Erp Success and Failure

What is Enterprise Resource Planning (ERP)? “Enterprise Resource Planning” is a term originally coined in 1990 by The Gartner Group to describe the next generation of MRP II software. The purpose was to integrate all facets of the business enterprise under one suite of software applications. The definition of ERP would be broadened to include almost any type of large integrated software package. [1] Webopedia provides a generalized definition of ERP as “a business management system that integrates all facets of the business, including planning, manufacturing, sales, and marketing.

”[2][i] Some of the more well-known ERP software developers include SAP, Oracle, and PeopleSoft. This paper will look at both successful and unsuccessful ERP implementations and what contributed to their success or failure. Many lessons have been learned by failed ERP projects, as evidenced by the volume of information available. Many of the failures occurred in 1999, in an attempt to manage Y2K issues, which may suggest that the companies had pressing needs which forced the implementation. Apparently, late adopters are benefiting from the mistakes of their predecessors since the most current research describes successful implementations.

What constitutes an ERP implementation failure? There are degrees of failure with ERP projects. The most obvious failure is never actually implementing the ERP system. But a project can be considered failed if the new system is not fully utilized. [3] According to a survey conducted by Forrester Research in April 2001, only six percent of 500 companies surveyed considered their ERP systems effective, while 79 percent said they were not effective or only somewhat effective. [4] Five of the top ten Corporate Information Technology Failures cited by Computerworld involve ERP projects. See chart. (requires Adobe Acrobat reader)

Factors Contributing to Failure Apparently, no single point of failure can be attributed to unsuccessful ERP implementations. Some of the causes cited for failed ERP projects include: |Inherent complexity of ERP implementation |Unrealistic expectations | |Outside consultant issues |Over-customization of software | |Inadequate training |Using IT to solve the problem | |Process risk and process barriers |Timeline flexibility | |Corporate culture |Infrastructure issues | Inherent complexity of ERP implementation The Problem ERP Systems are complex, and implementing one can be a difficult, time-consuming, and expensive project for a company.

The technology is tightly integrated and requires a commitment from all divisions and often a change in the way a company does business to make it work. [5] It can take years to complete and cost as much as $500 million for a large company. Moreover, there is no guarantee of the outcome. [6] A notorious example of a failed ERP implementation is the Hershey Foods’ SAPAG’s R/3 implementation. The company spent $112 million and 30 months on their ERP project. When they went live in July 1999, the company experienced problems pushing orders through the system, resulting in shipping delays and deliveries of incomplete orders.

[7] Many reasons have been cited for the Hershey ERP failure. One, the project was originally scheduled to take four years, but the company forced the implementation to go live in just 30 months. Two, the company simultaneously implemented a customer-relations package and a logistics package, substantially increasing the overall complexity and employee learning curve. Three, the company went live at their busiest time of the year, just before Halloween, and the resultant delays caused third quarter profits to fall by $151 million compared to the previous year. [8]

One step often taken to reduce the complexity and time involved in an ERP project is using process templates. Managers are not willing to spend the time, effort, and money to work through the complexities inherent in configuring an ERP system to company- specific processes. They use process templates to short cut the process and accelerate implementation. Although the templates are simpler and speed up the process, they promote generalization, which can limit performance gains and competitive advantage. [9] The Solution If possible, plan the ERP project go-live date during the company’s slow periods.

Roll out the modules in stages and don’t attempt to implement other applications simultaneously. Don’t speed up the timeline – critical testing and training of users will likely pay the price. Some degree of conformance to process logic will likely be required. The company must ensure that process templates utilized in the implementation reflect best business processes for their organization. [10] In some modules, Human Resources, for example, the processes tend to be relatively standardized so utilizing templates in this module may make more sense than utilizing them in processes that are highly unique to the company.

Outside Consultant Issues The Problem In W. L. Gore’s lawsuit against PeopleSoft and Deloitte & Touche, the company alleges PeopleSoft sent in unqualified consultants to do the job, forcing the company to rely on the customer service hotline to set up the program after major problems occurred when the system went live. [11] Deloitte & Touche paid referral fees to PeopleSoft, which prompted PeopleSoft to recommend them as consultants even though they didn’t have the expertise required to implement the software. Gore was then required to hire another group of consultants to fix the damage, which cost hundreds of thousands of dollars more.

