How To Not Fail With Your ERP Implementation
February 3, 2020 Alex Woodie
Over his 20-plus year career, Eric Kimberling has been directly involved in more than 1,000 ERP implementations, and in the last few years, he’s been an expert witness in over 20 ERP lawsuits. He’s seen great successes as well as dismal failures, and he has noted distinct similarities and patterns in both of those buckets, which formed the core of the concepts he shared at his Digital Stratosphere conference last week.
One of the first things you notice about Kimberling is that he’s a plain-spoken and straightforward kind of person. The chief executive officer and founder of Third-Stage Consulting isn’t one to speak glowingly about the latest technology fads, like cloud-based ERP, which he says is a dangerous trend, or AI and machine learning, which he says are overhyped.
Instead, like a drill sergeant preparing his battalion for war, he pounds into your brain the critical importance of the less visible but absolutely critical aspects of digital transformations. Software and technology may be the headliner, but if you don’t pay attention to things like defining business requirements, aligning stakeholders, setting reasonable goals, and managing system integrators, it’s nothing but a bunch of very expensive 1s and 0s.
“These aren’t meant to be one-size-fits-all answers,” Kimberling said at the start of his three-day Digital Stratosphere event, which attracted several dozen ERP-loving folks to downtown San Diego, California, last week. “But the general patterns that we see separate the successful projects from the failures. The beauty is, it’s not random. There’s not a huge plethora of things that cause failures. Typically, we can boil it down or distill it down to a handful of things that the failed projects do differently and the successful projects do differently.”
Here’s a rough approximation of what Kimberling had to say:
1. Align Objectives and Set Clear Goals
If you don’t set clear goals that you hope to reach with your ERP implementation, the odds of getting there is somewhere between zip and nil. That should be pretty obvious to any business school graduate. But in addition to setting clear goals, stakeholders should set their organizations up for success by aligning their operations with the implementation and allocating the resources to ensure it’s successful.
Eric Kimberling is the founder and CEO of Third Stage Consulting, which is based in Englewood, Colorado.
“Having a clear digital strategy is really important,” Kimberling said. “A lot of times, companies have a vague, ambiguous strategy that ‘We need technology to automate all of our operations and operate as less of a siloed organization.’ That’s a good start. But if that’s all you want and you go out and buy technology and start implementation in a few weeks, that’s not enough definition to have a good success.”
Organizations need to identify the specific business processes they want to automate and how it’s going to benefit them, he said. They need to take into account resistance to change within the organization, how quickly they want to implement new technology, and prepare themselves for the fact that 50 percent of ERP implementations involve material operational disruptions, with those disruptions costing an average of 50 percent to 300 percent the cost of the ERP implementation itself.
“All those things we have to get alignment on and a clearer strategy before we jump into implementation,” Kimberling said. “The problem is too many companies skip this step and say ‘We already know, we want to standardize our operation and deploy an ERP system worldwide. What more is there to define?’ There’s a lot more to define within that. So you have to have a clearer strategy for where we’re headed and what we’re trying to accomplish with this project, before we just sign a contract to buy a bunch of software that we may or may not need and then sign a contract with a system integrator who’s going to ship a bunch of people to you the next day and start the meter running and we still haven’t figured out what we want to be when we grow up.”
2. Software Implementation Is More Important Than Software Selection
It’s important to pick the right enterprise software package for your organization. Whether you’re looking at new ERP, CRM, or HCM applications, finding a package that’s a good fit for your particular organization is one of the prerequisites to having a successful enterprise implementation, which Kimberling says are reached only about 10 percent of the time (another 10 percent are complete and utter failures, while the remaining 80 percent muddle about with incomplete or partial deployments).
“It’s easy to overcomplicate the selection process and get into analysis paralysis,” Kimberling said. “You start thinking ‘What nook or cranny of our organization or our needs have we not considered?’ At some point, you have to say, we’re never going to be 100 percent comfortable. As long as we feel comfortable we worked out the major material things that we need out of the system, you’re going to be a lot better off spending the hours of time and dollars of budget implementing it really well, versus burning that time and money in making a perfect decision, which is never going to happen.”
3. Understand Tradeoffs Between Customizations and Change Management
One of the biggest decisions that organizations can make during their digital transformation is whether to customize a new ERP implementation to fit an organization’s existing business processes, or whether to invest in change management to adapt the business processes to fit the “best practices” expressed with the out-of-the-box vanilla ERP system. In reality, it’s a bit of a misnomer, according to Kimberling, who says every organization makes at least one change. But that doesn’t take away from the critical need of an organization to understand the tradeoffs this decision carries in terms of resources and risk.
“If you don’t invest enough in change management, you’re going to invest more in customization and that’s going to create a lot of risk,” Kimberling says. “If you invest more in change management, that’s more money and time, but it might result in less customization. The net of it is, you’re still spending time and money somewhere. Either your over-customizing or your spending on change management. This is an over-simplification, but to be clear, there are always tradeoffs like that.”
4. Avoid the Silver Bullet
No, we’re not talking about Coors Light (although that Super Bowl hangover may lead you there anyway). In general, ERP vendors and their system integrator buddies are prone to oversell technology and under-deliver on implementation, and it’s your job, as the paying public, to avoid getting sucked into their 10-digit technology fantasies.
“There are a lot of mismanaged expectations that come out of the desire to have silver bullets, or one-size-fits-all answers,” Kimberling said. “Some of the things you have to be aware of [are statements like] cloud deployments are easy. Not, they’re not. One of the best examples of a silver bullet being marketed right now are pre-configured industry solutions.”
