What are the reasons for ERP implementation failure?
Enterprise Resource Planning (ERP) systems have become a critical part of business operations today. A modern ERP solution enables extraordinary new efficiencies, provides valuable new capabilities, delivers critical insight and, ultimately, supercharges your organization.
But it is one of the most complex, time-consuming and high-risk projects your organization will ever undertake. And it’s easy to make mistakes—like these—that could result in your project’s failure.
In fact, research shows that up to 60% of ERP implementations fail to deliver the expected results. The reasons behind this high failure rate are numerous and complex. From poor planning to lack of user adoption, there are many factors that contribute to ERP project failure. This post will explore 15 of those causes and provide insights on how to avoid them during a new ERP system implementation.
6 Software Selection & Implementation Pain Points + Solutions
To steer you around trouble and help you drive success, Ultra’s experts compiled a list of pain points and solutions to be aware of as you embark on your selection journey.
1. The Project is Not the Top Priority
Many ERP project failures have been attributed to the lack of priority given to the new ERP system project. When replacing the legacy system with a new ERP is not the clear No. 1 priority for the organization, the project likely is doomed to become another ERP failure. Because users perceive the project as something that is not important, users and managers do not buy in and will not invest the time and resources necessary for success.
Companies assume that putting all efforts into ERP implementations automatically results in successful completion. However, to achieve a successful implementation, a company must secure adequate funding and demonstrate that the project is a top priority. Employees need to be aware of the impact of the project and how it affects the future of the company, including the potential for incremental payroll costs savings and improved operational efficiency. Employees should invest their time and effort into understanding the system requirements and how the system will produce beneficial results for the organization.
Making small steps in ensuring that the project is acknowledged as a top priority contributes significantly to the success of ERP implementations while minimizing the chances for ERP implementation failures. Nevertheless, this requires strong leadership skills, good communication skills and constant reinforcement among the employees to avoid ERP failure.
2. The Project is Viewed as an IT Project
Many ERP implementations fail due to the project being viewed as an IT project. An ERP project is not just an IT project. It is a business project that requires the best resources from across the organization—and the expertise of a project team that knows the functions and processes that will be affected. The ideal project leader leading the team should have a better understanding of the undertaking and system requirements.
This narrow perspective often leads to ERP failure as it fails to take into account the wider business implications and the need for engagement from all areas of the organization. The IT department may lead the project, but ERP implementation requires collaboration across departments and functional areas.
Additionally, a technology-focused approach overlooks the need for organizational change management, which is critical to driving user adoption and achieving desired business outcomes. Without seeing the project as a business transformation initiative, teams may underestimate the resources and effort required to achieve success, leading to ERP failure.
To avoid ERP implementation failure, the implementation of the ERP system should be viewed as a journey towards organizational improvement, one that requires strategic planning, cross-functional participation and a focus on business outcomes.
3. Inadequate Internal Support
Inadequate internal support, coupled with overly optimistic expectations, can lead to a failed ERP implementation. Too often, organizations focus only on C-suite sign-off. Often, employees may not be fully committed to the implementation process and may lack the necessary training and resources to effectively use the new system. Additionally, resistance from employees may cause delays and misunderstandings that lead to costly mistakes and ERP failures.
This lack of support produces a negative impact on employee morale and increases the risk of errors during the transition period, contributing to ERP failures. Inadequate internal support also results from a lack of collaboration between various departments and a failure to align ERP projects with overall business goals and objectives.
It is important for companies to plan and communicate effectively with all relevant stakeholders both during and after the implementation process, in order to increase the chances of success. Key stakeholders from all levels of the organization must also be involved and management must be committed to providing the time, resources and budget required. Without adequate internal support, organizations run the risk of wasting valuable time & resources with no significant improvement in business operations or profitability. Therefore, careful planning, employee engagement, and alignment with business goals are crucial for a successful ERP implementation while managing costs effectively.
4. The Project is Rushed
Due to tight deadlines and pressures from stakeholders, companies may try to expedite the implementation without proper planning or preparation. Rushed projects often result in insufficient testing, inadequate training and incomplete data migration, all of which leads to system failures and disruptions in business operations. Additionally, rushing the implementation process may also result in overlooking crucial issues such as customization requirements, software compatibility, security concerns, and the manufacturing cycle.
To mitigate the risks associated with ERP failure, your company should establish a dedicated implementation team consisting of core team members and experts from various departments, including supply chain and finance. This team can work together to identify potential challenges and develop strategies to address them effectively.
When a project is rushed, it can be challenging to identify the root cause of problems and implement effective solutions, which ultimately lead to failure of the project. Therefore, it is imperative for companies to take the time to plan and prepare adequately for the implementation process and allocate sufficient resources and involve senior executives to ensure a successful implementation.
5. Failure to Assess the Current State
ERP implementation is a complex process that involves several stages and a range of technical and non-technical activities. Despite the long and often expensive planning involved, a failed ERP implementation can occur, resulting in significant financial and operational losses.
