Why Do ERP Projects Fail?

Updated on :July 15, 2024
By :Hailey Stewart

Sustainability, adaptability, and preparedness are three terms that relate to today’s business environment. To support this motive, organizations are seeking the support of technologies, and systems. Enterprise Resource Planning (ERP) system is one such support tool that undoubtedly is critical for organizations to integrate critical business functions across the organization. What started as a Material planning system back in 1960 has evolved to accommodate more functions today as ERP. With changing times, newly formulated demands, and innovations, ERP systems are expected to come with new capabilities to stay relevant. From the capacity to manage simple transaction processing, ERP today is expected to be more intelligent, re-imagined, and re-engineered to accommodate better functionalities. The traditional ERP systems will now require to include AI, machine learning, blockchain, and IoT to meet the competition and stay ahead. In a crux, ERP needs relevancy. It has to be accommodative to bring agility and flexibility. It has to be composable, ready to mingle with other systems like CRM, HRM, FRM, BI, LMS, Etc., and allow businesses to adopt various flourishing business capabilities.

But, whether you use a traditional ERP or a composable ERP, a few things can bring your ERP projects down – Unrealistic goals, lack of time for data migration, adoption, training, and process completion, are a few noted reasons for ERP project failure.

ERP software often acts as a support system for businesses. It's a powerful tool that can help companies streamline their operations and become more efficient. The soaring success cases of the ERP system have enticed businesses to utilize and invest in the software. 

Unfortunately, there's a dark side associated with ERP software. It can also be vulnerable to failure if not planned and executed correctly. 

However, many ERP projects need to meet their goals, leading to costly delays and over-budget projects. This blog post will explore the subject well, and discuss ways to successfully implement  ERP projects.

What is ERP?

Enterprise Resource Planning (ERP) is a software solution designed to help businesses manage their day-to-day operations, from accounting and financial management to inventory and customer relationship management. The goal of ERP is to streamline a business's operations and maximize efficiency.

ERP solutions are designed to be comprehensive, meaning they're built to include modules that cover all aspects of a business's operations. This includes modules for finance, human resources, sales and marketing, inventory control, supply chain management, and more. 

ERP systems also have features that integrate with existing third-party applications, such as payroll systems, HR platforms, and accounting software. An ERP system is often cloud-based, hosted on the internet, and can be accessed anywhere with an internet connection. This makes it easy for companies to update data in real-time and access reports in one centralized location.

ERP solutions provide several benefits to businesses of all sizes. Consolidating a business's data into one centralized platform improves accuracy and decision-making. It also reduces the time and effort needed to manage accounting and inventory. ERP solutions can also give businesses greater visibility into their operations, allowing them to understand their performance better.

How Does ERP Impact Businesses?

How does an ERP shape businesses

Enterprise Resource Planning (ERP) systems are powerful tools businesses use to manage and streamline operations. ERP systems can help enterprises increase efficiency and optimize their operations by automating many daily tasks that would require manual effort. Around 88% of the organizations consider that the implementation of ERP helped them to shape a successful business. Here we will explore how ERP can shape and transform your business and streamline processes. 

Operational Efficiency 

ERP software is designed to help businesses optimize their operations and become more systematic. By integrating various departments and functions, ERP systems can provide a platform that makes it feasible to manage business operations and allocate data. 

Automation 

ERP tools can significantly benefit from automating repetitive tasks and allowing employees to shift focus to higher-value activities. By integrating ERP with purchasing software for the automation of the processes like order entry, invoicing, and inventory tracking, businesses can reduce the amount of manual effort required and the errors caused by manual data entry. 

Enhanced Security

Data security is one of the many key factors responsible for shaping the business. As per the reports, the number of cyberattacks per company increased by 32% in 2021. Protecting digital assets from unauthorized access is more important than ever. Integrating ERP solution provides enhanced security to confidential information and prevents it from getting into the wrong hands. ERP solution measures security through different practices such as risk and failover management, attack prevention, and advanced layers of security advancements. 

Better Visibility 

To have better visibility into the performance of different departments and help managers make informed decisions, the ERP tool comes to the rescue. The integrated reporting capabilities of ERP solutions allow businesses to monitor the performance of each department and quickly identify areas where improvements could be made. This improved visibility also helps companies better understand their customers and take the necessary steps to improve satisfaction through customer service software

Minimized Cost 

ERP solutions can help reduce the cost of operations. By automating processes and improving visibility into operations, businesses can reduce the amount of manual labor required and minimize inventory costs by tracking product availability in real-time. This can result in significant cost savings over time. Binding procurement software along with the ERP software will be a win-win situation for businesses and reduce overall costs. 

