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About ERP Systems

Why ERP Implementations Fail to Deliver Expected Results

Michael Roman - Monday, January 31, 2011

I have often tried to put my finger on why so many small and mid-sized companies that attempt to implement an ERP System fail to realize the promised benefits, over spend on the budget, and drop the project before it completes successfully.  The facts are that only about 16% of projects complete on time.  By the way, that is generally after some targeted functionality is abandoned. 

A number of studies show these results and are documented on my website -http://manufacturingpracticesinc.businesscatalyst.com/do_not_put_the_cart_before_the_horse.htm

and - http://manufacturingpracticesinc.businesscatalyst.com/What_ERP_will_do_to_and_for_your_company

You can go to the Standish Group website and download the Chaos report as well, but you will have to sign-up to do that.

The chaos reports state a number of reasons for project failures:

    1. Lack of commitment from top management
    2. Lack of commitment from the users
    3. The project is not the focus of the organization

I know these results are true, but could they be getting these results because they are asking the wrong questions?  I believe the answer is yes. 

Manufacturing Practices stresses education, education, education.  We have seen the wonderful “against all odds results” that accompany proper education (not training).  Now I think I know why people do not understand the importance of education before ERP System selection and implementation.

In a mature organization, the planning and operational activities look like this:

 

The “long range” planning is the first box and responsibility for making those plans belong to top management.  It contains the Sales and Operations Planning Activities.  Those plans are both long term (3+ years or so) and shorter range planning – quarterly or yearly.  Most companies do that planning regularly maybe not always in a formal sense.

The planning and operations pieces (the next two sections of business processes) are what ERP Systems do!  The Master Schedule drives the materials requirements, which define the workload.  In a properly managed system, those three pieces are reworked until an achievable plan exists.  Then activities include the procurement and shop floor activities, like purchasing, job orders, job order scheduling, operational dispatching, shipping customer orders, etc.

ERP vendors sell ERP Systems as “solutions” to companies. The fact is that they are not “solutions” for managing a company.  The above diagram clearly shows that the ERP System only performs 2/3 of what it takes to manage a company!* For small and mid-sized companies, the “solution” is not a solution at all. It is a point of confusion for management teams.

So, what/who can fix that problem?  I think that the role for management consultants, universities, colleges, and ‘business incubators’ is to educate companies about what ERP is and is not.  ERP vendors do not educate, they train users about how the buttons in the software function.  ERP education needs to include what ERP will do for an organization and what ERP will do to an organization.  Click this link to see an example of what proper ERP education involves: http://www.manufacturingpractices.com/What_ERP_will_do_to_and_for_your_company

 

* I agree that the actual work is not 2/3 of the management effort, but in terms of the functional blocking in the diagram, it is!