ERP implementations are likely to be the riskiest and most complex endeavors undertaken by companies, much more complex than building a new distribution center or manufacturing facility. Often, neither the risk nor the complexities are well understood by management, so it shouldn’t surprise anyone that some fail. Rather expensively.
Advisedly, the choice of distribution and manufacturing similes above was not accidental: ERPs were designed for manufacturers and distributors, not for banks or airlines or schools or motion picture studios or many other types of enterprises. However, many such companies choose ERPs for their financial applications (general ledger and treasury applications, accounts payable and receivable, billing, fixed assets) and for their procurement capabilities. Yet, these capabilities in ERPs tend to be tied to (and constrained by) the needs of manufacturers, as well as notoriously difficult to implement. Companies other than manufacturers ought to broaden their searches for good financial and procurement applications to the “best-of-breed” market, which may be significantly easier to implement than ERP modules yet provide excellent functionality.
Then, there are the major causes of derailed ERP implementations, even when they involve manufacturers:
- Incomplete Planning
- Poor Change Management
- Poor Expectation Management
- Altered Internal or External Conditions
- Problems with Consultants.
Any significant ERP implementation project should be planned employing a structured methodology that specifies activities, tasks, deliverables and assigned human resources, in order to minimize the chance of missing key steps.
When inadequate attention is paid to rigor in planning the result can be a series of unpleasant surprises during execution of the plan, surprises that may require additional capital, additional elapsed time and more intense participation by internal personnel than had been anticipated by them.
With too many such surprises and their effects, political capital with both management and key personnel will disappear. With the loss of political capital often comes effort on participants’ or management’s part to find reasons for failure, or at least to change project management, which can be highly destabilizing and further fuel the difficulties.
Poor Change Management
Change Management is the discipline that seeks to identify barriers to change in an organization and to formulate remedial programs that lower the barriers, thereby maximizing chances for success of the implementation.
In some highly complex and sensitive cases industrial psychologists are used to provide specialized insight to assist the implementation.
The primary objective of Change Management is to identify the substantive issues that could delay or complicate the implementation, or cause it to fail, to identify the implications of each change barrier, and to develop programs to mitigate the risks and lower the barriers. Contingencies also should be developed in the event that the primary programs do not succeed, and measurement schemes also should be developed to determine if the programs are on track through implementation.
A secondary but important objective of Change Management is development of a Communication Plan whose intent is to communicate implementation status to all stakeholders in the implementation.
When little or no Change Management is performed as part of implementation planning or as part of the actual implementation, significant risk is incurred. Some change barrier could surface to trouble or derail the implementation with no plan in place to manage the risk with sufficient speed to be effective.
The most important advice that can be given with respect to Change Management is to take it seriously. Many do not.
Poor Expectation Management
This problem comes in two flavors, poor expectation setting, which involves the goals of the implementation, and poor expectation management, which is an on-going implementation problem. If unaddressed, either can derail the implementation.
The expectation manager in either case is the prime company mover of the implementation or a consultant who acts as his surrogate. Those whose expectations are both set and managed are senior management, who approve and fund action, and who expect business benefits to accrue from the investment.
If, in an attempt to secure management backing of an expensive and difficult project such as an ERP implementation, the prime mover successfully presents potential benefits that are too aggressive, then expectations have been poorly set. Sooner or later, usually later, after a great deal of capital has been consumed, it becomes evident that the benefits will not be secured, despite what might otherwise be a successful implementation. In management’s mind, this is a failure: an investment that did not produce anticipated benefits. If this is discovered at a point at which management believes that halting the implementation can prevent further loss, then it can fail. This is particularly so if project participants have been complaining about the extent of required involvement, the extra hours and pressure, all normal characteristics of an ERP implementation but additional ammunition to an unhappy management who feel betrayed.
When this happens, poor expectation setting might be traced to a consultant surrogate or to a software vendor, who may be overzealous in pursuit of his own interests, such as placement of a consultant team to assist in the implementation or closing of a software license deal.
The most important factor in managing expectations is usually project scope. Initial expectations of the implementation may have been set reasonably, but over time additional goals may be added, one by one, without subjecting them to the same achievability tests as the initial objectives. In such cases a cardinal rule of any already-complex undertaking is violated: do not try to do too much at once; if you do, you risk loss of focus, or the undertaking may develop beyond your span of effective control, and you may fail to achieve any objective.
