OMG, ERP! Implementation Risks & Challenges You Hadn’t Thought About

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*instinctools
  • Date Published
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Join us as our *instinctools expert describes challenges you might face during ERP deployment and shares some thoughts on how to deal with them.

Enterprise resource planning (ERP) implementation offerings are full of reassuring promises about improving the company’s productivity and efficiency, reducing operating and labor costs, getting a single source of truth for all departments and enhancing the customer experience. Computer Weekly study revealed that 53% of respondents consider ERP implementation one of the prime areas for investments. But ERP is a massive undertaking.  No wonder it’s associated with particular risks and challenges. But why do 55% to 75% of all projects fail to meet their objectives and how to avoid common risks of ERP implementation? Our experts in digital transformation provide you with hands-on guidance on how to minimize these risks and meet the challenges the new system brings.

Selection challenge in implementing ERP

Keep in mind the specificities of your business and which functionalities your organization will need in at least the next couple of years. Being clear about your digital strategy, requirements to the system, and understanding your current and future business goals will help you choose the best fit for the company. You can opt for on-premise, cloud, or hybrid enterprise resource planning solutions depending on your business needs and possibilities. For instance, an organization’s size and its security demands are basic things to consider while choosing an ERP system.

Cloud ERP

Solutions hosted in the cloud look attractive because you don’t have to spend a lot of money on your software from the start, not to mention that there’s no need for hardware investments. Patching, managing, and updating the software becomes your cloud provider’s business. That’s why the cloud is a good option for organizations that don’t want to freeze resources into servers and prefer a flexible approach in terms of users’ number and software functionality. However, if you decide in favor of a cloud ERP instead of an on-premise one, it still requires a dedicated team of experts that are aware of all the nuances of your cloud provider and know exactly how to optimize your cloud costs, so that your budget won’t be hit by unexpected costs.

Thanks to the cloud ERP, your employees can shift their focus from managing IT to more meaningful tasks such as innovation and growth.

A cloud enterprise resource planning system can be secure enough if you choose a reliable cloud provider or a certified cloud partner that will put your cloud solution on the right track.

On-premise ERP

According to the Panorama ERP report, 46.9% of respondents still use on-premise software.

Companies seek these types of solutions because:

Enterprises need the highest level of security. Data-based businesses have very strict security and data storage requirements. They want to ensure only a certain group of employees will have access to the proprietary information. From that standpoint, time and resources spent on installation and maintenance of the on-premise ERP is something you have to put up with anyway.

Big organizations want to be confident that the system runs uninterrupted. There are industries, such as healthcare or finances, where information must be available 24/7. In this case, the choice between on-site and cloud solutions gravitates more towards the former option.

On the one hand, if your software is hosted by a reliable cloud provider, you don’t have to deal with the technical consequences of downtime, system failures, and natural disasters by yourself. Delegating saves you tons of headaches, but on the flip side, if something bad happens in the cloud, all you can do is wait and see. With your own servers, the responsibility is all yours, which is overwhelming but also comforting as you can take action instead of just sitting around. The thing with implementing on-premise ERP is that you should have skilled IT staff to install, manage, and upgrade the system for it to run smoothly.

Hybrid ERP

The hybrid ERP, which combines the features of both the on-site and cloud software, can be either a destination or a transitional phase while switching between the two solutions. However, the latter option is costly in terms of development and setting up new processes, and it’s possible to get by with an intermediary solution for quite a long time. You can leave the basis as it is and bolster your ERP with some cloud-based integrations, for example, with CRM. It’s more justifiable than trying to modernize an on-premise resource planning with on-premise facilities, which requires additional hardware. Give a hybrid solution a try if your company needs to implement a new business process that can’t be supported by the existing system (you change a product or introduce a new product configuration), but other parts of the process, such as a customer database, remain the same.

Since shifting from an on-premise ERP to the cloud is pricey, it’s important to choose the right technical contractors to ensure all your requirements to the system will be met and its implementation won’t be stretched out endlessly.

Three-headed dragon of ERP: implementation risks

Enterprise resource planning solutions can be deployed on-premise, in the cloud, or by uniting both options, but the risks they face during the implementation are, for the most part, the same for all the system types. These risks can be broken into three groups, namely: organizational, business-related, and technological ones. Let’s dig deeper into each of them.

