ERP Implementations : Failures, Risks and Key Success factors

1.    Introduction

The ERP (enterprise resources planning) systems are new kind of information management systems that promise ultimate integration between financials, operations human resources, customer service and all departments within organization.  This kind of integration helps organizations to perform its business processes in more effective way and consequently it will help organizations to improve its profitability.

 In order to deploy your organization with ERP system you have to select the suitable ERP package that best suits your organization’s requirements because as far as ERP system can be your future competitive advantage towards your competitors it can also be the decision that will lead you to bankruptcy (Bulkelery, 1996; Davenport, 1998; Markus et al., 2000).

Owens Corning claims ERP software helped it save $50 million in logistics, materials management, and sourcing. It also led to inventory reductions because material planners had access to more up-to-date and accurate data that improved the company's ability to track and control system-wide inventory and forecast future demand. At the same time Whirlpool experienced major setbacks with its ERP system, which was implemented to improve the shipping and invoicing processes within the company.

Essential steps such as risk assessment benefit analysis, performance objectives, and cash flows are typically discarded. In their place, expenditures are made based on naïve assumptions that the computer will magically transform a company into a paragon of efficiency. This misguided approach sets up a sequence of events that often leads to a failure of objectives. The resulting conclusion is that the ERP software was a bad investment decision.

2.    The reasons behind why ERP implementation would fail

In a recent survey, information technology managers identified three primary reasons for the failure of all IT-related projects: poor planning or poor management (cited by 77 percent), change in business goals during the project (75 percent), and lack of business management support (73 percent). Since ERP is an IT-related project, the above are valid reasons for explaining ERP implementation failures. (Industrial management pub. 1 Jan 2002).

a.    Poor leadership and participation  from management

The commitment of leadership in the ERP implementation is very important because ERP implementation will encounter a major changes in the business processes so without the top management commitment, setting goals and objectives and take decisions about changing some business processes the ERP implementation will lack the captain.

b.    Extra sophisticated customization

Because the nature of ERP that it changes the way of doing business  BPR (business process reengineering) many companies are reluctant to any changes and resist any change in their business , these unnecessary requirements requires a very sophisticated customization in the ERP systems and cancels the best practices that the ERP is designed for.

c.    Unrealistic expectations

Many companies assumes that their ERP systems will turn around the business and the productivity will be boosted up , but in reality the organizations are expected to have some disruptions in its business for a while , then the benefits of the ERP will be increase gradually.

d.    Poor  training and education

The training phase in any ERP implementation is very important because the end users are in face to face with their future system; if this phase is poorly managed and delivered its circumstances will be reflected on the end users and their ability to interact with the ERP system and taking the maximum benefit from it.

e.    Improper ERP package selection

Not  selecting the suitable package can mismatch between the organization’s objectives and the software , the organization has to choose the suitable package that best suits the organization’s requirements and to avoid the future mismatch between the selected package and the organization.

f.      Lack of consultants experience

The team that implements the ERP should be capable of analyzing and understanding the organization’s business and put out the suitable solutions that best fit with the organization. Lack of experience or inability to understand the organization’s current business can lead inapplicable ERP solutions.

g.    ERP is viewed as IT project

If the ERP project is viewed as just an IT project it will lack of contribution from the key personnel in the business areas and thus, the implementation will lack of re-engineering and adding more solutions to the organization.

h.    Poor project management

Limited ERP knowledge, capability and poor project management skills, , especially in managing consultants, and reporting implementation problems to top management whenever necessary are reasons for exercising  ineffective project management of ERP implementation. The  failure to plan, lead, manage and monitor the project is  a core factor that results  implementation failure, because the ERP system is complex, and project teams are required to collaborate with top management, different departments, users and consultants during implementation process.

i.      Poor quality of business process re-engineering BPR

The lack of clear vision of why or how to conduct BPR, consultants would provided unprofessional advice for conducting BPR. These advices would include lots of workarounds to resolve problems associated with business process mismatch.

j.      Users’ resistance to change

The lack of knowledge of ERP systems and a standardized business processes can lead the users to resist the implementation and refuse to participate in BPR and give full information to the consultants. The workloads of the users during the implementation can also lead them to resist because they have no time to discuss with the consultants about the ERP and the analysis of their business.

k.    Data accuracy and consistency

The data provided during the implementation is very important because the ERP is built upon it. Because many organizations don’t have a standardized set of data across the organization many ERP implementations suffers from the lack of inaccurate data or the data is redundant across the organization.

l.      Poor IT infrastructure

In order to cut implementation costs or insufficient resources a poor IT infrastructure may be used leading to a slow and a bad performance of the ERP system.

