Marketing education blog

Designing and implementing an enterprise resource planning (ERP) system is a costly undertaking that can take months or even years to complete. And according to a report by Panorama Consulting Solutions, one in five such projects fails. Today we will look at six of the most high-profile ERP integration failures to understand what went wrong in each case and how the unfortunate outcome could have been avoided. In order to avoid this, I advise you to contact custom ERP application development.

How company executives assess the results of ERP-systems implementation (according to Panorama Consulting Solutions)

1. Woolworths and the loss of corporate memory

Anatomy of failure. In 2016, Woolworths, Australia's largest supermarket chain, reported record losses caused by its transition to a new ERP system. The chain giant lost about 2 billion Australian dollars due to what experts called "loss of corporate memory.

Woolworths lost 2 billion Australian dollars due to lack of the right people in the ERP project team

The anatomy of the Woolworths debacle is this:

1. The company changed its data collection procedures for weekly profit and loss reports for each store.
2. The day-to-day business procedures that allowed this data to be collected were not properly documented. This was the responsibility of senior employees who left the company because the transition to the new ERP system took too long (6 years).
3. Once the system was up and running, the new employees couldn't get the reporting process up and running because they didn't know how to collect data for it. And that process practically stopped for 18 months.

Tip. In the case of Woolworths, the main mistake in deploying the new ERP system was that the company failed to retain experienced employees who knew exactly how everything worked. Surely they were consulted and even asked for recommendations, but that was not enough. For the successful implementation of the project it is necessary to maximize the involvement of knowledgeable people.

And such specialists have to be sure of their future. So, in the Woolworths example, people decided to quit because they were not sure if they would have a job in a year or if they would be needed in principle after the ERP implementation. Imagine yourself in their shoes: you create a system that will do your job - automatically, faster and more accurately. What is your main task? Get a new job, and fast!

2. Washington Community Colleges and the Clutter of Business Processes

Anatomy of failure. In 2012, the Washington State Board of Community and Technical Colleges hired Ciber to implement PeopleSoft ERP at 34 community colleges. The project was allocated $100 million (which was collected from students in a 2% tax) and was scheduled to be fully implemented by 2015.

But by 2015, only a test run of the system at three colleges (Tacoma, Spokane, and Spokane Falls) was possible, and it was a complete failure. In addition to the standard problems with bugs and glitches, it turned out that the business processes at the educational institutions were not standardized. Because of this, the cost of the project rose to $115 million, and it was delayed until 2020. And the story would have ended there, if not for the bankruptcy of Ciber.

Washington state agreed to pay $2.6 million to settle dispute with problem ERP installer

The bankrupt's assets were bought out by Michigan-based HTC, which terminated its contract with the school system and sued it for $13 million in 2017, claiming the failed implementation was due to "internal dysfunction" on the part of the colleges.

Tip. From this example, there are three recommendations for companies that are implementing ERP systems in their business:

1. Before you start development, make sure that your business processes are standardized, that is, the same for all departments, divisions, and branches. If this is not the case, first solve this problem and only then start ERP development, because automation cannot make order out of chaos.
2. Panorama Consulting research shows that 75% of ERP implementations take longer than expected. This is something to keep in mind when developing a technical plan for implementing ERP into your business.
3. When choosing a technical partner, check not only their cases and the competence of their team, but also their financial situation.

3. Target and junk data

Anatomy of failure. Between 2013 and 2015, Target opened 130 stores in Canada, and to effectively manage its business in that region, the company decided to implement a new ERP system. The project was given two years to implement, but at the end of the term it was never fully implemented, Target left Canada, and CBC News dubbed the undertaking "the greatest failure."

Because of inaccurate data, Target closed 133 stores in Canada, lost $2 billion and laid off 17,000 workers

And it really is a gigantic failure, costing Target $2 billion. And all because the U.S. retailer neglected the "red flags" indicating a problem with data from suppliers. A check showed that only 30% of that data was correct (no errors in product names, dates, shipment sizes, invoices, etc.).

Before the new ERP system was introduced, problems related to inaccurate data were solved on the spot or simply ignored. For example, back in 2012, Target had serious problems with trucking:

• the containers were not fully filled or the goods did not fit in them;
• The list of items sent did not match the list of orders;
• The shipment did not arrive at the right address or was severely delayed;
• And much more.

The company was constantly experiencing serious problems with logistics, against which the management decided to start an aggressive expansion of the Canadian market and at the same time to integrate a new ERP system. This is truly the "greatest failure" in management decision-making.

Tip. Target's experience tells us that before you launch an ERP development and implementation project, you need to address your business's old problems. And this is especially important if they relate to ERP-related processes.

To avoid going the way of Target, before you start development, think about such questions:

1. Do you have problems with logistics (delivery of goods)?
2. How often do you spot-check reports and important data?
3. How accurate is the data you use when planning business processes and making decisions?

