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Nightmare on ERP Street

Posted: 10.10.2011 16:58:00  | Category: IN GENERAL  | Tags: ERP - Failure

After reading the latest news about the lawsuits opened against some ERP companies, I can't keep myself away from writing this article. One of the latest news was "Epicor" being sued by "Whaley corp", a company that sells and fixes commercial kitchen equipment, in South Carolina, USA.

Here is an excerpt from the article :

"The project was supposed to be up and running in Whaley's main office and 12 branch locations by March 2007, but was delayed multiple times and never worked as advertised in more than two years of use, according to the complaint.

The implementation costs were supposed to be US$190,000 but have reached more than $1 million, the complaint says. Whaley is suing Epicor for fraud, breach of contract, unfair trade and negligent misrepresentation. It wants its money returned along with additional money for damages."

You can read the rest of the story here, Epicor ERP Project Sparks Customer Lawsuit

This is not the only example but it is one of the latest. If we make a quick search, we can see other lawsuits related to the very same complaint. Many ERP companies are not able to deliver the solution at the right price and time negotiated, and some are not even able to deliver the functionalities that were negotiated initially. Here is a good statistic about the risks:

Source :

Scary, isn't it? So, this means you must be ready for late delivery and be prepared to exceed your budget. Normally, when a project starts :
  • ERP sales team is happy, because they have closed another deal,
  • ERP partners are happy because they are also on the urge of making sales
  • Owner and CEO of purchasing company is happy, because for a reasonable and negotiated price, most of the corporate problems would be solved, and maybe they would make a "know-how" transfer and make profit out of it.
  • Customer's middle management is happy and excited, because it is going be a good experience and a shiny label in their resume.
  • The people that really do the actual job are probably not so happy as the others. They are probably going to "Resist the Change". In my previous article, I have tried to explain the resistance and provided some methods to overcome it.
As the above statistic shows, what happens in the end is disappointment. But make no mistake, this is actually not a common scenario but it happens. Normally, with some acceptable deviation, projects are completed. Some are succesfully completed, some are left as it is because both parties get tired of fixing things.

Now I will try to explain and comment on only some of the reasons why an ERP project can fail or cause disappointment in the end.

Effect of Huge ERP Market and Disciples of ERP

ERP solutions are usually over exaggerated. A company that reached a certain level of sales feels like it is time to implement an ERP solution. It is memorized, it is a default action because market pressure and common practice dictates you that. But why is there a market pressure or in other words, how and why has it been a common practice? The reason is simple, too many people are involved. When combined they form a huge community which I call as "Disciples of ERP", just because many of them show unconditional loyalty. And this huge community is generating a huge market together. We are talking about billions of dollars. Let me try to list the people who can possibly be involved when you push the purchase button :
  • ERP company itself and its employees
  • ERP company's sales and implementation partners and their employees and maybe even their partners and employees. ERP consultants (if it is an international sales, sometimes global and local consultants together)
  • Secret module partners and their employees, (not all modules are provided by all ERP vendors, usually they use third party solutions and custom development)
  • Definitely software companies like Microsoft and Oracle, because they either provide the OS or database
  • Hardware companies, they provide the servers, workstations, peripherals, shop-floor/yard equipment, etc. Partners or resellers of both hardware and software companies, and their employees
  • Maybe some financial Instutions who would help you finance the project,
  • Secret community of IT people who thinks it is a big oppurtunity to work in an ERP project. Because it will help them to improve their career and maybe they will develop good relations and get good references and contacts from a well known ERP company. Of course this is not a bad thing but it is a determining factor in decision making.
  • And many owners like to show-off with the implementation, some even dream about making profit out of it, and some likes to be mentioned in case studies. This is simply to support their brand with another well established brand.
Actually, there is nothing bad about it all, and it is the nature's way. I can be considered as a part of this community as well. But, from time to time�they may lead to wrong selection process and cause the costs to be higher than it should be.

Misleading Sales Activities

If you ever had a presales meeting with some of the ERP companies or their partners, you will notice that they all know everything, and can do everything. As if they have invented electricity. WOW... you feel like an idiot, don't you? But, no need to feel like that. It is really nothing extraordinary. Of course, in the software industry, almost everything is possible at least the business-wise. But this does not mean that it is easy to deliver it. It is a matter of time and resources. This is actually why there is a huge consolidation in the market, strong brands are purchasing other brands working on the areas where they see they lack expertise or required customer base. Quick knowhow and customer-base transfer. Of course, sometimes they do it to eliminate the competition.