3.    Risk Management  

 To minimize the risk of the ERP project, the application of a risk management plan at different ERP implementation project stages is recommended; selection, implementation, and usage. A planned and systematically adopted risk management procedure throughout the ERP project reduces the possibility to risks occurring. Consequently, major mistakes are made in the early stages of the ERP project, even prior to the implementation process. the efficiency of risk management when it is introduced at the earliest possible opportunity in the life cycle of the system in  question, when planning issues are most important and the criteria for system selection are determined. Instead of using ready-made risk lists, a company might consider identifying their own, company-specific ERP implementation risk list. These risks could be complemented by common risk lists. The risk assessment process contains risk identification, risk analysis, and risk prioritization. Risk identification produces lists of project-specific risk items that are likely to compromise a project’s success. Risk analysis assesses the loss in probability and magnitude for each identified risk item. Risk prioritization produces a ranked ordering of risk items that are identified and analyzed. To be effective a risk assessment method should consider several potential aspects (technology, market, financial, operational, organizational, and business) and link them to the project life cycle, stated in  “Risk Management in ERP Project in the Context of SMEs Päivi Iskanius, Engineering Letters, 17:4, 2009”.

How to evaluate and control the risks you face

Risk Analysis is a formal framework that helps you to assess the risks that you or your organization faces. A good risk analysis will help you to decide what actions to take to minimize disruptions to your plans. It will also help you to decide whether the strategies you could use to control risk are cost-effective.

How to use the tool

Here we define risk as “the perceived extent of possible loss”. Different people will have different views of the impact of a particular risk: What may be a small risk for one person may destroy the livelihood of someone else. One way of putting figures to risk is to calculate a value for it as:

Risk = probability of event x cost of event

This allows you to compare risks objectively.

According to  [M Sumner, “Risk Factors in Enterprise-Wide/ERP Projects” Journal of Information Technology, Vol 15, 2000, pp.317-327] risk factors in ERP projects.

Risk category	Risk factor
Organizational fit	Failure to redesign business process Failure to follow an enterprise-wide design, which supports data integration
Skill mix	Insufficient training and re-skilling Insufficient internal expertise Lack of business analysts with business and technology knowledge Failure to mix internal and external expertise effectively Lack of ability to recruit and retain qualified ERP systems developers
Management structure and strategy	Lack of senior management support Lack of proper management control structure Lack of a champion Ineffective communications
Software systems design	Failure to adhere to standardized specifications which the software supports Lack of integration
User involvement and training	Insufficient training of end-users Ineffective communications Lack of full-time commitment of customers to project management and project activities Lack of sensitivity to user resistance Failure to emphasize reporting
Technology planning/integration	Inability to avoid technological bottlenecks Attempting to build bridges to legacy applications

You are still free to define your own risks that are more likely to occur in your organization depending on the surrounding circumstances and the current situation you are facing in your ERP implementation.

Managing risks

Once you have prioritized your own risks that may affect your ERP implementation you have to plan how to manage these risks and minimize them risks could be managed through different ways like:

·         Implement specific programs that eliminate a specific risk e.g. Change management.

·         Increase resources in a specific area

·         Develop and follow up action plans to overcome specific risks.

4.    Key Success factors

The ERP implementation is simply an IT project but it is a functional strategy that turns over the business of an organization this function strategy is achieved through implementing some kind of information management systems “ERP” so this strategy or implementation don’t; require only IT oriented people or just a separate department that is responsible for implementing a strategy but  the ERP implementation requires full involvement of all organization’s department and action plans that support the whole organization to change the way performs its business .

