Why do ERP implementations fail?

ERP systems are some of the most crucial tools for businesses aiming to streamline operations and enhance efficiency. In fact, ERP solutions account for around 16.8% of global software spending, totaling approximately $171.7 billion out of an impressive $1.02 trillion in 2023.

These systems promise significant benefits, yet many organizations experience challenges during implementation. Understanding the common reasons behind ERP failures can help you avoid pitfalls and ensure a smoother transition.

Failure rates of ERP implementations

According to research, only 23% of all ERP implementations are considered successful. This staggering statistic highlights the uphill battle many organizations face when integrating these systems into their operations. Furthermore, a shocking 74% of companies report having experienced at least one failed ERP project.

As if that's not enough, 67% of ERP projects experience schedule overruns, while 52% of companies believe their ERP project did not meet their business objectives. If these stats are anything to go by, the failure rate is quite high, and there's an urgent need for organizations to understand why. So, let's get into it!

Why are ERP systems so difficult to implement?

Implementing an ERP system is not merely a technical task; it involves a holistic transformation of business processes and culture. The complexity arises from the following 4 factors:

Integration challenges:

Integrating various business functions, such as finance, HR, and supply chain, into a single system requires meticulous planning and execution.

Each department has different workflows, making it difficult to align them within the new ERP system. Any misstep in integration can disrupt operations, which is why it's essential to ensure all processes work cohesively right from the start.

Data migration issues:

According to industry reports, around 49% of organizations struggle with data migration. Legacy systems often store data in outdated or incompatible formats, and over time, data may have become duplicated, inconsistent, or incomplete.

Migrating this data without proper cleansing can lead to inaccuracies in the new system, which can directly affect business operations.

Additionally, understanding which data should be archived, transformed, or eliminated is critical. Without a robust data migration strategy, organizations risk losing valuable information or introducing errors into their ERP, which could affect decision-making processes.

Resource constraints:

Organizations often underestimate the resources—both human and financial—needed for successful implementation.

Many organizations underestimate the resources needed to manage the project from start to finish. For instance, implementation requires skilled personnel, such as IT specialists, ERP consultants, project managers, and business analysts, to ensure that the system meets the organization's specific needs.

Financial constraints can also slow down the process, as costs frequently go beyond the initial budget due to unforeseen issues or extended project timelines.

Allocating sufficient resources upfront and ensuring continuous investment throughout the project is crucial for success. Without proper resource planning, companies may find themselves stretched thin, causing delays or implementation failures.

User adoption resistance:

About 56% of organizations encounter resistance from within during ERP implementation.

Fear of change or concerns over the complexity of the new system often contribute to reluctance. Without proper training and communication, employees may resist the transition, which can lead to low adoption rates and reduced productivity.

Successful user adoption requires not only comprehensive training programs but also clear communication about the benefits of the new system to help ease fears and build enthusiasm for the change.

12 Common causes of ERP implementation failure

There are a number of reason why ERP implementation fails, mainly due to poor planning, lack of executive support, and inadequate user training. Common causes include unclear requirements, underestimating data migration complexity, and failure to manage change.

Let's take a deeper look at the 12 common caused of ERP implementation failure. 

1. Lack of clear objectives and goals

One of the primary reasons for ERP implementation failures is the absence of clearly defined objectives.

When you decide to start using an ERP system, you may have a broad vision of your goals in mind. These may include automating certain manual processes, ensuring timely deliveries, better project management, etc. However, being vague about your needs and requirements can hurt your ERP implementation.

Have a clear objective about what you want the ERP platform to do and specific KPIs you expect it to achieve. Engage stakeholders from various departments to gather input on what they hope to achieve with the new system. ERP implementations are complex and time-consuming, and keeping clear objectives, timelines, and key milestones in mind is essential.

2. Inadequate resources and finances

Implementing an ERP system is expensive, often requiring more resources than initially anticipated. Many organizations fail to account for hidden costs associated with testing, training, ongoing maintenance, and potential customizations needed for niche functionalities.

According to research, 63% of companies have witnessed an increase in IT expenses due to failed ERP projects. To mitigate this risk, allocate a realistic budget that includes a contingency fund—ideally around 25%—to cover unexpected costs that may arise during the implementation process.

3. Conflict among stakeholders

Many ERP implementations fail because business leaders and managers disagree over certain aspects of the ERP implementation project. All relevant stakeholders must commit to agreeing, sort disagreements, and allow each other leeway to reallocate resources when circumstances change.

We have noticed that key decision-makers often disagree with each other during ERP implementations due to differing opinions and a lack of technical understanding.

When implementing an ERP system, establish a governance structure that includes representatives from all relevant departments. Hold regular meetings to facilitate open communication and ensure everyone's concerns are addressed promptly.

4. Inadequate change management

A significant portion of ERP implementation failures occurs when employees are not adequately prepared for using the new system or when there is resistance to change within the organization.