It’s okay to be skeptical when determining what kind of technology you’re going to implement, because that will lead you to ask questions and educate yourself before making what could potentially be an expensive and painful decision, Kimberling said.
“The most important thing is the digital transformation is going to be hard, no matter what the technology is, no matter how well it fits your organization,” he said. “Even if it is the perfect software for you, it’s going to be painful for the people transitioning, so we’ve got to figure out what does that really look like and how we mitigate the risk.”
5. Question Agile, and Don’t Skimp On Big-Picture Planning
Kimberling isn’t one to shy away from controversy by sharing his opinions on latest technology trends. For example, he said he believes the current rush to adopt (half baked) cloud-based ERP solutions is a manufactured event, akin to the Y2K crises, that is designed to line the pockets of big ERP companies greedy to boost profits from recurring subscriptions. AI and machine learning is an overhyped technology that vendors use to describe technology they have had for many years, he said. And don’t get him started on the agile development method, which he said is a regressive approach that will leave you hanging when all your ERP needs to come together.
“One of the dangerous movements in this space right now that I see is the whole agile scrum movement,” Kimberling said. “I get a lot of heat for this comment around agile. There might be agile purists in the room, so I apologize if I offend anyone with these statements. But in general, what we see companies do, and system integrators in particular, [is they] will misuse the concept of agile to just get something going now. It also becomes kind of a sales tool to say, ‘Yeah don’t worry about all the big picture requirements, partly because we can’t satisfy the requirements because we’re still building a lot of the functionality in the cloud, so we’re not going to worry about that. Let’s just do this agile thing, where we just focus on financials. Let’s just get financials going right now, we’ll do an agile sprint to find what you need. But what ends up happening is you create these silos and mis-alignments with what you need with say, your core financials, which ties into your inventory management and your manufacturing and your customer orders and your sales. But we haven’t considered that because we’re doing agile and we’re going to focus on that immediate needs.”
Agile has a place and there are benefits when it comes time to deploy the technology, he said. “But when it comes time to deploy the ERP system, especially a fully integrated, across-enterprise ERP system, you kind of need that big picture blueprint for what it’s going to look like, and that takes time. So don’t let agile fool you into thinking you don’t need to do this stuff, because that creates a lot of problems.”
Only about 10 percent of ERP implementations hit the third stage of success, according to Third Stage Consulting.
6. Manage the SIs, Or They Will Manage You
When ERP implementations go wrong, there is usually plenty of blame to go around. The ERP vendor sometimes oversells the technology or sells “vaporware” that doesn’t actually exist, but those cases are relatively rare (we’ll explore some of the interesting lawsuits that Kimberling and his legal partner have been a part of in a future issue). More often, the source of the problem can be traced to a misalignment of people and processes, and that means the blame falls to the organization itself and the system integrator the organization hires to implement the ERP system. Unfortunately, system integrators have a tendency to look out for their own interests while running roughshod on unexpecting clients, so it’s important to keep SIs on a short leash. That’s easier said than done.
“If you have 10 or 20 people internally, but your system integrator brings in 80 or 100 people, right there you’re outnumbered,” Kimberling said. “So who’s going to make decisions on your project? It’s probably not going to be your 10 or 20 people. That’s a common challenge that a lot of companies don’t expect and they get steamrolled. And halfway through the project, they start to realize, we’re not making any decisions here. The SI is making all the decisions. And by the way, we are spending X amount of money on the SI. What kind of value are we getting?”
Kimberling has plenty of experience with overpaid, under-delivering SIs, considering he once was one. “When I started, I was one of those kids straight out of college. I wasn’t making $100 an hour, but I was billing $100 an hour,” he said. “I think back to the amount of money I billed clients and the value I delivered – it was completely out of whack. And I still remember very clearly the level of efficiency that I had during those early years versus the amount of money I was billing. I felt really bad.”
7. Always Invest in Change Management
Even if you make only minor modifications to your shiny new ERP system, you must invest in change management to ensure a smooth technological adoption for your organization. That’s probably as close as Kimberling came to setting a hard-and-fast rule during the first day of Digital Stratosphere (the only day this reporter attended). That may not be surprising coming from Kimberling, who began his career as a change management consultant at one of the big SIs. But he offered ample evidence why you should never, ever even think about skimping on the change management.
“That’s the number one thing that CIOs and project teams cite as the biggest challenge they had during their implementation was the change management piece of it,” he said. “The project is going to fail without it. I have yet to see an expert witness engagement where the failure wasn’t largely caused by change management. That’s one of the biggest themes in failure is that change management component.”
The problem is, change management is one of the first line items to hit the chopping block when the ERP implementation starts to go over budget (which it inevitably will). “So halfway through the project, they realize they didn’t budget enough time, money, resources to the project, and now they have to cut back on things like change management and other thing that are going to be super critical for success,” Kimberling said. Big mistake.
8. Failure Is Optional
There are a few things in life that are inevitable. Death and taxes immediately come to mind. But ERP project failures should not be on that list, despite Kimberling’s estimate that 90 percent of ERP projects are failures of one sort or another. You can steer yourself into that golden 10 percent of ERP successes by doing a few things right – and, perhaps more importantly, not doing some things wrong.
“The reality is, you can avoid it. Every failure we’ve seen could have been avoided,” Kimberling said. “Failure can be avoided. It’s not due to luck. The term ‘best practices’ I generally don’t like. It’s a misused, overstated term. When it comes to technology and industry best practices, I think it’s nails on a chalkboard. But there are implementation best practices that do apply to any sort of organization. It doesn’t matter who you are . . . If you’re doing things like change management and figuring out how to get alignment before you start jumping into implementation and things like that, you will be successful.”
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