For many decades companies have adopted the strategy of using Commercial-off-the-Shelf Enterprise Resource Planning (ERP) systems to meet their requirements. Almost all of them do come with some known ERP implementation risk.
The claimed extensive pre-existing functionality in these is expected to reduce risk and enhance business performance. However, a study estimates that only 10% of ERP implementations succeed with full functionality.
The key issue is that, given pre-existing functionality, organisations need to make significant strategic and tactical decisions about whether to change the business to fit the system or whether to change the system to fit the business. This blog outlines ERP implementation risk factors and the current level of software process support for ERPs. It analyses these issues from a theoretical and practical perspective, by relating the experience of current ERP implementation to what is found in research.
Based on own experience and a number of academic sources such as Barki et al. (1993), Keil et al. (1998), Block (1993), Ewusi-Mensah (1997) and others the authors identified these 9 ERP implementation risks:
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ERP Implementation Risk:
1. Failure to Redesign Business Processes to Fit the Software:
There is a strong desire to fit the new ERP system to fit the current process. But this is hardly the case. In fact, the right thing is to redesign your current processes to fit to purchase an ERP system.
The reality is neither option is easy. It is very difficult in the most business to change old or existing processes and customizing the ERP system to fit to current processes is a costly and time-consuming venture. In my view, this is the biggest ERP implementation risk
2. Lack of Senior Management Support
Support of top management is crucial for accomplishing project objectives. It is easy for senior managers to become a sponsor but very difficult to let go the crucial team member for pilot testing or superuser training.
The unfortunate fact is the people who need to be trained as “Super Users”, are the same “key” people who run the business. The lack of senior people support to give time away from the desk, as they are too afraid to miss sales, delivery to the customer is one of the most common ERP implementation risk.
3. Insufficient Training and Reskilling of End-Users
A number of firms learned that
investment in training and reskilling the employees were higher than expected. Most ERP implementation comes with deadlines that need to meet. As a result, there is hardly enough time to train most people and give them skills they need to reach a satisfactory performance state.
4. Lack of Ability to Recruit and Retain Qualified Systems, Developers
Many of the organizations found it difficult to recruit and retain good ERP specialists because the market rates for these people are high. The developers of the biggest market share ERP vendors like SAP, Oracle, Microsoft Dynamics and Infor are in high demand and moves from one consultancy project to another. So not finding an in-house ERP specialist could be a significant ERP implementation risk.
5. Inability to Obtain Full-Time Commitment of Employee to Project Management and Project Activities
Similar to point 2, it might be difficult to get managers and employees to commit to project management roles because they may be uncertain about what responsibilities will still be open to them once they are transferred back to their positions.
Or, in some cases, there’s no backup for their day job while busy in implementation and testing causing a backlog of work, up-set customers, and compounding stress as a result.
6. Lack of Integration
Once ERP is implemented or about to be implemented, it is very important that key business processes cover areas related to feasibility, requirements, prototyping and implementation ERP functionalities. These areas are the source of many issues in ERP implementation.
Further, ERP implementations increasingly include technical work through enhanced configuration features and the need for extensive integration with other systems (for example financial, supply chain or quality software & tools).
Another example would be old metrics which was lifeblood to measure the business is no more available as they used, hence, process and systems functionalities must fit each other for proper integration.
7. Lack of Change Management
It is very easy to take for granted that all employees will accept that implementing an ERP system is a ‘Good Thing’! It might not be the case when you talk to the employer who is using the same old system for the last 10 years and feels things he/she is doing a fine job for business and customers with the old system.
These people firmly believe “If it ain’t broke, don’t fix it”
The people who know most in business and are very good at their job sometimes can be the biggest roadblock of new system deployment and can come up with all possible reasons why it will not work as they know the business inside out! Hence, imposing significant ERP implement risk.
Therefore, it is important to launch a change in a management program to make them understand why business and they have to go through the pain and why the grass is greener on the other side.
8. Poor Technology Planning
Lack of adequate technical expertise and adequate technology infrastructure for supporting project requirements, these ERP implementation risk factors include technological newness (need for new hardware and software), application size (project scope, number of users and team diversity), application complexity and failure of technology to meet specifications.
9. Less than Awesome Project Management
Let’s accept it, implementing ERP is a massive project and last anything between 18 and 24 months or more. Less than awesome project management in any business is significant ERP implementation risk.
The extent of risk of project cost and time overrun due to the lack of a measurement system for assessing and controlling project risk depends on project size, experience with the new technology and project structure.
Any business is planning to implement ERP or upgrade the new one should be mindful of:
- All the risks associated with the recruitment and retention of IT/ERP Subject Matter Expert professionals;
- Insufficient training and reskilling;
- Insufficient internal expertise;
- Failure to mix internal and external expertise effectively;
- Failure to keep to the standard specifications which the software supports;
- Attempts to build bridges to legacy applications.
- The risk of failure to redesign business processes and of following an enterprise-wide design that supports data integration across the organization;
This article represents both theoretical and practical approaches towards the “ERP implementation risk factors” by summarizing the academic sources and conducting the field research.
This kind of extensive double side approach makes the article of interest to those managers who would like to know more about ERP implementation.
If you have observed any more ERP implementation risk in your industry then please do leave the comments in the comments box! I look forward to learn from you.
Frequently Asked Questions (FAQ)
What is risk in ERP implementation?
Risk in ERP (Enterprise Resource Planning) implementation refers to the potential challenges and uncertainties that may arise during the process of deploying and integrating the ERP system into an organization. Common risks include budget overruns, delays in project timelines, data migration issues, resistance from employees, and disruptions to daily operations. Additionally, the complexity of ERP systems and the need for customization can introduce technical challenges.
What are the issues of implementation of ERP?
Issues in the implementation of Enterprise Resource Planning (ERP) systems often include challenges such as resistance to change among employees, data migration complexities, high initial costs, and the potential for disruptions in regular business operations during the transition period.
What are the effects of ERP implementation?
The effects of Enterprise Resource Planning (ERP) implementation include improved efficiency, streamlined business processes, enhanced data accuracy, better decision-making capabilities, and increased overall organizational productivity.
What are the failures of ERP?
Failures in ERP implementation can result from inadequate user training, poor project management, insufficient customization to align with organizational needs, data inaccuracies during migration, and a lack of commitment from top management, leading to costly setbacks and compromised system performance.
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About the Author- Dr Muddassir Ahmed
Dr MuddassirAhmed is the Founder & CEO of SCMDOJO. He is a global speaker, vlogger and supply chain industry expert with 17 years of experience in the Manufacturing Industry in the UK, Europe, the Middle East and South East Asia in various Supply Chain leadership roles. Dr. Muddassir has received a PhD in Management Science from Lancaster University Management School. Muddassir is a Six Sigma black belt and founded the leading supply chain platform SCMDOJO to enable supply chain professionals and teams to thrive by providing best-in-class knowledge content, tools and access to experts.