Organizational risks

Changing the company’s mindset is always the hardest part of any transformation. Processes and technologies follow people’s changes, not the other way around. You can build perfect technological solutions but if rejected by your employees, they will lead your company nowhere.

Unclear goals and unrealistic expectations

Enterprise resource planning isn’t a cure-all. Custom ERP 100% adjusted to your business needs can’t replace basic business logic. If you don’t have a clear idea about the exact business value and outcomes of a new system for your business, it won’t work out.
You’re likely to make quite a number of ERP implementation mistakes if your goals of the system’s adoption or modernization are unsettled. For instance, you risk choosing the wrong vendor or implementation partner or going with an inappropriate implementation approach.

Lack of change management 

There is another serious organizational risk of ERP implementation, related to the employees’ desires, or, rather, reluctance, to absorb the associated changes. Naturally, staff would prefer to stay with the habitual system — people don’t understand why to replace or improve something that’s not broken.

Thus, except for aligning project goals with the organization’s global business strategy and reviewing them through the implementation process, decision-makers have to explain the value of a system implementation or modernization to the employees.

To persuade your staff that the new or modernized system will simplify their day-to-day tasks:

  • Inform your employees about the novelties and milestones as the project progresses and establish reliable feedback channels. By doing this, you’ll be able to turn the opponents of an ERP project into its strongest advocates.
  • Give your employees a chance to test the system before the final implementation. Let them get used to the system and understand that switching to a new solution is not as inconvenient as it might initially seem. This approach can also help you uncover ERP implementation mistakes at the early stages.
  • Organize reskilling and role-based training on both systems and processes. That way, you’ll ensure end users can work effectively in the new environment and sustain the implemented changes.

Business-related risks

These risks of ERP implementation arise from organizational misunderstandings and lead to costly business consequences. Note them down so that you won’t repeat the story of the National Grid, a utility company that got into huge trouble when 15,000 invoices couldn’t be processed and financial reporting was so bad that the company couldn’t get short-term loans necessary for its cash flow.

Misleading cost analysis 

The total cost of ownership (TCO) isn’t equal to the purchase price of a system. Conduct a thorough TCO analysis in advance not to be appalled by overall expenditure. Don’t disregard:

  • Testing. Putting untested software into production and, then, fixing issues in the already implemented system is more expensive than testing it throughout the entire software development lifecycle and handling problems as they arise.
  • Employees’ training. The probability that your staff will accept the new system with ease on the first day of ERP implementation is close to zero. That’s why you shouldn’t skimp on your training budget.
  • ERP customization. The more you adjust an out-of-the-box system to your business needs, the more it costs in terms of maintenance and support. Panorama indicates that only 62% of organizations have completed their ERP implementation projects on or under budget. The others experienced overruns of 66% on average.

Over-customization 

Over-customization is a common risk of ERP implementation both for enterprises and mid-size organizations. It can seriously postpone the system’s go-live date and increase its maintenance costs.

Customization is great as long as it focuses only on areas that are crucial for your business success and doesn’t contribute to the undue complexity of your system. For a manufacturer, such an area might be inventory management that allows tracking raw materials necessary for further work: which do you have on the shelf, how quickly can they be delivered to the manufacturer, and how long does it take to request a new material supply?

Violations of regulatory compliance 

Your data may turn out to be inconsistent with regulatory compliance. For example, some regulations can prohibit storing data about your customers’ gender. In that case, you’ll lose some marketing opportunities, such as the possibility to send targeted letters to your customers.

You’ll have to improve the system at a significant cost if it doesn’t align with all the required laws and obligations at the early stages of the ERP implementation as it happened with Woolworths. The company hadn’t been properly documenting its data for six years, and consequently, had no opportunity to verify whether the data complied with the regulations. What started as a promising $200 million ERP implementation ended a few years later as a tremendous failure that cost the company more than $766 million due to non-compliance with laws and regulations, and other business-related and technological issues.

Technological risks

Along with operational and business-related risks of ERP implementation, you should pay attention to the technical part of the project. Don’t forget to properly organize the data migration process, set aside enough time for system’s testing, take care of security, and make sure you have experts to maintain the new solution.

Data migration issues

Data migration is one of the key things to consider during the ERP implementation process. The problem with it often occurs when the data stored in the source system is represented by both structured and unstructured information. If you transfer unstructured data from the source documents, this information will require additional processing and verification for accuracy and authenticity before being exported to an ERP software. And the more operations you have to perform, the higher the system’s maintenance cost is.

