Why 70% of ERP Implementations Fail, And What the Successful 30% Do Differently

A significant amount of money, possibly over $500,000, has just been spent by your company on an ERP system. The vendor presentation went very smoothly. The returns seemed high enough. Management approved of the project. Time for implementation.

Now, eighteen months later, the project is over budget, at least half of its functionality remains non-operational, workers simply avoid using it, and the CEO starts asking tough questions that nobody wants to answer.

This sounds all too familiar? It happens to many companies out there, and research conducted by Gartner, Panorama Consulting, and Deloitte proves that about 70% of ERPs fail to implement successfully. Not only do they become over budget and behind schedule, but they also often end up failing to achieve even the most basic objectives set forth at the beginning of the project.

However, there is one thing you should know: that the remaining 30%, who managed to succeed with their projects, didn't do anything particularly differently from everyone else. The only difference? They simply did a few specific things better.

70% of ERP implementations fail to meet original objectives (Gartner)

Of course, when we talk about “failure,” we are not only referring to disasters. Here are some examples of what ERP implementation failure might entail:

• Exceeded budgets of 50–100%
• Pushed deadlines from 6 to 18 months beyond the planned go-live date
• Unimplemented or under-implemented functionality
• Ineffective use, with users falling back to Excel and other makeshift solutions
• Disruption to business operations during and after go-live
• Returns on investment that never happen despite high capital costs

For years, the Standish Group has been reporting on software project results through its famous CHAOS Report, and ERP projects have always ranked near the top in terms of difficulty. But here’s the thing, ERP systems are complex… but they can be managed.

Each failed ERP deployment has its unique case, but in reality, there is not much variation when it comes to reasons for failure. In this part, we'll take a look at seven top mistakes made by organizations during the ERP implementation process.

1. Treating ERP as a Technology Project, Not a Business Transformation

The greatest misconception about ERP implementation. The project is handed over to the organization’s IT department, and a technical go-live date is scheduled, hoping everything else will fall into place.

A good ERP system involves all core processes in an enterprise, which include accounting, purchasing, stock, human resources, sales, and manufacturing, among others. The project requires a total overhaul of an organization’s operations and processes; therefore, it should be managed and owned by the whole organization.

Key Insight McKinsey states that ERP projects lacking adequate executive sponsorship are three times more likely to fail to meet their strategic objectives. The sponsor should be a business executive, not the IT Director.

2. Underestimating Change Management Requirements

The aspect of change management is the area that is always the least funded and planned. Companies set aside money for licensing fees, implementation services, and hardware purchases. However, they consider change management a non-priority.

Employees do not only have to adapt to new software applications. They have to give up on old practices, adopt new ways, and learn to use something new. Without proper change management that entails communications strategies and management of resistance, the effort will be fruitless.

3. Poor Business Process Definition Before Implementation

A common problem with many companies is the attempt to set up their ERP system before defining what goes on within the business process. This will lead to an ERP system based on erroneous business processes.

The right way to go about implementing an ERP system is by starting with process mapping. Each of the process flows is mapped, studied, and improved before setting up any part of the ERP system.

4. Scope Creep: The Silent Project Killer

ERP rollouts are killed by many little enhancements. The department manager asks for another report. The CFO insists on a customized dashboard. The sales team needs a capability not included in the original specifications. Individually, each of these demands makes sense. Taken together, they push out the schedule, blow the budget, and make the system implementation impossible.

What differentiates successful ERP projects is robust scope management procedures. All changes are formally reviewed. The impacts of change requests are assessed. The stakeholders know what a “yes” means to the project.

5. Inadequate Training and Onboarding

Condensing a four-hour training process within a week prior to go-live does not constitute training; however, it is the case with many ERP implementations in regard to training end-users.

Role-specific, hands-on, and phased ERP training should be conducted in order for the users to be trained effectively. End users need to gain experience using their accounts in test environments. Power users require training on configuration settings, while managers have to know how to deal with exceptions and report generation.

6. Data Migration Disasters

Data migration from the old system to the new ERP application is usually underestimated in terms of technical difficulty within enterprise IT organizations. The organization realizes later on that its historic data is inaccurate, inconsistent, duplicative, and/or does not conform to the structure of the new ERP.

A dedicated team should be involved in data migration, with ownership and cleansing of data prior to testing migration being essential. Any organization that considers data migration as a technical exercise at the end will experience delays when going live.

7. Choosing the Wrong Implementation Partner

An ERP vendor and implementation partner are two different players. It is possible to select either SAP or Oracle, but end up with a terrible implementation due to a lack of knowledge and expertise on the part of the implementation partner.

Organizations often go for the cheapest implementation partner or the one suggested by the vendor themselves, without doing their homework. Such a partner may make tall promises and deliver much less, making you pay through your nose later.

Those companies that are able to implement ERP projects on schedule, within budget, and with high adoption exhibit a common set of traits. They are not proprietary industry secrets but simply good execution of basic principles that many companies overlook.

They Start With Outcomes, Not Features

Before assessing potential providers, before drafting an RFP, even before discussions about technology, those who have succeeded in implementing their ERP systems understand what business success is for them in concrete terms. It’s not “we need improved reporting”. The goals are defined: “We need to decrease our closing process by reducing it from 12 days to 5 days over 18 months post go-live.”

All implementation decisions are made based on these goals.

They Invest Heavily in Change Management

High-performing ERP installations dedicate between 15-20% of total project budgets to change management initiatives, which is significantly higher than the industry average of 5%. These include stakeholder analysis, communications strategies, executive road shows, resistance management programs, and post-go-live support.

They Clean Their Data First

Implementers who have been successful understand that the evaluation and cleansing process of their data should take place during the initial stages of implementation. This is well before deciding on the appropriate vendor. These individuals also understand which information has to be moved, which has to be archived, and which has to be recreated.

They Implement in Phases, Not All at Once

The most dangerous way of implementing an ERP system would be using the “big bang” method, which means to substitute all the existing systems for one new system at once. The best solution would be to use phased implementation. You should begin with the main financial systems, then go global.

With phased implementation, the risks become smaller, lessons learned can be used in future projects, and the value gained from the first investment is achieved much faster.

They Choose Partners with Relevant Industry Experience

This is where the best ERP implementation partners come into play because they have done this before - in your industry, among businesses of your caliber, with challenges like you have. This means that they bring with them implementation accelerators, templates, and valuable experience that will decrease the time to implement ERP and minimize risks involved in the process.

NanoByte Technologies Advantage NanoByte Technologies is a custom ERP development company specializing in US-based mid-sized enterprises. We do not provide ready-to-use solutions, which is a difference from general-purpose ERP vendors who configure and adapt their products to meet your needs. Rather, we develop solutions and tailor processes to make sure they match your business operations and bring desired results.

One critical element for achieving high levels of ERP implementation success: opting for an ERP system designed based on your processes, not vice versa.

Commercial off-the-shelf ERP software solutions such as SAP, Oracle, and Microsoft Dynamics offer a lot of benefits; however, they are developed with one generic business model in mind. Adapting such a system to your unique requirements entails substantial financial costs, long periods of time spent, and the accumulation of technical debt.

With custom ERP software development, at the heart of what NanoByte Technologies provides, all these drawbacks are mitigated. As the software solution is tailored specifically for your company, there is no need for adaptation, making the entire process easier, more cost-effective, less time-intensive, and scalable as well.

Ready to be in the 30%? NanoByte Technologies helps mid-market companies design, build, and deploy ERP systems that actually get adopted. We combine custom development expertise with structured project governance to deliver implementations that hit their targets. Schedule a free ERP readiness consultation → www.nanobytetechnologies.com