MIS Presentation 2012An Evaluation of ERP Systems Failures

Group: ERP Advisors

Objectives

What is an ERP system?

What are the Benefits of an ERP system?

Who are the ERP vendors?

What aspects constitute a successful

implementation?

What factors are associated with ERP failures

and how to overcome them?

What is an ERP systems? “They are systems designed to

process an organisation transactions

and facilitate integrated and real time planning,

production and customer response.”

ERP CharacteristicsERPs are packaged software designed for a client server environment.ERPs integrate the majority of a business processesERPs process a large majority of an organization’s transactionsERPs use an enterprise wide database that typically stores each piece

of data at once.ERPs allows access to the data in real time.

(O’leary, 2000)

Functional Aspects of an ERP

Source : http://www.inixion.com/images/features3.jpg

ERP life cycle

Deciding to Go ERP Choosing and ERP system Designing ERP systems

Should business process or

current ERP software be changedChoosing Standard Model and Process

Implementing ERP: Big Bang versus phased After Going Live Training (O’leary, 2000)

Tangible Benefits: Reduce Labour Costs Reduced material Costs Improve in Sales and Customer Service Efficient Financial Management

Why Implement an ERP system?

Source : ( Leon, 2008 and Cruz-Cunha 2010)

Intangible Benefits: Information supply chain visibility New/improved business processes Product and Process design Production and Material Management

Why Implement an ERP system?

Source: http://www.epicor.com/uk/Company/PressRoom/Pages/SuccessStories.aspx

What are ERP Vendors marketing: Improve alignment of strategies and operations Reduce costs through increased flexibility Achieve an end-to-end view across all your lines of business Drives value for your business Delivers agility in the face of rapid change

Cast StudiesDrallim – Fluid Controls / • Over 4,400 hours saved per year through process improvements and

21% cut in support costs Vita Liquid Polymers/ • 80% of customers now pay invoices a week earlier and automated

processes mean tighter processes and proactive credit checking

Who are the ERP vendors?

Who are the ERP vendors?Tier I Tier II Tier III

 

SAP Oracle

Oracle e Business Suite Oracle JD Edwards Oracle Peoplesoft Microsoft Dynamics

 

Epicor Sage Infor IFS

QADLawson

Ross

ABASActivant Solutions Inc.

BaanBowen and Groves

Compiere ExactNetsuite Visibility Blue

Cherry ExactHansaWorld Intuitive

SysproOpen Source ERP software

OpenERP, Compiere, Open Bravo, Apache OFBix/opentaps, ERP5, OpenMFG, OpenPro, etc

Source: Panorama Consulting, 2011 Guide To ERP Systems And Vendors

ERP Vendors Market Share 2010

<25M

25M-50M

50M-100

100M-500M

500M-1B

>1B

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%

22.20%

24.50%

32.10%

31.30%

33.30%

47.00%

23.00%

13.70%

16.70%

15.30%

31.30%

31.80%

16.30%

15.70%

11.50%

16.80%

4.20%

4.00%

11.80%

17.60%

16.70%

16.80%

16.70%

8.60%

26.60%

28.40%

23.10%

19.80%

14.60%

8.60%

SAP Oracle Microsoft DynamicsTier II Tier III

Source: Panorama Consulting, 2011 Guide To ERP Systems And Vendors

Payback Period By Vendor Tier up to 2010

No cost Recouped

1-2 years 2-4 years 4-7 years above 7 years

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

1.40%

25.30%

42.60%

13.80%5.50%

2.60%

30.30%

50.00%

6.50%

1.30%3.10%

59.40%

18.70%

8.30%

1.00%

Tier III

Tier II

Tier I

Source: Panorama Consulting, 2011 Guide To ERP Systems And Vendors

ROI and ROA

Performance comparison Pre- and post-adoption for 63 ERP Systems:

Pre

Post1

Post2

Post3

5.341

4.448

4.916

4.899

8.576

7.691

7.533

8.002

Source : (C. Jones, Kalmi and Kauhanen, 2011)

How to Measure ERP success? Lyytinen and Hirschheim (1987),

categorized IT project success by assessing the resulting system against Planned objectives, User expectations, Project budget

Highlights from a 2010 ERP Benchmark Over 40% of organizations are dealing with significant change form

ERP system rollout.

