The CIO’s Guide

to Preventing ERP
Implementation Failure
When
failure is Not an option

Your project’s success is our mission

 866.282.5899 | PEMECO.COM

The Problem: Tackling a Necessary Yet

High-Risk ERP Implementation
Is your organization about to embark on an ERP project? If so, you’re
probably full of questions, the most important being: “how can our
business pull this off without a hitch?”

You have good reason to be concerned. When ERP projects fail, the results can be
devastating for a business.

According to a Harvard Business Review study of 1,500 IT projects, one out of every
six was a catastrophic failure or “black swan” with an average cost overrun of
$167 million and an average schedule overrun of 70%. So, it is important to do your
research and exercise due-diligence during this process.

For example, Hershey Foods1 and Whirlpool suffered major distribution problems
that prevented them from fulfilling their orders. Each of their respective stock
prices drastically tumbled as a result. Some companies – such as $5 billion-
a-year pharmaceutical distributor FoxMeyer Drug – have blamed failed ERP
implementations for their eventual business collapse.

This potential fallout isn’t restricted to corporate performance either. The

1Ensuring
in 6 ERP a fair and professional repercussions for those in positions of responsibility can be equally
implementations
equitable process devastating. Many high-ranking people have suffered the consequences, with a
end in failure.
is critical. Internal failed ERP implementation acting as a permanent smudge on an otherwise stellar
Pemeco has
and external biases business résumé.
managed
introducemore risks
than
that 700 major will
decisions ERP The complexities and risks of ERP implementation are not unmanageable. Since
and transformation
be improperly 1978, Pemeco has successfully managed more than 700 major projects with zero
projects, with
influenced. failures. For this whitepaper, we’ve combed through our project history, summarized
0% failure. the seven biggest ERP implementation failure risks, and highlighted best-practices
that will give you the tools to both manage those risks and drive your project to a
successful outcome.

1
Read our case study on Hershey’s ERP implementation failure.

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Risk #1: Critical Stakeholders Reject or

Avoid the Implementation
It goes without saying that ERP implementations are pervasive. ERP impacts most
departments and imposes changes on the way people handle their day-to-day job
tasks. Unfortunately, the majority of people are usually opposed to change. Within
departments, resistance to these changes can lead to task avoidance, reduced
commitment-levels, insufficient collaboration, and – in a worst-case scenario –
project sabotage.

To mitigate resistance, senior leaders need to first identify the resistance. They
should look for the following warning signs:

1. No Senior Executive Project Champion: A senior leader needs to drive the
Team and a fair and
Ensuring very difficult decision of putting the organization’s best-people on the project
departmental
equitable process at the expense of their day-to-day jobs. Without this level of championship,
collaboration is key
is critical. Internal the company faces major risks to project performance and to the design of its
toand
anyexternal
ERP project,
biases future business processes.
departments
introduce risks will
need to work will
that decisions 2.  Information Silos and Hoarding: Because of the integrated nature of ERP systems,
together to avoid
be improperly cross-functional departmental collaboration is critical to a project’s success.
pitfalls and to drive
influenced. People and departments must collaborate on data structures, process design, and
a seamless project system configuration – areas they may have historically considered proprietary or
implementation. kept to themselves. If they fail to do so, the project will probably fail because the
system won’t properly flow data and transaction from function-to-function.

3. U ser Skills-Gaps. Users will be relied upon to redesign data structures and
business processes, configure and test the system, migrate data, and train other
users. Over the years, we’ve learned that fears of learning new technologies and
about potential job loss can be significant impediments to developing these critical
new skills.

To avoid these three potential roadblocks, senior leaders should implement a formal
project governance structure and change management program. The goals would be to:

• put in place an oversight and decision-making committee

• create a incentives, communications, and training programs that drives
desired behaviors
•build skills with the appropriate training.

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Risk #2: Lack of Stakeholder Input

Insufficient key stakeholder input is a recipe for a system that users reject and that
Core team isn’t correctly configured to your business.
members will
be needed for The project management team should identify all of the key stakeholder groups
between 50% needed to implement and support the ERP project, and should plan for their
and 75% of their continued engagement.
working time for
For internal project management purposes, the team will probably need a full-
most of the project.
time project manager working on the project. Core team members will be needed
for between 50% and 75% of their working time for most of the project. The
executive-level steering committee should meet weekly to review status updates,
project performance metrics, and change requests.

Stakeholder CIO and/or Project Chief Stakeholder

—A— CFO Finance Manager Executive —Z—

Steering Committee

Project Core Team

Project Outside
Manager Project Manager

Outside Department A Department Z Outside

Functional Expert Key User Key User Functional Expert

Department A Department A Department Z Department Z

Selected End User Selected End User Selected End User Selected End User

IT Outside IT
Figure 2. Sample Project Organization Key User Key User

Team members must be the best and

brightest stars in the organization.
It’s also critical that the project be introduced to other stakeholders who might be
affected. Common examples include end-users, internal departments, and business
partners (vendors and customers).

