ERP Projects Lead to Revenue Loss
If you are considering ERP, take your time.
Way too many ERP projects not only end up exceeding their allocated budgets, just as often, they lead to significant revenue loss due to a decline in core business productivity. In case you think I am being a Chicken Little please consider the data. A recent IDC survey shows that the negative impact of business disruptions attached to ERP modifications is simply too high: a 20.9% decline in stock price, a 14.3% revenue loss due to delayed product launches, and a 16.6% decline in customer satisfaction. Reported losses from survey respondents making ERP changes range from $10 million to over $500 million. If you would like to better understand what’s behind these numbers, you can read about the survey results in the IDC article: Business Cost of ERP Failure_IDS Survey_12-2009. Manufacturing businesses, especially those with a high degree of complexity are at greater than average risk of such an outcome. Of the myriad ways that ERP projects run into trouble, they all boil down to two categories of mistakes.
Mistake #1. Selecting the Wrong ERP System:
All too often the company’s core business processes are inadequately represented on the selection team. If you are a manufacturing-centric organization having deep and consistent core business input is a make-or-break critical component your ERP project. Many ERP teams include core business representatives at either too high or too low a level. You need people who really understand what it takes to design, build and deliver your products. You need senior core business leaders to balance the Finance bias that is always behind an ERP purchase. Don’t let finance over-rule the business needs when it comes to ERP selection and configuration. Without essential core business input, your ERP requirements will be full of gaps leaving you at high risk of selecting the wrong system.
Mistake #2. Inadequate/Unskilled Project Team with Weak Change Management Capability
Inadequately resourcing such a critical investment is pure foolishness and a prescription for failure. Yet many ERP projects are poorly staffed both internally and externally and the change management effort is often weak to non-existent. Getting the right outside help for technical support, project management and change management is non-negotiable. Without these three pillars, your project will be crippled from the start. Do not assume that by hiring brand names you have solved your problem. Every ERP project is as unique as the business it is intended to support. While there are many instances where the big names (SAP/Oracle/Deloitte/Accenture) are exactly what is needed, there are also many cases where other options are a better fit. Too often companies try to CYA by using a big name (expensive) system integrator consultant and choosing a big name (expensive) ERP tool.
Bottom Line
Don’t make mistakes #1 or #2. Find the right tool for the unique needs of your business and commit the time, people and dollars to the best possible implementation effort. Otherwise the somewhat anticipated high cost of your ERP consultant and the somewhat anticipated high cost of the ERP system will be eclipsed by the completely unplanned cost of your business loss.
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