Enterprise Resources Planning (ERP) is an outgrowth of Material Requirements Planning (MRP) initiated in the 1970’s as a new computer-based approach to planning and scheduling of material requirements and inventory, featuring the time-phased order point. MRP evolved to MRP II (Material Resources Planning) the “closed loop” process, to Business Requirements Planning (BRP) and eventually to ERP. As MRPII came into vogue in the late 1970’s and early 1980’s, software companies began to develop software packages around MRPII concepts.
At the same time, research of integrated data bases was in progress at a university, and out of that research emerged data base management systems (DBMS). One of the earliest successful commercially-produced data base management systems was IDMS (for IBM-based systems) and DBMS (for DEC-based systems) produced by Cullinane, who’s company name was later changed to Cullinet. IMS, a structured data base management system for high transactions, was another data base management system produced by IBM.
The idea of the integrated data base as the engine for fully integrated software was probably one of the greatest outgrowths of Ollie Wight’s and Dave Goddard’s MRP. Eventually, the acronym ERP was conceived to represent what had already been developed by software companies.
The early software packages were developed by way of a transactional approach, and were highly unfriendly to a user. With the advent of the personal computers, the development of Microsoft’s Windows NT, and the mid-range IBM AS/400 computer, client-server systems began to emerge. Windows, used as the base operating system, allowed software packages to become more and more user-friendly.
Today, ERP systems have proliferated extensively, and have reached a stage where development has become industry specific. Thus it is plausible to search for an ERP package developed for one’s specific industry idiosyncracies.
The biggest single issue in ERP is the failure of a successful implementation. It is mind-boggling to continually encounter companies who make major ERP gaffes in this day and age, especially since most of the trials and tribulations of MRPII implementation were suffered and learned from in the early 1980’s with alpha, beta and gamma releases.
So what constitutes failure? Several thing come to mind:
(1) Not making the promised return on investment,
(2) Inordinately extending the implementation schedule and start-up date,
(3) Running over budget by unconscionable variances,
(4) Grinding the organization to a crawl pace, or the severest of all consequences,
(5) Stopping production and/or not delivering orders to your customers.
Industry statistics show that >60% of ERP implementation starts historically fail. Does this mean that you are doomed from the start? Of course not, if you learn from the mistakes of others. So the pertinent question is what are the main causes of ERP failure and what can be done to prevent this from happening to you?
The 12 Cardinal Sins of ERP Implementation
There are twelve major reasons for why companies get bogged down or fail in implementing ERP.
(1) Lack of Top Management Commitment
The propensity of top management to delegate the oversight of an ERP implementation to lower management levels often results in (1) being “out of touch” with critical events, or (2) the lack of understanding of the size, scope, and technical aspects of the project, and subsequently, the lack of proper commitment of time and resources required for a successful implementation. The result is a failure waiting to happen.
(2) Inadequate Requirements Definition
Surveys have shown that inadequate definition of functional requirements accounts for nearly 60% of ERP implementation failures. This is simply a matter of not comprehensively and systematically developing a quality set of functional requirements definitions. This leads to the second greatest cause of ERP implementation failures: poor package selection.
(3) Poor ERP Package Selection
Poor package selection occurs when a company has inadequately developed functional requirements definitions. It also occurs when staff members assigned to ERP projects do not take the time to run the screens of the new system, as they would during their daily work tasks, to find out if the software package features are adequate for their needs.
Another reason we have found is executives, familiar with an ERP system from a last job they held, implement the same system in their new company without defining functional requirements. We have also encountered companies who made major gaffes by selecting a package at the top levels of a company without intimately knowing its characteristics. What often results from this is the ERP package doesn’t fit the organizational needs, or that the package selected takes longer to process daily work tasks.
We have also seen executives select a distribution package for a manufacturing environment, or a manufacturing package for a distribution environment, for obscure reason, such as liking one salesman over another.
(4) Inadequate Resources
The third greatest reason for ERP implementation failures is inadequate resources. Many companies will attempt to “save dollars” by doing everything on an overtime basis, whether or not there are adequate skills within the company, extending individual work loads to 150%. This approach can be a “kiss of death” for the program. Time and time again we run across this mistake in ERP implementations. The financial and emotional drain of what seems sometimes to be perpetual extensions, reschedules and delays of implementations takes its toll. People burn out after having put in extensive hours over a long period of time.