Several factors have been identified as a key success factors for ERP implementations, these factors are identified based on different researches performed in different organizations in different countries.

a.    Top management support

The role of the top management is considered one of the most important factors because the way the top management will act towards the ERP implementation will affect the whole project they have to understand what the ERP will provide to the organization, they have to financially support the project to achieve its objectives and their authorities to change current business processes to support the ERP system.

b.    Business process re-engineering

The business processes should have the adequate time to be analyzed and modeled not to be viewed as just installation of IT software because the good understanding of business process will have a significant effect on the BPR and will help on selecting the best solutions and provide an added value to the organization.

c.    Excellent project management techniques are used

The implementation teams should be professionally coached , the project objectives must me clearly stated and reviewed , accurate and professional scheduling should be developed , action plans and efficient use of resources , high level of communication channels between team members, top management and end users should be fully managed and developed.

d.    End users involvement

I see end users involvement is very important because it will help in better developing BPR and understanding the small problems that frequently occur in business.

e.    Extensive education and training provided

Education is arguably the most important and widely recognized critical success factor because user understanding and buy-in are essential. A successful implementation requires a critical mass of knowledge to enable people to solve problems within the framework of the system. This critical mass of knowledge includes general education about the ERP system for everyone — from top management down to the end users — before the implementation begins. It includes a massive amount of end user training before and during implementation as well as follow-up training after the implementation.

To make end user training successful, the training should start early, ideally before the implementation begins. Executives often dramatically underestimate the training costs necessary for a successful ERP implementation. Top management must be prepared to spend a significant amount of money on this training and incorporate it as part of the formal ERP budget because the full benefits of ERP cannot be realized until end users are using the new system properly. If the employees do not understand how a system works, they will simply invent their own processes using those parts of the system they know how to manipulate. It has been suggested that reserving 10 percent to 15 percent of the total ERP implementation budget for training will give an organization an 80 percent chance of a successful implementation.

All too often, top management expects employees to be able to use the new ERP system effectively with only the education and training received before and during the implementation. Yet, much of the learning process comes from hands-on use under normal operating conditions after the implementation period is over. Thus, there is an ongoing need for a designated individual, preferably the implementation team leader, to keep in contact with all system users and monitor the use of the new system.

Periodic meetings of system users should be convened to help identify problems with the system and to encourage the exchange of information gained through experience and increased familiarity with the system. As problem areas are identified, post-implementation training should be immediately provided.” Umble, Elisabeth and J.Umble, M. Michael, Industrial Management; Jan/Feb2002, Vol. 44 Issue 1”

f.      Suitable ERP package selection

The choice of the suitable package is very important because the decision of implementing ERP doesn’t mean that the organization will buy a new IT software but the decision involves  achieving a specific objectives. The ERP packages may differ from product to another, the organization has to review all the possible choices of packages and select on the basis of the suitability and most conformance with the organization’s business and objectives taking into account the cost benefit analysis.

g.    Clear objectives and strategic goals

The ERP implementation must has a strategic objective to achieve and these objectives must be communicated to the whole implementation teams, these objectives can be for example “achieving competitive advantage over competitors through implementing the ERP systems which will enhance the supply chain management in the organization”.

h.    Change management

The top management and the implementing team have to identify the points of resistance and develop a counter change management plans that can overcome the resistance that will occur during the implementation, a specific teams must be formed to work on the change management programs and follow its achievement of goals and its compliance with the main strategic goals of the ERP implementation. 

5.    Conclusion

Enterprise resource planning “ERP” are just IT software that are developed by IT companies, these Software are used today as a strategic tools and are implemented in organizations as a type of function strategies, like any strategy you will apply in your life this strategy can take you to a glorious sides or can drew you down.

Because the ERP implementation is somehow a strategies that requires a different way of implementations other than function strategies some companies that tried to implement ERP suffered a lot of problems and losses.

Because of the large number of implementations performed during the last decades many researches were developed identifying the failure reasons of and ERP implementation.

Further researches were conducted on how to better manage your ERP implementations through the risk analysis methods and how to act towards the risks that may appear during the implementation.

Furthermore, a success factors have been identified as a recommended actions during ERP Implementations, I believe that no one on earth can guarantee the success or failure of a specific ERP implementation but all we can provide are a recommendations on how to best utilize your ERP implementation.

Finally I recommend any organization that will to the previous failure and success stories, and implement ERP to get back try to get a strategy on how to implement their ERP in a successful way.

References

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