Minimizing Risk

Finally, ERP solutions can help businesses remain compliant with government regulations. ERP solutions ensure that companies always comply with applicable laws and regulations by providing access to up-to-date information. This helps minimize the risk of costly penalties or legal action. 

In summary, ERP software shapes businesses and streamlines operations to become more efficient. Automating processes, improving visibility into operations, reducing costs, and ensuring compliance are just some of the ways ERP solutions can help businesses become more successful.

Why Does an ERP Project Fail?

reasons for ERP project failure

When planning an ERP project, it's essential to be aware of the potential risks that could lead to a failed implementation. Whether it's inadequate budgeting, unqualified personnel, or a lack of communication, several factors can derail your ERP project and cost your business valuable time and resources. Here are ten common reasons ERP projects fail.

1) Lack of Executive Sponsorship

One of the most common reasons an ERP project fails is the need for more executive sponsorship. Executive sponsorship is essential to the success of any project, especially a large-scale one like an ERP implementation. 

Without strong executive sponsorship, an ERP project can quickly lose focus. Executive sponsors are responsible for providing strategic direction and setting the tone for the project. They must also ensure that the necessary resources, time, and funding are in place for the project to be successful. 

Furthermore, it is their responsibility to ensure that the objectives set out for the project are met. Without an executive sponsor willing to take ownership of the project and provide guidance, the chances of success diminish significantly.

2) Lack of Organizational Readiness

Organizational readiness is an often overlooked but critical factor in the success of an ERP project. Before any new technology is implemented, the organization must be prepared to accept and make it part of its everyday operations. The implementation is likely to fail if the organization is not ready for the change.

Organizational readiness ensures that the people, processes, and systems align with the ERP project's goals. The organization needs to assess its current practices, resources, and strategies to accommodate the new system

To do this, organizations should review their staffing levels, analyze how their existing processes will be affected by the ERP, and ensure they have adequate hardware and software capabilities. Additionally, it requires assessing whether or not the new system will fit into the company's overall goals and objectives.

3) Lack of User Involvement

One of the most common reasons why ERP projects fail is the need for more user involvement. User involvement is an important factor for the successful implementation of an ERP system. Without users being involved and engaged in the process, it can be not easy to effectively use the system.

It's vital to ensure that users are kept informed about project progress and that their opinions are taken into account throughout the process. This helps to ensure that any requirements that may have been overlooked are addressed before implementation. It also helps to ensure that users are comfortable with the system and can make the most out of it.

It's also imperative to provide users with adequate training to understand how to use the system. With proper training, users may be able to use the system effectively and may be more likely to adopt it. Providing users with access to additional support and resources can also ensure they can take full advantage of the system. 

By involving users in the ERP project from the beginning, organizations can avoid any pitfalls that may arise due to a lack of user involvement and help ensure their project is a success.

4) Lack of Business Process Reengineering

One of the key reasons why an ERP project can fail is due to a need for business process reengineering. Business process reengineering (BPR) is a term used to describe redesigning and optimizing existing processes to improve efficiency, effectiveness, and cost savings. This process should be undertaken before, during, and after implementing an ERP system to ensure that the new system fits into the organization's existing operations. 

To soar high on success, organizations must ensure that their ERP projects are accompanied by a robust BPR process that considers the organization's current processes and any potential changes that need to be made for successful integration.

5) Lack of Change Management

Change management is a crucial component of any ERP project. It involves planning, communication, and coordination to transition to the new system successfully. The new team members may be unaware of the new system. They may need help understanding the reasons for the new system, and the skills required to use it effectively.

When implementing an ERP system, it is essential to consider the human element. The organization must ensure that all stakeholders understand the implications of the new system and how it will affect them. This can be done through communication, training, and other forms of engagement through change management software. It is also vital to create a system of incentives to motivate stakeholders to embrace the change.

Lack of change management is one of the primary reasons why ERP projects fail. Without proper change management, employees will not receive the support they need to shift to the new system. This can lead to confusion, frustration, and a lack of adoption of the new system. Furthermore, organizations may waste resources without effective change management by investing in a system that fails to deliver results.

6) Lack of Training

One of the main reasons why ERP projects can fail is the need for more understanding of the system. Users must be appropriately trained and adequately equipped before they begin using the ERP system, as it will enable them to understand how the system works, what they need to do, and how to best use it.

For effective training, employees should know about the essentials of an ERP system, its features, and functions, how to use the software, troubleshoot problems, and how to customize the system for their needs. Additionally, any existing processes must be adapted to suit the new ERP system.

