Group Assignment on ERP FAILURE

Submitted By : (Group-2) Ram Naresh Singh Richa Chauhan Shipra Rajput Archana Singh Faizan Ahmed

Submitted To : Prof. Kapil Mohan Garg

ERP FAILURE

INTRODUCTION TO ERP
An ERP system is an integrated software solution, typically offered by a vendor as a package that supports the seamless integration of all the information flowing through a company, such as financial, accounting, human resources, supply chain, and customer information. ERP implementation is a lengthy and complex process, and there have been many cases of unsuccessful implementations, which have had major impacts on business performance. As ERP plays a very important role in business, ERP implementation and its critical issues, success factors and implementation problems have been investigated in the past.

Why ERP is required ?

Business managers and boards demanding better returns from IT investments. So we have to have a well known system. There is concern over the generally increasing level of IT expenditure. We have to implement such a system with the lowest total cost of ownership. The need for organizations to assess how they are performing against generally accepted standards and against their peers is essential. We have no more time and money to re-invent the wheels. We can control costs by reducing dependency on technology experts We can increase the potential to utilize less-experienced staff if properly trained We have to make it easier to leverage external assistance There is a chance to overcome vertical silos and nonconforming behavior Reducing risks and errors could save our survival This system could help us to improve quality

Integrated systems help us to improving the ability to manage and monitor the enterprise Costs reduction could be achieved by increasing standardization We have to used of IT to optimize management of work and resources There is a potential to reduce or eliminate non-value added work by reducing interfaces and hand offs Jobs and roles can be enhanced via expanded information access. Integrated systems expand information access

The Advantages and Disadvantages of ERP

There are a number of powerful advantages to Enterprise Resource Planning. It has been used to solve a number of problems that have plagued large organizations in the past. At the same time, it is not without a number of disadvantages. Being able to weigh the two will allow a company to decide if this solution will properly meet their needs.

Advantages of ERP:
In the absence of an ERP system, a large manufacturer may find itself with many software applications that do not talk to each other and do not effectively interface. Tasks that need to interface with one another may involve: design engineering (how to best make the product) order tracking from acceptance through fulfillment the revenue cycle from invoice through cash receipt managing interdependencies of complex Bill of Materials tracking the 3-way match between Purchase orders (what was ordered), Inventory receipts (what arrived), and costing(what the vendor invoiced) the Accounting for all of these tasks, tracking the Revenue, Cost and Profit on a granular level.

Percentage of ERP system used by different industries in India Change how a product is made, in the engineering details, and that is how it will now be made. Effective dates can be used to control when the switch over will occur from an old version to the next one, both the date that some ingredients go into effect, and date that some are discontinued. Part of the change can include labeling to identify version numbers. Computer security is included within an ERP to protect against both outsider crime, such as industrial espionage, and insider crime, such as embezzlement. A data tampering scenario might involve a terrorist altering a Bill of Materials so as to put poison in food products, or other sabotage. ERP security helps to prevent abuse as well.

Disadvantages of ERP:
Many problems organizations have with ERP systems are due to inadequate investment in ongoing training for involved personnel, including those implementing and testing changes, as well as a lack of corporate policy protecting the integrity of the data in the ERP systems and how it is used.

Limitations of ERP include:

Personnel turnover; companies can employ new managers lacking education in the company's ERP system, proposing changes in business practices that are out of synchronization with the best utilization of the company's selected ERP. Customization of the ERP software is limited. Some customization may involve changing of the ERP software structure which is usually not allowed. Re-engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage. ERP systems can be very expensive to install often ranging from 30,000 to 500,000,000 for multinational companies. ERP vendors can charge sums of money for annual license renewal that is unrelated to the size of the company using the ERP or its profitability. Technical support personnel often give replies to callers that are inappropriate for the caller's corporate structure. Computer security concerns arise, for example when telling a nonprogrammer how to change a database on the fly, at a company that requires an audit trail of changes so as to meet some regulatory standards. ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business process of some companiesthis is cited as one of the main causes of their failure. Systems can be difficult to use. Systems are too restrictive and do not allow much flexibility in implementation and usage. The system can suffer from the "weakest link" probleman inefficiency in one department or at one of the partners may affect other participants. Many of the integrated links need high accuracy in other applications to work effectively. A company can achieve minimum standards, then over time "dirty data" will reduce the reliability of some applications. Once a system is established, switching costs are very high for any one of the partners (reducing flexibility and strategic control at the corporate level). The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale. Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software. There are frequent compatibility problems with the various legacy systems of the partners. The system may be over-engineered relative to the actual needs of the customer