It is vital to appoint a dedicated change management team responsible for communicating the benefits of the new system and addressing employee concerns. This team should also provide training sessions tailored to different user groups within the organization.

5. Choosing an unsuitable vendor and an unfitting ERP model

Not all ERP vendors are created equal; some specialize in specific industries or business sizes while others may lack essential features or customer support capabilities. Selecting a vendor that does not align with your organization's needs can lead to significant setbacks during implementation.

You must conduct thorough vendor evaluations before making a decision. Assess each vendor's reputation, industry expertise, and customer references beyond basic testimonials.

6. Unrealistic expectations from an ERP

Misalignment between expectations and reality often leads organizations to perceive their implementations as failures even when they meet specific goals. Many businesses mistakenly believe that an ERP system will resolve all their operational issues overnight without recognizing its limitations. It's essential for organizations to have realistic expectations about what an ERP can achieve.

7. Poor data hygiene

Poor data hygiene can lead to errors during migration and ongoing operational challenges post-implementation. You need to cleanse your existing data before moving it into a new system; otherwise, you risk carrying over inaccuracies that could compromise decision-making processes.

Invest time in data cleansing to ensure only accurate information populates your new ERP system from day one. It'll reduce errors and enhance overall performance.

8. Inadequate testing before the actual ERP rollout

Testing is a crucial component of any successful ERP implementation. Yet many organizations rush through this phase or skip it entirely due to time constraints or budget limitations. Inadequate testing can result in undetected issues that surface after going live, which, most often than not, lead to costly fixes down the line.

Prioritize comprehensive testing before launching your new system by simulating real-world scenarios within a controlled environment. This practice allows teams to identify potential problems early on before full deployment.

9. Improper or lack of staff training

Training is one aspect that organizations frequently underestimate during their ERP implementation journey. If employees do not receive adequate training on how to use the new system effectively, they may struggle with its functionalities. This could lead them back to legacy methods out of frustration.

Go for comprehensive training programs tailored specifically for different user roles within your organization. It'll help ensure smooth adoption across all levels—from executives down through operational staff.

10. Perceiving the project solely as an IT initiative

Many organizations mistakenly view their ERP implementation solely as an IT project rather than recognizing its broader implications for business transformation across departments like finance or supply chain management.

This narrow focus can lead teams down paths where critical input from other stakeholders gets overlooked. Most of the time, this results in misalignment between what IT delivers versus what end-users need most effectively from their systems' functionality.

To combat this issue effectively, engage multiple departments early on throughout every phase, from discovery through design.

11. Project implementation is rushed

Rushing your ERP implementation can lead to disastrous outcomes. When you set tight deadlines, critical steps like planning, testing, and training often get overlooked.

If you skip thorough testing, you risk encountering integration issues or functional gaps that can disrupt operations after launch. Moreover, the urgency to meet deadlines may alienate stakeholders and result in insufficient resource allocation.

12. Failure to evaluate the current system

Before implementing an ERP system, assessing your current processes is essential. Without this evaluation, there could be a mismatch between the new system's capabilities and your organization's actual needs. Many organizations struggle with user dissatisfaction and costly adjustments because they fail to analyze their existing workflows. A thorough evaluation will help you identify inefficiencies and inform your ERP selection process.

How to avoid ERP implementation failures

To mitigate these ERP implementation failures, organizations should focus on 5 key areas:

• Discovery: Begin with a thorough assessment of current processes and systems. You'll identify specific needs and gaps and ensure the ERP solution you choose aligns with your organizational goals.
• Design: Customize the ERP system to fit your organization's requirements. Collaborate with end-users to ensure the system addresses real-world challenges and minimizes resistance to change.
• Migration: Cleanse existing data to eliminate inaccuracies and ensure compatibility with the new system.
• Training: Effective training equips employees with the skills needed to utilize the new system confidently.
• Go-Live: Carefully plan the go-live phase to allow for adequate testing and adjustments. A phased rollout can help manage risks and ensure a smoother transition.

Final thoughts: Ensuring a successful ERP rollout

Successfully rolling out an ERP system is more than just a technical upgrade; it's a transformative journey for your organization. Start by understanding that every organization is unique. Tailor your ERP strategy to fit your specific needs and processes.

Engage stakeholders from various departments early in the process to ensure that their insights and requirements are incorporated. Beyond that, take the time to evaluate your options thoroughly. Consider factors such as functionality, scalability, and vendor support. If you're looking to replace your ERP system, ensure the new system aligns with your long-term business goals to avoid repeating past mistakes.

How to choose the right ERP implementation partner?

Selecting the right ERP implementation partner is crucial for success. Look for vendors who understand your industry and demonstrate a commitment to supporting you throughout the process. They should offer expertise in both technology and change management.

At Priority Software, we specialize in providing cloud-based ERP solutions tailored to your business needs. Our platform offers modular functionality, rapid implementation, and AI-driven insights to enhance productivity and streamline operations.If you're ready to transform your business with an effective ERP solution, see how Priority Software can help.