Home | Business News | Browse by Publication | I | Industrial Management

Avoiding ERP implementation failure.

Article Excerpt
Enterprise resource planning systems appear to be a dream come true. They are designed to enhance competitiveness by upgrading an organization's ability to generate timely and accurate information throughout the enterprise and its supply chain. The latest generation of commercially available software packages promise seamless integration of all information flows -- financial and accounting, human resource, operations, supply chain, and customer information. This provides for a unified view of the business, encompassing all functions and departments by establishing a single enterprise-wide database in which all business transactions are entered, recorded, processed, monitored, and reported.

A successful ERP implementation can shorten production cycles, increase the accuracy of demand forecasts, improve customer service, trim fat from operating expenses, and may lead to a reduction in overall information technology costs by eliminating redundant information and computer systems.

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.

For managers who have struggled with incompatible information systems and sub-optimum operating practices, the promise of ERP to solve the problem of business integration is enticing. But the price of securing the benefits of ERP may be high. The cost of a modest ERP implementation can range from $2 million to $4 million, depending on the size of the organization and the specific products and services purchased from vendors. The cost of a full-blown implementation in a large organization can easily exceed $100 million. A recent survey of 63 companies with annual revenues ranging from $12 million to $63 billion indicated that the average implementation cost $10.6 million and took 23 months to complete.

Not only do ERP systems take a lot of time and money to implement, even successful implementations can disrupt a company's culture, create extensive training requirements, and lead to productivity dips and mishandled customer orders that can temporarily damage the bottom line. Moreover, experience indicates that between 50 percent and 75 percent of U.S. firms experience some degree of failure when implementing advanced manufacturing or information technology.

Unfortunately, many companies have already experienced significant problems trying to implement ERP systems -- and these poorly executed implementations have had serious consequences. One recent survey revealed that 65 percent of executives believe ERP implementation has at least a moderate chance of hurting their business. Clearly, it is critical to identify and understand the factors that largely determine the success or failure of the implementation.

Why ERP implementations 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.

But more specifically, ERP implementation failures fall into 10 categories:

Poor leadership from top management. If top management is not strongly committed to the system, does not foresee and plan for the profound changes necessitated by ERP, or does not actively participate in the implementation, the implementation has a high likelihood of failure. The implementation of ERP must be viewed by top management as a transformation in the way the company does business.

Automating existing redundant or non-value-added processes in the new system. The integrated environment of the new ERP system will require the organization to do business in a different way Therefore, existing business processes need to be reengineered from the bottom up to dovetail with the ERP structure and requirements.

Unrealistic expectations. Many companies grossly underestimate the...