Why Erp Implementations Fail

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Why ERP implementations fail and 10 steps to ensure implementation success.

Transcript of Why Erp Implementations Fail

  • 1. Why ERP implementations fail and the 10 Key Steps required for implementation Success Philip Keet, CEO Millennium Consulting White Paper millenniumconsulting.co.uk
  • 2. Why ERP implementations fail and the 10 Key Steps required for implementation Success As an organisation grows, turnover increases, new business lines are established and overseas expansion appears on the agenda, it is likely that existing business systems may need to evolve to meet new control and reporting demands. Information logjams may arise, systems may no longer communicate effectively with each other, business processes may become inadequate, the supply chain may no longer function as efficiently as when there were fewer products and the relationship between raw materials, the production line, finished goods and customers was simpler. If operating overseas, then new legal and language needs may need to be addressed. The Board of Directors may decide that conditions warrant the introduction of an Enterprise Resource Planning (ERP) system as the business progresses to the next stage. They may recognise that where, currently, a diverse mix of systems is in operation, rationalisation towards an integrated enterprise-wide solution is required if the organisation is to continue growing efficiently to achieve greater success. However, introducing ERP is fraught with difficulties and should not be undertaken lightly. ERP implementations are notorious for failing to deliver the results expected of them. They also have a tendency to take longer to complete than originally planned and cost significantly more than originally budgeted. Gartner, the IT market research organisation estimates that between 55-75% of IT projects (including ERP) fail to meet their objectives. However, in reality, most implementation projects are viewed as a failure, simply because they do not meet the unrealistic expectations originally set. Unless objectives are realistic, relevant and realisable, a higher risk of perceived failure will be built in to the implementation process from inception. What is ERP expected to deliver? The introduction of ERP should deliver better business management, encourage improved business processes, result in a reduction in operating costs and lower systems maintenance charges and offer a vehicle for embracing cultural shift required by an expanding organisation. It is also a statement that the organisation has attained a certain size and complexity. To succeed, ERP will need to be embraced by every part of the business. Buy-in by the organisation is a key requirement for success. ERPs are intended to improve performance by upgrading the organisation's ability to generate timely and accurate information throughout the enterprise and its supply chain. They promise seamless integration of all information flows - financial and accounting, HR, operations, supply chain and CRM systems. They are expected to provide a unified view, encompassing all functions and departments by establishing a single enterprise-wide data centre in which all transactions are entered, recorded, processed, monitored, and reported upon. A successful ERP implementation can shorten production cycles, increase the accuracy of demand forecasts, improve customer service, reduce operating costs and may lead to a reduction in overall IT costs by eliminating redundant information and computer systems. ERP can also improve electronic links with suppliers and customers giving mutual savings over other forms of communication for orders, billing, etc, as well as improved accuracy and flexibility of data across the extended supply chain. Clearly there are considerable benefits to be had by using ERP. So why do so many ERP implementation projects end in failure and what can be done to ensure success? If the following 10 Steps are followed then the ERP implementation has every chance of achieving its goals and delivering results. millenniumconsulting.co.uk
  • 3. Step 1. Expectations Setting Above all else, realistic expectations must be set. Implementing ERP is a highly complex process that takes a great deal of time, costs a significant amount of money and shortcuts cannot be taken if it is to be carried out successfully to achieve the desired result. A common error is to underestimate the anticipated time and cost required to deploy a new system and the perception of delay and overspend can potentially cause the ERP to be viewed in an unfavourable light. Projects can take considerably longer than originally planned, causing costs to escalate and be significantly higher than budgeted. The expected benefits may not be achieved due to inadequate business analysis and product selection, poor project management and inefficient delivery. Setting realistic expectations is essential so that the organisation fully recognises the implications of the path it has embarked upon and the project will not be viewed in a negative light on account of over ambitious hopes. Step 2. Board Commitment Commitment to change at the highest level and throughout every part of the business is essential as the introduction of ERP marks a significant stage in an organisations evolution. Implementing new ERP is a strategic initiative which should be fully supported at all levels to ensure it is a success. Senior Executives should demonstrate their commitment to change so that the organisation as a whole is fully united and there is support across all parts of the business. A clear and unambiguous communication from the Board to all key players that the project is to go ahead is a significant contributor to project success. Conversely, its absence is a significant contributor to project failure. Step 3. The Project Sponsor The role of the Sponsor is vitally important if the implementation project is to be a success. The Board of Directors will need to appoint a Sponsor who should be a Senior Executive with the power and authority needed to drive effective change across the organisation. The Sponsor will be a key participant in the change programme and must be fully involved and visible during the implementation project adding their input and ensuring that the strategic plan is followed. The Sponsor should be an excellent communicator, able to manage stake-holder expectations and with the necessary authority to take difficult decisions. Sponsors cannot stand on the sidelines, they must visibly, vocally and actively demonstrate leadership qualities, commitment to the project and support for project team members. They must quickly intervene to resolve problems and champion the project. Step 4. Requirements Definition The Definition of Business Requirements is important to ensure the organisations needs are fully understood before the solution is chosen. If this process is not carried out properly the organisation may find that the most appropriate ERP has not been selected. Selecting an inappropriate solution may lead to the need for developing customisations and work- arounds which will add to cost and lengthen project timescales. More significantly, confidence in the solution will be compromised. Conducting thorough business analysis will ensure that the new system does not simply replicate old system processes but takes the opportunity to make significant improvements. The new system will provide an ideal opportunity to dramatically improve processes, stream line operations and reduce operating costs. As well as the processes and old systems that the new ERP will replace it is vital that a full assessment of the interfaces that will be required between the new ERP and retained legacy systems is rigorously analysed and built into the time/cost plan. IT infrastructure must also be assessed as the new system may have new hardware and platform implications that may lead to additional cost and longer timescales which will have to be factored in to the overall project plan. millenniumconsulting.co.uk
  • 4. Step 5. Package Selection Selecting the most appropriate ERP system is essential for project success. While the Business Requirements Definition will drive the software functionality to be delivered, the organisation must also consider the financial status of the software author. Financial stability, reputation and long term product strategy will require investigation because if an ERP vendor is experiencing financial difficulty then there is the risk they may fail or be taken over and therefore the long term future of the product will be uncertain and this would present a risk. If the principal customers of an organisation all use a particular ERP system then they may encourage its use to ensure preferred supplier status is retained. It is not uncommon for senior Executives, familiar with an ERP system from a previous role to decide to implement the same system in their new organisation without defining the functional requirements and going through a comprehensive selection process. This is to be avoided as it is unlikely the product will meet the organisations specific needs and there are likely to be other products available that are more appropriate. Step 6. The Project Team The Project Sponsor should decide how the project will be run and the composition of internal versus external resources. The software vendor or a consulting partner may be selected to perform the deployment and is likely to w