As ERP implementations falter and fail, many people think the answer is more training. They're wrong. Unless you've been as out-of-touch as the Mars Polar Lander, you're doubtlessly aware that the ERP industry hasn't been performing like the marvel it was first made out to be.
First came the ERP vendors' pre-Y2K plunging sales revenues and falling stock values. Second came the realization that all that hard work implementing an ERP system didn't actually guarantee business benefits—or even a positive payback. Take Meta Group's damning finding, for instance: The average ERP implementation takes 23 months, has a total cost of ownership of $15 million and rewards (so to speak) the business with an average negative net present value of $1.5 million. And the news gets worse.
An alarmingly long list of top-drawer integrators have fallen flat on their faces. Compared to these disasters, merely spending a lot of money on an ERP implementation that achieves very little is a consummation devoutly to be wished.
Hershey, Pa.-based Hershey Foods, for example, issued two profit warnings in as many months in the run-up to last Christmas. Why? Massive distribution problems following a flawed implementation of , which affected shipments to stores in the peak Halloween and pre-Christmas sales periods. In a booming stock market, Hershey shares ended the year down 27 percent from its year's high.
And Hershey wasn't alone in its misery. In November 1999, domestic appliance manufacturer Whirlpool of Benton Harbor, Mich., also blamed shipping delays on difficulties associated with its SAP R/3 implementation. Like Hershey, Whirlpool's share price dove south on the news, falling from well over $70 to below $60. While these two have (so far) been the highest-profile implementation debacles, companies as diverse as Scottsdale, Ariz.-based trash processor Allied Waste Industries; Newark, Del.-based high-tech fabric maker W.L. Gore & Associates; and industrial supplies distributor W.W. Grainger of Lake Forest, Ill., have all reported serious difficulties.
And if "serious difficulties" sounds bad, rest assured it can get much, much worse. After Carrollton, Texas-based pharmaceutical distributor FoxMeyer Drug actually collapsed following an SAP R/3 implementation, its bankruptcy trustees filed a $500 million lawsuit in 1998 against the German ERP giant, and another $500 million suit against co-implementer Andersen Consulting. (Both cases were unresolved at the time of writing.)
So what's going on? The good news—if that's the right word—is that most experts agree that such failures are not systemic. "Very rarely are there instances when it's the ERP system itself—the actual software—that fails," says Jim Shepherd, senior vice president of research at Boston-based AMR Research. Public pronouncements by both SAP and Hershey, he notes, have acknowledged that the software does what it is supposed to and that no big fixes or patches are planned. What's more, he adds, the prudent observer will differentiate between real implementation failures and not-so-real failures. "Blaming the failure on a system implementation has become a convenient excuse for companies that have missed their quarter-end [earnings] target."
As for blame, it is evenly spread. SAP implementations are no more likely to go down the tubes than ERP systems from other vendors: W.L. Gore's system, for example, came from Pleasanton, Calif.-based PeopleSoft. "When an ERP project unravels, or is seen not to perform well, one of the suppliers is usually chosen as the culprit," says David Duray, London-based global partner responsible for the SAP implementation business at PricewaterhouseCoopers. "In my experience, this is usually more of a political decision than a proper problem-source identification exercise—and SAP, over the last few years, has been a popular target."
Furthermore, adds Roger Phillips, an IT analyst at specialist investment bank Granville in London, which tracks the global ERP market, there is no evidence that geography is a significant differentiator in the success stakes. Disasters, he believes, "simply go with the ERP territory." There are, he says, "no cultural or managerial foibles that make American ERP implementations any more predisposed to disasters than any other country's implementations."
So what does lie behind ERP disasters? And behind the rather longer list of costly-but-underwhelming implementations typified by that now-infamous Meta Group report? Increasingly, experts reckon that they've found the smoking gun: poor training. Not the technical training of the core team of people who are installing the software, but the education of the broad user community of managers and employees who are supposed to actually run the business with it.
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