Why do SAP implementations fail?

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Running head: WHY DO SAP IMPLEMENTATIONS FAIL






Why do SAP implementations fail?
Michael Watson
BIS/630
Dr. Dana McCann
Tuesday, December 13, 2011
Abstract
Globally recognized organizations have found value with the implementation of enterprise resource planning
software. Software provided by companies such as SAP provides a streamlined approach to operations, which can
aid organizations with stability as well as improving efficiencies. Organizations determine which applications will
improve operations, often opting to customize aspects of the planning software to suit needs. Poor planning,
however, can lead to resource exhausting and implementation failure. Waste Management Inc., who worked with
SAP, experienced significant losses due to miscommunication and unrealistic expectations. Training employees and
understanding how each employee within the development process will fit without exploiting or overworking should
be a top priority with the organizations management. Organizations that can carefully integrate employees into the
software development and implementation process can successfully complete the process while minimizing
financial losses.
Keywords: SAP, enterprise resource planning, Waste Management, organization
Why do SAP implementations fail?
Finding similarities between 7-Eleven, Inc., Accenture, DuPont, and KPMG may prove to be quite difficult
given the fact that each organization operates in a different industry. Looking past the brick and mortar retail
locations, large corporate offices, and manufacturing plants, however, one can find an underlying similarity between
each organization; each organization utilizes the enterprise resource planning system known as SAP in daily
operations. The developing company SAP, initially designed in 1972 by five former IBM employees, has
progressively become the worlds largest inter-enterprise software company as well as a leading independent
software supplier. The following research paper will analyze why organizations choose to use information systems
such as SAP, establish why organizations have issues implementing systems, explain why Waste Management Inc.
failed to implement SAP, and discuss how organizations can successfully implement planning software.
Deciding to use ERP Systems
Coordinating information systems. Organizations chose enterprise resource planning (ERP) with the
intention of creating a comprehensive software system designed to handle multiple aspects of the organization
including inventory management, invoicing, customer order handling, sales, and financial information. System
designers focus on implementing a software suite established to synchronize everything within the proposed scope
and determine one location in which the data is stored and referenced. Major benefits stemming from a single
location involve the reduction of graphical user interfaces (GUI) required for each department using the system.
Streamlining operations allows organizations to reduce the time and money required to train employees to utilize
new systems. Reduced training increases the employees mobility between departments.
Preserving data integrity. Data integrity is another reason why organizations decide to implement ERP
systems. The unifying of an organizations information systems is conducive to a reduction in failed data transitions
between systems that are incompatible. Incompatible data systems force organizations to continually invest and
reinvest into modifying information systems to successfully accommodate changes associated with business
transactions and operations. Aside from the financial ramifications, major delays due to system redesign and
modification can cause internal and external conflict, leading to poor customer service and reduced effectiveness.
Customizing system. Another benefit associated with ERP implementation is the customization an
organization can have regarding the system and how the system operates. Although implementing a significant
number of customized aspects within an ERP can cause increased overhead due to maintenance and training costs,
customizing the ERP allows companies to determine which aspects of the information system can produce the most
efficient numbers. Some organizations may find the implementation of customized applications within an ERP to be
a means through which the organization can become more flexible. Customization can lead to multiple strategic
benefits including differentiation, innovation, and external linkages (Sedon & Shang, 2000).
Retain top performers. SAP uses the notion that implementing an ERP can not only improve internal
operations, but also improve turnover concerning top performing talent within an organization (SAP, 2009).
Organizations lacking a predetermined hierarchy through which top performing employees can move into positions
that are more prominent may lead to employee turnover. The concept driving reduced employee turnover involves
the definition of career and development plans as well as the improved ability to link performance to long and short-
term incentive plans.
Reasons ERP Systems fail
Failure to provide return-on-investment. An organization decides to implement an ERP with intentions of
streamlining operations, increasing organizational and system efficiency, and reducing costs associated with
information technology. Money is initially invested into the ERP developer with more substantial figures tied into
customization based on the organizations needs. Upon development completion, the organization begins to
implement the ERP. Once the implementation has concluded, stabilization within the organization occurs and the
organization can begin to determine whether the investment was worthwhile.
An organization must establish factors used in determining the success or failure tied into ERP development
and implementation. The performance indicators must be decided upon early within the project and, as the
organizations ERP, utilization begins to stabilize, and measurements can be made accordingly (Pereira, 2003).
Failure to establish indicators may lead to an overall failure by the organization because the lack of control and
concise data associated with success can lead to increased costs and reduced efficiencies. No method to compare
statistics prior to implementation with statistics after implementation will cause internal conflict.
Running over budget. A major priority in any project development factors cost into the overall equation.
Project managers are given a period, a project scope, and a budget to work within throughout the course of the
project. Various delays or unexpected events can trigger a chain of events within the process, but the most
detrimental is when a project runs over the allotted budget.