Over 60% of organizations suffer from poor visibility to data and poor

integration in their old systems.

Organizations expect a lot from their ERP systems.

Most companies are not yet ready for the organizational changes of

ERP software.

2009 Average 2010 AverageTake longer than expected  35% 61%Implementation Duration 18.4 Months 14.2 MonthsCosts exceeds budget 51.4% 74.1Benefit Realized Under 50% 48% 67%

Some People

might have

different views

ERP project failure classification

ERP project failure could be classified as one of four levels:

(a) Process failure, when the project is not completed within the time and budget.

(b) Expectation failure, when the IT systems do not match user expectations.

(c) Interaction failure, when users attitudes towards IT are negative.

(d) Correspondence failure, when there is no match between IT systems and the planned objectives.

(Aloin et al, 2007)

What factors are associated with ERP failures and how to overcome them?

Risk categories associated with enterprise-wide/ERP projects:

Organizational Fit Skill mix Management structure and strategy Software systems design User involvement and training Technology planning/integration

(Sumner, 2000 ; Ojala et al, 2006)

Risk category : Organizational FitRisk Factors Failure to redesign business processes to fit the software Failure to follow an enterprise-wide design which supports data

integration

Case Study Hershey Foods Corporation

Minimising Strategies Commitment to redesigning business processes Top management commitment Following an enterprise-wide design which supports data integration

(Wailgum, 2009)

(Sumner, 2000 ; Ojala et al, 2006)

(Sumner, 2000 ; Ojala et al, 2006)

Risk category : Skill Mix

Risk Factors Insufficient training and reskilling Insufficient internal expertise Lack of business analysts with business and technology knowledge Failure to mix internal and external expertise effectively

Case StudyLumber Liquidators

Minimising Strategies Effective use of strategies for recruiting and retaining specialized technical

personnel Obtaining ‘business analysts’ with knowledge of application-specific modules Effective use of external consultants on project teams

(Kanaracus,2010)

(Sumner, 2000 ; Ojala et al, 2006)

(Sumner, 2000 ; Ojala et al, 2006)

Risk category :Management structure and strategy

Risk Factors Lack of senior management support Lack of proper management control structure Lack of a champion Ineffective communications

Case Study The City of San Diego

Minimising Strategies Obtaining top management support

Establishing a centralized project management structure

Assigning a ‘champion’

(Krigsman, 2009)

(Sumner, 2000 ; Ojala et al, 2006)

(Sumner, 2000 ; Ojala et al, 2006)

Risk category : Software systems designRisk Factors Failure to adhere to standardized specifications which the

software supports Lack of integration

Case Study Levi Strauss

Minimising Strategies Commitment to using project management

methodology and ‘best practices’ specified by vendor Adherence with software specifications

(Clarke, 2008)

(Sumner, 2000 ; Ojala et al, 2006)

(Sumner, 2000 ; Ojala et al, 2006)

Risk category : User involvement and training

Risk Factors Insufficient training of end-users Ineffective communications Lack of sensitivity to user resistance Failure to emphasize reporting

Case Study Dorset County

Minimising Strategies Effective user training Full-time commitment of users to project management roles Effective communications

(Anonymous, 2010)

(Sumner, 2000 ; Ojala et al, 2006)

(Sumner, 2000 ; Ojala et al, 2006)

Risk categories : Technology planning/integration

Risk Factors Inability to avoid technological bottlenecks Attempting to build bridges to legacy applications

Case Study Dillard's Inc

Minimising Strategies Acquiring technical expertise Acquiring vendor support for capacity planning and upgrading Planning for client–server implementation including client workstations

(Jarzemsky, 2010)

(Sumner, 2000 ; Ojala et al, 2006)

(Sumner, 2000 ; Ojala et al, 2006)

Other Aspects:

In 2004, HP's project managers were

aware of the risks associated with the

ERP rollout. But they could not plan for so many events to happen at once.

The project eventually cost HP $160 million in order backlogs and revenue loss that accumulated to five times the project's estimated cost.