If management is led to believe that additional goals are reasonable, and then realizes at some point that they will not be achieved, the same problems described above could develop.
Altered Internal or External Conditions
Changes in internal or external conditions can trouble or derail an implementation because such changes can invalidate the premises that justified the implementation.
Significant change in a company’s management structure is a good example of altered internal conditions. Such change can fundamentally question the validity of the premises on which the ERP implementation was justified, because a different set of perceptions and values may rule. Additionally, new managements sometimes seek reasons to question initiatives taken by prior administrations. While this may sound irresponsible when millions of dollars are at stake, it is nevertheless very real.
Another example of altered internal conditions is divestiture of a significant piece of the business that was to be automated by the ERP, or acquisition of another company. Divestiture could call into question the cost/benefit value since a piece of the business that contributed the benefits is gone, while acquisition potentially introduces new requirements which could call into question the appropriateness of the ERP product selection, or the feasibility of the implementation plan.
Changed market or technology conditions are good examples of altered external conditions. For instance, a competitor might introduce a powerful new feature of customer service that threatens to bind customers more strongly to them, and the service is application software based, such as by an ERP. In such a case, pressure could build to abandon the implementation to find and implement products that more effectively counter the competitive threat.
This is an example of a situation in which both market and technology conditions have been altered. A simpler example of altered technology conditions might be introduction of a new manufacturing approach that is automated by another ERP, which also could cause pressure to abandon an implementation and begin fresh with other products.
Problems With Consultants
You can barely live with them or find the money to pay them. You can’t even shoot them for the insurance money (I believe it’s been tried). Yet, one finds them everywhere.
Large consulting/integration teams can cause problems in a complex implementation, including the following:
- Unwieldy program management structure, where span of control at critical levels is insufficient, often due to inadequate complex program management skills on the part of consultant management. This can be particularly damaging when the consulting team is substantially comprised of relatively inexperienced or junior personnel, who need a high degree of structure. Should this happen, expect to see patterns of missed deadlines, poor deliverable quality and inadequate translation of requirements into plans and deliverables, resulting in the need to continually revisit requirements and redevelop deliverables.
- Revolving door consulting management. The market for consulting talent is such that turnover in consulting firms, particularly among experienced technical supervisors and managers, is very high.
Over a long implementation period this can result in the loss of consulting resources in pivotal positions, which in turn can create great discontinuity in the effort and even cause it to fail. Again, this syndrome is particularly damaging when the consulting team has a high proportion of junior personnel.
- Consultants can sometimes have agendas that are not precisely aligned with their clients’ agendas. (Imagine that.) For example, the larger the consulting implementation team, the greater the exposure to the consulting firm of unanticipated lessening of need for as many of them. This might result in a pattern of taking the more time-consuming and complex approach when a simpler one would suffice, so as to keep the maximum number of consultants optimally utilized. This can extend project duration and cost to the point where pressure builds to abandon the effort.
The ideal use of consultants in an implementation is a minimalist one. These threats are lessened tremendously in their likelihood of occurring and in their impact should they occur when consulting teams are small in number, very senior and used as facilitators and gray eminences rather than as providers of commodity services that would be provided better by internal personnel.
However, extensive/intensive use of internal personnel in large implementations, while highly advisable, is usually difficult, always painful for the personnel and sometimes not practicable. But when consultants are needed, heed the warning signs of problems.
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ERP implementations can and do fail for all of the reasons outlined above. Getting through to a successful implementation is a broken-field running exercise, constantly avoiding obstacles. If the potential problems are anticipated before they are realized, even the most complex and largest implementations can be successful. Even after a failure has occurred, an implementation can be restaged if the problems that occasioned the failure are resolved.
But ERP is nothing less than the transaction processing backbone of an industrial company. It is here to stay and all companies, by one means or others must play. It is not a question any longer of whether to go ERP or not, because the custom designed/programmed alternatives, including retention of old and creaking legacy environments, has become too costly to keep competitive with what ERP vendors incorporate into their products. And keeping competitive today differentiates the quick from the dead.