MIS Presentation 2012

An Evaluation of ERP Systems Failures

Group: ERP Advisors

Objectives

What is an ERP system?

What are the Benefits of an ERP system?

Who are the ERP vendors?

What aspects constitute a successful

implementation?

What factors are associated with ERP failures

and how to overcome them?

What is an ERP systems?

They are systems designed to

process an organisation transactions
and facilitate integrated and real time planning,
production and customer response.

ERP Characteristics
ERPs are packaged software designed for a client server environment.
ERPs integrate the majority of a business processes
ERPs process a large majority of an organizations transactions
ERPs use an enterprise wide database that typically stores each piece

of data at once.
ERPs allows access to the data in real time.
(Oleary, 2000)

Functional Aspects of an ERP

Source : http://www.inixion.com/images/features3.jpg

ERP life cycle

Deciding to Go ERP
Choosing and ERP system
Designing ERP systems
Should business process or

current ERP software be changed

Choosing Standard Model and Process

Implementing ERP: Big Bang versus phased

After Going Live
Training
(Oleary, 2000)

Why Implement an ERP system?

Tangible Benefits:
Reduce Labour Costs
Reduced material Costs
Improve in Sales and Customer Service
Efficient Financial Management

Intangible Benefits:

Information supply chain visibility

New/improved business processes
Product and Process design
Production and Material Management
Source : ( Leon, 2008 and Cruz-Cunha 2010)

Why Implement an ERP system?

What are ERP Vendors marketing:
Improve alignment of strategies and operations
Reduce costs through increased flexibility
Achieve an end-to-end view across all your lines of business
Drives value for your business
Delivers agility in the face of rapid change
Cast Studies
Drallim Fluid Controls /

Over 4,400 hours saved per year through process improvements and
21% cut in support costs
Vita Liquid Polymers/

80% of customers now pay invoices a week earlier and automated

processes mean tighter processes and proactive credit checking
Source: http://www.epicor.com/uk/Company/PressRoom/Pages/SuccessStories.aspx

Who are the ERP vendors?

Who are the ERP vendors?

Tier I

Tier II

Tier III
ABAS
SAP
Epicor Sage
Activant Solutions Inc.
Oracle
Infor IFS
Baan
Oracle e Business Suite
QAD
Bowen and Groves
Oracle JD Edwards
Lawson
Compiere Exact
Oracle Peoplesoft
Ross
Netsuite Visibility Blue
Microsoft Dynamics
Cherry Exact
HansaWorld Intuitive
Syspro
Open Source ERP software
OpenERP, Compiere, Open Bravo, Apache OFBix/opentaps, ERP5, OpenMFG,
OpenPro, etc
Source: Panorama Consulting, 2011 Guide To ERP Systems And Vendors

ERP Vendors Market Share 2010

47.00%

>1B

500M-1B

33.30%

100M-500M

31.30%

50M-100

32.10%

25M-50M

<25M
0.00%

31.80%

24.50%

15.30%

SAP
Tier II

30.00%

11.50%

15.70%

23.00%
20.00%

4.20%

16.80%

16.70%
13.70%

22.20%
10.00%

31.30%

40.00%

Oracle
Tier III

16.70%

14.60%

16.80%

19.80%

16.70%
17.60%

16.30%
50.00%

4.00%8.60% 8.60%

60.00%

23.10%
28.40%

11.80%
70.00%

26.60%
80.00%

90.00%

100.00%

Microsoft Dynamics

Source: Panorama Consulting, 2011 Guide To ERP Systems And Vendors

Payback Period By Vendor Tier up to

2010
120.00%

Tier III

18.70%

100.00%

Tier II

59.40%

80.00%

Tier I

50.00%

60.00%

30.30%

40.00%

42.60%

20.00%
25.30%

0.00%

3.10%
2.60%
1.40%

No cost Recouped

1-2 years

2-4 years

8.30%
6.50%
13.80%

1.00%
1.30%
5.50%

4-7 years

above 7 years

-20.00%

Source: Panorama Consulting, 2011 Guide To ERP Systems And Vendors

ROI and ROA

Performance comparison Pre- and postadoption for 63 ERP Systems:
8

Post3

4.9

7.53

Post2

Post1

Pre

4.92

7.69
4.45

8.58
5.34

Source : (C. Jones, Kalmi and Kauhanen, 2011)

How to Measure ERP

success?

Lyytinen and Hirschheim (1987),

categorized IT project success by assessing
the resulting system against
Planned objectives,
User expectations,
Project budget

Highlights from a 2010 ERP

Benchmark

Over 40% of organizations are dealing with significant change form

ERP system rollout.

Over 60% of organizations suffer from poor visibility to data and poor
integration in their old systems.

Organizations expect a lot from their ERP systems.

Most companies are not yet ready for the organizational changes of
ERP software.