It is also important to keep up with regular training sessions. As the system is used over time, new features or updates may be added that require additional training. It is to keep users up to date and ensure that they understand how to use the ERP system properly and effectively. 

Finally, it is important to recognize and reward employees who have taken the time and effort to learn how to use the system. This can motivate other employees to do the same, increasing overall efficiency and productivity.

7) Lack of Post-Implementation Support

Once an ERP system is implemented, it requires continual maintenance and upgrades to keep up with changing business needs and technological advancements. Without the proper support, businesses can find themselves dealing with errors or system downtimes that can lead to costly and time-consuming fixes. Furthermore, without help, companies may not be able to take full advantage of their ERP system as new features or modules may not be accessible. 

To ensure a successful ERP implementation, businesses should consider investing in post-implementation support. This includes a designated team of experts who can help answer user questions, troubleshoot any technical issues, and provide guidance on making the most of their ERP system. 

Additionally, this support team should know the specific ERP system and the organization's industry to provide the best advice. By investing in post-implementation support, businesses can maximize the value of their ERP system and ensure long-term success.

8) Inappropriate Hardware and Software

At times the system may not be able to meet the organization's needs due to an insufficient computing environment, or it may need to be running on outdated or unsupported software versions. In either case, this can lead to issues with performance and reliability or a lack of data security. It is essential to ensure that the hardware and software are up-to-date, reliable, secure, and adequately supported. 

It is also necessary to plan to upgrade the system as technology evolves regularly. This will help ensure that the system remains robust and secure. Additionally, it is important to have a regular maintenance schedule in place to keep the system running smoothly. It is also wise to ensure that users have the right skills and expertise to use the system effectively. With these measures, an ERP project will likely succeed due to adequate hardware and software.

9) Implementation Overruns

Many projects are estimated incorrectly, or the scope needs to be defined correctly, leading to unexpected delays and costs. Projects that fail to meet their expected deadlines can suffer from low user adoption and trust and an increased likelihood of budget cuts.

To avoid this issue, organizations need to be realistic when estimating the project timeline and make sure they have a backup plan in place if the project falls behind schedule. Furthermore, it is important to stay vigilant throughout the project life cycle to identify and address any potential issues early on. A clear understanding of the scope, resources, and timeline can help ensure that the project is completed within its allotted time frame.

10) Misaligned Incentives

When organizations implement an ERP system, there are often multiple stakeholders involved. This can include executive sponsors, department heads, employees, consultants, and vendors. Each of these stakeholders has its incentives, which can be very different from one another.

For example, executive sponsors may be focused on cost savings, while department heads may be focused on improved productivity. Employees may be looking for increased efficiency, and consultants may be focused on their fees. Vendors may be focused on selling more products or services. If these incentives aren't aligned in the right direction, it can lead to conflicting objectives and a lack of motivation to move the project forward.

Misaligned incentives can also cause significant delays or even derail the project altogether. With everyone being focused on the same objectives, the project will thrive. Organizations must ensure that all stakeholders clearly understand the desired outcome and incentives that align with those goals.

11) Use of an Outdated ERP System

Every ERP software has a dedicated life cycle. Continuing to use a degraded ERP system will lead to project failure. As a result, businesses will face inevitable consequences. An outdated ERP system becomes unsuitable for tackling modern-day business challenges. 

Offering software upgrades become increasingly complex, which leads to data vulnerabilities. The maintenance will take a big bite out of your budget. Additionally, the software may stop working on the current hardware, leading to more expenses and no productive outcome. 

To prevent the project's downfall, utilizing the latest version of the ERP system will be beneficial. Integrating AI and machine learning in the ERP system lets businesses focus on high-priority tasks. It also automates tasks and generates analytical reports and KPIs, thereby optimizing performance. 

3 Famous ERP Project Failure Cases & Their Key Learnings 

Implementing ERP systems has become increasingly popular among organizations, offering various benefits like automation and cost-savings. However, implementing these complex systems is not without risk. Failure cases do exist. Here are three famous ERP project failures and what lessons can be learned from them. 

Case 1: Norfolk County Council 

In May 2020, Norfolk council issued deals of $16.4 million for Big Red’s software and $5.3 million for Insight Direct to be their service partner. 

The ERP system was designed to bring significant efficiencies in performing operations like UK local government HR, finance, payroll, procurement, and analytics services. 

Despite how the overall planning went, the delays have caused a knock-on effect which means that the planned completion date of 2021 was carried forward to April 2022 to avoid the Christmas and New Year periods. 

This delay is understood to have come from the changes in the technology supplier, additional resources not allocated on time, and COVID-related remote working. 

