Let me share some insights and experiences about Enterprise Resource Planning (ERP) projects that I have gathered over the years. These are complex undertakings, and the journey to success is fraught with challenges. The reality of ERP implementations is stark—7 out of 10 ERP projects fail to deliver what they promise. That’s a staggering statistic, and it should serve as a wake-up call for anyone considering embarking on such a journey.

Most ERP projects don’t just miss the mark; they frequently go over budget—by more than 100% in many cases. While the reasons for these failures and cost overruns vary, one major culprit is clear: teams take far longer to execute their parts of the project than initially planned, often spending 2.5 times the anticipated duration. Consequently, only about 30% of the expected benefits from these projects materialize. These figures should give companies pause when considering an ERP investment. However, all hope is not lost—there is still a chance to prevent troubled ERP projects from failing entirely. I’ve had the opportunity to step in and rescue failing projects over the years, but these salvage missions are incredibly taxing on everyone involved: customers, system integrators (SI), and, yes, consultants like me.

I experienced some high-pressure situations rescuing customers from falling off the cliff. So, I’ve learned some crucial lessons over the last two decades. One overarching conclusion stands out: we’re often solving the wrong problem. Organizations spend millions of dollars purchasing and implementing software while allocating mere pennies to invest in their people. However, when ERP projects fall apart, it’s rarely due to a fault with the technology itself. Most failures stem from fundamental human factors such as weak communication, resistance to organizational changes, insufficient training, and a lack of committed leadership support.

The Hidden Costs That ERP Projects Don’t Warn You About

Another factor contributing to the “real cost” of ERP projects is the assortment of hidden costs that many organizations overlook during the planning phase. While the average ERP project costs $15 million, the initial software costs are just the tip of the iceberg. Let me outline some of these additional, often underestimated costs:

• Training and Organizational Change Management (OCM): You need to invest in preparing your workforce for the transformation. This involves extensive training sessions and robust change management strategies to ensure alignment and acceptance among team members.
• Data cleanup and data historization: It’s often said that an ERP is only as good as the data fed into it. Companies frequently underestimate the effort required to clean up existing data and correctly archive historical data to ensure accurate reporting and effective decision-making.
• Testing efforts: Testing isn’t just a box to check. Thorough testing, including integration, end-to-end (E2E), and performance tests, require substantial time and financial investment. Skipping or skimping on this phase invites disaster later.
• Custom development: Off-the-shelf ERP solutions rarely meet all your business needs out of the box. Custom development to align software functionalities with specific business requirements adds another layer of cost and complexity.

The Bright Side: Companies That Get ERP Right

Despite these challenges, there’s good news for those who approach ERP implementations the right way. When executed effectively, these projects can drive exceptional outcomes for organizations. Companies that succeed in implementing ERP systems reap benefits such as:

1. Streamlined operations: Effective ERPs enable organizations to align business processes globally, creating operational efficiencies that improve productivity across departments.
2. Automation of manual tasks: Employees can focus on high-value work by eliminating repetitive manual processes. This enhanced efficiency provides better insights and creates the foundation for real-time, data-driven decision-making.
3. Profit improvement: A well-implemented ERP can directly impact the bottom line, with many organizations reporting a 2% to 5% increase in profitability.
4. Enhanced customer service: Optimized workflows and better visibility into processes translate to a more responsive and customer-centric organization.

The Secret Sauce to ERP Success

So, is there a proven formula to turn these challenging projects into triumphs? Absolutely, but it doesn’t begin with diving into the software itself. Instead, start with crafting a robust ERP strategy. Think of the process like constructing a house. You wouldn’t begin by purchasing furniture or appliances without first building a solid foundation. ERP strategy sets that foundation, guiding everything from planning and resourcing to execution and beyond.

Here are some additional tips for success:

• Double the training budget: Investing in your people pays dividends. Well-trained teams are not only more productive but also more adaptable during the transition phase.
• Encourage collaboration through face-to-face interaction: Allocate funds for travel so that cross-functional teams can meet in person. Building trust and rapport significantly improves collaboration and reduces miscommunication.
• 3x the testing time: Testing is your safety net—it ensures the system works seamlessly before going live. Plan to dedicate ample time to thorough and repeated testing phases.
• Never skip organizational change management: This piece is non-negotiable. The smoothest transitions occur when employees fully understand and buy into the changes being implemented.

It’s about Business Needs, not just Technology.

Ultimately, the true keys to ERP success don’t lie in technology but in people, business processes, visibility, and insights derived from accurate and accessible data. Technology serves as the enabler—it’s the human and organizational factors that determine success or failure.

What’s been your experience with ERP implementations? Have you encountered the common pitfalls or witnessed the impressive rewards of a well-executed project? I would love to hear your stories and insights. Let’s get in touch.

andreas.graesser@erpstrategies.co Read more “war stories” in my book “RUN IT – Dominating Technology.”