Causes of ERP Software Failure and Prevention

We can prevent ERP failures if we can identify the route causes of the failures regardless the companies and industries that implement them. ERP system is an approach that can make marvels for your organization. It is integrated software which automates the daily activities. But it also needs a streamlined approach. To get the best out of it, you will have to give your finest

efforts. If software system is not streamlined correctly, it can create blunders. There are several causes of ERP failures like software structure not matched with your organization, hardware is not suitable, user rejection, complicated business processes. You must take care off following reasons while implementing software, else failures can happen.

Software Selection and Planning At the time of ERP selection and planning to start implementation top management should be very careful. Choosing wrong product is the primary cause of ERP failure. Each company has a different business environment. Your data requirements may be different and so the level of customization your need may also be different. Software selection should be based on software quality, software developed for your vertical, implemented in similar size and type of company. Before starting the project proper blue print should be made with the help of industry expert and consultants. This will lead to successful implementation.

Usually this error shown in the system which runs ERP Vendor Selection If you vendor is not enough to understand your business process and people, ERP project will be fail. Software vendor should not be new in the market and have a good team of industry experts. Involvement of vendor should be from their top management. User Rejection User change resist, if ERP software is complex and your have not arranged proper training step by step, user will fail to understand the new system and this will impact on implementation. Software Structure ERP system architecture should be industry specific and user friendly. If software architecture is not matching the baseline of your industry, customization will be more and project will go long. More customizations are one of the biggest reasons of ERP implementation failure Business Process If your business process complicated you have to select ERP for industry specific. You can choose software which is implemented in similar type of organization. All ERP software are not flexible, be careful about customization possibility and cost of customization. Best Business Practices
ERP packages, even those that are industry specific, are designed for a large audience of companies looking to achieve success by following a template of best business practices. However, software often fails to achieve its promise due to the reluctance to change by people who have a vested interest in

existing processes. This leads to costly program modifications to replicate those processes. This, in turn, can result in unnecessary manual tasks and issues of software maintenance, which neutralize the original benefits of the software. When making your ERP software selection, examine the processes encoded in the software. If you can agree to model your companys best practices based on those processes, youre choosing the right solution. If you cant, continue looking.

The Project Manager

Once the ERP system is chosen, its not uncommon for management to turn the project over to a subordinate to manage the implementation. The problem is that the subordinate, who is usually chosen from the end-user base or information technology department, typically isnt given the authority to implement necessary business process changes. Project management is a discipline, if not an art, which requires the ability to delve into detail while keeping a perspective on the original business objectives. The project manager needs to have the ability to overcome impasses through a judicious combination of political guile and management direction. The most successful ERP projects are led by a member of the management team who has actively participated in the both the software selection and implementation efforts. When selecting your project manager, choose the one who has the most to gain (or lose) from the ERP system.

Implementation Budget
Once the project manager is selected, many companies tie their hands by under-funding their efforts or by limiting the scope through impractical project schedules. It has been my rule of thumb that an

implementation budget should be a one-to-three-times multiple of the list price of the software package. Budgets are variable based on the size of the organization and the package selected. Tier 1 packages, such as SAP or Oracle, should be budgeted on the upper end of the range due to their implementation complexity and the size of company that gravitates to that part of the spectrum. Other packages fall elsewhere on the range. Variations can occur as a result of the amount of outside consulting required and the geographical diversification of the company. At a minimum, 5 to 10 percent of the implementation budget should be set aside for a project management consultant. Many companies make the mistake of using the software vendor for this role. But the vendor is driven by installing the package and moving on, not by business process improvement. Furthermore, vendors do not have the resources and background to evaluate and recommend business process improvements and do not see this as their job. The most significant cost of the ERP implementation is not the software, but the cost of the implementation. Budget accordingly.

