Top 6 Reasons ERP Implementation Fail and How to Prevent Them

By some estimates, up to 75% of enterprise resource planning (ERP) implementations fail to meet critical goals. Others say failure rates are probably closer to 40 or 50%. Either way, the numbers aren’t great.
According to Deloitte, the best way to beat these odds is to analyze the “critical failure factors,” or CFFs, of ERP implementation. CFFs are common scenarios that contribute to failure—things like poor planning, inadequate testing, or over-customization.

Analysts acknowledged that few studies measure individual CFFs’ impact on ERP implementations. Part of the issue is many variables contribute to a project’s success or failure. Since those variables are unique to each organization, gathering enough data to prove the X factor leads to the Y outcome is unrealistic.
Still, understanding potential pitfalls is the best way to tip the odds in your favor. Greater awareness means you’ll make fewer mistakes and allows you to make plans to address known risks. This article highlights common failure points — and lessons from real brands that have been there before.

1. No Clear Direction

One of the main reasons that ERP implementations fail is that many organizations embark on this journey with no clear sense of where they’re going — let alone how they’ll get there.
Many companies reach out to us because they want to replace their legacy system with a brand-new cloud platform. Or – they think staying relevant means adopting whatever tech is currently riding high on the hype cycle. The problem is that many can’t explain how those investments stand to serve their company, let alone quantify the impact on specific parts of the business.
Without a clear “why” to guide the decision and process, successful implementation is just a fantasy. In these situations, the best advice we can offer is that you need to nail down some concrete “whats,” “whys,” and “hows” before moving forward. Until then, you’re just wasting time and money and taking risks without the possibility of reward.
After two failed implementations, the Hinds-Bock Corporation knew they had to get it right the third time. Part of the challenge was the company had particular manufacturing needs. They make parts and equipment for clients in various industries – food producers, cosmetics brands, bakeries, and specialty chemical formulators.
Each group has its quality, safety, and regulatory requirements. That meant they needed to find an ERP system tailored to an engineer-to-order (ETO) manufacturing model and provide complete control over all production processes.
After looking at many different providers and conducting many rounds of end-user interviews, Hinds-Bock finally committed to Genius ERP.
The Genius Team helped Hinds-Bock connect all order and production processes to its core financials. Integration between the finance and the CAD2BOM Engineering platform allowed production teams to move seamlessly from design to production. They also streamlined project management processes and started taking complex prepayments.

2. Unrealistic Expectations

Another common failure point comes from unrealistic expectations for ERP implementation projects. Project managers may not understand the true scope and scale of the implementation — mainly if the project includes capabilities they’ve never used before. As a result, projects can fall victim to the compounding effects of delayed milestones, rushed decisions, and excessive spending.

Medical device manufacturer Invacare, for example, decided to take on an ERP upgrade while simultaneously working on several other significant projects. Post-pandemic, the company has been busy adapting supply chain practices, paring down product lines, and navigating an org-wide restructuring effort.
With so much going on, the ERP team had trouble keeping up with deliverables — and eventually, the project was put on hold. Unfortunately, Invacare was still on the hook for paying its system integrator every month — even though they had nothing to do. The ongoing delays and extra costs also cost President & CEO Matt Monaghan his job. In August 2022, the board voted for his ouster, citing the need for a new leader to help the company execute its stalled transformation goals.
It’s easy to underestimate timelines and budgets if you must be aware of potential bottlenecks or hidden cost centers.

Embracing a more dynamic ERP strategy can help you cope with uncertainty. Here, leaders continuously monitor ERP progress and make adjustments as needed. That way, they can reallocate resources or push deadlines to accommodate unexpected snags.

Your best bet is working with the right partner. They can help you define goals, establish timelines, and create clear documentation for each deliverable. That said, you’ll need to bring some knowledge to the table to benefit from outside expertise. At a minimum, you must be able to communicate your vision and ERP objectives and be prepared to help partners understand the ins and outs of your org.

3. Lack of Skilled Resources

When you lack the skilled resources needed to support ERP projects, you’ll run into a number of technical issues: bad data, poor adoption, problematic code, and improper configuration. Obviously, you’ll need people with technical expertise to install and configure the platform. You’ll also need people with the knowledge and expertise to oversee the rest of your strategy. So, people who can execute change strategies, use feedback to design processes and provide tailored training to all stakeholder groups.

Utilities giant PG&E got through most of its Oracle ERP implementation with relative ease. But when they hit the testing phase, things took a turn. A manager used a live database to conduct pre-go-live testing, and no one on the team had any sense that something was wrong. The “tests” compromised the sensitive data stored in that database, resulting in reputational damage and costly recovery efforts.

PG&E’s biggest mistake was putting a non-expert in such a specialized role. Someone should have worked with the team to build a testing environment. Employees should have received tailored training materials to help them learn to navigate the sandbox environment and follow best practices. If the utility invested in employee readiness as much as the technical aspects of implementation, this probably wouldn’t have happened. No one told the manager that testing needs to happen in a dedicated environment, siloed off from company data. Employees never learned basic best practices or what red flags they should look for.