4. PG&E and "nobody's" personal customer data

Anatomy of a Failure. In 2016, Chris Vickery, a risk analyst at UpGuard (an Australian cybersecurity startup), discovered an open database for Pacific Gas & Electric Corp's (PG&E) ERP system online that contained information on 47,000 computers, servers, virtual machines, and other company devices. This was a major scandal because, according to U.S. Department of Homeland Security rules, electric utilities are part of the country's "critical infrastructure."

PG&E failed to prevent data leaks, posing a threat to U.S. security

After the leak was discovered, PG&E first tried to shift the blame to the vendors, then said it was "fake" data generated to test the ERP, but eventually admitted to the authenticity of the information. According to the investigation, the database went online during the deployment of the asset management system: "An outside vendor was provided with company operational data to populate the 'demonstration' database and test its operation in real production practices."

It is unclear how the "demonstration" database got online. Chris Vickery thinks that PG&E failed to protect the system during deployment or was negligent in granting access rights to the information, which hackers or curious individuals took advantage of.

Tip. The story of the PG&E database leak teaches us to be responsible about production data. It's a valuable resource that needs to be protected as responsibly as possible, even if you're handing it over to partners or service providers. In PG&E's case, the best solution would have been to use "fake" data (as they claimed), since passing it on to third parties poses no threat to you and your customers.

5. Nike and the catastrophic prediction error

Anatomy of a failure. In February 2000, Nike's stock collapsed by 20%, and the firm itself lost 100 million in lost profits due to an error in the ERP platform forecasting system developed by i2 Technologies. Nike paid $400 million for this software.

Market reaction to Nike's statement about problems with ERP

When Nike discovered the problem, they first claimed that the supply chain management system developed by i2 Technologies led to excess inventory and order delays, which in turn led to lower profits (as we see from past examples, partner blame is common in ERP implementation failures). The allegation led to a drop in Nike and i2 Technologies stock prices.

The company-developer analyzed the software, found no errors, and sued Nike. It later turned out that Nike's management had not been sufficiently trained in how to use the system, which created an incorrect forecast at the factory order level. Then, according to Roland Wolfram, Nike's vice president of global operations and technology (2004), this "ripple" of inaccuracy spread to the supply chain and caused a larger "wave" of inaccuracies.

Tip. There are two things to take away from the Nike experience:

1. The first is to be responsible for training the personnel who will use the system, regardless of their level of importance to the company. In Nike, the error was at a fairly low level in the hierarchical management structure of the company, but it was able to cause hundreds of millions of dollars worth of damage (direct losses + stock collapse + reputational losses).
2. The second is not to accuse a technical partner of failure without tangible evidence. Otherwise, you may receive in return multimillion lawsuits for ruining someone else's reputation. The important point in the history of Nike is that the company acknowledged the error, found the problem and eliminated it. And at the same time it did not give up the i2 Technologies software.

6. HP and the "perfect storm" of problems

Anatomy of failure. When HP America decided to migrate to a new ERP system in 2004, its management knew all about the process - project head Christina Hanger had five such iterations under her belt. HP prepared a contingency plan and was prepared for a decrease in system performance and sales. However, this did not help them - the company lost $400 million due to an unfortunate set of circumstances.

HP knew all about ERP implementation and was prepared for force majeure, but did not count on a "perfect storm" of problems

HP's internal investigation identified the following problems with the failed ERP integration:

1. Data integration. During the transition to the new ERP, it turned out that the system had insufficient flexibility in setting up orders, so that orders whose parameters were beyond its capabilities stopped working.
2. Communication. Communication between departments was too slow, important messages were lost, and there was no clear algorithm for working in an emergency situation.
3. Forecasting. The transition to the new ERP was planned for the period of falling demand predicted by marketers, but the actual demand turned out to be 35% higher than planned.
4. Testing. The system was tested for standard orders, but it was not properly tested for individual orders.
5. Support/Training. The project team and support team received training two weeks before launching the system. When it came to practice, it turned out to be enough time for people to get confused and forget the training.

All this led to a loss of $160 million: $40 million in unfulfilled orders and $120 million in lost profits. While the cost of the project to develop and integrate the ERP-system was $30 million.

Tip. HP could have avoided most of the problems by trying the new system on a small scale and only then migrating all services and departments to it.

Checklist for developing ERP systems: 10 key tips

1. Make sure that the ERP system development project involves people who know your company's specifics and business processes perfectly.
2. Make sure that your business processes are sufficiently standardized.
3. Make sure that the technical partner will not go bankrupt during the development.
4. Take care of the security of sensitive data.
5. Train your staff well before launching the system.
6. When implementing a new ERP, start small.
7. Check the completeness and accuracy of the data used.
8. Develop a contingency plan for emergencies.
9. Be prepared for the ERP implementation to drag on.
10. If you do have serious problems, don't rush to blame the technical partner; the problem may be on your side.