Project Schedule
Project schedules are equally important to ERP initiatives as implementation budgets. Some companies try to back-schedule an ERP project by establishing an implementation go-live date and then attempting to schedule interim (and often unrealistic) milestones. This usually results in insufficient attention to details and carelessly completed tasks. An effective project plan starts with a kick-off meeting and logically progresses to a go-live conclusion. Tasks should be properly resourced and scheduled, in man-day increments, with no task exceeding 15 days. At the end of each task, a meaningful deliverable should be presented for evaluation by the project manager. The project schedule is the foundation of a successful ERP implementation; it should be developed and monitored carefully. The schedule should be updated weekly to reflect real-time activity and progress, and regularly reviewed by both the project manager and senior management.

Training and Education

The last reason for ERP system failure that we are going to look at in this article is a double-edged sword: lack of training and education. Many companies confuse and under-fund both tasks. Traditional training, initially provided by the software vendor, is essential to successful ERP implementations. For obvious reasons, end users need to have working knowledge of the selected software package to feel confident when performing their jobs.

There are two ways to approach this. One is have the vendor provide all of the training. The alternative is to take a train the trainer approach where the vendor trains a few individuals who then train the rest of the staff. The latter approach minimizes the stress on your implementation budget while developing expert users who tend to claim ownership of the process. There are no rules of thumb, however, in time or percentage of implementation budget, to determine how much training is required. Successful ERP implementations stress staff training. They provide training sessions regularly throughout the project, with special concentration during the weeks just prior to implementation. Education is different than training and provides staff with the knowledge of the methodology behind their activities. Members of the management team, master production schedulers, shop foremen or even cost accountants wont be effective unless they understand the concepts required to do their jobs in an ERP environment. You cant rely on the software vendor to perform the task of educating your workforce. In fact, the education step should really begin prior to package selection. This allows key staff to correctly evaluate your companys processes as they relate to the software requirements and each vendors offerings. For companies who miss this early opportunity, education should be completed prior to the new software configuration. Make the commitment to educate yourself and your staff on how you need the business to perform and consider outside help if needed. For example, successful ERP education programs have been developed in conjunction with professional organizations such as The Association for Operations Management (APICS) and independent consultants who specialize in operations management education.

Taking Responsibility Leads to Success

Now that weve outlined some of the real reasons why ERP implementations fail (some say up to 50 percent or more), its time to ask: Whose failure is it? None of the points discussed here are technical issues related to software. An overwhelming number of ERP system failures are caused by lack of attention to the critical management issues discussed above. Even the right software will fail under similar circumstances. Blaming or changing your ERP system is simply a way to divert attention from the execution mistakes made as a result of human rather than technology error. To rescue a failing ERP project, start by taking corrective action. Before throwing out your current system (or worse, letting it spin into oblivion), evaluate what steps were followed (or not followed) to bring you to your present situation. Use the key points in this article to make sure you understand why the system is failing. And be prepared to do whatever it takes to reverse the current course of action. There are times when the software is really not appropriate for a particular environment. Even then, the reason for failure is not the software. Rather, it is the lack of due diligence by the company before

buying it. While software mismatch does occur, as this article points out, those instances are not as common as business managers believe. Companies regularly use ERP systems to improve competitive advantages; raise customer service levels; increase productivity and plant utilization; and reduce inventories. With the right implementation strategy, yours can too!

