Those considering a new ERP system face worrying statistics: surveys suggest that around half of all ERP projects fail, costs are significantly exceeded, schedules are not met, and improvements do not live up to expectations.
In looking at the data, the main reason is clear: The implementation of ERP software is new territory for most medium-sized companies, who lack experience with large and complex IT projects.
Although competence with ERP systems is gradually being built up throughout the course of an ERP implementation project, some of the most important strategic steps happen at the beginning stages – before companies have developed the ERP know-how. The consequence: mistakes at the early stages set the whole project off on the wrong track.
The truth is that most ERP projects do not fail because of a poor selection process or the functionality of the ERP software. They fail because of the ERP implementation process. The solution? Prepare your company and your team for the introduction of ERP to mitigate these risks.
Experience shows that there are seven typical pitfalls that endanger ERP projects. Read on to find out how to avoid them.
Pitfall # 1: Poorly Defined Goals for the ERP Software
Many companies see the introduction of ERP software as the magic bullet solution to all their problems, but don’t take sufficient time to define the specifics of what they’re trying to accomplish or how they’ll measure what success should look like.
Often, every department expects a different improvement, so how can organizations know which requirements have priority? It’s important to have a clear documentation of what exactly you want to achieve with the ERP system and where the priorities lie. When you don’t have a detailed map of where you want to go, guiding you each step of the way, you’re likely to get lost amidst the dangerous distractions of politics, short-term thinking, and minor setbacks that turn into project derailments.
- Lower error rate
- Reduce throughput times
- Speed up time to market
- Improve service quality
- Improve collaboration between departments
- Automate and standardize workflows
- Provide accurate and up-to-date business analysis
- Support internationalization
Pitfall # 2: Lack of Sufficient Management Commitment
Most companies know that an ERP project requires a considerable amount of commitment and sometimes overtime work from employees, in addition to maintaining the day-to-day operations. But what about the management team? Leadership that’s disengaged or too busy can kill a project in its tracks. An ERP implementation isn’t about pushing a button and everything happens automatically: it takes time and careful attention to get right.
In order to succeed in the ERP implementation, the project team needs strong (and vocal) support from management. Communicating clearly and frequently with the company about the expectations for the project, helping free up the resources needed, maintaining a positive attitude and energy, showing appreciation, and making themselves available for planning sessions are key ways the management team can help overcome this pitfall.
Tapping the right people for your ERP implementation team is key to the project's success.
Pitfall # 3: Missing Expertise on Project Team
Every ERP implementation should be approached methodically. This starts with assembling the right project team, consisting of a project manager, key users and IT staff. To avoid later knowledge gaps, the key users should cover all relevant business areas, including purchasing, marketing, logistics, sales, production, controlling and service. The team needs to possess the right skills for the job, and needs a leader who deploys their skills well in a coordinated fashion through the ERP implementation.
Characteristics of a good project manager:
- close to the daily business
- deep insights into all departments
- organizational skills
- social competence / teamwork
The project team is usually supported by a project manager from the software provider, who drives the process based on an implementation methodology, defines milestones together with the team and provides valuable input.
Also important are firm responsibilities and competencies, for example through role descriptions and ground rules for resolving disagreements. Building a great team takes a clear framework of goals and expectations, as well as strong, proactive leadership.
Pitfall #4: Lack of Open Communications
Many ERP implementations suffer from inadequate communication between management, the project team, employees, and the software vendor. If employee questions and concerns go unanswered, rumors and negativity can take hold, creating yet another obstacle for the implementation team.
Instead, communicate openly from the beginning. In the weeks leading up to the implementation kickoff, put the tools in place to ensure a continuous flow of information and maximum project transparency. For example, set up a regular meeting time each week between the ERP project manager and management team. Schedule regular information sessions for the employees. Use company newsletters or company-wide emails for project updates. Make sure documentation, to-dos and current project progress will be easily accessible to all involved. It is far, far better to err on the side of over-communication rather than under-communication. When your people don’t clearly understand the day-to-day progress of the ERP implementation, and where it’s going next, you have a communication problem to fix.
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Pitfall # 5: Production Processes Not Clearly Defined
In order for an ERP system to map the processes in your company, the current processes must be clearly and thoroughly documented. Process modeling is complex, so sufficient time should be allocated for this important preliminary work.
This is the time for optimization! Your software vendor should be able to help you evaluate your processes and find areas for improvement before they are mapped in your ERP. It pays to reevaluate and reorganize your workflows:
- Which processes are really necessary and useful?
- Which processes can be made more efficient with the help of the new software?
- Which workflows have not been updated recently, even though processes have changed?
Be open and flexible too, if the new software can not reproduce a specific process exactly as you are used to, it may make sense to tweak your process rather incurring the cost of custom programming. Analyzing and discussing all this in advance is crucial.
Pitfall # 6: Underestimating Data Migration
The transfer of old data into the new system is an often overlooked and underestimated aspect of a successful ERP implementation. The data migration is not limited to a simple Excel export and import, but all data must be targeted and meticulously prepared.
In addition, many people wrongfully believe that they will be able to automatically increase the quality of poorly maintained data with an ERP project. The data quality in the new system will only be as good as the quality of the migrated data. As the old saying goes, “garbage in, garbage out.” To avoid this problem, duplicates, spelling errors or card details should be corrected before migration.
After the records have been cleaned up, the mapping takes place. Each field of the old data record is assigned to a counterpart of the new data structure and a check is made as to whether the data types are correct (for example "date," "text," or "currency"). Only when the new data structure works in a detailed simulation will it be transferred to the production system.
Pitfall # 7: Fear of Change
Companies should be prepared for the fact that not every employee is enthusiastic about the ERP implementation. After all, jobs and processes are changing, information is becoming more transparent, responsibilities may be redistributed - this change is sometimes met with fears and resistance. It is therefore important to communicate to each department the concrete benefits of the ERP project for daily work and to familiarize employees with the new system through workshops and training. When employees understand why the change is happening and the benefits the change will bring, they have a foundation for moving from fear of the known to increasing comfort with the change process (i.e., the ERP implementation).
Think of change management as a “change triangle” that includes technology/systems, processes, and people. You need to focus on all three parts of that triangle. As discussed in #4 above, communicate openly and frequently with your people through many channels, being sure to address questions and concerns as they come up. It’s far better that objections and resistance to the change get aired, and responded to, early in the process rather than during it, where it can do more harm to the project at unexpected moments.
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Conclusion: Implementation needs expertise!
The complexity and challenges of an ERP implementation are not to be underestimated, because the process requires the careful coordination of your systems, processes, and people. But with good planning and solid process organization, the obstacles can be removed and complexities can be clarified.
Support from an accomplished ERP manager on the part of the software partner contributes significantly to a smooth ERP implementation, as well as a proven implementation methodology. For medium-sized companies without in-house expertise, the experience and competence of the ERP provider should be a key factor in the selection process. You want an experienced partner who’s seen it all before, and helped companies successfully navigate every challenge along the way.
Starting an ERP selection? Get it right by contacting one of our abas Experts or by downloading our Guide to Selecting an ERP System in 7 Easy Steps.