4. Business Process Reengineering isn’t Part of the Plan

Research from Panorama Consulting found that most implementations need to realize at least 30% of the benefits they were supposed to provide. There are many reasons why a project might fail to live up to expectations. But, one of the biggest offenders is failing to take business process reengineering (BPR) seriously.
Process reengineering is a critical part of any ERP implementation. Yet, many organizations either fail to include this step in their ERP roadmap — or don’t give it the attention and care it deserves. Quick FYI: BPR is optimizing existing business processes to deliver better outcomes. It typically entails evaluating the existing system and methods to determine what’s working, what’s not, and what needs improvement.

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Deloitte analysts cite a lack of process reengineering as one of several “critical failure factors” that can undermine ERP implementation. Often, orgs try to replicate existing processes — assuming that what’s working for them now will also support their needs post-implementation.
You might have legacy processes that perform at peak levels, but that’s only in this one context. In a new system, conditions are different, and new capabilities may not be compatible with old ones.

Copy-and-pasting legacy processes without making changes can cause all kinds of problems from security gaps to sluggish service. Even if there aren’t any “problems,” this approach will keep you from reaping the rewards that prompted this investment in the first place. And that’s still a serious problem.
In this scenario, failure happens slowly — one misstep or missed opportunity at a time. A process might be functional, but if it doesn’t benefit your organization, you’ll soon fall behind your competition.

Let’s say you have this brand-new ERP. It’s loaded with AI-powered features you can use to automate financial processes, generate accurate forecasts, model and prepare for future scenarios, etc. You can’t do these things if you keep managing core financials with outdated processes.
According to Acumatica, business process reengineering (BPR) and ERP implementation should happen concurrently. BPR supports ERP implementation by aligning technology, people, and processes with the broader business strategy. That holistic view enables you to analyze processes and evaluate with the big picture in mind. You can then make more thoughtful decisions about what processes end up in the new system. For example, it might make more sense to use legacy processes if it means less downtime and lower training costs. But you’ll also need to consider what modernization might entail.

5. Over-Customization

Over-customization results in data, visibility, and security issues that can quickly snowball into more significant problems. Think — regulatory fines, lawsuits, bankruptcy, and other business-killing losses.

In April 2022, Mission Produce reported in a Q1 earnings call that it faced “significant challenges” throughout its recent ERP implementation — resulting in several severe operational issues.

The botched implementation severely limited visibility into critical supply chain operations and on-hand inventory. Mission CEO Stephen Barnard says poor visibility led the avocado supplier to move large quantities of unfit fruit for sale. Later, he says, the company was forced to source most of its inventory from 3rd-party suppliers.

Under “normal” circumstances, 3rd-party sourcing is a last resort option — with razor-thin margins. It’s meant to be more of an “insurance policy,” allowing Mission to fulfill orders if there’s a storm or a supply chain disruption and they don’t have enough inventory. Mission’s Q1 visibility problems made it impossible to manage its supply chain. This, in turn, led to a series of bad calls and missteps that eventually caused operating expenses to surpass the $4M mark in a matter of months.

Barnard says the company “wasn’t naive” to the risks that disruption poses to a business. But, he did acknowledge that “the extent and magnitude” of the fallout caught them off-guard. The mission ended up paying ~$1M in consulting costs to support the implementation process. Post-crisis, consultants continued working with Mission to remediate problems, and the company was able to get things back on track relatively fast.

It’s worth noting that this particular ERP project presented some unusual challenges. Mission’s legacy system was a patchwork monster. For over 30 years, the company has kept building on existing solutions — adding capabilities one piecemeal acquisition at a time rather than replacing outdated solutions. The company initially sought to enhance org-wide visibility and better serve its customers by replacing its old system with a brand-new one better positioned to support those goals.
The company did the right thing by enlisting the support of an experienced partner. But, untangling three decades’ worth of workarounds and customizations still poses some serious risks. The key takeaway is that you’ll want to ensure risk mitigation is a central part of your plan.

6. Insufficient Testing

Failing to identify and address problems before going live can have disastrous consequences. Makeup giant Avon learned this lesson in 2013 the hard way when a cascade of usability issues sent its ERP project spiraling beyond its control.
Avon’s in-house teams struggled to learn their way around the new system. Inevitably, those workers soon lost patience and gave up on SAP altogether. Meanwhile, the company’s roving sales team was unable to access the platform at all — effectively cutting them off from critical customer, product, and inventory data.
This forced the company to abort its SAP implementation after four years and $125M. At the root of Avon’s many problems was an ERP system that seemed to be designed with complexity in mind, not end-users.
You’ll want to make sure that you build testing into every stage of the ERP implementation process. Testing allows you to fix bugs, close security gaps, and reign in your data management practices upon detection. It also ensures that the platform meets end-user needs.

Final Thoughts

No one embarks on this journey expecting that they’ll fail. It’s just that they missed something in the planning process or tried to do too much at once. Maybe they simply “didn’t know what they didn’t know.”
Learning more about what can go wrong and what that might mean for your business helps you build a stronger implementation strategy. But you might still have blind spots you don’t know about.

An experienced partner can help ensure that your ERP plan covers all the right bases before your implementation gets underway. They can also jump in later to save a floundering ERP project before it’s too late.

Velosio’s ERP recovery program was designed to get failing implementations back on track. We start with a comprehensive assessment and diagnose the problem. Then, we’ll work with your team to get it resolved so plans can finally move forward. Connect with our experts today to learn more about the recovery process, advisory practice, and the rest of our ERP services.