Why Do ERP Projects Fail? 7 Key Reasons
Enterprise resource planning (ERP) is an effective business solution software that simplifies business functions. The system allows business owners to store all organizational data in a centralized location, especially in the manufacturing and supply chain industry, promoting efficiency. It also allows managers to identify improvement areas and easily access real-time data.
ERP software requires a certain level of coordination and planning to build and maintain successfully. Businesses can benefit greatly from this system, but there are still notable downsides to ERP. Many businesses invest time and money in implementing their ERP system, only for it to underdeliver. Sadly, an organization can lose goodwill, reputation, and resources to large extents due to this failure.
There are varied reasons why an enterprise resource planning (ERP) implementation fails. This article focuses on the key reasons ERP fails. By recognizing these reasons, you can plan a strategic approach to prevent project failure during an ERP implementation.
7 Key Reasons Enterprise Resource Planning (ERP) Fails
ERP implementation failure refers to projects that suffer cancellation during development and implementation. Due to this, the project ends early, resulting in financial loss or businesses ending with an underutilized system.
It is impossible to pinpoint a specific reason for ERP failure. Instead, implementation fails due to multiple issues that compound each other. However, when you understand the common reasons, you know what to avoid.
Based on substantial research, we have identified several root causes of ERP project implementation failure. They include the following:
1. Absence of Clearly Defined Goals for the ERP Software
Many organizations introduce ERP software as a magic solution to their business-related challenges without having a defined goal. As a result, it is not unusual for ERP solutions to fail right from the beginning. In addition, many business owners don’t know why they purchase the software.
For your ERP implementation to succeed, you must define the specific goal of what you want to achieve with the enterprise resource planning system. Without a realistic approach, your business can experience setbacks that can derail your project. However, with your defined goals, you not only measure the success of the implementation but also lower the error rate.
2. Absence of End-User Training
One of the crucial stages of the ERP implementation process is employee training. Employees push back on adopting new software because of the lack of knowledge. Employees will revert to normal processes if they don’t understand how to use the enterprise resource planning software.
Your ERP project impacts your employee, business processes, and company culture. So you must dedicate time, budget, and resources to train your workforce on ERP software usability. In addition, we recommend you conduct multiple training to help them learn the software functionality and retain information over time.
3. Heavy Customization
Without differentiation, you have no competitive edge. Therefore, you customize your ERP software to set your business apart from others. ERP customization involves extensive coding modifications. However, customization should be strategic and used cautiously and sparingly.
When customization becomes too much, it is a downside to ERP. Excessive customization occurs when you heavily edit the source code and implement several integrations or third-party modules to get the necessary functionality. Some organizations have become caught in the trap of trying to make their new system behave exactly like their old one. To prevent this, you must identify the customizations that address your true business needs and provide demonstrated value to your organization.
4. Lack of Planning and Resource Management
You must consider quality when allocating resources to your ERP project. A successful ERP implementation requires sufficient planning and resource management. Therefore, procure the necessary hardware and software resources, skilled staff, custom development tools, etc.
It would help if you assembled the right project team of key users, IT staff, and a project manager to coordinate the project and report updates to the executive management. To avoid future knowledge gaps, key users should cover all relevant business areas, such as marketing, production, sales, logistics, etc.
5. Underestimating Data Migration
The transfer of old data into an ERP system is often underestimated or overlooked. Most project teams must perform data cleansing and system buildout because ERP systems cannot fully function without data. Also, you cannot automatically increase the quality of poorly maintained data with an ERP project.
Unfortunately, data migration into a new ERP platform can be challenging, however necessary. So, you must be patient and persistent to know which data to transfer and what format it should be in. Doing this can prevent supply chain disruption and allow employees quick access to information when needed.
6. Lack of Open Communications
Consistent and open communication between management, the project team, employees, and the software vendor is important for ERP system implementation. If employees' questions and concerns are not addressed, rumors and negative results can ensue, thus affecting the implementation.
Schedule regular meetings between the ERP project manager and the management team to ensure open communication. Also, schedule regular information sessions for your workforce, and put tools in place to ensure the continuous flow of information and transparency.
7. Unrealistic Project Expectations
When business owners are overly ambitious with their project budget and timeline, they end up disappointed. You should avoid rushing the evaluation and implementation of the project.
The complexity and challenges of ERP implementation should not be underestimated, as it requires careful coordination of all processes. Therefore, it's best to hire ERP experts who can successfully navigate every challenge experienced along the way.
How to Prevent ERP Failure
Without a solid understanding of ERP implementation, it may fail. This can cause the disruption of important business processes during the ERP operational change.
However, preventing failure is possible by doing the following:
● First, make sure you know what you are implementing
● Then, get the appropriate implementation resources and select the right partners
● Establish strong project governance
● Prioritize ERP training
● Objectively access project risk
● Ensure your estimated budget and timeline are flexible for all components of the implementation process
Let's Help You Avoid ERP Failures
Enterprise resource planning is a transformative solution for businesses. However, many things can go wrong when implementing an ERP system. With the above-highlighted reasons for ERP failure, business owners can learn how to avoid them when preparing their projects.
We can also help you avoid these failures. Learn more about ERP by reading the #ERPVisions blog.