When engaging stakeholders, senior leaders should both reinforce the project’s benefits
and stress the importance of information sharing. At an early stage, they must make
sure three broad groups contribute to the project:

1. T hose who will be affected by it;

2.Those who will implement it; and

3. T hose who will pay for it.

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Risk #3: Poorly Defined Specifications and

Inadequate Change Control Procedures
Poorly defined specifications and a lack of change control procedures are prime
causes of an ERP implementation failure. All of the project’s requirements must be
well-defined up-front to guarantee its success.

One of the keys is to use a series of formal planning meetings to clearly define the
scope of implementation as well as system fit to the business’ needs. The scope
of the plan should have sufficient detail to allow someone to evaluate whether any
specific requirement (e.g. process, data element, report) is in or out of scope.

Senior leadership should enforce a formal process for the evaluation of project
scope change requests. As part of the process, any proposed changes that could
create delays in the schedule, requests for additional money, or changes to project
scope should be escalated to the steering committee for a formal review.

Sample change request form:

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Risk #4: The Company Has Unrealistic or

Undefined Expectations
Estimating ERP project schedules and resource requirements requires
People generally extensive implementation expertise. Stakeholders – less knowledgeable about
blame IT for failed what it takes to successfully implement – create their own expectations (and
implementations. sometimes fantasies).
However, more often
than not, failure If expectations are not properly set from the start through realistic plans,
is usually caused scope creep is inevitable. An initially straightforward project can quickly evolve
by poor change into an unmanageable burden, violating project schedules and consuming
management, unplanned resources.
methodology, and
specifications. At the outset, a formal project charter should be drafted and validated to
establish appropriate expectations. Project management should implement
formal budgeting and risk management processes. Meanwhile, senior leadership
must ensure that a strong project management culture is in place.

Projects fail not because the tasks are insurmountable, they fail because they
are engendered by an effort to transform the company. Information technology
is used as a catalyst for this transformation, and makes for a very convenient
scapegoat if a project turns ugly. When a project falls short, it may look like IT
has failed — but it is almost always because the organizational change effort
was unsuccessful.

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Risk #5: The Company Chose the Wrong

Consulting Partner
Most people don’t like strangers, especially new people that come in and
To mitigate “disrupt” an already existing work environment. Employees often experience
resentment and resistance and resentment when outsiders or contractors are paid to do
resistance, assemble a consulting work at their company. These emotions can become impediments to
consulting team with information-sharing between peers and departments. It is therefore critical that
the right cultural fit a well-fitting consulting team be assembled – one with appropriate operational
and capabilities. knowledge, systems expertise, and cultural fit.

When building teams, avoid the bait-and-switch practice where an

implementation firm’s A-team flies in for presales meetings and the kickoff —
then promptly hands the project off to a less-skilled crew.

From a contracting perspective, consider negotiating terms that give you

control over consultants and offer remedies in the event that the consulting
firm doesn’t meet those expectations. Also, consider negotiating terms that
create incentives for all parties to hit their key implementation targets.

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Risk #6: Poor Communication

Generally, the everyday communication problem becomes worse when IT is involved
- it’s hard for lay people to grasp technical lingo. Although it sounds facetious, it’s
hard for lay people to grasp the very technical lingo. Use non-technical terminology
wherever possible, especially when communicating outside the project team.

The project manager must be forthcoming with any news – good or bad. Line
workers don’t want to be the bearers of bad news, and senior managers contrive
to not hear bad news. As a result, there’s a risk that nobody sounds an alarm on IT
projects that have “disaster” written all over them, until it’s much too late. This is all
too common and easily avoided with the right action plan.

From a best-practices perspective, an organization should execute a

communications plan that actively engages all key stakeholder groups.
A communications plan should set-out procedures and responsibilities relating to:

1. The periodic dissemination of project-related information

2. Feedback from key stakeholders

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Risk #7: The Company’s Following an

Unclear and Untested Implementation
Methodology
But perhaps the biggest – and deadliest – mistake organizations make when
Too often, business implementing ERP is relying on an unrefined, and perhaps untested, methodology.
leaders incorrectly
assume that they can Too often, the business leaders – VPs, CIOs, CFOs, controllers, and others –
successfully manage incorrectly assume that they can successfully manage a project by using
a project using inexperienced internal resources. They dive into a project only to discover that
inexperienced internal implementing ERP is much more complex than any garden variety project-
resources.
management style or approach can feasibly handle.

