Why do most ERP programs fail?
As per Wikipedia, Enterprise resource planning (ERP) is a cross-functional enterprise system driven by an integrated suite of software modules that supports the basic internal business processes of a company. ERP gives a company an integrated real-time view of its core business processes such as production, order processing, and inventory management, tied together by ERP applications software and a common database maintained by a database management system. The definition seems to be complex and the ERP programs seem to be even more complex and challenging. We have heard multiple horror stories on how ERP programs have failed and the massive fall out of such failures
After seeing such a failure from close quarters, it made me wonder why? Most of the organizations that take this route start with a very high expectation from such programs, but they seem to lose their way when the going gets tough. In my opinion, the following are key reasons:
1. Technology "project" vs. business transformation
This is the fundamental flaw in these programs where most of the times ERP programs are given birth in the IT department. Nothing wrong with that since the IT folks are the best judge of whether their current solution will fit the changing business needs or not. However, once the ERP program is given a shape, it has to be made a business-led program as the biggest power of ERP packages is to leverage the industry best practices that they bring. For that, business needs to be transformed. You would rather let business take the lead on this, won't you? But unfortunately, in most of the programs, this realization comes at a later stage when most of the damage is already done
2. Indiscipline in program governance
The organizations that failed to implement an ERP package will be very quick to blame the package. But if you dig deep, you will realize that the actual reason for failure will be the way the package was attempted to be implemented. I know an organization which at the outset said they will not customize the chosen ERP platform and will change the way they do their business so that they can leverage the best practices from the package. But what actually happened was the reverse. That is because the discipline around program and change governance was abysmal.
3. Choosing the "right" partner
I cannot stress enough on the need for the right partner and everybody realizes that. However, the SIs are to be blamed primarily for ERP program failures. The customers are not experienced in managing such large complex programs and that's why they rely on experienced system integrators. And they go to extreme length in going thru the selection process. In spite of this, the SIs do not advise the customer properly and lead them to a path of destruction. For such programs, one needs an "advisor" more than a mere "implementer". Most of the SIs do the second one very well but very few take the first role seriously
There are many more reasons and the reasons vary by context. However, in my humble opinion, the above three stand out as common reasons why the failure rate of ERP programs is very high