The recent high-profile updates from two well-known retailers regarding the losses associated with challenging ERP implementations have starkly highlighted how South African businesses are squandering billions on large ERP projects.
Liesel Grobbelaar, principal consultant at Analyze Consulting
Just reading these updates is likely to heighten the concerns of C-suites around the country. However, by understanding why projects fail, we can chart a path to avoid similar pitfalls and embark on far more successful projects and implementations.
There is no hard and fast definition of what constitutes a failed project or implementation. The most obvious issues encompass budget overruns, time overruns, and re-scoping (and de-scoping) as well as the adverse impact on staff. Recent cases have illustrated the far-reaching consequences of such failures, affecting not only turnover but also operations and causing reputational damage.
Not all businesses react in the same way. Some businesses, after a prolonged period of trying without tangible results, decided to “call it quits” by shelving the project to be picked up at a later point and writing off the loss. The irony is that in many instances the businesses that keep on grinding would do better to hit the pause button, re-assess, and re-group rather than continuing to pour money down the drain.
To illustrate this, let’s consider an 18-month implementation project. It is usually around a third of the way, six months, that you start experiencing noticeable delays and escalating costs. There are many reasons for this, with one of the most common ones being that additional requirements are often picked up within the first six months that were not in scope for the RFP. Having scoped for a particular project scope, this now creates the need to charge for changed scope and/or requirements.
Another common problem that arises within the first third is the realisation of just how poor the quality and the understanding of the data is. This is avoidable and we will look at that shortly. Outside of these common issues, there is the potential for people to burn out or become unavailable, or unforeseen business crises, which continue to push the timeline out. This all comes at a huge cost.
Every project is unique, and every business is unique. However, there are some common themes that inevitably lead to failed ERP projects. These are:
* Problems are approached from a technology-first perspective – This is back to front. Of course, technology is evolving and has immense power to improve and change businesses. Recent trends suggest that in the near future, all businesses are likely to have a Head of AI or a Head of Data. Within five years, the ability of advanced technology that relies on machine learning and AI, as well as the power of API integration, will make business technology almost unrecognisable from a few short years ago. This is all good and well, but it is important to land on the right technology for your business only after you have thoroughly understood your business context and needs.
* Businesses do not spend enough time understanding their processes – This is one of the most important things that can change the prospects of an implementation project. You need to understand where you are, or where you need to move from. Business Leaders often view the mapping of their processes and systems as a waste of time, preferring to focus their investment in time and money on that which they are wanting to buy. This is a mistake. Only once you have mapped out your current context, that is, the people, processes and technology currently in place, can there be a common understanding across the business of the problem that needs to be solved, which will help the implementation.
* Businesses don’t solve the resourcing problem upfront – In many failing implementations there simply hasn’t been significant effort and focus around backfilling (i.e. replacing the business Subject Matter Experts with temporary staff) so as to second internal resources out of the business to play a significant role in driving out the business needs. In other words, businesses must solve the resource problem to implement the project. Delays caused by resourcing issues increase exponentially as time goes on. Often, businesses will look for external help to deliver their projects, with the hope and belief that this will solve the resourcing problem for them, which is not the case; it is the resources within the company that are the change agents who will drive and implement the change. All of this needs to be considered long before an RFP process starts and vendors are engaged.
* Underestimating the change management effort – Perhaps a better way of looking at this cause of a failing implementation is to appreciate the need for change leadership. Who is leading the change from within? Who understands the change and why it is necessary, who is prepared to charter uncomfortable waters where difficult decisions need to be made, who will carry uncomfortable messages to senior management? Often, we see businesses appointing someone such as the head of finance or a CFO as the sponsor of the initiative, but no consideration was given to whether this person has any experience of a significant change initiative. There absolutely has to be a focus on the person or people leading the change, as well as their team.
* Businesses overlook governance – This is one of the easiest places to cut costs, but doing so is a mistake. There must be structures in place to govern the journey from planning, business case development, risk management, and broad stakeholder engagement, to effective project management methodology and reporting. Failing to lock down governance can lead to all sorts of complications.
It is important to appreciate that good governance assists with a broad buy-in from the organisation, across the entire project, such as assisting with change leadership and support structures for the sponsor.
This brings us to the question: What is the best piece of advice for a business that wishes to avoid having an ERP project run up exorbitant costs with massive time overruns? If a business C-suite could make one decision today, what should it be?
Invest in understanding your full context now. In fact, in the ideal situation you would be doing this up to a year before you get to the change. Invest in understanding the processes, the technology and the people. Build a comprehensive understanding of your business as it stands. The rationale behind this is that you will understand far more clearly where you are, what your needs are to move to your desired state, and what the right solution should be. You’ll also appreciate that any solution implemented will need to augment or integrate to existing systems and processes.
What if a business has already started and is encountering the pain of timeline extensions and sky-rocketing costs? The prudent thing to do here may well be to stop and reassess. Develop an understanding of current and future processes, systems and people. This will be far more effective than doing the same things over and over and expecting a different outcome. Where you have already started implementing or are considering implementing a new ERP solution, be sure to focus on change leadership, it is a golden thread that will be vital from day one until the very end.