Do These Four Things to Avoid ERP Project Failure
May 20, 2019 Alex Woodie
Nobody wants to be part of an ERP project failure, but the fact is that these implementations rarely go perfectly smooth. There’s a wide spectrum of things that can go wrong in these massive projects, ranging from taking a little too long and going a smidgen over budget, to serious operational issues and even outright failure. It’s also the topic that the folks at Third Stage Consulting analyzed in a recent study.
What makes The 2019 Digital Transportation, HCM, and ERP Report different from other reports on enterprise software implementations is the data-driven approach to understanding the deployments from quantitative and qualitative points of view, said Eric Kimberling, CEO and founder of Third Stage Consulting.
“We went to look at what’s actually happening with transformations today, what are some of the challenges companies face, what are the actual results they’re achieving, and what are the trends in the marketplace,” Kimberling said in a video that accompanied the report’s release last month.
“We also did something different this year that we haven’t done in other studies, which was to understand the factors with the highest statistical correlation with transformation success and failure,” continued Kimberling, who left Panorama Consulting last year to found his own firm.
“Other studies out there will look at average implementation time or cost or whatever the metric may be without any sort of analyses of what’s driving those factors, which variables had the biggest impact on time and cost and results and risk, and all that good stuff.”
The Denver, Colorado, ERP consulting firm analyzed more than 1,000 IT projects, and came to some not-so-surprising conclusions about the average costs and implementation times for ERP, HCM, and digital transformation projects.
For starters, midsize companies with $50 million to $1 billion in revenue typically spend the equivalent of 3 percent to 5 percent of their annual revenue on enterprise software, whereby large companies (those with more than $1 billion in revenue) typically spend about 2 percent to 3 percent.
“Large companies . . . get greater economy of scale,” Kimberling explained. “There’s a certain amount of minimum activity and investment you need to make in any sort of transformation, whether you’re $10 million or $10 billion company.”
Also not surprising is that enterprise software implementation times for midsize companies, at 14 to 16 months, are shorter than they are for larger companies, which take on average 31 to 34 months. That’s because implementations for larger companies are usually more complicated and touch more parts of the company.
The report got into some unexplored territory with its focus on operational disruption – or when the enterprise software implementations really start to go off the rails.
“We’re not talking about your typical disruption, which is people fumble around with technology a little bit, they get frustrated, the go-live doesn’t go quite as smoothly as you’d like,” Kimberling said. “Those are what I would consider pretty immaterial disruptions in the grand scheme of things.
“What we’re talking about here,” he continued, “are material operational disruptions. We can’t ship product. We can’t close the books. We can’t run payroll. We can’t update employee information in our HCM system. A lot of operational disruptions can fall into this category.”
According to Third Stage Consulting’s report, 51 percent to 54 percent of organizations in the study experience some type of operational disruption when the “go live” button was pressed. The disruptions ranged from about one week to several months in time, Kimberling said.
“But the real kicker is that companies who do experience operational disruption typically end up spending an additional 50 percent to 300 percent on the total cost of that transformation,” he said. “Say you spend $10 million on your actual implementation. You get to go-live, but then you lose millions of dollars of orders or backlog that you can’t fulfill. If you add that cost to your total cost of implementation, the number can balloon pretty quickly.”
The fact that more than half of companies experience a serious operational disruption with their ERP, HCM, or digital transformation projects is a really astounding figure, when you consider it. But what’s even more compelling is the fact that the bill for operational disruption starts at 50 percent of the cost of the implementation itself. This is another way of saying that smooth implementations of major enterprise software changes are exceedingly rare endeavors.
Third Stage Consulting went a step further and attempted to find correlations between operational disruption and other actives and drivers of the project. It came up with these four factors:
- Clarity of defined business processes. “Those that spent more time defining clear business processes prior to or early in their transformations were less likely to experience disruption”
- Investment in organizational change and training. “Those that implemented more complete and effective change strategies were less likely to experience disruption.”
- Level of executive alignment among key stakeholders and the transformation project team. “Those that rated higher in executive, stakeholder alignment, and project team alignment were less likely to experience disruption.”
- Time and effort spent during user acceptance testing and conference room pilots. “The more thoroughly a company tested its processes and systems, the less likely they were to experience disruption.”
“Those are four tangible things you can take to your transition and say, ‘Are we really doing enough in these areas and is there something we can do better to mitigate that risk?'” Kimberling said. “Because at the end of the day, your highest line item cost in your transformation if you don’t do everything right is going to operational disruption.”
Executives and managers might think they’re saving money by shortcutting some of these processes, but the odds of coming out on top are against them, Kimberling said. “Chances are if you don’t do things the right first time, your costs are going to be a lot higher than if you just invested the time and money up front to do it right.
“That’s a hard thing to convey to executives and project teams if they haven’t been through these types of transformation before,” he continued. “But fortunately, the data speaks for itself.”