(Gilles Bouchard CIO of HP's global operations)

(Wailgum, 2009)

Strategic critical success factors

Top management commitment and support Visioning and planning Build a business case Project champion Implementation strategy and timeframe Vanilla ERP Project management Change management Managing cultural change

(Finney and Corbett, 2007)

Tactical critical success factors

Balanced team Project team: the best and

brightest Communication plan Empowered decision makers Team morale and motivation Project cost planning and

management BPR and software configuration Legacy system consideration IT infrastructure Client consultation

Selection of ERP Consultant selection and

relationship Training and job redesign Troubleshooting/crises

management Data conversion and integrity System testing Post-implementation

evaluation

(Finney and Corbett, 2007)

Summary

ERP Systems are not an IT solution but a system that would

transform the company into a more efficient and effective

organization.

Successful implementation of ERP is complexly tied to multiple

factors that needs to be understood by management who are setting

the strategic direction of the implementation process. Furthermore,

A continuous support and monitoring of the implementation process

is required at each stage.

The most important issue in a successful ERP project is an

understanding of the company’s business and context requirements.

What's the future will be like?

Reference List:1. Lyytinen, K. (1988) "Expectation Failure Concept and Systems Analysts' View of Information System Failure: Results of an

Exploratory Study", Information & Management, 14, 1, pp 45-56.

2. Leon, A. (2008). Enterprise Resource Planning. 2nd ed. New Delhi: Tata McGraw-Hill. pp. 42

3. Cruz-Cunha, M. (2010). Enterprise Information Systems for Business Integration in SMEs. USA: Business Science Reference. pp. 155

4. Derek C. Jones, Panu Kalmi, Antti Kauhanen, International Journal of Production Economics, Volume 130, Issue 2, April 2011, Pages 159-168 )

5. Sumner, M. “Risk factors in enterprise-wide/ERP Projects,” Journal of Information Technology, 2000, vol. 15, pp. 317-327.

6. Wailgum,T. (2009) Focus: ‘10 Famous ERP Disasters, Dustups and Disappointments ‘. CIO [online] Available at: < http://www.cio.com/article/486284/10_Famous_ERP_Disasters_Dustups_and_Disappointments> [Accessed 25 Feb 2012].

7. Kanaracus, C. (2010) Focus: ‘ERP Woes Blamed for Lumber Company's Bad Quarter‘. IDG News [online] Available at: < http://www.pcworld.com/businesscenter/article/209886/erp_woes_blamed_for_lumber_companys_bad_quarter.html > [Accessed 25 Feb 2012].

8. Krigsman, M . (2009) Focus: ‘San Diego fires Axon over ERP implementation problems‘. Zdnet [online] Available at: < http://www.zdnet.com/blog/projectfailures/san-diego-fires-axon-over-erp-implementation-problems/1960 > [Accessed 25 Feb 2012].

9. Clarke, G.(2008) Focus: ‘Levi's suffers profit meltdown in midst of SAP embrace Pants ERP system leaves it without pants‘. Theregister[online] Available at: < http://www.theregister.co.uk/2008/07/10/levis_erp_costs/ > [Accessed 25 Feb 2012].

10. Anonymous. (2010) Focus: ‘Dorset County Council computer problems continue ‘. Dorsetecho [online] Available at: < http://www.dorsetecho.co.uk/news/localnews/8625142.Dorset_County_Council_computer_problems_continue/ > [Accessed 25 Feb 2012].

11. Jarzemsky, M. (2010) Focus: ‘JDA Software Hit With Judgment in Dillard's Dispute ‘. The wall street journal [online] Available at: < http://online.wsj.com/article/SB10001424052748704198004575310463149768320.html> [Accessed 25 Feb 2012].

12. Ojala,M. Vilpola,I. and Kouri,I.(2006) “ Risks in ERP Project – Case Study of IS/ICT Management Capability Maturity Level and Risk Assessment”

13. Aloin,Di. Dulmin,R.Mininno,V. (2007) Risk management in ERP project introduction: Review of the literature, Information &amp; Management, Volume 44, Issue 6, September 2007, Pages 547-567

14. O'Leary,D. ( 2000) Enterprise Resource Planning Systems: Systems, Life Cycle, Electronic Commerce, and Risk, Cambridge University Press

15. Finney,S. and Corbett,M. (2007) "ERP implementation: a compilation and analysis of critical success factors", Business Process Management Journal, Vol. 13 Iss: 3, pp.329 - 347