10 early warning signs of ERP disaster

Enterprise resource planning (ERP) systems weave together software and services from disparate departments into a cohesive, collaborative whole. Companies rely on ERP systems to keep their business operations running smoothly. Without ERP implementations to coordinate purchases, customer orders, financial transactions and beyond, modern business would take a significant step back in efficiency.

But the integrated nature of ERP systems makes them tricky to maintain and update. Many ERP systems are out of date or need major improvements. Plus, many organizations, seeking cost savings and flexibility, are considering migrating their ERP needs to the cloud. All of these factors make ERP systems ripe for disaster.

We reached out to experienced ERP consultants to discover early warning signs that your ERP project may be on the verge of suffering major problems. The large scope of ERP projects often means that a warning sign today may not manifest in problems for several months, so it takes a close eye to detect and anticipate an ERP disaster in the making.

You’ve made a large technical leap

While consumers may purchase the newest smartphone immediately after release, most organizations take their time before adopting a new technology. This is especially important with ERP.

[ Check out our guide to enterprise resource planning (ERP) and learn the 13 common ERP mistakes and how to avoid making them. | Get weekly insights by signing up for our CIO Leader newsletter. ]

“If you are an early adopter of a new ERP technology, you may be in for greater challenges,” says Michael Hughes of West Monroe Partners, a consulting firm based in Illinois. “If your ERP is several versions behind the version you are planning to adopt, you may also encounter challenges in the transition.”

If either of these situations applies to you, and you don’t adjust your schedule and budget assumptions accordingly, you could be headed toward disaster.

You’ve neglected business engagement

It is a dirty secret that technology and business units often struggle to find alignment. Nowhere is this discord magnified more than when it comes to ERP projects.

“No ERP project goes perfectly — there will always be hiccups and problems. If you have a strong engagement with the business, you are likely to be forgiven as you work through the problems. On the other hand, if you neglect to engage users, you can expect resistance and protests when problems occur,” says Ed Featherston, vice president and principal architect at Cloud Technology Partners, a technology consulting firm.

Put it another way: Your people skills may be your greatest asset or liability on ERP projects. Empathy for the impact on your users goes a long way.

“One of the best ways to engage users is to directly explain how ERP changes impact their daily work. If users have to guess, they are likely to resist since human nature tends to be change resistant,” Featherston adds.

You’ve overestimated staff savings in the cloud

For years, cost savings and flexibility have been the key selling points for cloud services. But banking on savings — especially in staff resources — when undertaking ERP in the cloud can come back to haunt you.

“Some organizations expect that moving to the cloud means that you do not need process owners and other internal support. Internal governance and support are still needed for ERP, whether it is cloud or on-premises,” West Monroe Partners’ Hughes says. In fact, if your ERP project is developing new capabilities, you will likely need additional support in analytics and related functions regardless of where those capabilities reside.

Evaluate cost reduction claims with a measure of skepticism as you develop business cases for ERP projects. One may assume that a department’s staff can be eliminated due to ERP efficiency improvements when moving to the cloud, but that analysis may be based on out-of-date job description documents. In fact, your business users may be even more reliant on their ERP support staff to engage.

Your project requirements are high level and vague

The fundamentals matter in all projects including ERP upgrades, enhancements, and transitions. Here, getting the requirements phase right is key.

“When I see inadequate requirements on an ERP project, I expect to encounter problems later in the project. There is an increased chance of dissatisfaction and related problems,” Hughes says. Spending time on business analysis at the beginning is one way to address this issue. If the ERP system has to address the needs of multiple user groups, take the time to address those needs as well.

Strong requirements also make it easy to declare project success. “If you have a requirement like ‘make life easier for the finance department,’ it is difficult to know if you have achieved that outcome,” Cloud Technology Partners’ Featherston says. Despite that, he adds, “high-level definitions of success continue to be used.”

You’ve risked reliance on legacy technologies

Some ERP projects are simply focused on maintaining old systems, for better or, unfortunately more often, worse.

