understand the business model, or the consultant lacked the system expertise. Occasionally all of the above complaints are listed..
It is critically important that companies embarking on an ERP journey complete and commit to an ERP implementation checklist at the executive leadership level, and that the leadership team rallies around the “how,” “what,” and “why” of this checklist.
AN ERP IMPLEMENTATION CHECKLIST
ERP systems are about changing the way a business works, not about implementing software. They are about cross-functional decision making between marketing/sales, manufacturing, procurement and finance – easier said than done, especially when decisions involve trade-offs at the functional level. ERP software will not make these business functions work together automatically, which is why an ERP implementation checklist is critically important. Planning a successful ERP deployment requires that key checklist items have been well thought out. The checklist includes three components:
- The What: What the business wants to achieve with the ERP system
- The How: How the ERP system should be implemented to transform the business
- The Why: Why the ERP implementation is justified
The implementation planning is complete only when the “what,” “how,” and “why” have been clearly articulated and reinforce one another, and the dollar value of benefits are far greater than the costs. Most importantly, the entire executive leadership team should have signed off on the journey from the company’s current state to its future state, including an understanding and ownership of the pitfalls involved. This mutual reinforcement is achieved through a process of iteration-based convergence. While not a journey for the faint-hearted, it will prove to be highly beneficial to companies looking to implement ERP systems.
V. Mehra is the Consulting Practice Leader for Phase 5 Group, which enables companies to achieve systemic supply chain and operations improvements via a proven set of codified best practices, organizational development methods, change management and traditional management consulting. Contact: firstname.lastname@example.org and visit www.phase5group.com.