(5) Resistance to Change/Lack of Buy-in
The lack of a change management approach as part of the program can prevent a program from succeeding. Resistance to change is quite often caused by (1) A failure to build a case for change, (2) Lack of involvement by those responsible for working with changed processes (3) Inadequate communication (4) Lack of visible top management support and commitment, and (5) Arrogance. A lack of buy-in often results from not getting end-users involved in the project from the very start, thereby negating their authorship and ownership of the new system and processes.
(6) Miscalculation of Time and Effort
Another cause of ERP implementation failure is the miscalculation of effort and time it will take to accomplish the project. Companies who treat an ERP selection, evaluation and implementation comparable to buying a washing machine are doomed to failure.
(7) Misfit of Application Software with Business Processes
One of the main causes of ERP implementation failure is the misfit of application software with the company business processes. This failure — to examine underlying business process flaws, and integrate the applications with the business processes, causes loss of productivity and time, and ultimate benefits.
(8) Unrealistic Expectation of Benefits and ROI
Another significant cause for ERP implementation failure is the unrealistic expectation of benefits and return on investment. Software providers are notorious for overstating the benefits in terms of ROI, when the total costs of the project have been understated. Often left out of the total costs are costs of planning, consulting fees, training, testing, data conversions, documentation, replacement staffing, and the learning curve performance drop. When this happens, a company doesn’t stand a chance of achieving the ROI it anticipated.
(9) Inadequate Training and Education
Another of the biggest causes of ERP implementation failure is inadequate education and training, which are almost always underestimated. ERP-related training is crucial as most employees must learn new software interfaces and business processes which affect the operation of the entire enterprise. The corporate culture is impacted by changes in the company’s business processes, and shortchanging this part of the ERP implementation leads to much pain and suffering downstream.
(10) Poor Project Design and Management
A major mistake is to short-cut critical events in the project plan, such as time for documentation, redefining and integrating processes, or testing before going live. Another common mistake is made when a company leaves out the self-examination of business processes and uses ERP to cover-up weaknesses. It is easier to buy software than to perform the more difficult task of identifying weaknesses and opportunities for improvement.
(11) Poor Communications
One of the causes of ERP implementation failure is poor project communications, beginning with a failure to announce the reason for the up and coming effort, and continuing to advise the organization of the progress and importance of the ERP implementation to the company. Poor communications prevent different parts of the organization from assessing how they will be impacted by changes in processes, policies, and procedures. Communications are a vital part of managing change in a corporate environment.
(12) Ill-advised Cost Cutting
Another of the key causes of ERP implementation failure is ill-advised cost cutting. In an effort to avoid temporary conversion costs, some companies take a very risky route and go live at multi-plant sites simultaneously, subjecting all plants or some plants to a total shutdown should there be a false start-up. This is suicidal. Others attempt to unrealistically compress the schedule in order to save on expenses, only to eventually overrun both schedule and budget. We feel that ROI should take a “back seat” when upgrading an important part of a company’s infrastructure: the information system. Instead the implementation should be treated as an upgrade necessary to maintain or gain a strategic and competitive advantage.
The first corollary of ERP or information systems implementation is: Information systems are part of a company infrastructure, and therefore are strategic to the company’s survival and success. If a company does not consider IS as one of its critical success factors, chances are, the competition does.
The second corollary of ERP or information systems implementation is: ERP and information systems are there to support business functions and increase productivity, not the reverse. The driver for an ERP implementation should be to increase a company’s competitiveness, not the adoption of a new religion that bends or distorts how a company conducts its business.
The third corollary of ERP or information systems implementation is: Learn from the successes and failures of others and don’t attempt to reinvent the wheel of ERP implementation practice. There are time-proven approaches that can enhance the success of the ERP implementation. Here are a few:
High Employee Involvement
Get as many employees to participate heavily as practicable in accomplishing the functional requirements definition. The workers know their work and what they need to compress time. If they do not, use an outsider who does. Use a knowledgeable team to review and select packages. Get as many employees as practicable involved in the implementation phase. This will foster ownership and buy-in.
A Comprehensive and Systematic Approach
Use a comprehensive and systematic master plan that addresses all parts of an ERP systems implementation: development of IT strategy, requirements definition, review/selection of software, hardware, communications, unit testing, systems testing, conversion, resources, education/training, resistance to change, etc.
Provide adequate technical and administrative resources to allow employees breathing room. Perform cost/benefit analyses so that you know how much the entire implementation is going to cost and identify the results that will be achieved.
Extensive Education & Training at all Levels
Provide adequate training for most employees, including upper and middle management.