While ERP is a solution that has a number of potential applications, there are many companies that have failed when trying to implement it. Understanding why these companies failed is an important factor in learning how to use effectively use Enterprise Resource Planning. It should first be noted that a number of ERP failures occured in 1999.
A number of companies tried to use this technology in a way that would allow them to fight Y2K. Many of the companies that are using ERP today have learned from the many failures that were prevalent in the past. Before I proceed further, it is first important to define the meaning of a ERP failure.
It is first important to note that there are certain degrees of failure within Enterprise Resource Planning. One degree of failure is not utilizing the ERP system. Another level of failure is when the ERP system is not properly used. A number of studies have indicated that only 6% out of 500 companies felt that there ERP systems were effective. This is a very dismal number, and this may cause some companies to avoid using the technology altogether. There are a number of things that can cause a company to fail when it is attempting to use Enterprise Resource Planning. The most common causes of failure are problems with external consultants, expectations that are not realistic, too much customization, and complexity of the ERP system.
There can be no doubt that ERP systems are very complex. In addition to their complexity, they are hard to utilize. When this is combined with the costs and the fact that most ERP systems take six months to get off the ground, some companies are discouraged from using them. This form of technology is heavily integrated. In order for it to work properly, it must have the support of the entire organization. A lot of companies will find that drastic changes will have to be made if the system is to be used successfully. A number of studies have demonstrated that the cost of any ERP system can be as large as $500 million. Keep in mind that there is no guarantee that the system will be successfully once a company has paid this amount.
In one prominent case, a well established company lost over $100 million on an ERP project after spending more than two years trying to get it developed. Depending on the assets and revenues of a company, failing to correctly implement this technology may lead to bankruptcy. Another common problem with ERP is external consultant disputes. A number of lawsuits have been filed, and it involves disputes that occured with consultants. One of the best ways to avoid this problem is to get documented information on the experience of consultant before you do business with them. Presenting stipulations to the consultant may be a great to avoid future disputes and legal problems.
Perhaps one of the most common causes of failure is improper training. When you consider the complexity of ERP solutions, it is crucially important to make sure your employees fully understand it. In addition to this, they must accept the system. In order for your employees to get the training they need, you must find skilled instructors who can train them. It is not enough to simply train employees on how to properly use the software. They must also be trained in the new ways of doing business. Remember, the implementation of an ERP system goes beyond technical issues. The business processes must be taken into consideration as well.
One form of risk that you will want to become familiar with is Process Risk. As the name suggests, this is a form of risk that a company will face will they are attempting to make significant changes in the way they carry out various processes and procedures. When a company attempts to implement ERP, they may find that the productivity of their employees will drop. This will be a result of them learning the new technology, and once it happens, revenues will fall. Many companies fail to calculate the difficulties involved with creating a new system, and once these difficulties are realized, the schedules falter and other problems occur.