|White Papers on
Cardinal Sins of ERP Implementation
Enterprise Resources Planning (ERP) is an outgrowth of Material Requirements
Planning (MRP) initiated in the 1970's as a new computer-based approach
to planning and scheduling of material requirements and inventory,
featuring the time-phased order point. MRP evolved to MRP II (Material
Resources Planning) the "closed loop" process, to Business Requirements
Planning (BRP) and eventually to ERP. As MRPII came into vogue in the late 1970's and early 1980's,
software companies began to develop software packages around MRPII concepts.
At the same time, research of integrated data bases was in progress at
a university, and out of that research emerged data base management
systems (DBMS). One of the earliest successful commercially-produced
data base management systems was IDMS (for IBM-based systems) and DBMS (for
DEC-based systems) produced by Cullinane, who's company name was later changed to
Cullinet Software. IMS, a structured data base management system for high
transactions, was another data base management system produced by IBM.
The idea of the integrated data base as the engine for fully integrated
software was probably one of the greatest outgrowths of Ollie Wight's
MRP. Eventually, the acronym ERP was conceived to
represent what had already been developed by software companies.
The early software packages were developed by way of a transactional
approach, and were highly unfriendly to a user. With the advent of the
personal computers, the development of Microsoft's Windows NT, and the
mid-range IBM AS/400 computer, client-server systems began to emerge.
Windows, used as the base operating system, allowed software packages
to become more and more user-friendly.
Today, ERP systems have proliferated extensively, and have reached a
stage where development has become industry specific. Thus it is
search for an ERP package developed for one's specific industry
biggest single issue in ERP is the failure of a successful
implementation. It is mind-boggling to continually encounter companies
who make major ERP
gaffes in this day and age, especially since most of the trials and
tribulations of MRPII implementation were suffered and learned from in
the early 1980's with alpha, beta and gamma releases.
So what constitutes failure? Several things come
(1) Not making the promised return on investment,
(2) Inordinately extending the implementation schedule and start-up date,
(3) Running over budget by unconscionable variances,
(4) Grinding the organization to a crawl
pace, or the severest of all consequences,
(5) Stopping production and/or not
delivering orders to your customers.
Industry statistics show that
>60% of ERP implementation starts
historically fail. Does this mean that
you are doomed from the start? Of
course not, if you learn from the mistakes of others. So the
pertinent question is what are the main causes of ERP
failure and what can be done to prevent this from happening to you?
The 12 Cardinal Sins of ERP Implementation
There are twelve major reasons for why companies get bogged down or fail in implementing ERP.
(1) Lack of Top Management Commitment
The propensity of top management to delegate the oversight
of an ERP implementation to lower management levels often results in
(1) being "out of touch" with critical events, or (2) the lack of
understanding of the size, scope, and technical aspects of the project,
and subsequently, the lack of proper commitment of time and resources
required for a successful implementation. The result is a failure waiting
(2) Inadequate Requirements Definition
Surveys have shown that inadequate definition of functional
requirements accounts for nearly 60% of ERP implementation failures.
This is simply a matter of not comprehensively and systematically developing a quality
set of functional requirements definitions. This leads to the second
greatest cause of ERP implementation failures: poor package selection.
(3) Poor ERP Package Selection
Poor package selection occurs when a company has inadequately developed functional
requirements definitions. It also occurs when staff members
assigned to ERP projects do not take the time to run the screens of the
new system, as they would during their daily work tasks, to find out if
the software package features are adequate for their needs.
Another reason we have found is executives, familiar with an ERP system from a last
job they held, implement the same system in their new company without defining
functional requirements. We have also encountered companies who made major gaffes
by selecting a package at the top levels of a company without intimately
knowing its characteristics. What often results from this is the ERP package
doesn't fit the organizational needs, or that the package selected takes longer
to process daily work tasks.
We have also seen executives select a distribution package for a
manufacturing environment, or a manufacturing package for a
distribution environment, for obscure reason, such as liking one
salesman over another.
