Success & Failure: Critical Factors in ERP Implementation
Love them or hate them, Enterprise Resource Planning (ERP) digital transformation initiatives aiming for the holy grail of automation & full system interoperability have gone from the occasional side of desk project to a core business necessity in less time than it takes to say “COVID-19” – but are they really all they are cracked up to be?
A 2020 study by Boston Consulting Group found that a staggering 70% of digital transformation projects fall short of their goals, studies cited by McKinsey & CMS Wire quote failure rates as high as 86% and a report in monochrome consultancy (why seven out of 10 digital transformations fail) noted that just 16% of executives say that their digital transformation efforts are succeeding.
So, with such apparently high failure rates and an estimated $3.3 trillion due to be spent by 2025 on some form of enterprise resource planning system globally (CMS Wire), why do we keep ploughing our cash and resources into it when we’d actually get better odds on the lottery?
Let’s start with an examination of what ERP actually is and why it’s promise is so desperately alluring.
Enterprise Resource Planning ERP – is the end to end systemization of processes, not only previously siloed or disconnected processes, or purely operational processes, but all processes – everything that happens from beginning to end [regardless of industry] systemized and automated. (Microsoft)
A single seamless system that automates repetitive tasks and connects them to their next point in the chain with [almost] zero intervention.
Sounds perfect, doesn’t it?
I mean – who wouldn’t want complete visibility of everything that’s going on in their business whilst eliminating all that pesky human error?
Unfortunately, that’s where too many of the decisions to embark this radical systemic upheaval both begin and end.
When it comes to implementing an ERP system, there are a few key factors that can really make or break the success of the project. Customization, change management, and user training are all crucial pieces of the puzzle.
But it’s not just about ticking off a checklist of tasks. You need a strong implementation strategy, top management support, and a dedicated project team led by an experienced project manager who knows what they’re doing. It takes a lot of planning, hard work, and perseverance to get an ERP system up and running smoothly.
It’s all a misunderstanding guv…..
You have to hand it to the sales teams for their uncanny ability to convince us that their magic software is in fact the solution to all that ails us.
ERP-SAS is the double whammy of acronyms, both of which are greatly overused and chronically misunderstood.
Any Software as a Service is only as good as its touch points in the operational machine that is your business & it, like anything, is only as good as the information you put into it and the skills of the people who consistently maintain it.
Many companies fall into the trap of believing that the implementation of new software systems, like ERP systems, CRM systems, or financial and workforce software tools, is a cure-all solution to their problems.
However, the truth is that any software is only as good as its touch points in the operational machine that is the business. It is crucial to understand that software is not a magic pill that will solve everything, nor is it entirely to blame when it inevitably falls apart. In reality, factors like customization, change management, and user training can make or break a successful ERP implementation.
Expectations are high, implementation teams are small and under resourced and timelines to realise astronomical benefits are tight to say the least.
Let’s say for example that company X decides to start a six-month project to implement new system that will give them all the management reports their senior leadership teams could ever want. It will show them exactly where all the bottlenecks are in their operation, which departments run efficiently & which do not, how much money they’re making and who they need to pay by when.
Every conceivable piece of information will be at their fingertips – nobody will have to work late on weekends or spend hours poring over spreadsheets every month. Productivity will be at an all time high. It’ll all be right there at the push of a button for an effortless project go-live.
So management buy into this utopia, they book the consultants in for a few weeks and they’ll be off to the races in no time… right?
Is ERP Software to Blame for Implementation Failures? Exploring Success Factors, Change Management, and Project Scope.
Let’s get real
It’s really not about the software…
McKinsey recently published an article entitled “welcome to the digital factory” Which explored the how successful digital transformations support a businesses ability to scale and how changing a business whilst running a business requires a completely new approach.
In essence – this multi-faceted design to transformation is what is required to eliminate the misunderstanding that any ERP software, no matter how amazing and far reaching its functionality, is a linear one and done solution.
This article goes on to cite 5 essential factors which are basically rooted in cost, understanding the business problem, company culture, establishing the proper critical success factors and bad leadership decisions.
Companies generally invest in digital transformations to increase revenue and reduce costs, no surprise there; but unfortunately, when it comes to stumping up the necessary investment for successful implementation, they often approach the digital transformation with much smaller budgets than are required.
CMS Wire commented in their article “Why Digital Transformation Fails”
“Time and again I’ve seen companies find creative ways to reduce digital transformation budgets, while still expecting the grand results. They buy the cheapest products, hire the cheapest consultants choose the cheapest route for expect maximum business value”
Even if all the other factors are taken care of to some extent, choosing the right product is often a much trickier decision that it first appears. Most executives look at the new “shiny object” from the convincing sales team that dazzle them with swish demos and more 3 letter acronyms than you can shake a STK at.
One issue here is that senior management teams might not always be the best people to make these decisions and their expectations need to be realistically aligned to what can be achieved within a timeline, where the value to be gleaned from the process needs to be seen and indeed expected on an incremental basis.
