Break The ERP Failure Cycle

ERP implementation failure is a pretty easy topic to write about – fresh material is delivered to my door almost daily.  Consider, for example, the California County of Marin’s recent $30 million lawsuit against Deloitte Consulting LLP.  In that case, Marin County hired Deloitte to implement an SAP ERP system.  Marin spent $18.6 million on system and implementation costs.  For all of that money, what did it get?  A malfunctioning system, administrative lock-ups and headaches. 

The system was supposed to automate and simplify Marin County’s finance and HR business processes.  Instead, reporting and system functionality are a mess.  Marin County hasn’t issued financial statements for the past two fiscal years.  It can’t yet reconcile its cash balances.  Nor can it administer payables, receivables, fixed assets and inventories.  Pension administration – a key component of public sector finances – has been partially stalled by an inability to extract current information from the databases.  Recently, pension officials had to rely on an outdated 2007 actuarial report because it had no current alternative.  These are but a few of Marin County’s 26 reported ERP system problems. 

In its legal filings, Marin County claims that Deloitte botched the implementation project because it “was utterly incapable of providing the County with the necessary expert advice, guidance or leadership”.  Marin further alleges that Deloitte had “staffed the project with dozens of neophyte consultants, many of whom lacked even a basic understanding of SAP”.  Predictably, Deloitte has denied all of the allegations.  Deloitte says that it did what it was hired to do, and that Marin County had approved of its performance.  Deloitte has countersued for $555,000 on account of alleged unpaid consulting bills and interest. 

Marin County’s ERP implementation project was unequivocally a failure.  Regardless of which party the court ultimately sides with, Marin County is still stuck holding the bag.  While Deloitte is busy collecting fees on other projects, Marin County is still figuring out how to issue its financial statements.   

The moral of this story is that companies implementing ERP (or any other complex software) need to find the right implementation partner.  Oftentimes, finding the right partner means finding the right project manager and consulting team.  The project manager must be adept at running complex business projects that include: corporate restructuring, business process re-engineering, change management and IT systems integration.  The consulting team must be made up of seasoned consultants who are experts in a given functional business area as well as in the specific software.

Here are four tips to help you pick the right project manager and implementation team:
    •    The Project Manager Must Be Independent And Impartial.  ERP implementations are saturated with decision points that require the company to choose between changing the business and changing the software.  Your project manager has to advise you on these decisions.  To ensure your company is getting advice that is unequivocally in its best interests, your project manager had to be independent from and impartial to ERP vendors.  This means that his company should not be an ERP reseller (a.k.a. VAR or value-added reseller) or a consultant working for the ERP vendor.  

    •    The Project Manager Needs To Have A Proven ERP Implementation Methodology.  A proven, time-tested ERP implementation methodology demonstrates an ability to deliver a complex implementation project on time, within budget and up to performance standards.  When assessing a methodology, your company should look for answers to the following questions: has the methodology withstood the test of time?  How many ERP projects have been delivered with the methodology?  How is final project success measured?  How are incremental project phase successes measured?  Has the methodology been used in any failed projects?  Is the methodology published?

    •    Hire The People Not The Firm.  Remember: a firm name on a door can’t implement ERP.  So, when selecting an implementation partner, your company needs to hire the right people with the right experience.  This means looking behind the firm name at the people who will be staffed on your project.  Your company should interview all of the prospective consultants and look for implementation experience, experience with the specific software, and experience in your company’s particular industry, among other things.

    •    Protect Your Company Against The Bait-And-Switch.  Unfortunately, we continue to hear stories about consulting firms using a bait-and-switch tactic.  In fact, this tactic is a central allegation in the Marin County lawsuit.  A brief explanation of the bait-and-switch is as follows.  A consulting firm sends its “A-Team” to make the sale, effectively representing that these people will manage the project.  Once the deal is signed, however, the consulting firm replaces the “A-Team” with less experienced and less skilled people.  To protect itself against the bait-and-switch, your company should ensure that the desired consultants will be assigned exclusively to your project for its duration.  Also, your company should retain a veto right over any staffing changes that might occur. 

    •    Conduct Detailed Reference Checks.  Remember, with an ERP implementation project, your company is putting its operations and administration on the line.  To protect itself against failure, your company needs to make sure that the consultants are qualified to manage the project, the change and the risk.  Since projects are run by people and not firms, you should check references for previous work done by the proposed consultants.  If the proposed consultants do not have directly relevant experience, you probably don’t want them learning on your company’s dime and at the expense of its operations. 

For every failing ERP project our firm has been parachuted in to rescue, for every ERP failure story I’ve read, I’ve come to one conclusion: each and every one of those failures was avoidable.  I continue to be floored by the billions of dollars, hundreds of jobs and number of years that are collectively wasted on ERP failure.  The most upsetting part is that this wastage is both unnecessary and avoidable.  Your company can help break this cycle.  Before it starts an ERP project, it should do its due diligence on prospective ERP implementation partners. 

Jonathan Gross LL.B., M.B.A., is a vice president at Pemeco. Pemeco specializes in aligning business with IT, selecting IT systems and implementing IT systems.  Do you have IT or ERP questions? Feel free to email Jonathan at jonathang@pemeco.com.  Also, follow him at http://twitter.com/Pemeco.