2009 Average
Take longer than expected
35%
Implementation Duration
18.4 Months
Costs exceeds budget
51.4%
Benefit Realized Under 50% 48%

2010 Average
61%
14.2 Months
74.1
67%

Some People
might have
different views

ERP project failure classification

ERP project failure could be classified as one of four
levels:
(a) Process failure, when the project is not completed
within the time and budget.
(b) Expectation failure, when the IT systems do not
match user expectations.
(c) Interaction failure, when users attitudes towards IT
are negative.
(d) Correspondence failure, when there is no match
between IT systems and the planned objectives.
(Aloin et al, 2007)

What factors are associated with ERP

failures and how to overcome them?
Risk categories associated with enterprise-wide/ERP projects:

Organizational Fit
Skill mix
Management structure and strategy
Software systems design
User involvement and training
Technology planning/integration
(Sumner, 2000 ; Ojala et al, 2006)

Risk category :
Organizational Fit
Risk Factors

Failure to redesign business processes to fit the software

Failure to follow an enterprise-wide design which supports data
integration
(Sumner, 2000 ; Ojala et al, 2006)

Case Study
Hershey Foods Corporation
(Wailgum, 2009)

Minimising Strategies
Commitment to redesigning business processes
Top management commitment
Following an enterprise-wide design which supports data integration

(Sumner, 2000 ; Ojala et al, 2006)

Risk category : Skill Mix

Risk Factors

Insufficient training and reskilling

Insufficient internal expertise
Lack of business analysts with business and technology knowledge
Failure to mix internal and external expertise effectively

Case Study
Lumber Liquidators

(Sumner, 2000 ; Ojala et al, 2006)

(Kanaracus,2010)

Minimising Strategies
Effective use of strategies for recruiting and retaining specialized technical
personnel
Obtaining business analysts with knowledge of application-specific modules
Effective use of external consultants on project teams
(Sumner, 2000 ; Ojala et al, 2006)

Risk category :Management

structure and strategy
Risk Factors

Lack of senior management support

Lack of proper management control structure
Lack of a champion
Ineffective communications

(Sumner, 2000 ; Ojala et al, 2006)

Case Study
The City of San Diego

(Krigsman, 2009)

Minimising Strategies

Obtaining top management support

Establishing a centralized project management structure

Assigning a champion

(Sumner, 2000 ; Ojala et al, 2006)

Risk category :
Software systems design
Risk Factors

Failure to adhere to standardized specifications which the

software supports
Lack of integration

Case Study

(Sumner, 2000 ; Ojala et al, 2006)

Levi Strauss
(Clarke, 2008)

Minimising Strategies
Commitment to using project management methodology
and best practices specified by vendor
Adherence with software specifications

(Sumner, 2000 ; Ojala et al, 2006)

Risk category :
User involvement and training
Risk Factors

Insufficient training of end-users

Ineffective communications
Lack of sensitivity to user resistance
Failure to emphasize reporting

(Sumner, 2000 ; Ojala et al, 2006)

Case Study

Dorset County
(Anonymous, 2010)

Minimising Strategies
Effective user training
Full-time commitment of users to project management roles
Effective communications

(Sumner, 2000 ; Ojala et al, 2006)

Risk categories : Technology

planning/integration
Risk Factors

Inability to avoid technological bottlenecks

Attempting to build bridges to legacy applications
(Sumner, 2000 ; Ojala et al, 2006)

Case Study
Dillard's Inc

(Jarzemsky, 2010)

Minimising Strategies
Acquiring technical expertise
Acquiring vendor support for capacity planning and upgrading
Planning for clientserver implementation including client workstations

(Sumner, 2000 ; Ojala et al, 2006)

Other Aspects:
In 2004, HP's project managers were
aware of the risks associated with the
ERP rollout. But they could not plan for so
many events to happen at once.
The project eventually cost HP $160 million in
order backlogs and revenue loss that
accumulated to five times the project's estimated
cost.
(Gilles Bouchard CIO of HP's global operations)

(Wailgum, 2009)

Strategic critical success factors

Top management commitment and support

Visioning and planning
Build a business case
Project champion
Implementation strategy and timeframe
Vanilla ERP
Project management
Change management
Managing cultural change
(Finney and Corbett, 2007)

Tactical critical success factors

Balanced team
Project team: the best and
brightest
Communication plan
Empowered decision makers
Team morale and motivation
Project cost planning and
management
BPR and software configuration
Legacy system consideration
IT infrastructure
Client consultation

Selection of ERP
Consultant selection and
relationship
Training and job redesign
Troubleshooting/crises
management
Data conversion and integrity
System testing
Post-implementation
evaluation

(Finney and Corbett, 2007)

Summary

ERP Systems are not an IT solution but a system that would

transform the company into a more efficient and effective
organization.

Successful implementation of ERP is complexly tied to multiple

factors that needs to be understood by management who are setting
the strategic direction of the implementation process. Furthermore,
A continuous support and monitoring of the implementation process
is required at each stage.

The most important issue in a successful ERP project is an

understanding of the companys business and context requirements.

What's the future will be

like?

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