(4) Inadequate Resources
The third greatest reason for ERP implementation failures is inadequate
resources. Many companies will attempt to "save dollars" by doing
everything on an overtime basis, whether or not there are adequate
skills within the company, extending individual work loads to 150%.
This approach can be a "kiss of death" for the program. Time and time again we run across
this mistake in ERP implementations. The financial and emotional drain of
what seems sometimes to be perpetual extensions, reschedules and delays of
implementations takes its toll. People burn out after having put in extensive hours
over a long period of time.
(5) Resistance to Change/Lack of Buy-in
The lack of a change management approach as part of the program can prevent a program
from succeeding. Resistance to change is quite often caused by (1) A
failure to build a case for change, (2) Lack of involvement by those
responsible for working with changed processes (3) Inadequate
communication (4) Lack of visible top management support and
commitment, and (5) Arrogance. A lack of buy-in often results
from not getting end-users involved in the project from the very start,
thereby negating their authorship and ownership of the new system and
(6) Miscalculation of Time and Effort
Another cause of ERP implementation failure is the miscalculation of effort and
time it will take to accomplish the project. Companies who treat an ERP
selection, evaluation and implementation comparable to buying a washing
machine are doomed to failure.
(7) Misfit of Application Software with Business Processes
One of the main causes of ERP implementation failure is the misfit of
application software with the company business processes. This failure
-- to examine underlying business process flaws, and integrate the
applications with the business processes, causes loss of productivity
and time, and ultimate benefits.
(8) Unrealistic Expectation of Benefits and ROI
Another significant cause for ERP implementation failure is the unrealistic
expectation of benefits and return on investment. Software
providers are notorious for overstating the benefits in terms of ROI, when the
total costs of the project have been understated. Often left out of the
total costs are costs of planning, consulting fees, training, testing,
data conversions, documentation, replacement staffing, and the learning
curve performance drop. When this happens, a company doesn't
stand a chance of achieving the ROI it anticipated.
(9) Inadequate Training and Education
Another of the biggest causes of ERP implementation failure is inadequate
education and training, which are almost always underestimated. ERP-related training
is crucial as most employees must learn new software interfaces and
business processes which affect the operation of the entire enterprise.
The corporate culture is impacted by changes in the company’s business
processes, and shortchanging this part of the ERP implementation leads
to much pain and suffering downstream.
(10) Poor Project Design and Management
(11) Poor Communications
A major mistake is to short-cut critical events in the project plan, such as time for
documentation, redefining and integrating processes, or testing before
Another common mistake is made when a company leaves out the self-examination of business processes
and uses ERP to cover-up weaknesses. It is easier to buy software than
to perform the more difficult task of identifying weaknesses and
opportunities for improvement.
One of the causes of ERP implementation failure is poor project communications, beginning
with a failure to announce the reason for the up and coming effort, and
continuing to advise the organization of the progress and importance of the ERP
implementation to the company. Poor communications prevent
different parts of the organization from assessing how they will be
impacted by changes in processes, policies, and procedures.
Communications are a vital part of managing change in a corporate environment.
12) Ill-advised Cost Cutting
Another of the key causes of ERP implementation failure is ill-advised cost
cutting. In an effort to avoid temporary conversion
costs, some companies take a very risky route and go live at
multi-plant sites simultaneously, subjecting all plants or some plants to a total shutdown should there
be a false start-up. This is suicidal. Others attempt to unrealistically compress the schedule
in order to save on expenses, only to eventually overrun both schedule
and budget. We feel that ROI should take a "back seat" when
upgrading an important part of a company's infrastructure: the
information system. Instead the implementation should be treated
as an upgrade to the company infrastructure that is necessary to maintain or gain a strategic and competitive advantage.
To download this white paper, right click on the following link and "Save Target As"click here
The first corollary of ERP or information systems implementation is:
systems are part of a company infrastructure, and therefore are
strategic to the company's survival and success.
