Why Do Some ERP Systems Fail?

Could you provide insights into the current litigation scene in the ERP space?

One key observation we have made in the ERP litigation space has been the movement of litigation cases away from just SAP and Oracle to other software developers.  An example of this would be Infor who has moved in the Tier1 space and become a bigger target for litigation based on their deal size and alleged damages.  In addition, we are also seeing cases arising in the Tier2 space as many of these vendors are trying to move upstream in the market.  In addition, some software developers have transformed their existing “on-premise” solutions to a multi-tenant “cloud” environment, without materially rearchitecting their product.  This has caused some implementations to go off track as the core programs of the on-premise system were never written to operate with today’s modern languages and databases.

Why do ERP systems fail? What are the common reasons behind ERP software failures?

A principal reason why ERP implementations fail is due to the customer’s core business requirements not being completely defined and communicated to the implementation team at the outset of the project.  Comprehensive requirements gathering is the keystone activity required to make the proper software selection and system design during the implementation.

Unless you have completed multiple selections and implementations, it is well worth the investment to engage outside consultant expertise to assist in the management of the ERP project.

Another major source of ERP software failure is people related.  This can start by not communicating why a new system is being installed or not including key business experts in the requirements gathering and demonstration processes.  This exclusion will almost always result in resistors that try and derail the project because they feel excluded.  Best case they will go back to using their old manual tools and processes and the worst case will be to spread rumors about job loss and other frightening misinformation across the organization.

Finally, a lack of executive sponsorship from senior-level management during the implementation could derail the efforts.  They need to set the tone and evangelize the benefits of the new system to ensure that staff endorse and adopt it.

How can such disasters be avoided?

Unless you have completed multiple selections and implementations, it is well worth the investment to engage outside consultant expertise to assist in the management of the ERP project.  These consultants have extensive experience negotiating software license agreements and building specific scripts for vendor demonstrations. This ensures that the key functionality needed to meet the customer requirements is shown versus the vendors canned presentation.  These are all the types of things an expert can do to increase the probability of success in an ERP implementation.  Conservatively, 60% of ERP implementations fail… failure meaning anything from: ‘we can’t ship products’ to ‘we aren’t realizing the level of benefits we were expecting from the new system’.

You must have not only your best players working on the ERP project, but you must backfill their current jobs depending upon how much they are involved in the project.

Listed below are the top 8 reasons for failed implementations. All these issues are not present in every case we handle, but you will want to pay particular attention to organizational change management (OCM) issues.  As a matter of fact, OCM deliverables and processes are usually the first items cut from an ERP system budget and yet they are usually a relatively small percentage of the total cost of ownership (TCO) for the project, but usually have the largest impact on the success of the project.   Here are some items you want to review before starting any enterprise software project:

1. Lack of top management commitment – If top management shows little interest then everyone will see it and adopt the same attitude…get out there, walk around halls, attend requirements meetings and show that you care.
2. Not having ‘eyes wide open’ (i.e., unrealistic expectations) – Setting unrealistic ‘go live’ dates, unrealistic estimated project costs, or not anticipating the burnout factor on the core team doing the implementation and their current job, is a great way to lose your best managers and sink your project.
3. Poor ERP package selection – This comes back to thorough requirements gathering from all impacted departments, understanding their pain points and them making sure they prioritize their issues to make sure no critical piece of functionality is missed in the requirements gathering session. If this isn’t done, then don’t be surprised when the system is rolled out and is missing some key functionality. This also can be affected by the method of deployment used for a system. If the system is cloud-based and the users are located in a remote area, downtime may kill any eCommerce business, which could result in customer attrition.
4. Inadequate project resources – You must have not only your best players working on the ERP project, but you must backfill their current jobs depending upon how much they are involved in the project. Many resignations have been tendered due to unrealistic expectations that a core team player will also continue to do their regular job.
5. Resistance to change and a lack of employee ‘buy-in’ – People love change, as long as it doesn’t affect them! If you don’t communicate why there is a need for a new system and how it won’t be eliminating most people’s jobs (in fact, workers may be retrained and redeployed in positions with more responsibility), then employees may not fully adopt the new system.
6. Poor project planning – Good project management is essential for good implementation. Don’t settle for someone on your staff that did an ERP project implementation 10 years ago…things have changed!  Get them either outside help or hire a project manager that is current and knows what is essential for a good project; in fact, try to find a PMP certified project manager because then you will know they have the skills required.
7. Failure to track business benefits and ROI – Of course if you are counting on a new ERP system to improve efficiencies, increase sales and thus pay for itself in a certain period of time…YOU MUST track your increases impacting your ROI through KPI’s that are baselined before the project and on a regular basis after the project has been implemented.
8. Inadequate training and education – Again, you know what gets cut first out of an ERP project budget! Don’t forget a fantastically implemented system that nobody uses is sure costly and a black eye for the organization and its leadership; people must be trained, or they will revert to old methods negating the benefits of the new system.

Do not let the attorney unduly influence you regarding the content of the report.

What role do you play when instructed as a witness in such cases?

Our experts are engaged by our client attorneys to provide honest, unbiased opinions about the sources of a failed software implementation.  Our experts play a wide variety of roles for attorneys in a typical case.  They often are engaged early to provide their initial assessment, assist with case strategy and document discovery, and develop an expert report that is then supported by deposition testimony.  Often, they are asked to prepare rebuttal reports against the opponent’s experts and testify in open trial or mediation. We are engaged by roughly 55% software developers/systems integrators and 45% end-user clients.

How should experts in this area handle such cases, in your opinion?

Do the detailed analysis and research on the specific details of the case and don’t shortcut things based on previous experience.  Read all the relevant, discovery documents including:  contracts, SOW’s, MSA’s, change orders, status reports, requirement documents, design deliverables, system trouble tickets, depositions, etc.  Develop a solid list of opinions supported by facts.  Work independently but keep the attorney aware of your approach and what additional information you require to support your opinions.  Do not let the attorney unduly influence you regarding the content of the report.  Be honest in your assessment and truthfully represent it in your written work products and verbal testimony.

William L. Baumann

bill.baumann@panorama-consulting.com

720-515-1377 Ext. 117

720-636-4529

My name is William L. Baumann and for five years I have run the Expert Witness Practice at Panorama Consulting Group.  As Director of the Expert Witness Practice, I am mainly responsible for the selection of the Expert(s) that we recommend to our Attorney prospects based on the case’s particular requirements.  If our expert is selected, I also assemble the support team required to allow less expensive and faster generation of case deliverables.  I also handle the generation of the budget for the case as requested and then track the actual costs to that budget.  I am the primary point of contact for the engaging attorney when it comes to changes in the original timeframe of the case or changes in scope based on new developments in the case.  I also participate in the expert review meetings with the attorney(s) to ensure nothing gets missed in the reviews.

Panorama has been in business for over 15 years providing digital business transformation, enterprise software selection, business process reengineering, organizational change management, independent verification and validation, project recovery and litigation support through our Expert Witness Practice.  One of the key differentiators between Panorama and our competitors in the software selection space is that we are truly independent, meaning we receive NO compensation from any software developer or systems integrator. To us, it makes no financial difference if we recommend one piece of software over another.