How Leadership and Mindset Impact ERP Project Success
“It’s about continuous improvement and a mindset of continuous improvement. Digitisation just makes that scalable doesn’t solve for it if it’s not there to start with.” – (thoughtworks)
This doesn’t mean that just because your organisation isn’t “ready” by these terms that you should run a mile from the very thought of an ERP implementation process – not at all, it just requires a more considered approach.
- Remember why you are doing this – set a clear north star
- Resolve to streamline and deliver a defined set of short terms wins in line with the long-term goal
- Focus on the skills of your workforce – what got you here might not be what gets you to where you need to be
- Communicate consistently – every level of the business needs to know what’s happening, why it’s happening and what it means to them.
- Adjust your expectations but stick to your guns
- Stay informed but don’t try to be the expert
If this all looks a little too much, keep in mind that the cost of inaction is in itself a decision to take a step backwards.
Do We Need Consultants To Reduce ERP Failure?
Start with the right skills and the right advise.
“81% of decision makers agree that utilising trusted partners skills experience is as or more important for success than technology solution they provided” – (thoughtworks)
Using an expert will not only save you both time and money in the long term but having one single version of the truth from and external consultant who is devoid of any organisational bias can actually get you off the ground and heading in the right direction much faster.
A research article published by Monochrome Consultancy notes that: “A well paid consultant that knows the space really well and can see past the shiny products and the demonstrations and can ascertain whether that product actually fits your individual business – or not.” It goes on to say that “A good consultant can give you an accurate estimate of timelines, when you can expect to see a return on your investment and what that return on investment will look like. As well as how you can sustain that and make your potentially larger upfront investment pay dividends for years to come.”
The Role of Culture in ERP Implementation Strategy
don’t blame the culture – too much
In the last few years, we’ve all had to adapt, to change the way we work and become more flexible in how we approach problems and their solutions and whilst this has been imperative, many of us are suffering from change fatigue.
It might just be me being a little overly left brained, but thinking of a business as a clean structured, process driven machine makes me feel calm and comfortable, reality however often disagrees with my utopian ideal.
Businesses are a collection of human beings. We are amazing. We are fallible and we like what we know (Prof. Andrew Huberman, Stanford Medical)
We prefer to specialise and then when we stick to that specialty, it becomes part of who we are and when somebody comes along with a grand plan that starts by unpicking what we do in order to remake it better and stronger than before, it can be meet with some quite extreme resistance.
Your new software might be amazing but integrating ERP into your business is not a one hit six month wonder project. If you want sustained change and tangible results across several areas of the business, it requires cultural change.
People in general resist systemisation because they feel that it devalues their contribution and to some extent, they are right – the skills that we needed to make businesses work in the past are not for the most part the skills that we need to move and grow into the rapidly changing environment that we now need to function and thrive in longer term.
“Company culture is probably one of the most impactful factors to the success of digital transformation initiatives; we need the right culture to adopt and nurture digital transformation, it cannot be done without the buy in of everyone in the organisation.“ (ThoughtWorks)
Teams that are resistant to change is the 4th largest reason for transformation failure according to Forbes.
It doesn’t matter how many millions you spend, how good your consultants are, how shiny your new ERP system is. If people don’t buy in to the transformation, it’s never going to work.
Most digital transformation initiatives start with the goal of staying within budget and delivering on time, but with not enough focus on business value, skill requirements and people leadership. That could mean time to train people on new processes. When humans are familiar with the processes, they are suddenly far less scary.
“The whole point of digital transformation is to transform the organisation wherever there is a digital touch point, this is really crucial.” (cms wire).
But how can you transform that analogue worker sitting inside your company culture into a digital touch point?
First of all – you’ve all got to be telling the same story.
Understanding where you are as business and draw clear lines between where you are now and where you want to be, by what date and if there are elements of the business that need to be process mapped, fixed, changed and automated to create the required digital touch point that can connect with the higher value transformation.
This is not just a strategic vision – it has to be one that the entire company can get behind and own their own individual part of. This fully integrated level of ownership is the key to cultural change. Top management commitment is pivotal to achieve a successful project with huge benefits that the salesperson has convinced you to dive into.
If you don’t have buy in, you’re not going to have sustainability. So “even if it works it will fail eventually. Don’t start with the technology start with the goal and then you can look at what technology will help you achieve that goal.” (Monochrome)
Now that we have the culture on side we can turn to the simple bit – the data.
Not all data is created equal
Data issues in ERP Deployment
With so many legacy IT systems in operation throughout many of our ageing and public sector organisations, interoperability programmes are both lengthy and fraught with risk as they typically involve many complex heterogeneous products, and decades old IT systems that often house highly sensitive data that can be overlooked by new SaaS products.
If we’re talking about a transformation being this beautiful, coordinated collection of digital touch points but in reality, each of these digital touch points sits within outdated legacy systems then we’ve already found our less than pretty weakest link.