No sponsorship from the top

It's all very well the production manager wanting (and getting authorisation for) a new manufacturing system, but if it is not driven from the top down then he's fighting a losing battle. He will not have the authority to instill change in other departments and, in larger organisations, may not even have relationships with the relevant managers of each department affected. All key staff at top level need to be in agreement when selecting a system, and this desire for change must make its way very visibly down the chain of command. Internal politics can also play a part here people sometimes have their own hidden agenda and because of inter-departmental conflicts, decisions detrimental to the business good are often made.

The fear factor

Staff can be fearful of change, seeing progress as a possible threat to their very employment. Companies are often selective on the number of staff they send for training. People also move on, taking with them the knowledge that the company has paid for them to learn, and perhaps leaving behind staff that are less experienced. These factors play a massive part in the success or failure of a system. People by nature will take the easiest route to completing a task, which will be the way they currently know. More often than not the implementation of a new ERP system does not equal mass redundancies, but it does ensure that a company can grow without needing more human resources. Knowledge is power; Staff need to be educated on the positives that the system will bring to them, their company and ultimately their customers. Make them aware of how the system will positively affect their individual role. Personalise it! Fear of the unknown can be replaced by anticipation of how it could improve their working experience. I recall one client telling me that one of the people most resistant to change was now the biggest advocate after he saw how their new system would make his life easier. Remember also that while a system administrator may need to understand the depth and breadth of the system, many staff will only need to understand their job-specific elements of it, so don't blind them with science.

Its not just I.T.

Many mistakenly believe that ERP is purely an I.T. issue rather than an enterprise strategy it spans virtually every department within a company, influences decisions and is effectively the infrastructure upon which the business sits. Why then, do many companies under-resource its selection or implementation process, either in terms of the number of staff or their experience

and understanding of the business? You need to ensure that the people responsible for it dont just know I.T, but understand how the business needs to run so that they can appreciate how the software has to work to support the business operations.

Poor implementation
An engine can still run when it's poorly tuned, but it'll drink fuel and suffer from poor performance - the same can be said for a poorly implemented ERP system. Unlike an off the shelf package e.g. MS Office, no two ERP installations are the same, as the companies they are there to serve will want to work in their own unique way. Companies are often led down the consultancy path to customise the system beyond all recognition, but pass ownership of the problem to an external consultant that may not ultimately understand their business. This relates back to our first point; as well as having sponsorship from the top the system should also be championed from within, rather than wholly trusting consultants that do not have a true understanding of your business and only their own commercial considerations at heart. By all means employ an expert to assist with specifics such as server implementation or data migration, but the overall project should be managed from within. A core internal team covering all affected departments should be set up to understand the workflow. Many believe they have to write a specification spanning reams of paper, but this simply leads to customisation that may not actually be needed. A simple top level bullet list of core functionality is all that is required.

The tail wagging the dog

This problem is similar to poor implementation but occurs when the wrong solution has been implemented in the belief that it can be somehow shoehorned to meet the company's needs. There is often no way out of this situation other than to bite the bullet and write off the cost, or spend even more on expensive customisation that ensures that you will pay over the odds for maintenance and further modifications with every new future release for years to come. A good ERP system will be designed to meet the needs of the majority of its users with minimal or no customisation. As mentioned above, dont overcomplicate your initial requirement brief. If you evaluate an ERP system without preconceptions you may be pleasantly surprised at the solution they already have available.

'It's an EX ERP system.

Over the years it's common to see companies in any given industry perform mergers and acquisitions of similar organisations. Invariably there will be casualties, and if your ERP vendor is acquired by a bigger fish from the same pond then it's quite possible that you'll get a letter saying that the product is no longer being developed, followed by one months/years later saying it's no longer supported at all. While the system won't stop working overnight you are then hanging your entire company on a 'mission-critical' system that will bring your business to a

standstill if it fails. According to a University of Texas study, where companies suffer catastrophic data loss 94% will not be trading a year later, leaving just 6% standing - although your data is still there in this scenario its no good to you if you cannot use it. If you are on the receiving end of a 'discontinued product' letter then alarm bells should be ringing! You will no longer be able to obtain assistance to write new reports or to customise the product, so your system will no longer be adaptable to business model changes.