A similar scenario – now becoming more common as smaller and midsized

companies turn to ERP – is that the personnel in charge of implementations
mistakenly believe that, because their organizations are relatively small, their
implementations won’t be complex. And therefore, their projects won’t require
as much “fuss” as would implementations at large enterprises.

Both of these beliefs are false and could lead to the downfall of a project at a
smaller company. ERP implementations are still complex, regardless of company
size. To ensure your project is a success from the start, your organization
should find and religiously follow a methodology that has been proven to deliver
consistently successful results across industries and systems.

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Milestone Deliverables: THE GOLD STANDARD OF ERP

IMPLEMENTATION METHODOLOGIES
ERP implementations are complex transformational projects. To succeed – and to avoid the 7 deadly
sins, a project should be executed according to a robust methodology that provides for effective project
governance, planning, change management, communications, process reengineering, training, and testing.

Milestone Deliverables does just that. The Milestone Deliverables premise is simple and powerful: if
managers and their teams are given an ability to measure project outputs, they will be rewarded with
an organizational culture focused on deliverables. This methodology breaks an ERP project down into
13 phases, and 14 key deliverables each strategically associated with a key project milestone. Each of
these actionable and measurable “milestone deliverables” acts as a signpost that guides the project team
along the path to success.

20X X
Month 1 Month 2 Month 3
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 10 Week 11
Planning Project and Subsidiary Plans
and Project PLANNING
and Kickoff Presentation Change
Kickoff
Blueprint Management CHANGE
Core Team Key User
Training White Papers Plan MGMT.
Courses Training
“As Is” “To Be” Gap and Gap
Issue Mgmt.
Mapping Mapping Analysis Review Updated Blueprint White Papers, MAPPING
Gaps and Issues Database,
Business Gap and Issues Business Scenario Lsts
Scenario Lists Database
Prepare Present Mgmt.
Walkthrough Walkthrough
Review PILOTING
Review Review
Walkthrough
Presentations

Customizations
IT Specifications
Interfaces
IT
Special Projects
IT Infrastructure

Migration Plan CUTOVER

Prepare Develop Migration Scripts
Migration MIGRATION
Plan and Essentials

Figure 5. High-level Tasks and Milestones Deliverables

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20X X

Month 3 Month 4 Month 5 Month 6

Week Week Week Week Week Week Week Week Week Week Week Balance
12 13 14 15 16 17 18 19 20 21 22

User Documentation PLANNING

and Training Courses

Complete End User

Training CHANGE
Manuals Training MGMT.

Updated Blueprint White Updated Blueprint White Papers, MAPPING

80% Business Papers, Gaps and Issues Gaps and Issues Database,
Scenario Scripts Database, 80% and 20% 80% and 20% Business Scenarios C
Business Scenarios and Scripts and Scripts U
T
O
Develop CRP Enter Develop V
Perform Integrated E
Scenarios/Scripts CRP Test Perform CRP Dept. Pilot PILOTING
(80%) Data Scripts (20%) DP Pilot R

T
20% Business Updated User
O
Scenario Scripts Documentation Optimization

L
Customizations I Updated User
V Document–
Interfaces E ation

Special Projects IT

IT Infrastructure

Prepare Cutover
CUTOVER
Cutover Plan Plan

Full Static Long-term and

Test Migration Scripts and Sessions Migration into Short-term MIGRATION
Live (Dual Entry) Dynamic Data Entry

Figure 6. High-level Tasks and Milestones Deliverables (Continued)

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Tokyo Electron Americas – a market-leading Fortune 500 company – has been

relying on Pemeco’s Milestone Deliverables implementation methodology for
nearly 15 years to successfully deliver its ERP projects. Here is what its former
CIO says:

“ “
The entire company was astounded that such a complicated project could
be so successful and delivered on time. The Pemeco implementation
methodology, ‘Milestone Deliverables’, provided a comprehensible
roadmap to follow with clearly-marked, tangible deliverables serving
as signposts along the way… We moved to our new ERP systems on the
final weekend and balanced our $51M of inventory to the penny!
Russ Finney, former CIO of Tokyo Electron Americas

The 2nd edition of our book: Milestone Deliverables: ERP Implementation

Methodology is released. Get your copy today and drive your ERP
implementation project to a successful outcome. Buy your copy today and
receive the companion implementation templates toolkit.

About Pemeco Consulting

Pemeco Consulting distinguishes itself by its unrivalled track record of
successfully delivering complex enterprise software and business operations
projects. Our secret sauce is a combination of our formal methodologies and
top-shelf consultants. Since 1978, we have served more than 600 private-sector
businesses worldwide. Learn more at www.pemeco.com.

Contact our consulting team today and learn how

we can help you ensure your project’s success
(866)282-5899 | (647)499-8161 | [email protected]

12 The CIO’s Guide to Preventing ERP Implementation Failure