Why ERP Implementations Fail: 5 Common Pitfalls and How To Avoid Them
As organizations prioritize reimagining their business systems through digital transformation, investments in Enterprise Resource Planning (ERP) systems continue to grow. IDC predicts that there will be an estimated $183 billion in ERP spend in 2024.
There is a reason behind that huge investment: ERP systems serve as the backbone of an organization and seamlessly integrate functions such as finance, procurement, supply chain, and human resources. These systems hold a transformative power to improve operational efficiency by enabling cross-functional communications across the entire enterprise application suite, universal workflow data visibility, and task automation to foster unprecedented collaboration.
Many organizations are considering adopting a new ERP system, but careful planning and project management are essential for successful implementation. According to Gartner, ERP implementation failure is not only a common occurrence but a frequent outcome — with a failure rate of 55-75%.
ERP implementation failure is often due to poor planning and execution, leaving dissatisfied customers, timeline delays, financial burdens, and employee morale decreases in the wake.
AArete’s extensive expertise in guiding organizations through ERP implementation and optimization projects has enabled clients to capitalize on their investments and optimize operational excellence.
Organizations face many daunting ERP implementation challenges, from planning to post-implementation. Drawing from AArete’s real-world experience, discover five reasons why ERP implementations fail — and how to mitigate and overcome these roadblocks:
1. Lack of a Thorough Data Management Strategy
The issue: Insufficient preparation for data migration is a culprit in many ERP implementation failures. Strategic data migration planning is crucial in the transition from legacy systems to new ERP systems. Omitting critical data points, transferring inaccurate or cluttered data, or encountering corrupted reports can result in a delayed go-live process and create an adverse ripple effect for operations following go-live. Organizations must proactively identify erroneous entries to overcome ERP implementation challenges.
AArete’s solution: While working closely with a client, AArete found the client had not sufficiently defined the various reports needed for migrating open balances during the design phase, including inventory, accounts payable, and accounts receivable. During a practice cutover session, AArete discovered that specific required data points were missing due to data corruption. This issue would have necessitated a delayed go-live. To rectify the problem, AArete joined forces with the client’s legacy support team and internal resources to identify the cause of the data corruption. As a result of this collaborative effort, the organization completed a successful practice cutover session in the lead-up to the scheduled go-live.
2. Inadequate User Training
The issue: Inadequate system training for end-users is another common reason why ERP implementations fail to meet their goals. The relationship between lack of training and lack of competency among users is clear, negatively impacting daily operations post-implementation as employees struggle to adapt to new procedures. This becomes a compounding issue, leading to erroneous data entries, potential inaccuracies, a dip in productivity, and overall employee frustration and decreased morale. Confronting ERP implementation challenges while balancing ongoing business activities can feel like a tightrope walk, but proper training can reconcile these clashing priorities.
AArete’s Solution: AArete helped a client implement a new system and minimize disruption to daily operations by limiting critical system training to a single user who would help transmit the learnings across the organization. However, as the implementation progressed, it became clear that most users were unprepared for the system’s complexities. To address this urgent matter, AArete organized additional function-specific training sessions led by ERP consultants with deep ERP system knowledge. The sessions targeted specific business functions to maximize value while avoiding significant daily operational disruptions. AArete also provided comprehensive instructional handouts. Thanks to these swift actions, the organization regained its footing and achieved a punctual, smooth go-live.
3. Poor Communication and Change Management
The issue: Resistance to change often contributes to ERP implementation failure, leaving the potential of digital transformation unrealized. Relearning one’s job within a new system can feel overwhelming for internal users. This apprehension can manifest in operational errors and inefficiencies, from users not heeding proper procedures to taking shortcuts. Frequent and positive communication and expectation-setting are essential for a successful program implementation.
AArete’s Solution: To remedy this natural resistance to change, AArete employed extensive change management activities aligned with the overall organization strategy. Initially, they communicated with personnel to set expectations concerning increased workloads and how to manage them, as well as explain the long-term benefits of the system upgrade. Regular touchpoints were maintained with users at all levels to gauge morale, pinpoint frustrations, incorporate feedback, and offer practical solutions to advance the project while addressing concerns.
4. Lack of Vendor Support and Accountability
The issue: A lack of vendor support and accountability can severely hinder the ERP implementation process. When vendors selected do not fulfill their contractual obligations or provide inadequate support, it can result in delays, unresolved issues, and increased stress on the organization.
AArete’s Solution: During a client engagement, AArete encountered an obstacle: the selected ERP vendor was not meeting the agreed-upon requirements and was slow to respond to critical support requests. To resolve this, AArete initiated direct communication and negotiations between the client and the vendor, ensuring vendor obligations were explicitly defined and timelines for issue resolution were set. This diligent strategy led to enhanced vendor accountability, responsive support, and a more seamless implementation process.
5. Insufficient Testing
The issue: Inadequate testing during the implementation process can result in major issues once the system is launched. ERP implementation failure can occur when comprehensive testing procedures, including unit, integration, and user acceptance testing, are not enforced. Without effective testing, critical errors and inefficiencies can fly under the radar until they disrupt daily operations.
AArete’s Solution: An organization engaged AArete after it had completed an ERP system implementation. Shortly after its go-live date, the consequences of subpar testing due to tight project deadlines became apparent. The oversight left system procurement functionalities unverified, resulting in operational issues following the initial system launch. Problems such as inventory discrepancies, order processing errors, and inaccuracies in financial data quickly materialized. During an independent business process review, AArete identified the specific modules creating operational roadblocks and suggested practical enhancements. After exhaustive user acceptance testing, the organization implemented changes in its production environment and regained the targeted operational efficiencies.
Implementing an ERP system is a complex undertaking; It demands painstaking planning and attentive management to secure its successful execution on time and within budget. Obstacles and unforeseen challenges mark the journey toward adopting an optimized ERP system. While mismanagement can lead to significant consequences, understanding why ERP implementations fail is the first step to avoiding common pitfalls.
Organizations can reap the rewards of optimized operational efficiencies by taking a mindful approach to ERP implementation challenges and leverage AArete’s experience and toolsets. Reach out to learn how we can help your organization achieve success through ERP transformation.
