Why ERP Systems Fail or Succeed: Causes and Case Studies

Introduction to ERP Systems

In order to increase productivity and compete effectively, any company must implement a well-designed Enterprise Resource Planning (ERP) system. Failure to do so leaves a company weakened and unlikely to attain its stipulated short-term and long-term goals. By definition, an ERP system helps consolidate enterprise information and control all business processes within an organization. Successfully implementing an ERP is not simple — its success or failure depends on a variety of factors, and starting the process without an elaborate plan leaves a company vulnerable to a great number of pitfalls along the way (Vinatoru & Calota, 2014).

Since an ERP focuses on integration and management, a company stands a better chance of making resource usage and distribution more efficient and timely. This, in turn, increases the company's reputation and competitive edge in the market. Despite this compelling reason to adopt an ERP solution, most companies that use such systems made the move for a variety of additional reasons, including:

Business needs — such as cutting down on inventory costs, improving order management, and establishing a transparent pricing policy for clients and employees.

Technical issues — such as the need for one unified system to handle all business processes and replace multiple systems that have proven ineffective.

A combination of both — factors whose combined effect constrains the company's profit margins.

With an ERP, a company can store information and automate all its functional domains. However, this does not mean that all ERP implementations are successful.

Causes of ERP Failure

According to statistics, more than half of all launched ERP projects fail — a concerning rate of approximately 60% across all tested implementations. The fact that "failure" is a relative term can make things appear more nuanced. A number of criteria can define failure, each with distinct causes.

Functional Requirement Failures

This occurs when the client does not find the functionalities needed in the system. It can lead to re-engineering or a complete change of the system, resulting in increased costs, reduced quality, and longer delivery times. To avoid this, developers should investigate all requirements adequately before implementing a solution. Using prototyping tools such as use cases and Joint Application Development (JAD) would reduce errors (Ghosh, 2012).

Management's Divided Attention

Even though management typically initiates the ERP project, a lack of sustained dedication often leads to failure. In many cases, managers are unaware of the project's full scope and do not appreciate what they are committing to. Without sufficient commitment, the ERP is bound to fail. Top-level managers frequently delegate responsibilities to lower-level managers — a reasonable management strategy, but one that more often than not slows the implementation process. Sustained success is most likely when a top-level manager committed to the project's outcome leads it (Ghosh, 2012).

Insufficient Training

Every ERP user must be adequately trained before the system is rolled out. Users need to understand its capabilities and how to leverage them to make their work easier. This ensures that each employee understands his or her responsibilities and can deliver results in a timely manner, since an ERP's overall efficiency depends on the success of each individual user (Ghosh, 2012).

Improper Package Selection

In today's market, finding an ERP package is not difficult. A company may purchase a complete off-the-shelf system or assemble packages to build a custom solution. While the latter can be less expensive, it carries the risk of choosing a package that does not fully meet the company's needs — a risk that stems from a lack of technical information or a misunderstanding of requirements (Ghosh, 2012).

Underestimations

This applies to the time and effort required to bring the project to completion. If the estimated completion date is missed, the business may incur additional costs or lose productivity and customer trust. It is always better to overestimate than to underestimate (Ghosh, 2012).

Incompatibility

An ERP that does not fit a company's existing business processes is essentially worthless. It will either force the company to change its way of operating or create gaps that lead to poor synchronization of tasks and workflows. This typically results from assumptions and a poor understanding of the business's core operations (Ghosh, 2012).