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“We’ve been nominated for an award for the best ERP implementation,” said a senior executive at a large multinational as he pointed to the suit bag he was carrying with his tuxedo inside it. “It took us five years – and I’m the only member of the original team who is still here.”
Enterprise resource planning (ERP) systems are a byword for morale-sapping, multi-generational projects that promise much, cost even more and often fail to meet expectations. Discount supermarket chain Lidl, for example, has cancelled further rollout of its SAP system, after seven years and €500m.
That needs careful consideration: what project of any kind could take seven years, half a billion euros and then be branded a failure and scrapped? It is not yet clear what has gone so badly wrong. Commentators suggest the pain might have been caused by excessive customisation but that does not square with other comments that suggest Lidl had changed its processes to fit those of SAP.
Lidl itself said it was “not a decision against SAP, but for our own system”. Lidl developed an in-house ERP in the 1990s, which it now believes is worth resurrecting and developing further.
Lidl is not the first to halt an ERP project before it has been completed. When Chris Woodhouse became CFO of UK DIY retail group Homebase in 2001, one of the first things he did was suspend further development of the company’s ERP project. The company had spent a few tens of millions by that stage, but the private equity-backed business viewed with disdain the prospect of more cash going out the door with few certain benefits coming in. Woodhouse conducted an analysis to figure out what was the bare minimum expenditure necessary to salvage what had already been spent.
There is no shortage of other examples but the 2012 scrapping by the US Air Force of an ERP project after seven years and one billion dollars is surely one of the more extreme. At least one-fifth of companies that responded to a survey by Panorama Consulting Solutions in 2015 said they regarded their ERP system rollout as a failure.
Neither Lidl nor Homebase seem like particularly difficult businesses. True, supply chain efficiency is critical. Master data has to be in great shape to get the best deals out of suppliers and ensure shelves are not left empty while produce rots on a quayside somewhere. But one can easily think of high-tech manufacturing conglomerates that are vastly more complicated beasts and much less suited to the sort of standardisation that major ERP implementations demand.
It has often been said that ERP installations mould like putty but set like glue: you can configure it as you want, but once you’ve decided, it’s pretty much impossible to change. An exaggeration, perhaps – but coupled with the amount of time it takes to implement many of these systems, the end result may be delivering what was envisaged in 2011 – but not what businesses need today.
Cloud-based solutions, mobile apps, the Internet of Things, and now possibly even blockchain technology are changing the way businesses and their increasingly intricate supply chains can work. But never mind that, just push the button to go live with the system we specced out seven years ago.
Perhaps, along the way, businesses recognised their needs were changing faster than the design of the system could keep up, with new requirements being written into the design, adding further delay – like deciding you want to build a four-engined airliner after you’ve completed all the drawings and started tooling up the factory for a twin-jet.
Think about the seven years, though. Procurement Leaders research indicates that is almost twice as long as the average four-year tenure of any CPO. Likewise, the cheque-signing CFO is likely to remain in situ for no more than five years, on average. Can a project of this nature survive the churn in staff turnover that takes place during its gestation period?
And what has happened to corporate culture in any typical business in the meantime? Changing markets, new products, acquisitions and disposals – to say nothing of the natural progression of people rising up the corporate ladder: the graduate trainee of seven years ago now has a mid-level position; the middle manager is now the boss; the boss was eased out of their role because they were unable to adapt to a rapidly changing environment. No one on the consultancy side today had any contact with the client seven years ago, and half of them did not even for this particular IT vendor.
Businesses need the promises made by ERP systems: clean data, connectivity between operations and financial reporting, transparency and business intelligence, integrity of transaction processing. But businesses need to be smarter about how they achieve those promises. They need to have a clearer picture of their needs, they need a much better understanding of what they need to ‘fix’ before rolling out a standardised system with minimum costly customisation.
Above all, they need to look for solutions that offer flexibility with regard to system design and functionality is seen as an asset – not as a cause for expensive delay.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.