Whilst this issue can in no way be ignored, it doesn’t mean that everything is on hold until we have the perfect systems, culture, and data in place, it just means that we have to start smaller and be more deliberate with the short-term business goals without losing sight of the bigger goals.
It comes back to the cultural shift required to think in an automated way about continuous improvement by automating systems at an operational level first & working collaboratively with aligned departments to connect two or three things together so that we can make that work first, then build on it.
It’s not just about a shiny interface where you can access every part of your organisation. It’s about true, collaborative working and being able to see and measure that collaboration on an ever larger scale. But if you don’t fix the small things first, if you don’t have good data going into the system, if you don’t have truly collaborative systems, processes, operations, cultural alignment, then all you’re going to do is build the Taj Mahal on sand.
An Economist Intelligence Unit report sponsored by Appian revealed a lack of coordination and consensus in European businesses around the responsibility for owning, maintaining procuring and developing digital technologies. Nearly six in 10 European business leaders [58%] reported that they have had to cancel a digital project for lack of access to the right data. About 51% of robotic process automation projects in Europe failed, 40% of European respondents cited closer collaboration between IT and non IT business units as the key to achieve the organization’s automation objectives.
Skills Gaps in ERP Projects
It’s a workforce Jim, but not as we know it..
Not having the proper skills required for digital transformation is often the difference between success and failure of ERP transformations, and for good reason – these skills are scarce and becoming more so.
“Working with poor onboarding processes is a very common underlying reason for failed digital transformation projects. Because you need specific skills to make them work. And those skills are in high demand those people can go anywhere.” (Forbes 2021 article – 13 Industry Experts Share Reasons Companies Fail at Digital Transformation)
Whilst the challenges in todays job market are likely to be of little surprise to anyone, what keeps these skills within a business might be however simpler if not slightly longer term than just raising salaries.
A study conducted by ThoughtWorks surveyed 400 technology leaders and revealed that;
“the right talent is hard to come by regardless of how successful firms are with their enterprise modernization efforts. Successful firms recruit, invest, and retain knowledgeable staff and work with trusted partners to compensate.”
So in short, retrain what you have where possible, take on graduates and use expert consultants to impart their knowledge. Employees from across your organization are invaluable and they should not be overlooked or underestimated for what they can become with the right help, training and support.
Successful ERP Project Management Takes Time
be patience – seriously!
Time is a luxury that we are rarely afforded these days. Milestones, budgets, board reports and the rush to realise an often-ill-conceived range of benefits leave us catching ourselves up coming back – but that is not what will win the race to a sustainable, scalable digital platform.
Whilst there is undoubtedly a pot of gold at the end of the transformation rainbow, getting there won’t be easy so don’t try to skip to the end, you’ll miss all the fun!
“You need to embrace the Stockdale paradox of all good to great companies. It’s going to be hard, but you will endure, and this will be your greatest victory fear of temporary failure. Fear of temporary failure often holds the business back and creates resistance to change.”(Forbes)
So what’s the answer?
Any attempt at automatization will feel like a poison chalice to the operational staff tasked with its implementation if, as much of the research suggests, leadership expectations are misaligned with the complex reality of delivery and the consequent attainment of unrealistic outcomes.
But it doesn’t have to be that way if you have the time, the skills and the mindset to get there.
- Start where you are: Ok, so this sounds a little obvious, but so many organisations fail to really take stock of their starting point.
- Understand what you have to work with: Get the right talent on board who understand your business as a holistic machine and can match your outcomes with the how the system works and business processes. Doing this kind of project on a shoestring is a risk that is unlikely to pay of long term
- Map your systems and fix your weaknesses: Everyone has to want it and be solution focused. With such a complex piece of work, a problem focused workforce is tantamount to project failure.
- Communicate: Engage the people continuously. Keep the lines of communication open at all times and all levels.
- Manage expectations
- Set measurable and sustainable outcomes for the duration of the project
- Know what it is and what it isn’t. Reiterate the critical success factors and critical failure factors
- Be realistic with your timeline and what will happen when
- Be prepared for the hard things
- Realign your workforce skills only when you are sure it’s working
In McKinsey’s article entitled “optimise your operations enterprise resource planning” they noted that “Only 20% of companies managed to capture more than half the projected benefits from ERP systems” It’s important to ensure that “ERP programmes are aligned with the business needs and ERP programmes are aligned with large structural and process improvement levers from finance shared services straight through order processing to harmonious customer purchasing data. There is a trade-off between customization and standardisation.”
In conclusion, we do not believe that ERP transformations are either a poison chalice or a magic bullet, we hope that this article has gone some way to show you that its way more complex than that. You might even go as far as to say that they are both and neither at the same time, it just depends on your perspective and your expectations.
ERP Research LINKS
- Top 10 ERP Software Implementation Myths | ERP Vendor Myth vs. Reality
- big isn’t always better – so many options now that can scale with your business
- single ERP – doesn’t have to be the only way
- don’t understand what they are buying based on the promo
- what they quote isn’t what you will need to pay! System integrators