“I know one organization that is moving away from a custom-built solution built on Cobol. For years, they had funded a local university to continue to offer Cobol training so they could continue to hire staff,” says Rick Cimino, national enterprise solutions network leader at KPMG. “In this case, there were strong career benefits to moving to new ERP technologies such as Oracle. By acquiring skill in those areas, IT professionals would become more valuable in the company and beyond,” he adds.

This case highlights that certain types of ERP efforts may increase risk. For example, paying additional fees for extended support is a warning sign that your systems are stuck in the past. In addition to challenges in recruiting talent, continuing to use legacy systems exposes you to increased cybersecurity risks.

You allow too many exceptions

If you have been in a large organization for long, you are bound to encounter a fair number of requests for exceptions. This is often the result of a weak governance process that could eventually undermine your ERP systems.

“A lack of governance processes to make decisions on ERP causes frustrations and delays,” Hughes says. “Take the case of purchase orders or expenses. You design a standard process, and then you encounter a case where an executive or special case comes up. If these requests are handled in an ad hoc manner, you are likely to have problems because users will think they can get an exception for anything they wish,” he says.

Developing an ERP governance process need not involve multiple layers of bureaucracy. Establishing a recurring committee of business and technology decision makers to review unusual requests is one approach. With that process, you can avoid encumbering the system with irrelevant or troublesome problems. If you have an existing project governance group, consider asking some of those committee members to continue serving.

You routinely rely on Excel for workarounds

Microsoft Excel may be the largest, informal ERP system in the world. However, if users are routinely using Excel to carry out analysis, your ERP project has problems. Excel as universal workaround may suggest that your reports and data aren’t set up in a user-friendly manner. Users may also have a need to review data from multiple services to achieve their goals. To address this concern, ask users which Excel files they routinely update and refine each month or each quarter. That will help you identify improvement opportunities for the ERP.

You’ve fallen prey to shiny object syndrome

In the technology profession, it is easy to get excited about new tools and systems. Identifying high-value technology opportunities for the organization is a vital function of the CIO role. However, the tendency to grab at the latest technology has a downside that could undercut your ERP project.

“Letting the technology drive the process is a mistake. I have seen many companies start large projects by focusing on the product’s capabilities,” says Featherston. “Fortunately, technology vendors are starting to help address this issue. Few vendors now claim that the new product will work out of the box.”

Combatting this tendency requires a change in mindset.

“Avoiding shiny object syndrome takes some work. I recommend viewing technology as the vehicle that drives you to a business outcome. If you keep that point in mind, you are more likely to stay connected to the needs of your business users,” says Featherston.

You’ve treated compliance as an afterthought

The need for speed in modern business is often the driving priority in technology projects. But cutting corners on compliance can come back to haunt you.

“If you have an ERP project leader take the view of ‘get the project done now, and we will sort out compliance later,’ you are likely to have problems,” Featherston says. Neglecting compliance needs is especially expensive in highly regulated industries such as financial services, health and pharma and the energy field. Engaging compliance and other control functions up front will help to prevent compliance issues form cropping up down the line.

You’ve carried on-premises assumptions to the cloud

For an ERP cloud transition to succeed, IT leaders need to reconsider their established ways of doing business. After all, the migration is significant, and your on-premises strategy won’t suffice in the cloud.

“For on-premises ERP implementations, I estimate that most companies are using a 70 percent out of the box configuration with 30 percent customization. That will not work in the cloud ERP model,” says KPMG’s Cimino. “Most cloud ERPs discourage extensive customization because they are made to be used in a standardized fashion to facilitate vendor updates.”

Leading successful enterprise scale technology projects is a critical competency for IT leaders. If you already have developed this skillset to a high level, your responsibility does not end there. What about other managers and rising talent in the IT organization? They need opportunities leading large projects. Whether you are upgrading your ERP or improving your network infrastructure, growing your staff is just as important as shipping the project.

Related articles