The failure to assess the current state is one of the main causes of ERP implementation failure. This is due to the failure to identify existing systems, processes and data to assist in developing an efficient and effective system. Moreover, it corresponds with the inability to analyze factors like specific organizational needs and user requirements. Assessing the current state, including employee testing and data cleansing, involves gathering key performance metrics and evaluating the suitability of existing systems.
The failure to assess the current state leads to a lack of proper design and planning, compromising the project from the start. As a result, without appropriate analysis of the present state, implementation plans may not be effectively executed. This lack of planning also results in low consistency in incorporation areas such as procedures, roles, and responsibilities, leading to further complications and cost overruns. The failure to assess the current state leads to severe problems for any enterprise that attempts to implement an ERP system.
Therefore, it is crucial for organizations to thoroughly assess the current state, including data cleansing, to ensure a successful project. By doing so, companies minimize critical mistakes, reduce costs, and increase the chances of a smooth and efficient implementation.
6. Insufficient Research and Education
Insufficient research and education also leads to a failed ERP implementation and increased costs of implementation. Companies often underestimate the amount of time, resources and education required to install and use an ERP system effectively. Without conducting thorough research on potential ERP vendors such as SAP ERP system and partners and failing to understand the entire process, a company may end up with ERP software that does not meet their needs.
Education is vital for all stakeholders involved in the implementation process as a lack of understanding could lead to user errors which could compromise the system’s integrity. Furthermore, employees may not be trained or prepared to handle the new system which could result in dissatisfaction, lack of use and resistance to change. Therefore, it is essential for companies to conduct sufficient research and provide adequate education to minimize the potential for failure during the ERP rollout and employee training.
Therefore, it is essential for companies to conduct sufficient research, secure adequate funding, and provide adequate education to minimize the potential for failure, system complexity and implementation costs.
7. Less-Than-Thorough Requirements Gathering & Definition
This is another major cause of ERP implementation failure, especially when dealing with legacy systems and outdated business processes. If the requirements gathering process is not done thoroughly or at all, then the implementation process of SAP ERP or any new ERP solutions will not accurately reflect the needs of the organization. This could lead to delays, increased costs reaching up to millions of dollars and ultimately derail the entire project. Additionally, incomplete requirements cause confusion and misunderstandings among different teams working on the same project, jeopardizing the testing phases and ongoing support needed for successful implementation.
Inaccurate requirements also leads to software that does not meet the company’s needs or expectations, which may have detrimental consequences. It is essential to ensure that all requirements, including ERP features, are clear, detailed, and comprehensive before beginning the implementation process. This way, the project leader can effectively manage the project, setting realistic expectations and avoiding the pitfalls of unrealistic expectations.
This is a factor that leads to a failed ERP implementation, especially when dealing with legacy systems, disparate financial systems and outdated business processes. It makes no sense to implement a solution that simply automates existing processes. Sure, it’s easier to take that approach, but automating a bad process just makes the bad process faster.
8. Incorrect, incomplete or inaccurate requirements
Less-than-thorough requirements gathering and definition may occur when the project team does not take sufficient time to gather accurate and comprehensive business requirements or when stakeholders, including key supply chain participants, are not involved. The result is a poorly defined scope, inadequate resources and an ERP system that does not meet the needs of the business, such as supply chain requirements. When this happens, users may become frustrated with the system, resistance to change may increase and the system may fail to gain traction in the organization. Furthermore, poor requirements definition sets the stage for potential software customization challenges, which is costly and time-consuming.
To avoid this pitfall, an organization must invest adequate resources to ensure that the core team has a thorough understanding of business processes and requirements, including supply chain considerations and that stakeholders are actively involved throughout the project lifecycle. When the effort is made to analyze current core processes, identify pain points and problems, determine specific needs and business goals and to clearly define a future state, the return on investment (ROI) is better and time-to-transformation shorter.
9. Excluding Critical Users and Managers From The Process
Another essential factor that leads to a failed ERP implementation is excluding critical users and managers from the process. The absence of key stakeholders in the implementation plan jeopardizes the success of the project and increases the overall failed ERP implementation cost.
Critical users or individuals who are experts in the business process should be included in the decision-making process, including selecting the new ERP system to be implemented, creating project scope, identifying suitable vendors and testing the software’s functionality. In addition, managers who will oversee the system’s implementation must also be included in the process.
Excluding critical users and managers from the process leads to inadequate knowledge transfer, lack of ownership, incomplete requirements, unrealistic project expectations and resistance to change, among other things. Therefore, your organization must carefully consider involving critical users and managers throughout all implementation phases to maximize ERP functionality, minimize waste management issues, and reduce the potential for a failed implementation.
10. Flawed Software Selection
Sometimes ERP implementations fail because of flawed software selection. Some experts say that perhaps 40% of companies regret their software purchase because it doesn’t align with their business processes or can’t scale to meet their needs.
A company may choose software that does not meet their specific needs, resulting in the system being difficult to use and not delivering the expected benefits. The software may also lack important features or have compatibility issues with other systems used by the company.
Poor communication between the IT team and business units results in software being chosen that does not meet all necessary requirements. Additionally, if the software vendor is unreliable or has insufficient support, this can lead to serious problems for the company. Choosing software that requires too much customization results in high costs up to millions of dollars and delays in implementation. Poor planning, inadequate testing of the software and lack of training for users also contribute to flawed software selection and the overall failure of ERP implementation.