Key Learning: The key learning from this project is that every effort made to adhere to best practice processes and methodologies, delays, and unexpected issues can put the project behind and go over the budget. Adopting an AI-based ERP system that can predict and allow users to be proactive is the need of the hour. This may avoid ERP project failures.

Case 2: J&J Snack Foods 

J&J Snack Foods is a leading food provider with snack brands like ICEE and SuperPretzel. The company lost $20 million in revenue in Q2 after moving to a new enterprise resource planning system. After implementing the ERP system, the most significant issues were operational, manufacturing, and supply chain challenges. The unsuccessful efforts led to a $7.6 million rise in operating expenses. 

Key Learning: The company needed to put strategic thought into implementing the ERP system. To keep up with the changing dynamics, the company must plan out resource requirements adequately before the implementation project. Data integration and inventory management would help the project stand by difficult circumstances. 

Case 3: SAP ECC Replacement, City, University of London

It was recently announced that the $20 million SAP ECC replacement project at the City, University of London, has been delayed indefinitely. This delay is due to the university needing to figure out precisely what they want from the project, leading to confusion and stalling decisions about moving forward. 

The 20,000-student institution published a legal notice which said, " City has decided not to award a contract. This is because, during the procurement, it was realized our requirements were more complex than had originally been anticipated. We do not have confidence that a contract awarded under this procurement would best serve our objectives."

Key Learning: The story of this failed project serves as a critical lesson that convincing users to work in a different environment takes time. As enticing as it sounds to replace the ERP system with SaaS software, organizations should be mindful of the consequences and outline objectives beforehand. 

What Should Your ERP System Include? 

An ERP system can help businesses gain efficiency, track and manage their data, and increase visibility into all facets of their business. Considering today’s demand for agility, automation, customization, and integration, ERP solutions must include specific components to ensure an organization is meeting the ever-changing needs of its customers and staff. 

Flexibility 

The primary focus of any ERP should be flexibility. To remain competitive, companies need to be able to quickly adapt and evolve their processes according to market changes or the latest regulations. An ERP system should allow companies to automate inventory management, supply chain management, and financial reporting processes. This not only saves time but reduces errors. 

Ability to Integrate 

Another essential element of a great ERP system is the feasibility of integrating other business software like CRM software, HR software, and POS software. The system should allow users to quickly access data from multiple sources without switching between applications or logging into separate accounts. Integration with cloud-based solutions is also crucial for companies looking to improve scalability and stay ahead of competitors in terms of speed and reliability. 

Customization 

Customization is the key to any successful ERP solution, as different businesses will have different needs depending on size, industry, and customer base. A flexible platform that can easily accommodate customization requests helps companies achieve a more personalized experience while ensuring each customer has access to the features they need. Additionally, having user-friendly tools that simplify complex processes makes it easier for non-technical users to take advantage of all features without relying heavily upon n IT support. 

Analytical Capabilities 

An ERP system should include real-time reporting tools that offer insights into customer behavior, performance trends, and opportunities for improvement and allow users to make sound decisions. Companies may also want predictive analytics, which uses machine learning algorithms to anticipate potential outcomes based on past performance so they can plan accordingly for future initiatives or identify potential issues before they convert into problems. 
 

Five Tips To Implement ERP Successfully

How to implement ERP successfully

ERP implementation is introducing an ERP system into your business to streamline operations and enhance efficiency. It is an essential step towards making sure that your business operations are running smoothly and efficiently. Companies typically spent 17 weeks before implementing ERP software. Here's how to successfully implement an ERP system for your business. 

Assess Your Business Needs 

Before you can start implementing ERP in your business, it is essential to determine your needs and what kind of features your system should provide. Identifying the right software solution that meets your unique requirements is critical in ensuring your successful ERP implementation. 

Develop a Strategy 

Once you have identified your needs, it is essential to develop a strategy to ensure your ERP implementation goes as smoothly as possible. This includes creating a timeline and budget and assigning tasks and responsibilities to the appropriate organizational stakeholders. 

Test, Test, Test

Before launching your ERP system, test it thoroughly to ensure it meets all your needs and expectations. It would help if you also planned for regular software updates and testing to ensure that the system continues to meet your evolving needs. 

Train Your Employees

Training your employees on how to use the new ERP system is essential for ensuring its success. Make sure that all of your employees understand how the system works and how they can best utilize it. 

Analyze Results

Once you have implemented the ERP system, analyze the results to ensure that they meet your expectations. If it isn't, consider making adjustments to the system or finding different ways to use it that better meets your needs. 

By following these tips, you can ensure that your ERP implementation goes as smoothly as possible and that it benefits your business in the long run. With the right approach, ERP can be an excellent tool for streamlining operations and improving efficiency.

