Enterprise Resource Planning
Factors Affecting Success and Failure
November 25, 2001
Table of Contents
Factors Contributing to Failure
ERP Success Stories
What is Enterprise Resource Planning (ERP)? “Enterprise Resource Planning” is a term originally coined in 1990 by The Gartner Group to describe the next generation of MRP II software. The purpose was to integrate all facets of the business enterprise under one suite of software applications. The definition of ERP would be broadened to include almost any type of large integrated software package. Webopedia provides a generalized definition of ERP as “a business management system that integrates all facets of the business, including planning, manufacturing, sales, and marketing.”[i] Some of the more well-known ERP software developers include SAP, Oracle, and PeopleSoft.
This paper will look at both successful and unsuccessful ERP implementations and what contributed to their success or failure. Many lessons have been learned by failed ERP projects, as evidenced by the volume of information available. Many of the failures occurred in 1999, in an attempt to manage Y2K issues, which may suggest that the companies had pressing needs which forced the implementation. Apparently, late adopters are benefiting from the mistakes of their predecessors since the most current research describes successful implementations.
What constitutes an ERP implementation failure? There are degrees of failure with ERP projects. The most obvious failure is never actually implementing the ERP system. But a project can be considered failed if the new system is not fully utilized. According to a survey conducted by Forrester Research in April 2001, only six percent of 500 companies surveyed considered their ERP systems effective, while 79 percent said they were not effective or only somewhat effective. Five of the top ten Corporate Information Technology Failures cited by Computerworld involve ERP projects. See chart. (requires Adobe Acrobat reader)
Factors Contributing to Failure
Apparently, no single point of failure can be attributed to unsuccessful ERP implementations. Some of the causes cited for failed ERP projects include: |Inherent complexity of ERP implementation |Unrealistic expectations | |Outside consultant issues |Over-customization of software | |Inadequate training |Using IT to solve the problem | |Process risk and process barriers |Timeline flexibility | |Corporate culture |Infrastructure issues |
Inherent complexity of ERP implementation
ERP Systems are complex, and implementing one can be a difficult, time-consuming, and expensive project for a company. The technology is tightly integrated and requires a commitment from all divisions and often a change in the way a company does business to make it work. It can take years to complete and cost as much as $500 million for a large company. Moreover, there is no guarantee of the outcome.
A notorious example of a failed ERP implementation is the Hershey Foods’ SAPAG’s R/3 implementation. The company spent $112 million and 30 months on their ERP project. When they went live in July 1999, the company experienced problems pushing orders through the system, resulting in shipping delays and deliveries of incomplete orders.
Many reasons have been cited for the Hershey ERP failure. One, the project was originally scheduled to take four years, but the...
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