The rusted handcuffs

Discontinuation is not the only problem with age, and obsolescence not only applies to your ERP but also the OS and/or hardware that it runs on. Even in 2011 I regularly talk to companies running DOS, UNIX or AS/400 systems that have been live for 20 years or more. But technology moves on. Windows has become the standard OS, with PC's falling in price and many more staff knowing how to use them. Nobody wants to pay maintenance on bespoke hardware that it is increasingly difficult to find spare parts for, or pay an ever-shrinking number of people that are experienced enough to support legacy OS, network or application software. One client that was previously running an AS/400 system ended up buying a motherboard from one of their own clients that had been running the same hardware platform because they couldn't find a supplier with a replacement. Often when a company contacts their vendor, the costs to upgrade the software can be prohibitively expensive and will also require a complete hardware infrastructure on top, making the pill doubly bitter to swallow. Ensure that whichever system you select is based upon the latest application development platform such as Microsoft .NET and that it has a well-supported and industry-standard database structure such as SQL. By doing so you will future-proof your investment and ensure that you can easily interface to your data from other internal systems. If you will need to do much (or indeed any) interfacing ask your vendor if they have a software development kit (SDK), or whether they have to handle custom development, as this could considerably increase the overall cost.

Conceptual ERP Implementation Failure Model

ERP failure: Study & Statistics (Research Case)

Panorama Consulting released results of a study, called 2010 ERP Report , comparing gaps between customer expectations and actual results achieved on enterprise resource planning (ERP) projects. While the findings are consistent with similar studies, Panorama is a consulting company and not a neutral research organization, although it is not affiliated with software vendors. This does not invalidate the results, but as a policy matter we should retain some skepticism toward the findings. Key Findings The research describes five primary results: 1. 2. 3. 4. ERP implementations take longer than expected ERP implementations cost more than expected Most ERP implementations under-deliver business value Software as a service (SaaS) implementations take less time than on-premise ERP implementations, but deliver less business value 5. Companies do not effectively manage the organizational changes of ERP Implementation length. The study states that more than half the implementations surveyed exceed planned time: According to Panoramas study, 57% of ERP implementations take longer than expected (see table below). This challenge is partly attributed to the fact that many companies in our study either had unrealistic expectations regarding timeframes and/or did not account for key project activities in their implementation planning processes. As the table indicates, both time and budget frequently exceed planned levels:

Implementation budget. The report compares implementation budget variance in 2010 to a comparable study performed in 2008: As illustrated in the table above, 54% of ERP implementations go over budget. This is a slight decrease from the 2008 study, which showed that 59% of implementations cost more than planned. The finding is attributed to the fact that many organizations in our study failed to identify and budget implementation costs not attributable to software vendors, such as project management, organizational change management, hardware upgrades and the like.

Measurable benefits. These figures are perhaps the most damning in the study. The report says a significant number of implementations surveyed did not deliver anywhere near the anticipated benefit or value: As Figure D (below) outlines, 41% of companies surveyed fail to realize at least half of the business benefits they expected from their ERP systems, and 22% of implementations fail to deliver at least some measurable business benefits from their ERP solutions. In addition, over one in three companies surveyed (40%) realized major operational disruptions after implementation go-live, such as the inability to ship products or to close the books. Finally, only 68% of executives and 61% of employees are at least somewhat satisfied with their ERP solutions.

SaaS implementations. The study concludes that SaaS deployments are faster than traditional, onpremise implementations yet are even less likely to deliver expected results. This stunning claim demands additional research and detail: The study reveals that on average, SaaS and hosted solutions are implemented in less time (11.6 months for SaaS vs. 18.4 for on-premise), at a lower cost (6.2% vs. 6.9% of annual revenue, Figure F) and at a slightly higher level of executive satisfaction (52.6% vs. 50.0%) than traditional on-premise solutions. However, as with any ERP solution, SaaS has its drawbacks. SaaS implementations are significantly less likely to deliver the expected business benefits (23.5% vs. 42.9%) than on-premise solutions. In addition, SaaS implementations are significantly more likely to exceed budget than on-premise initiatives (70.6% vs. 59% for other delivery options).