If a company does
not consider IS as one of its critical success factors, chances are,
the competition does.
The second corollary of ERP or information systems implementation is:
and information systems are there to support business functions and
increase productivity, not the reverse.
The driver for an ERP
implementation should be to increase a company's competitiveness, not the adoption of
a new religion that bends or distorts how a company conducts its business.
The third corollary of ERP or information systems implementation is:
from the successes and failures of others and don't attempt to reinvent
the wheel of ERP implementation practice.
There are time-proven
approaches that can enhance the success of the ERP implementation. Here
are a few:
High Employee Involvement
Get as many employees to participate heavily as practicable in
accomplishing the functional requirements definition. The workers know
their work and what they need to compress time. If they do not, use an
outsider who does. Use a knowledgeable team to review and select
packages. Get as many employees as practicable involved in the
implementation phase. This will foster ownership and buy-in.
A Comprehensive and Systematic Approach
Use a comprehensive and systematic master plan that addresses all parts
of an ERP systems implementation: development of IT strategy,
requirements definition, review/selection of software, hardware,
communications, unit testing, systems testing, conversion, resources,
education/training, resistance to change, etc.
Provide adequate technical and administrative resources to allow
employees breathing room. Perform cost/benefit analyses so that you
know how much the entire implementation is going to cost and identify
the results that will be achieved.
Extensive Education & Training at all Levels
Provide adequate training for most employees, including upper and
To see our ERP Success Story click here
G. Ligus is President of Rockford Consulting Group, Ltd., located in
Rockford, IL., with over 30 years experience in manufacturing,
procurement, transportation and distribution. He specializes in
developing and implementing manufacturing, distribution, and supply chain strategies. Rich is an author
and a speaker, and has developed seminars with the American Management
Association. He is certified by both the Institute of Management
Consultants and the The National Bureau of Certified Consultants.
has a bachelor of science degree in mechanical engineering from the New
Jersey Institute of Technology, and a master of business administration
degree from Rutgers University. He is a member of CASA/SME, and has
been listed in Jane's Who's Who in Aviation and Aerospace. He has been
a speaker at IMTS, USCTI, APFA, NEPMA, MCAA, Hand Tools Institute,
CASA/SME, and others. He has appeared several times on WREX-TV,
Our Approach: Tools from a Toolchest
Rockford Consulting Group applies concepts and technologies as the situation
warrants, that will result in the ultimate benefit to our clients. We treat strategies, technologies, and methodologies as tools in a
toolchest, and use them when they offer practical solutions and achievable results. We believe that each client situation is unique,
with its own unique set of solutions.
To see our
ERP consulting services click here
Rockford Consulting Group can provide long-term assistance to many companies in
a variety of industries. The firm has a cadre of the best management
consultants in the world today, providing high quality professionalism
through the use of experience and innovation.
We subscribe to the Institute of Management Consultants Code of
Professional Conduct. All consultants engaged on projects adhere to its
principles. Whenever possible we will use consultants certified in
their particular specialty area. Certification assures that consultants
have substantial prior experience in their specialty, and their
competencies have been tested by the IMC, and verified by a number of
clients. This assures our clients that we are assigning the highest qualified consultants in the
We provide technical expertise, team facilitation, leadership, and
direction in deciding how you will meet the challenge. We refer you to our
Qualification Statement for further details on our background, areas of
specialization, concepts and technologies applied, staffing, operating
policy, approach, companies and industries served, case studies and
references. Equally as important, we train our clients to sustain new
methods of manufacturing and the consequential benefits over time. Your
company will benefit directly from this training.
We have achieved an efficiency in our approach to assignments that allows
us to provide high quality technical and managerial advice in a much
shorter amount of time than could be accomplished years ago. We are able to
do this because of the extensive consulting experience that each of
our specialists has.
Contact us(click here)for more information on how we can improve your operations.
©2004 Rockford Consulting Group, Ltd.
| To go to Home Page, click here |