For an ERP sales person, keywords matter too much, they seem to jump on it. They tell stories to impress you. The story may look similar to your case but down in the details lies the dangerous and hidden secrets. Besides they will give you many enterprise references, be careful most of the companies are not using all modules, maybe they are using a single module, or they were using it once upon a time in never never land. Double check and confirm them.

All are understandable since it is the job of sales people to close the deal. But at what cost? Shouldn't they warn you about the complexities or additional costs that may occur? Of course, they should. Therefore, misintroducted and exaggerated product functionality combined together with inaccurate presentation are the major factors what makes a sales a faulty or wrong sales. Sales people should be direct, honest and should make their customers aware of the missing or weak functionalities in their product.

Wrong Selection Process

But is it only the fault of ERP companies? Of course not. We should put some of the blame on the decision makers and key users of customers too. The key is good selection process. Never fool for shiny brands and people. Always look for alternatives and try to understand the differences and reasons behind it. Be realistic with the budgeting, do not dream about keeping it too low. Keeping the budget lower than required will cause the vendor to offer shorter implementation time and this may lead to wrong results. If you are going to invest on something then invest!

There are hundreds of solutions in the market, many of them have similar prices and similar modules.

So assume you have 3 proposals with same price and functionalities. They all have strong references and shiny brands. How are you to catch the difference? As I said it lies in the details. So as a prospective customer, you must go deeper into details. A simple example would be : Exactly ask how they will provide a solution to your most complex processes. Ask for demo and workshops.

Here are some answers that you are likely to get when you ask the critical question:
  • They can say "It is an existing functionality and we only need to make some minor customization" You have to make sure that this is true and it is really minor. If I were you I would ask them to demonstrate the functionality and show me what changes they are planning to do on it. Confirm that you are talking about the same thing.
  • They can say "It is an existing functionality that is offered by our 3rd party partners" Ask if it is an embedded module or totally different solution that needs to be setup and managed seperately. Ask to see a demo as well. Confirm that it is included in the offer and you are talking about the same thing.
  • They can say "Functionality does not exist, we need to develop it" This is an honest answer but I would ask a few more questions like who will develop it? How well are the development skills? How long will it take? How do you know it will take that long without a workshop and without analyzing our needs?
It is not possible to discuss all the details, otherwise it would take too much time and resources and you would be giving out some critical business data.

Bad Analysis

Please do not forget the first paragraph, Whaley Corp case.

After the decision is made and the project is started, you will go through an assessment phase or in other words analysis phase. Never give up, always look for missing points, write them down and get it signed by the other party if they do not do it (normally they do). Confirm that you are talking about the same thing. After this phase is completed, you will be provided with a detailed project plan and a list of things to do. Carefully inspect and make necessary modifications.

Now you will say, we already did that, and still the project failed. Then the problem is with the ERP vendor, they were probably not honest with you and the sales was "faulty sales". There is not much to do in this case but to try to settle the problems with them or go for a lawsuit. Many people choose to settle the problem silently.

If I were you, and I was in charge of finding a solution :

I would choose a complete ERP package as the last resort. If I know that we have good people in our company who really know their job and have good skills, then I would go for an inhouse solution or outsourced custom development backed with some 3rd party packages like finance. There is no meaning in reinventing the wheel if it is a standart functionality. OK I admit that this is not something that every company can do, do it if you believe you have necessary development resources and skills. Even if you know you believe you have these resources and skills, take some advise from industry experts as well and evaluate your team. Because failure rates can also be high in this solution.

If I know that we need a know-how transfer in some of the critical departments, then I would go for the best vendor for each case. If it is logistics, I would select the best logistics software, If It is sales I would select the best sales software and the list can go on and on. Some vendors can provide multiple modules, like logistics and manufacturing together. Even if it sounds like you have too many vendors and disconnected systems, todays technologies are well enough capabable of integrating and syncing all with each other. Of course, you have to be carefull when selecting them. This will require good planning and good project management skills since you may have concurrent projects if you have not chosen to do it step by step. You may also need good development skills to perform the integration. There are also very good systems integrators who offer multiple different solutions for your specific business needs. Do not hesitate to contact them as well.

If selecting one of the above methods seems impossible or if it is too risky in your case, then I would go for ERP and take some other risks like late delivery and exceeded budget. But If you are careful and have good people with necessary skills, then there is no reason for failure.