Making The Most Out of ERP 

Once you have implemented an ERP system in your business, the next step is ensuring you make the most out of it. Here are a few tips to help you maximize the value of your ERP system:

Keep Data Updated

Make sure that your data is up to date, including customer information, inventory levels, and financial reports. Regularly updating your data will ensure you can access accurate, up-to-date information to make sound decisions.

Focus on Automation

Automation is one of the most significant advantages of using an ERP system. From automating mundane tasks to streamlining complicated processes, look for ways to use your ERP system to automate as much as possible.

Train Your Staff 

The success of your ERP system depends on how well your team understands and uses it. Providing adequate training to staff can help them make the most out of the system and get more from it. 

Utilize Reporting Capabilities 

Most ERP systems come with reporting capabilities, allowing you to gain better insights into your business operations. Take full advantage of these features to analyze trends, spot opportunities, and identify potential areas of improvement.

Leverage Integrations 

To maximize the value of your ERP system, look for ways to integrate it with other software solutions in your business. This can reduce manual work and make it easier to share information across multiple departments.

Modernize your ERP

After the successful execution of the ERP system, the groundwork does not end here. Post-go-live improvements are required as per the current market trends or demands. 

Organizations should conduct performance measurements to identify whether the system is performing as expected and meeting the business objectives. Monitor for anomalies, use data visualization software to identify the trends, and tap into the areas that call for improvement. 

Go for Two-Tier ERP Systems

Two-tier ERP systems are architectures where the company's primary system is connected to one or more separate business units that use their specialized systems. These systems help provide companies with the ability to tailor their software to specific departments and operations, allowing them to improve efficiency, communication, and cost savings. 

Additionally, a two-tier ERP system offers a wide range of data management tools for the utmost accuracy of the organization's information. 

Following the above steps can bring the most out of the ERP system to the table and make the most of its capabilities. With the right approach, you can leverage the power of ERP to transform and shape your business for success.

Wrapping it Up

Improvements in the use of the ERP system are an outcome of improvements in the process” 

Stephen Harwood.

When it comes to the success of an ERP project, proper steps must be taken during its planning and execution stages. It is a multi-disciplinary effort. Numerous factors contribute to why ERP projects fail. A few factors that affect include - ERP marketplace development, vendor selection, projects, process design, and post-implementation improvements. Common culprits include inadequate preparation, ineffective stakeholder management, a lack of buy-in from users and decision-makers, budgeting issues, a poor fit for the company's needs, lack of training or expertise with the software, inadequate communication among team members and departments, incorrect system setup, and difficulty adapting to change.

Organizations must take proactive measures to increase their chances of ERP success. Preparation is vital—define expectations before implementing the software. Be sure everyone involved understands their role in the process and how it affects them directly and other departments throughout the organization. Establish realistic timelines for rollout, and don't rush the project if not necessary—budget for ongoing personnel training so that everyone can become accustomed to using the system correctly and efficiently.

Being prepared, getting user buy-in, taking adequate time during setup and implementation processes, and ensuring your staff is adequately trained in utilizing the software properly can lead to success when deploying an ERP system. Above all, using an updated, well-aligned ERP system can work best for you. “Select, Implement, Use Only Today’s Advanced Systems.” By following these guidelines, you can avoid potential pitfalls when embarking on a new enterprise resource planning project.


 

Hailey Stewart
Hailey Stewart

Hailey Stewart is a computer science graduate working as a content writer with GoodFirms - an excellent platform providing IT Companies and software reviews. She has 4+ years of experience in content writing, social media, and marketing. Hailey loves to write about cutting-edge technologies and the latest trends in the digital space. To connect or learn more about the information, get in touch with her at - [email protected]

Read Similar Blogs

Odoo ERP: Is this Open Source Application Suitable for the Evolving Business Needs? GoodFirms' Review

Odoo ERP: Is this Open Source Application Suitable for the Evolving Business Needs? GoodFirms' Review

Starting early during his student life as a developer, FabienPinckaers developed several online products and websites with plenty of ideas. But he decided to re ... Read more

A Cost & Feature Comparison Guide for Enterprise Resource Planning Software

A Cost & Feature Comparison Guide for Enterprise Resource Planning Software

The modern business landscape is rapidly transforming owing to the rise in the usage of digital technologies in business functions. This transformation is visib ... Read more

What is a Connected Cloud-ERP System?

What is a Connected Cloud-ERP System?

A connected Cloud-ERP system consolidates an organization's dynamic functions and multiple operational activities into one central database, allowing busine ... Read more