If you read more than one study about the reasons for ERP failure, you will know that the #1 reason ERP systems fail is lack of management support for the ERP project. That’s the reason, but it’s not the root cause. The root cause started earlier, even before the first product was identified, the first demo done, and the first proposal requested.
ERP Failure Starts…with budget setting
ERP failure starts in the very beginning of the project. It starts with budget setting. This also applies (perhaps even more) to those companies that “don’t have a budget.” Or those where the budget is, “we’ll spend as much as we have to.”
Humor me while I develop an example. Suppose that your company is about to hire a President. In your company, this position has broad responsibility. The President is responsible for financial management, overseeing purchasing, keeping track of inventory, providing basic data on the sales force, and a list of other duties. You’re setting the salary for the person who will control and manage most of the key items in your business.
After a brief meeting, the CEO says the following, “I think if we look carefully enough, we can find an excellent candidate that will work for $25,000 per year.”
Doomed before the search starts
To put it mildly, this company’s search is doomed before it starts. Every candidate will have less than the required skills. Many good candidates won’t even apply for the position. In the end, either the salary will go up, or a less-than-desirable candidate will be selected.
Of course, you might find a retired business person who just wanted to get back in the game. But are you willing to bet your business on that?
Almost enough is worst of all
Few companies would make this error. After all, my example is so extreme it’s silly… But I’ve seen a lot of companies set a salary at $75,000 when the market required a salary of $100,000. It’s this “almost enough” salary that attracts some talented employees, just not the full slate of skills and experience the company is going to need.
Effect on management…
I mentioned that lack of management support is the #1 reason for Failure. How does that fit?
Every time I see a budget or salary that’s too low, management has set it to be comfortable. If it works out…great! If it doesn’t…well, we can recover without too much trouble.
Management doesn’t have serious skin (money) in the game from the beginning. Play the dirge; it’s going to be ugly!
Where does ERP software come in…
The same thing happens in ERP. Too low a budget restricts both the choices and management’s commitment to the project. My budget formula is just a way to get in the ballpark. The rest of the project will make it clear what the real investment should be…
…next time, how to get started.