An Atlanta-based forestry products manufacturer used four consulting firms in various phases of its SAP implementation project. According to the CIO, the consultants “bickered among themselves over how to approach the project”. Rather than partnering with the manufacturer, they were fighting for control and overstaffing the project, which the company eventually shelved. [12] The Solution It’s important to determine prior to project initiation the expertise currently available within the company. This will help define the role of the consultant.

The project lead should interview the staff proposed for the project, ensure that the contract stipulates that those same people will work on the project, and in some cases remuneration may be based upon the successful completion of the project. It’s also important to integrate consultants with corporate staff to ensure a smooth knowledge transfer at the conclusion of the project. [13] Inadequate Training The Problem Increasing reports point to poor training as a major cause behind failed ERP projects. Not just education of the technical staff, but of the user community who are supposed to actually work with the system.

ERP changes the way companies do business but, instead of training everyone in the company on how to do business differently, they are trained on new computer software. [14] Companies must find the right person or organization to conduct the training. At Purina Mills, the company contracted with a third party consultant to conduct the training, but users complained almost immediately that they needed a translator to help them understand the training. The company needed someone to train the users that understood the current process and could relate it to the new one.

They fired the third party trainers and developed the training course internally. [15] The Solution One CIO differentiates between education and training as education being the why, who, and where and training as the how. [16] Rather than basic, software-specific training, a more broad-based understanding of the flow of information through the system is needed. Mead Corp has undertaken an ambitious education program. Prior to project go-live, every employee will attend a course explaining why the company is becoming more standardized and what an integrated supply chain looks like.

Users affected by process changes will also be further educated as to how their process fits in to the overall supply chain. Just prior to “go live”, task training will occur so that it is fresh. The CIO suggests that “it requires leadership after implementation and a lot of reinforcement, retraining, and reeducation. ”[17] Process Risk and Process Barriers The Problem “Process Risk” is the risk that a business will suffer significant financial losses or harm to its reputation as a result of significant changes in the way the company does things.

There are several types of process risk: • Performance dips – efficiency drops as employees learn new jobs and technology • Project fights – when problems occur, top management drops the project • Process fumbles – the new implementation is more than the company can handle, timelines slip and performance problems crop up • Process failures – after go-live, the new process simply doesn’t work[18] According to Barry Calogero, “… the real culprit is the process. ” Three process barriers cited as contributing to ERP failure are: 1.

Focusing on technology – software alone will not solve business problems 2. Ignoring requirements definition – processes are adopted to fit the software or legacy processes are forced into software that’s not designed to handle them 3. Skipping the implementation plan phase – jumping from requirements definition to development phase[19] The Solution No amount of training can take the place of hands-on, real-time interaction with a new system. Performance dips are likely. The task is to minimize the length and depth of the dip through adequate training of the user community.

Top management must remain fully committed to the project. Process fumbles and failures can be avoided by putting a good project team together, headed by an experienced project lead, as well as a detailed, well thought out implementation plan. Also, develop good performance metrics. Managing risk involves changing the way people are measured, managed, and rewarded. Good metrics help managers assess performance more accurately in order to identify problems before they get out of hand. [20] Corporate Culture The Problem

Corporate culture refers both to the leadership sponsors’ involvement and accessibility in the project and the recognition of the role the employees play in a successful implementation. Many ERP projects fail because the employees do not realize the needs and benefits of the project and will be resistant to change. Additionally, the users do not take ownership of the project. The forestry products manufacturer mentioned above didn’t consider the effect of an ERP implementation project on its divisional VPs. In an attempt to centralize operations and integrate back-office systems, the company elected to implement SAP across all divisions.

The Vice Presidents of the 12 major divisions were unaware of the company’s long-term strategies and how those strategies would cause them to lose some of their autonomy. When they finally realized this, 11 months into the project, they balked and the project was scrapped. [21] Bruce Webster, director at Pricewaterhouse Coopers suggests that “IT culture is such that problems…are hidden. Programmers write around buggy code rather than tear it apart. Managers revise project specifications to reflect what they did instead of what they should have done. Senior IT leaders neglect to tell their bosses the bad news. ”[22]