Implementation change management. The study finds that most organizations have a hard time managing the business transformation aspects of ERP. Since transformation is often an important reason companies take on ERP projects, these conclusions are not surprising: Over 53% of implementing organizations assess their ability to deal with change as fairly poor or very poor. In addition, 47% say communication between management and employees is poor. These types of environments are not conducive to effective ERP implementations. Organizational change management tools, however, help address such barriers to make the rollouts more successful. In addition, over 60% of organizations suffer from poor visibility of data and poor integration in their old systems. This metric suggests that employees using a new ERP system have strong organizational resistance and steep learning curves THE PROJECT FAILURES ANALYSIS The findings reported here are consistent with research performed by others on this subject. For this reason, I accept the findings as appearing to be generally valid. At the same time, Panorama is consulting organization and these results are therefore self-serving, which makes the data suspect even if it is accurate. Panorama's research is worthwhile, but would be more credible if the company engaged an independent research organization to conduct similar studies in the future. In addition to adding credibility, a professional research firm would ensure consistency of the study methodology year over year. This would increase the value of the research by adding confidence to both the conclusions and the trend information over time. On a different subject, the report presents a startling and unexpected discussion about the business value achieved from SaaS versus on-premise implementations. I would like additional research and details exploring this assertion, which is presented as fact in the report: While SaaS is clearly on a high-growth trajectory, our independent findings reveal that industry hype is misaligned with actual results.

Conclusion:
The success of the system is fully dependent on how the workers utilize it. This means they must be properly trained, and a number of companies have attempted to save money by reducing the cost of training. Even if a company has enough money to implement ERP, they may not be able to successfully use it if they do not have enough money to train their workers on the process of using it. One of the biggest problems with ERP is that it is hard to customize. Very few companies can effectively use ERP right out of the box. It must be modified to suit their needs, and this process can be both expensive and tedious. Even when a company does begin changing the system, they are limited in what they can do. The top most critical failure factor for the failure of ERP implementation at Indian SMEs is poor quality of testing followed by poor top management commitment & support, unrealistic expectation of top management from ERP systems etc. Implementing an enterprise resource planning requires a wide range of knowledge.Indian SMEs & vendors often fail in recognizing the technical, financial and oganizational impacts related to the ERP implementation as a consequence, the evaluation of ERP system for Indian SMEs, instead of choosing a system supporting specific business functions, is a strategic decision that, mostly within SMEs, should be supported by indepth evaluation. Proper knowledge about the ERP products, proper budget planning and appropriate training to the staffs is needed to avoid the ERP implementation failure. All success is rooted in either luck or failure. If it begins with luck,there is nothing to learn but arrogance. However, if it begins with failure and learns to evaluate,it also leads to success. Failure becomes knowledge. Out of knowledge it gain wisdom, and it is with wisdom that can make true success. There is a need to learn from previous failure.

References :Book :
ERP A Managerial Perspective By : S. Sadagopan (IIM-Bangalore) Websites :
http://www.zdnet.com/blog/projectfailures/erp-failure-new-research-and-statistics/8253 http://www.nickmutt.com/causes-of-erp-failure.htm http://www.ipublishing.co.in/ajmrvol1no1/EIJMRS1005.pdf http://academictutorials.com/erp/erp-advantages.asp http://www.vansomeren.com/erp/info/ERPfail.htm http://projectmanagement.ittoolbox.com/documents/why-erp-implementations-fail-15304 http://www.hks.harvard.edu/mrcbg/ethiopia/Publications/Top%2010%20Reasons%20Why%20Systems%20Projects%20Fail.pdf http://www.accountinglibrary.com/blog/why-do-erp-selection-projects-fail/ www.sap.com/India/ERP www.erppandit.com/erp-advantages.html www.excitingip.com/.../advantages-disadvantages-of-erp-enterprise.html