An enterprise resources planning (ERP) system can improve business productivity and efficiency by automating processes and providing a centralised source of data for all teams at your company. But an ERP implementation can be complex and sometimes challenging, largely because it affects people and business processes across the entire organisation.
Here, we’ll outline some of the top ERP implementation challenges and discuss ways to avoid or overcome them.
What Is ERP?
An ERP system is a suite of software that supports many business functions, from accounting to human resources to sales and marketing to engineering. It provides a central database for the entire organisation, connecting multiple groups with a single source of information that everyone can access. Along with improved productivity and process efficiency, key benefits include real-time information that allows teams to make better decisions, faster.
What Is an ERP Implementation?
An ERP implementation is a multi-phase project that includes redesigning businesses processes to take advantage of the new system’s capabilities, configuring the software, migrating the organisation’s data and training users. The process typically takes a few months and can take up to a year at large organisations. It’s usually managed by a project team that includes stakeholders from all functional groups in the company.
Why Is an ERP Implementation a Challenging Task?
An ERP implementation can be complex since it affects business processes across the entire organisation. And to realise the benefits of the new system, people often have to change the way they work—often replacing longstanding manual processes with more efficient, automated processes.
One of the biggest ERP implementation challenges is getting users and functional groups to change their ways in order to work with the new solution. Driving this change requires strong project management and backing from senior leadership. To develop the new system, the organisation needs a committed project team that represents all users of the ERP platform. This ensures the software will support the needs and business processes of all departments across the company.
7 Key ERP Implementation Challenges
An ERP implementation involves people as well as technology. Accordingly, it may face people-related challenges, such as resistance to change, as well as technical obstacles. Common ERP implementation challenges include:
- Project management. ERP implementations entail multiple phases: discovery and planning, design, development, data migration, testing, deployment, support and post-launch updates. Each phase brings critical tasks, and all elements need to stay on track, which requires meticulous project management. Additionally, successful ERP implementations require participation from all the groups that will be involved in developing and using the system. That can be incredibly challenging, because each department is juggling its ERP project responsibilities with multiple other priorities.
- Strong project and people management, which includes setting realistic expectations, time frames and milestones, along with timely two-way communication, is critical to success. As with change management, backing from executives and other top leaders is essential to conquering this challenge, as well.
- Project planning: Organisations often underestimate the time and budget necessary for a successful implementation.One of the most common causes of budget overruns is scope creep—when a business adds capabilities or features to the system that weren’t part of the original plan—and another is underestimating staffing needs, according to Statista.
- Developing a clear and realistic plan from the start can help to avoid those issues. A realistic project plan that acknowledges possible speed bumps and minor cost overruns and addresses them in advance will simplify that decision-making process and keep the project on track.
- Data integration: One of the key advantages of ERP is that it provides a single, accurate source of data for the whole organisation. A key step in ERP implementation is data migration, which typically involves moving data from multiple older systems into the ERP database. But first, you have to find all of your data. This may be much more challenging than you expect. The information may be spread far and wide across the organisation, buried in accounting systems, department-specific applications, spreadsheets and perhaps on paper.
- Well-planned data migration can help to keep the entire ERP implementation project on time and on budget. It’s also an opportunity to winnow out obsolete and redundant data lurking in the organisation’s older systems. In contrast, underprioritising data migration can cause issues such as inaccurate or duplicate data and challenges to your go-live date.
- Data quality: Once the organisation has located all data sources, it can start thinking about migrating it to the ERP system. But that may involve a serious data hygiene exercise. Because multiple departments interact with the same customers, products and orders, organisations often have duplicate versions of the same information in their systems. The information may be stored in different formats; there may be inconsistencies, like in addresses or name spellings; some information may be inaccurate; and it may include obsolete information such as customers or suppliers that have since gone out of business.
- Ensuring data quality can become a sizable project on its own, involving validating the data, cleaning out duplicates and adding missing values before migrating data to the ERP system. The new data should also be thoroughly tested before going live with the ERP system. Make sure your team understands the importance of cleaning up data, and assign clear responsibilities in doing so. For example, the accounting team will handle all financial data and the customer service group will clean up customer data.
- Change management. An ERP implementation involves more than just switching to a new software system. It typically means overhauling business processes to take advantage of the efficiency and productivity improvements possible with the new solution. This requires a shift in mindset and a change in everyday work processes for many employees, which presents typical change management challenges.
- Resistance to change can be a formidable roadblock; getting buy-in from leadership and stakeholders across departments very early in the implementation process is crucial to a successful implementation. Communicate the features and advantages of the new ERP to all stakeholders throughout the implementation process, especially end users on the front lines. And make sure all users receive comprehensive training and support to help smooth their paths to adoption of the system.
- Cost overruns: ERP projects are infamous for sailing past budgets after the implementation kicks off. Many organisations underestimate the amount of work required to move to a new business system, and that results in spending more money than expected.These cost overruns often show up in a few different areas.
- When internal resources run low, businesses frequently use a software vendor’s services team or third-party consultants more than planned. This is especially true if the solution requires significant customisation to meet your company’s needs. Experienced ERP consultants, whether provided by the vendor or part of a third-party consultancy, usually run about $150-175 per hour, plus travel expenses. Another budget breaker is data migration, which can represent as much as 10-15% of the total project cost, according to ERP Focus. Training costs are one other expense to consider—ERP vendors often offer free basic training to customers, but you may need to pay for additional training hours or classes during or after the implementation.
- To avoid blowing up the budget, companies should consider these and other overlooked expenses, and budget more than they think for them. Coming in under budget is always preferable to the alternative.
- Continuous improvement: An ERP implementation is not a one-off effort that ends when the new system goes live. The solution must continue to evolve to support new business demands and technology. The project team needs to continue to manage the project after deployment, fixing issues and supporting new requirements as they come up.
- Once implemented, business often use ERP systems for more than a decade, so it’s imperative to perform a periodic review to assess whether the system is still meeting the organisation’s needs. Older on-premises systems can be harder to upgrade than leading cloud-based systems, which automatically make new features and innovations available to users. An outdated ERP system can begin to hinder the business, so it’s worth periodically assessing whether it’s better to stay with the current system or begin the extensive project of finding a replacement.