“Enterprise resource planning (ERP) system has been one of the most popular business management systems, providing benefits of real-time capabilities and seamless communication for business in large organizations. However, not all ERP implementations have been successful. Since ERP implementation affects entire organizations such as process, people, and culture, there are a number of challenges that companies may encounter in implementing ERP systems.” Challenges in Implementing Enterprise Resource Planning (ERP) System in Large Organizations, MIT Sloan School of Management May 10, 2013
In my experience these challenges are due to;
• Complexity in legacy processes – driven by different approaches and localizations used to template individual systems in different parts of an organization. Primarily due to acquisitions of companies and different offices in different countries utilizing different currencies, languages or legacy software.
• Interfaces, work-around’s or processes having been built upon over time that although create a way to consolidate and integrate transactional data are not actually best practice. They are nonetheless considered ‘the way things are done here’. Otherwise known as the status quo. However this creates difficulty in top level reporting and makes the integration of a company wide ERP system very difficult, and any attempt to do so at risk of failure because it;
o Builds in too much complexity
o Gives Software consultants free reign to maximize functionality and design such complexity into the template (because this allows a bespoke approach to be followed allowing the billing of many more hours in time and development, and ties in the client organization into long-term specialist support.)
o Does not improve on the business reporting capability, although it may speed up the reporting process, and make access to the data more readily available. if the underlying transactional data is still ‘Garbage’, then the system outputs will still be ‘Garbage’.
Therefore it is paramount to review the ‘AS-IS’ business process, and systems, as well as the business model as a whole. The major goal of any ERP implementation is to increase operating efficiency by improving business processes and decreasing costs. Also, ERP standardizes processes and data within an organization with best practices. The company also streamlines data flow between different parts of a business by creating a one-transaction system. However, ERP implementations have sometimes failed to achieve the organization’s targets and desired outcomes. Much of those failures were not caused by the ERP software itself, but rather by a high degree of complexity from the massive changes ERP causes in organizations.
It is therefore preferable to fix the business model, tailor the process and streamline the business prior to any ERP software selection and implementation, BUT to have an overview of the standard templates of any preferred system prior to undertaking the change. A bit of a catch 22, but in effect common sense – if you understand what your end point possibly looks like before you start out, then the journey to get there is much quicker and focused. In addition, consider that if any new ERP system is more complex than the legacy systems and is more difficult to learn, this increases the errors by users, and, once made, errors will take far more time to resolve than before.
“Unlike other information systems, the major problems of ERP implementation are not technologically related issues such as technological complexity, compatibility, standardization, etc. but mostly
Therefore it is recommended that SIMPLICITY is the key driver for such process improvements, and systems implementations. This requires a thorough audit of the business, its model, its process and its existing systems. If a profitable business case can then be made for ERP, then the cultural, organisational and process changes should be initiated prior to the development of the system template. And ideally this template should be as close to the standard ‘out of the box’ functionality as possible for the chosen software. See Appendix for further guidance on ‘Readiness’, and the top 10 reasons for ERP failure.
APPENDIX
According to Gartner (2011), a readiness assessment is an activity used to determine the degree of readiness of an organization to execute a major project or initiative, and to help identify specific areas to focus on in the preparation process. Three level ratings – Ready, Limited, and Weak — are used, and an interpretation of readiness is made on the basis of these ratings. The rating system should be used very early in the planning phase of the project – before the ERP selection.
Hanafizadeh and Ravasan (2011) also proposed the framework of ERP Readiness Assessment with McKinsey 7S model. The framework indicates that ERP readiness can be assessed according to 7 dimensions: structure, strategy, systems, skills, style / culture, staff, and shared values / superordinate goals.
The implementation problems these large ERP systems face are driven by the complexity, risk, and integrated nature of the business processes they automate. ERP systems today touch almost every aspect of a company, so whether it is a completely new system, or just a major upgrade, there are a number of common pitfalls companies can avoid.
Top 10 reasons for ERP Implementation failures:
1. Doing it in the first place.
Even before implementation the company is dilemma whether they really require it or not. Often large ERP implementation projects fail before they even start. Companies unhappy with their current system become convinced their reporting, integration, or efficiency problems lie in the software they are using. Convinced the grass is greener on the other side of the fence, they embark on a large, risky, and expensive ERP replacement project, when a simple tune-up of their current system, or a small add-on application, such as a better reporting system or employee portal, would address the problem at a fraction of the cost. Even a reimplementation of the same software is usually less costly than switching to another software vendor.