Sometimes the information can’t be transferred to the new ERP in the same format as it doesn’t fit into any category. In that case, the risk of data loss increases. To mitigate it, you should think ahead about the data categories you’ll need for the new system and the data categories you actually have. That’s why working with an experienced partner in enterprise software development is crucial for businesses that haven’t previously encountered the building or modernization of ERP systems.

Another factor that undermines data quality is duplicated data from multiple sources, which is a serious productivity killer and the reason for potential inaccurate reports and wrong business decisions. If you’ve been using different CRMs for company-wide tasks and for the sales department and haven’t sorted out this issue before ERP implementation, the information on your customers can be transferred to the new system twice, badly affecting the accuracy of sales and marketing analysis.

Lack of testing on the pre-production stage

Testing helps keep a finger on the pulse of the system’s workflow and technicalities to leave no room for a mishap and ensure the system is set in line with your company’s needs. Good testing happens when the QA engineer delves deep into your business processes and comes up with relevant tests. For an organization that sells goods, the testing team can check what the system does if a customer takes the product back or how it reacts if a purchase is returned to storage A instead of storage B, etc.

Poor security control

The major point about the security challenges in implementing ERP is that segregation of duties should lie at the heart of user access. Such an approach decreases the probability of data breaches because of employees’ ignorance and, as a result, the need for a costly system redesign. Furthermore, establishing strong authentication rules as weak authentication can cause open network shares and, thus, data leakage that might cost you a fortune in terms of money and reputation loss.

Lack of skills 

Just as people become the primary concern when it comes to ERP implementation, they are also the cornerstone regarding the development process. If you are not sure about the technical mastery of your in-house tech team, then it’s worth reaching out to an experienced ERP software company. Working with business analysts and developers who have strong expertise in similar projects will spare you the risk of wasting the time figuring out the nuts and bolts of the system. Also, consider the level of employee turnover in the vendor’s company. The more people are replaced, the more expertise goes away. That’s why at least key team members should stay to guide the others through the challenges in implementing ERP. Even if a new specialist has the same level of expertise as the former team member, it takes time to sort out why the system works the way it does.

ERP implementation mistakes to avoid from our*instinctools’ expert

The desire to complete the transformation quickly is understandable — organizations want to benefit from the new solution faster. But rush causes shortsightedness which, in its turn, leads to three common mistakes in ERP implementation:

  1. Decision-makers are unable to prove the value of change to the staff. It’s always a business idea that drives ERP implementation. But if there’s no agreement between C-suites and other employees, you run the risk of getting a solution that won’t be viable. That’s why discussing the future ERP with the stakeholders throughout all the departments is paramount to succeed in this transformation.
  2. Desire to roll out the system straight into production. Before the ERP is launched, your employees should have the opportunity to get acquainted with the system and to give feedback about it. Is it convenient? Can some parts of it be designed in another way? Using the collective brain power of your team can save you time and money in the future.
  3. System’s inability to scale and change. Your business processes as well as the input data can change and so should your system. It will be more problematic and expensive to rebuild it in the pre-production stage if you don’t make the provision for changes at the beginning of the project.

Top 3 questions for an ERP consultant

To minimize the number of ERP implementation challenges, ask your vendor the following questions:

Can the source code be provided and is it included in the price of ERP development? By having the system’s full source code, you’ll be free from dependency on the vendor that initially provided you with the software.

What programming language is the ERP system written in? There might be two issues here: the first one is an outdated language that is no longer supported by the language developer or ERP system itself. Another problem is a language developed exclusively for the ERP system, so it’s difficult to find an alternative programmer, and chances are that the developed solution won’t be compatible with your software.

How is the technical support organized? By choosing custom ERP development, you have the possibility to keep in touch with the project team as part of maintenance and support services even after the system implementation. Meanwhile, with a ready-made solution, you risk going through the circles of hell being kicked from one operator to another and explaining the essence of the problem multiple times to the people who have nothing to do with the ERP development.

Start with the people and processes, then get to the  technical part, not the other way around

To get through all the challenges in implementing ERP and reap the benefits the system offers, first handle the issues around your employees’ awareness about the ERP implementation to ensure everyone within the company is on the same page. Then deal with the technical stuff such as security measures, data migration, quality issues, and so on.

If all this seems like too much to have on your plate, *instinctools experts are ready to take it from there — drop us a line.


The article was originally published here.