Why Your Company Will Spend Millions on ERP That Won’t Work

If you happened to be trick-or-treating on Halloween way back in 1999, it’s likely your bag of treats came up short. Halloween 1999 still carries a bitter taste at Hershey — it had paid $112 million to install a complex combination of ERP systems and, as it happened, it failed to ship $100 million worth of Kisses, its iconic brand of chocolates, in time for Halloween that year. Before kids had sorted out their Halloween loot, Hershey’s profits declined 19 percent, its stock price plummeted by 35 percent, and the company lost more than $150 million in anticipated revenue.

How could Hershey, the largest chocolate manufacturer in North America, a brand with a venerable legacy, bungle up so grandly? Even then, all fingers pointed to its error-prone ERP implementation.

Boom to Bust    

On paper, Enter Resource Planning (ERP) is a booming business. A recent study concluded that the global ERP market would touch a staggering $41.69 Billion by 2020. The middle 90s heralded the golden age for ERP providers — it was a time when ERPs were being sold to companies — both medium and large — at astronomical rates. ERPs were designed to be a company’s central nervous system — they were meant to create synergy between marketing, sales, manufacturing, human resources etc and ensure that management could track, control and, to an extent, automate these processes. Perhaps it was just part of the great technological churn of the 90s, or perhaps it was the first time companies realized that automation could extend beyond manufacturing and operations — either way, ERPs were vigorously adopted, and they seem to have become indispensable since.   

But what’s often overlooked in this dreamy narrative are the astonishing tales of financial loss and mismanagement that have been blamed squarely on ERP failures. As in Hershey’s case, it’s not so much the failure of ERP in and of itself so much as its botched implementation. A 2015 study found that more than 50 percent of companies trying to implement ERPs got less than 50 percent of the benefits they hoped for—with over 20 percent of implementations being considered total failures. And that’s not to mention cost and time overruns, both of which are endemic and getting worse in 2016.

What does an ERP disaster look like?  

To understand exactly how bad it can get, here’s a quick look at some very recent ERP train wrecks:  

Avon, 2013 

Avon, the makeup giant, spent four years and $125 million trying to implement an ERP in a Canadian pilot project. Then it realized the software wasn’t making life any easier for its sales representatives — rather, sales reps found themselves doing a lot more work just to keep pace with the ERP. And their displeasure could not be taken lightly because Avon relies on its door-to-door sales representatives for the bulk of its sales and marketing. In no time, the sales reps rebelled and started leaving the company en masse. The ERP was meant to be rolled out across Avon’s markets around the world but, faced with the exodus of employees, Avon put a stop to its ERP rollout outside Canada. Later, Avon reported in an SEC filing that the implementation caused “significant business disruption in that market, and did not show a clear return on investment” before pulling the plug. 

Target, 2015

2015 was the year Target crashed out of Canada. Target, which was making an ambitious and big-ticket foray into Canadian retail, made an even more controversial exit. Target had planned to open 125 locations. There were, obviously, multiple factors behind the collapse but its ERP implementation was certainly a significant one. According to a report in Canadian Business, the company’s aggressive expansion into Canada meant its ERP system didn’t have time to be properly implemented, with up to 30 percent data inaccuracy found in a post-mortem. The result? Total, unmitigated apocalypse. Target today has zero stores in Canada—after the closure of 133 stores, a loss of billions of dollars, and 17,000 jobs.

Why One-Size-Fits-All ERP Solutions Are a Recipe For Disaster-7

 

Select Comfort, 2015 

Ever heard of the Sleep Number Bed? Its maker, Select Comfort, had about $1 billion in sales from around 475 U.S. stores. After going live with a “Big Bang” ERP implementation in October, 2015, sales fell by $83 million. Share prices followed, plunging 25 percent. In addition, the losses endured by the Minneapolis-based company forced it to cut 22 percent of its workforce. Needless to say, the company’s ERP implementation and its subsequent losses aren’t directly related but, then again, one did follow the other. “The transition from our 20-year-old legacy systems to a fully integrated ERP platform has been more challenging with far greater customer and financial impacts than we anticipated,” Shelly Ibach, Select Comfort’s CEO had said

Too Big To Fail, Too Complex To Work

We had mentioned earlier that the business of ERP was going to be worth $41.69 Billion by 2020 but here’s another startling, if contradictory, report — According to Gartner, nearly all cloud ERP projects will fail by 2018. The question, then, is why are companies so inextricably wedded to ERP providers despite the weight of evidence against implementing them. Like the proverbial “Too Big To Fail” financial institutions that were at the centre of the financial meltdown of 2008, ERP providers loom large across industries. The overwhelming reliance over ERP has made it a stagnant and monolithic industry that is ripe for disruption.