2. No clear destination.
To be clear with the expectations. Once an organization makes the decision to implement a new ERP system, the first step is to have a clear definition of success. Often, lack of consensus on the problems being solved, the outcome desired, or the specific financial justification of the project, leads to challenges later controlling the scope and maintaining executive sponsorship. Having a clear destination means defining the important business processes, financial benefits, and deadlines up front and making certain stakeholders agree how to address them. Without a strong definition of success, the end point becomes a moving target.
3. A good plan or just a plan?
A detailed plan is very necessary for successful implementation. All projects of this size start with some kind of plan. However, more times than not, the plan are not realistic, detailed, or specific enough. Companies build a high-level plan with broad assumptions or underestimate the amount of business change involved. Despite how obvious this sounds, it remains the most common mistake companies make. To be a good plan, it needs to identify all the requirements and the people who are going to work on them. It needs to be at a level of detail where a knowledgeable person can visualize the work, usually in work blocks of a few days. It needs to have a logical sequence of tasks, like leaving time in the schedule to fix bugs found in test cycles. Until you have a good plan, you really do not know when the project will end or how much it will cost.
4. Part-time project management.
A person experienced in project management makes lot of difference. There is some debate whether project management is a skill all good managers should have or whether the field will eventually develop into its own professional discipline, just like there are registered engineers, nurses, and lawyers. Putting that debate aside, it is clear software projects of this size need their own dedicated, experienced project managers. Asking the executive sponsor or the business owner to also manage the project as a part-time adjunct to their main role means neither job will be done well. Not just a scorekeeper, the project manager needs to be an active leader pushing for accountability, transparency, and decisiveness.
5. Under-estimating resources required.
Most common blunder to happen is with resources projected. Having a solid understanding of the internal and external resources needed to complete the project is critical. For internal resources, understanding the time commitment needed from business users, typically in the Finance, Accounting, or Human Resources departments, is one of the most commonly underestimated areas. During critical phases of the project, it is often necessary to backfill the majority of transactional employees by bringing in temporary resources. This frees up the users of the new system so they have time for implementation and training. For external resources, having an agreement up-front with your consultants and contractors about the specific duration, skills, and quantity of resources needed is critical.
6. Over-reliance on the consultants.
Too much dependability on consultant can make the team more redundant. Most ERP implementation projects involve consultants, for the expertise, best-practices, and additional resources they bring. While their outside experience is definitely helpful for a project, there is a risk that the company can become over-reliant on the consultants. The company needs to maintain control over the key business decisions, hold the consultants accountable, and have an explicit plan to transfer the knowledge from the consultants to the internal employees when the project is winding down.
7. Customization.
This aspect makes it or breaks it for an ERP tool. Most companies these days understand that customizing their ERP system adds risk, time, and cost to the project. In fact, customizations, along with interfaces and data conversion, are the main areas of technical risk in ERP implementations. Perhaps more surprising is that in a recent survey, less than 20% of respondents implemented their ERP system with little or no customization. Despite the risk and expense of customizations, most companies find it enormously difficult to control the project scope by turning down customizations. Customizations always start out small, but incrementally grow to become the technical challenges that derail these projects. Few ERP implementations have zero customizations, but take a very firm line on justifying even the smallest ones and manage them tightly.
8. On the job training.
Experience makes a lot of difference. The typical lifespan an ERP system within an organization is 10 to 12 years. With that in mind, most employees in a company have been through one or two ERP implementations in their career. Just as you would not be comfortable with a surgeon as their first or second patient, the leaders of your ERP project, both internal and external, need to have experience implementing your specific chosen system several times. This is one of the major benefits to working closely with an outside consultant or directly with the software vendor.
9. Insufficient testing.
It should be treated as rectifying stage. When schedules get tight, reducing the number and depth of test cycles is one of the first areas that often get cut. The purpose of testing in an ERP project is not to see if the software works. The purpose is to see if the system meets your business needs and produces the output you need. Reducing testing may not leave defects undiscovered, but it certainly increases the risk the ERP system will be missing important functions or not be well accepted by end users.
10. Not enough user training.
The management shouldn’t hurry to start using the tool without adequate training to users. Today’s modern ERP systems are being used by more and more personnel within a company. Beyond the Finance and Accounting departments, modern systems also cover procurement, supply chain functions, compliance, customer relationships, sales, and much more. If the system includes human resources or expense reporting, then essentially all employees use the system. Training hundreds or thousands of users, to the right depth, at just the right time, is no easy task. Leaving training to a small phase at the end of the project makes it very difficult for users to get the training they need to understand the system and have a positive first impression at the rollout.
ERP OpenERP Software implementation http://blogs.bistasolutions.com/2013/04/24/10-reasons-for-erp-implementations-failures/
