The list of ERP software system train wrecks is legendary – and growing. Hardly a month passes without news appearing of another lawsuit being filed against a vendor or integrator by a customer who claims they wasted tens of millions of dollars – sometimes hundreds of millions – only to discover than an upgrade or a new system went off the rails.
We’ve written about many of these failures, most recently on problems faced by the state of Maryland, Revlon, and National Grid. And ERP consultant Eric Kimberling created a list of his Top 10 Worst ERP Failures of All Time.
The specifics of each failure differ. Yet as attorneys who’ve spent our careers negotiating and drafting ERP contracts, and litigating disputes when a project goes sideways, we’ve seen a number of issues that each failure has in common. Here is our list of the six most frequent reasons why an ERP project is likely to come undone.
1 – The customer didn’t start its selection process with a consultant. A technology-agnostic authority with deep ERP experience in a range of industries will help a company with everything from framing the RFP to assessing proposals and then riding herd on the vendor and integrator as the project is being implemented. A good consultant will know when suppliers are blowing smoke to upsell their services and when they’re drawing attention to a legitimate problem.
2 – The customer accepts at face value what vendors and integrators tell them. This is related to No. 1. The sales teams sent out by vendors such as SAP, Oracle and Microsoft, as well as from integrators such as Accenture, have only one job: get you to sign the order. They will say what they believe you want to hear. “We have deep experience in the widget business,” even if they’ve never stepped foot in a widget plant. Customers unfamiliar with these tactics who proceed without a consultant at their side can easily fall prey. In the same vein, the product demo shown to potential customers often doesn’t work the way the actual version being sold functions in a real-time situation.
3 – Top management didn’t “own” the project. Many times, top executives assume that because they have an integrator they don’t need to spend time managing the project. What they overlook is that an ERP software system touches nearly every aspect of the business from the supply chain and production to distribution, invoicing, accounting and even payroll. Yet despite its far-reaching impact and enormous amount of company money and people’s time that are required to make it operational and useful, we’ve seen companies hand off responsibility for the integration to either their IT department or a third party integrator with little or no active oversight from the top. No other aspect of a business is dealt with this way and ERP must receive the same attention that is given to cash flow and head counts.
4 – ERP is viewed as a “tech” project. An ERP software system is a technology tool that provides a business management solution. When the person in the corner office thinks of ERP only as a tech project, it can get relegated to the same category as an upgrade to Windows or iOS. Sign the contract and let the folks over in IT worry about the implementation and any problems that might arise. Unfortunately, many integrators are guilty of trying to let the CEO, COO and CFO think in these terms because it reduces the chance of being asked tough questions when there are problems.
5 – Template contracts are signed without negotiating. When a company tells a vendor and integrator “we’ll do it!” the contracts that get slid across the desk are one-sided in favor of the seller. To the extent possible, a customer’s contracts should:
- Include all of the sales material presented and the proposal that was accepted.
- Be as specific and detailed as possible.
- Define the exact responsibilities of the customer, the vendor and the integrator.
- Detail how changes will be made during integration and who is authorized to approve any changes.
- Include a list of the subcontractors to be used by the vendor or integrator, their role in the project and their experience on similar ERP software systems in a similar industry.
- Specify the warranty limits and include language detailing what remedies will be available in the event of a project meltdown.
6 – Management sees the vendor and integrator as their partner. Too often, the reality is just the opposite. The large vendors and integrators are skilled at lulling the customer into a false feeling of “we’re in this together.” While sometimes this is true, in a growing number of instances the sellers are only selling – and upselling – their services and view the customer as their adversary to be “handled.” This can result in a company agreeing to pay now for licenses it won’t need for years in the future, if ever. A partner would not do this.
Vendors and integrators may not be angels when it comes to their dealing with a customer, however, frequently, management must shoulder part of the blame when an ERP implementation fails. As ERP attorneys who have litigated many ERP disasters, we often find that if the C-suite had been doing its job the problem may not have escalated in the first place.
If you are a general counsel or other senior executive at a company or public sector body considering an upgrade to your ERP software system, or thinking about installing one for the first time, we’d be happy to speak with you about how to do the project the right way. We’ll answer your questions and can refer you to several of the top consultants in the ERP space.