It’s important to do thorough research to determine which solutions suit your industry, organization and processes. It’s essential to involve key stakeholders, users and managers. And it’s critical to require potential vendors to demonstrate how their software addresses your unique requirements, support business drivers and enable your future state. Learn the 5 best practices for ERP vendor selection.
11. Not Considering the User Experience
Lack of attention to the user interface during ERP implementation results in under-utilization of the solution and increased implementation cost. During the implementation process, developers and managers focus more on fulfilling the technical requirements of the organization, leaving the end-users in the pitfalls of chaos and confusion.
Evidently, neglecting the needs and expectations of the users leads to poor adoption rates and low levels of satisfaction with the new system. Often, user training is minimal or not provided at all, which results in employees struggling to use the new system, leading to frustration and inefficient work. Additionally, a lack of communication with users regarding implementation planning also leads to resistance to change.
ERP systems should be designed keeping in mind that end-users are the ones who will be interacting with it daily; hence requiring their feedback and input during development. Failure to consider the user experience during ERP implementation creates costly negative consequences for both the productivity and morale of the organization. It is crucial to allocate sufficient resources for employee training, ensure a smooth user interface, and set realistic project timelines to avoid unnecessary cost of implementation and achieve successful implementation.
12. Change Management was Neglected
Some ERP projects fail because change management is neglected. Of all the possible errors, poorly executed change management (or none) is perhaps the most avoidable one. Many organizations make the mistake of focusing too heavily on technological issues and not giving enough attention to the people involved in the process. Like any organizational change, successful ERP implementation requires a comprehensive change management strategy that addresses the concerns, fears and resistance that employees may experience.
The lack of awareness and training is a significant obstacle to the adoption of new processes and procedures, leading to resistance and lack of acceptance. In particular, poorly defined roles, responsibilities and workflows cause confusion and frustration, leading to an ineffective work environment. Successful change management necessitates a continuing process of communication and feedback that starts with executive management and extends through all levels of the organization to ensure a successful ERP implementation project.
13. Lack of Focus on Critical Technical Areas
It’s important to focus on data cleanup/conversion, integrations and reporting from Day One of the project. Many projects don’t focus on these areas until it’s too late. Ignoring or underestimating these areas could result in significant issues during or after implementation. Some of the critical technical areas include data migration, system integration, customization, testing and training.
Failure to migrate data properly, for example, results in data loss and inaccuracies. Poor system integration leads to incompatible systems or a lack of real-time data synchronization which can lead to lost sales, lost market credibility, and even a dip in stock price. Inadequate customization hinders the use and adoption of the system by employees. Insufficient testing leads to system errors and user frustrations. Lastly, inadequate training causes low adoption rates and low user satisfaction. It is crucial that organizations prioritize and dedicate sufficient resources to addressing these critical technical areas during ERP implementation to avoid potential failures.
14. Inadequate Project Communications
A new ERP must be positioned properly: As a productivity improvement investment that will make the company more competitive, profitable and successful. It should be communicated throughout the organization that the ERP project is as important as a new plant or a new product line.
Insufficient communication between stakeholders may result in misunderstandings, misinterpretations and lack of alignment, leading to decreased project support and user adoption. The absence of clear, timely and relevant information regarding project goals, timelines, roles and responsibilities may also create confusion and cause delays. Moreover, poor communication often leads to resistance to change, which significantly hinders the ERP implementation process.
Inadequate communication also increases the risks of scope creep, budget overruns and inadequate resource allocation. Effective communication strategies that involve all stakeholders and address their concerns and expectations are critical to ensure project success. These strategies may include regular updates, feedback mechanisms, training sessions and change management planning.
15. Poor Implementation Planning
It’s not possible to overstate how essential proper project planning and executive management involvement are to the success of ERP software implementation. And most organizations significantly underestimate the time, system requirements, and resources required to plan methodically and comprehensively.
Poor implementation planning occurs when a company does not invest enough time or resources in planning the deployment of the ERP system. Some companies may make the mistake of underestimating the complexity of the implementation process associated with ERP software, leading to delays, budget overruns, and unexpected project costs.
Others may fail to adequately train their employees or assign the appropriate resources to ensure a smooth transition. Additionally, companies may not have a clear understanding of how the ERP system fits into their existing systems and business processes, leading to conflicts and inconsistencies when integrating the ERP software. Other issues that arise due to poor implementation planning include miscommunication between stakeholders, incorrect data migration, and inadequate testing before going live with the ERP software.
In conclusion, ERP implementation failures are caused by a variety of factors, many of which are preventable with proper planning and execution. By carefully considering these 15 causes of ERP implementation failures and taking steps to mitigate risk, your business ensures a successful ERP implementation that delivers real value to their organization.
As an independent enterprise software consulting firm, Ultra Consultants has seen firsthand the impact that a poorly implemented ERP system has on a business. We can help you take the right approach, ensuring that your new ERP software becomes a powerful tool that drives business growth for years to come.