Money is the underlying determinant of whether the ERP implementation is a success or failure. Although
organizations may not be able to gauge return-on-investment immediately, major delays or a complete halt during
development and implementation due to the project running over budget is undoubtedly a factor in ERP system
failure. If a project cannot be completed due to inadequate funding, the entire project can be considered a
catastrophic financial failure.
Inadequate resources. Another common failure trigger experience during ERP implementation is inadequate
resources and unrealistic expectations within the implementing organization. Inadequate resources primarily focus
on the human talent involved during the implementation process. Organizations experiencing failure often lack
understanding concerning talent management. The organizations do not effectively utilize employees without
exhausting the employees thus leading to reduced work quality. Aside from exhausting physical resources, failed
implementations occur when the organization does not account for the time needed by the organization to recover
from the changes. Moreover, managers and workers frequently assume that performance will begin to improve
immediately because the new system is complex and difficult to master, organizations must be prepared for an initial
decline in productivity after the new software is put into operation (Umble & Umble, 2002).
Failed SAP Implementation Example Waste Management, Inc.
Waste Management invested in SAP. In October 2005, Waste Management Inc. signed a contract with SAP to
design and implement an ERP system to replace the legacy revenue management system. Waste Management, the
leading United States based waste hauling company, decided on using SAP because SAP ensured a transition from
ERP systems currently used in small European based waste companies into a more complex and competitive
environment would be seamless. The project was estimated to roll out within 18 months at a cost of $100 million.
The project goal was to streamline operations, improve revenues, and increase customer satisfaction.
Waste Management rolled out a pilot project in New Mexico and experienced immediate issues with the ERP
designed by SAP. According to Waste Management, the software was unable to run (our) most basic revenue
management operation (Weier, 2008). SAP attempted to revive the project by rewriting project specific coding
hoping to thwart further issues and correct the problems, but Waste Management found the modifications only
spurned more issues including future incompatibilities and unreliable operations.
By deciding to go with a globally recognized ERP developer and reducing customization, Waste Management
experience disaster. Not only has the company decided to look elsewhere for ERP development; $100 million and
time invested into SAP is being considered a complete failure and Waste Management has locked themselves into
further time delays to roll out a new system as well as heavy litigation concerning the contract with SAP.
How can companies avoid implementation failure?
High employee involvement. Organizations deciding to implement ERP systems such as SAP must understand
that despite leadership having ultimate decision-making power concerning development direction, the end users
become the most familiar with system interactions and should be an integral part throughout the development and
implementation process. Each user may not be familiar with how to design an information system, but if the users
day-to-day operations revolve heavily around data entry and inquiries, the end user must feel comfortable using the
system. Proper training must be administered by the organization or outside consulting firm to ensure understanding
use of the new ERP system and as the users become familiar, the users should be given the opportunity to provide
feedback. Minor changes such as graphical interfaces can make ERP system assimilation substantially easier.
Adequate resources. An organization choosing to implement an ERP system must implement indicators that
assist with understanding potential lulls or delays in productivity experienced during and after the implementation.
Reduced productivity is expected during the process, but the organization must gauge effectiveness to determine
whether changes in the process should be made. The indicators must take into consideration project timetables
established initially during the system design and adjust as employees begin to retain training and show growth.
The implementing organization must be aware of employee involvement and management must discern
workloads to ensure each department is not overloaded with tasks. Leadership determines overall organizational
direction, while management in place determines which employees are responsible for each aspect of the system
implementation. Employees must have a fair balance concerning workloads to detour away from production losses
and inactivity.
Conclusion
Organizations can experience difficult implementing ERP systems such as SAP due to reasons such as
failing to provide return on investment, budget issues, and inadequate resources. Waste Management failed to
successfully overhaul information systems because the company chose to use a software system designed by SAP
based on the organizations record of accomplishment without being provided a product example that could
efficiently handle the necessary level of software sophistication. If an organization seeking ERP implementation can
determine a proper system customization level, provide adequate training to employees, allow employees to have
input during and after the implementation process, and effectively manage talent, installing an ERP system should be
feasible with limited problems.
Bibliography
Pereira, B (2003, October). Making ROI on ERP happen. Retrieved from
http://www.networkmagazineindia.com/200310/coverstory02.shtml
SAP (2009). SA ERP - Business Benefits. Retrieved from http://www.sap.com/solutions/business-
suite/erp/businessbenefits/index.epx
Seddon, P, & Shang, S (2000). A Comprehensive Framework for Classifying the Benefits of ERP Systems.
Informally published manuscript, Department of Information Systems, The University of Melbourne,
Melbourne, AUS. Retrieved from
http://www.dis.unimelb.edu.au/staff/peter/research/AMCIS2000ClassifyingTheBenefitsOfERPSystems.doc
Umble, E, & Umble M (2002, January). Avoiding ERP implementation failure.. Entrepreneur, Retrieved from
http://www.entrepreneur.com/tradejournals/article/83795906.html
Weier, M (2008, March 27). SAP Software A 'Complete Failure,' Lawsuit Claims . Informationweek, Retrieved
from http://www.informationweek.com/news/global-cio/trends/showArticle.jhtml?articleID=207000149