Despite the substantial investment in ERP implementation, there have been few successful implementations following its introduction in the early 1990s. This applies to both large corporations and other organizations. The lack of essential business practices has impeded widespread success. Therefore, this paper aims to examine three major organizations’ unsuccessful ERP implementations.
The objective of this article is to explore the causes and lessons learned from three notable ERP implementation failures. In August 2004, Hewlett-Packard (HP), a renowned United States-based company that specializes in computer hardware and IT, witnessed a 5% decline in revenues for its Enterprise Servers and Storage (ESS) division during the third quarter. This decline amounted to $3.4 billion as compared to the previous year’s figures. HP attributed this decrease largely to difficulties encountered while transitioning to a centralized ERP system within one of its main North American divisions.
The company estimated that the financial impact of backlogs and lost revenue was $160 million, which was five times greater than the cost of implementing the ERP system (ERP Implementation Failure at HP). As HP serves as a consultant for many organizations using SAP solutions, it was crucial for them to execute their own ERP implementation flawlessly. However, when the failed implementation was announced, industry analysts doubted HP’s credibility as a consultant for SAP ERP systems. This raised concerns about their expertise in preventing the very implementation problems they faced (ERP Implementation Failure at HP). The Hershey Company experienced a similar outcome in 1999.
Hershey’s invested $112 million in their IT systems, beginning in 1996, with the goal of upgrading their disparate legacy systems into a cohesive ERP environment. Despite the recommended implementation timeline of 48 months, Hershey’s aimed to complete the implementation before Y2K and requested a 30-month turnaround by July 1999. Unfortunately, this expedited schedule coincided with Hershey’s busiest period for Halloween and Christmas orders.
As a consequence of this rushed timeframe, unexpected issues arose once the system went live in July 1999. These problems hindered the progression of orders through the supply-chain and ultimately led to an inability to process Kiss and Jolly Rancher orders worth $100 million (Gross, 2011).
The U.S. Department of Defense (DoD) initiated the Expeditionary Combat Support System (ECSS) project in 2004, but terminated it in 2012 after investing over a billion dollars and seven years of development. Unfortunately, ECSS did not succeed in replacing 240 outdated U.S. Department of Defense systems.
S. Air Force computer systems were consolidated into one integrated system in order to generate an auditable set of financial records. However, after several years and significant investment, the ECSS-contractor CSC was issued a stop-work order due to lack of progress. Ultimately, the contract with CSC was terminated for non-performance, leading to the decision to end the project. There were also speculations that continuing the program would have incurred an estimated cost of $1.
According to Charette (2012), the failed ERP implementations cost about one-quarter of the original scope. After examining the three cases mentioned earlier, it was evident that there were common and unique reasons for these failures. One common reason was the lack of contingency planning, which was particularly notable in the cases of HP and Hershey’s. Not much time was devoted to this phase of the ERP rollout.
Both organizations chose to migrate from multiple IT systems to a single ERP system, enabling all supply-chain steps to be managed efficiently. However, it is evident from the research conducted that neither company invested time in implementing a robust contingency plan in case the ERP implementation failed. As a result, there were no measures in place to mitigate the financial consequences that were subsequently experienced.
The text highlights poor project management in three cases. It specifically addresses issues with budget management, schedule management, judgment, and impact on the business flow. In the case of Hershey’s, there was a focus on rushing the implementation of the new solution before Y2K, even though there were recommendations to implement it over a longer period. Both the project implementation team and senior management showed poor judgment, particularly considering that the new system would handle all order flow.
The Department of Defense (DoD) incurred excessive spending on ECSS for a duration of seven years, indicating a lack of emphasis on proper budget management. The company, HP, clearly stated that the primary reason for the failed implementation was inadequate execution, reflecting poorly on the project management team. Additionally, organizational or departmental culture may have played a role.
The case study titled Assessment of DoD Enterprise Resource Planning Business Systems by Ketrick (2011) discusses various cultural issues that hinder successful implementation of ERP. The most noteworthy issue for ECSS implementation is referred to as a “risk-averse or hyper-chain-of-command mindset” where subordinates are discouraged from sharing important factual information that contradicts decisions (Ketrick, 2011, p. 33).
According to Ketrick et al., program managers fear that including any negative elements in their status update to leadership will be perceived as a sign of weakness in execution, regardless of whether the causes are within their control or not. They worry that being honest about the program’s status may result in its cancellation, hindering leadership from effectively addressing obstacles to success.
In 2011, a study found that failed ERP implementations have provided valuable lessons for three major US organizations. One crucial lesson is the importance of having a contingency plan during the implementation of an ERP system. Despite its flaws, the current system has successfully managed business processes up to now.
Having either the original system or a contingency plan is crucial in case the ERP implementation at HP encounters difficulties. Furthermore, establishing a realistic timeline for the project is essential. Organizations should allocate sufficient time to uncover any potential issues or flaws when implementing a system that oversees the daily supply chain process.
Attempting to shorten the recommended timeframe for an ERP implementation can lead to disaster (Gross, 2011). It is important to acknowledge the negative consequences a failed ERP implementation can have on a business and incorporate this understanding into the entire project management process. Hershey’s serves as an example, as they did not adequately consider that the desired implementation date would coincide with peak order periods.
This omission led to unprocessed orders worth millions of dollars (Gross, 2011). The testing phase of implementing an ERP system is crucial as it determines whether the system can meet the organization’s needs. Adequate time and resources must be devoted to testing to prevent unforeseen issues or downtime (10 reasons for ERP Implementation Failures, 2013).
Can these lessons prevent future ERP implementation failures? Many companies still experience failed ERP implementation due to a lack of planning. However, organizations can develop their own implementation strategy by researching the challenges faced by other companies. By focusing on developing a contingency plan, sticking to the schedule, managing the budget, and providing detailed training, it is possible to avoid an ERP implementation catastrophe.
