Companies often locate the causes of negative ROI once the damage has been done, racking up immense financial losses and additional costs to mitigate the errors. But did you know? 70% of digital transformation fails, not because of the software in question but the digital adoption of its users…
And it comes down to a simple assumption. Most companies associate new technology with 100% user adoption.
Enterprise resource planning failures negatively impact companies in a handful of ways, financially, internally, and publicly. So we decided to explore some of the most high-profile ERP failures in the last few decades, including what caused them and the financial impact, to help you prevent and avoid them in your industry.
The real cost of ERP implementation failure
ERP systems unlocks the potential of scaling startups and large-scale companies. But how? Most successful startups today run on a SaaS engine, either selling tech, developing tech, or using tech. Once a company surpasses a few hundred employees scattered across the globe, cracks, and inefficiencies begin to show, and agility can stagnate (siloed teams, data errors, quality, time management).
ERP solutions such as SAP, Oracle, Microsoft Dynamics, and Infor can transform these issues by consolidating and centralizing information, streamlining operations (automation), and connecting teams and departments across the globe. ERP software is often hailed as the brain or nervous system connecting all areas of a company. Yet… numerous ERP projects still succumb to failure because of errors that could have been avoided from the start.
Did you know? It can take years to recover from ERP implementation failure.
ERP implementation failure can cause catastrophic impacts that we’ll be discussing later, but also include:
- Time: Companies typically lose years identifying, mitigating, and resolving the causes of ERP failure. Mitigation involves a complete transformation of ERP implementation from change management, to training, to strategy, to ensure the same mistakes never happen again.
- Financial losses: ERP financial losses can take many forms depending on the business, including losses in sales, loss of clients, loss of shareholders, loss of stock price, supply chain disruption, lawsuits, and loss of competitive position in the market, to name a few. Financial losses include mitigation costs, but also operational expenses needed to bring the company back on track.
- Mitigation costs: Like most problems, the solution isn’t free. Mitigation costs include consulting, training, testing, software replacement, legal fees, and even publicity damage control. And all these, alongside additional operating expenses to resume normal levels of business productivity.
- Employee dissatisfaction: ERP implementation failure doesn’t only affect the bottom line but also employee satisfaction. In most cases, digital transformation failure is synonymous with low software adoption, increasing digital frustration, employee resistance, and a negative user experience within the workplace.
- Customer dissatisfaction: Not least in the hierarchy is a negative customer experience. Thanks to disruptions in products and services and even negative publicity, ERP implementation failure can be the cause of customer distrust or worse…customer attrition.
Now let’s dive into some real, high-profile use cases that you should avoid.
3 high profile ERP implementation failures you can avoid
1. Nike ERP implementation failure took 7 years to mitigate
Since 2022, Nike has claimed the title for world’s largest and most valuable apparel brand. But its journey to the top wasn’t built on success alone. In 2000, Nike executed plans to scale the company, increase its market share, improve sales, and create a stronger barrier to entry for its competitors. Nike spent $400 million on ERP digital transformation to replace an outdated system and improve the supply chain.
Why did it fail?
Unfortunately, a rushed implementation project led to the improper handling of software and the ERP, resulting in immense and immediate losses. As the company became increasingly global, its supply chain became more fragmented. Nike deployed i2 Technology (supply-chain management software) alongside its existing legacy ERP system instead of implementing it with the new SAP ERP. Maintaining and integrating the 2 solutions meant users worked with different rules and data formats, requiring complex customization that soon led to its demise.
What was the impact?
The company experienced an initial loss of $100 million, followed by a fall in stock price of 20%, and class action lawsuits from unfulfilled orders. To mitigate the errors and bring the project back on track, it took Nike a further 7 years and an additional $500 million into the project.
Nike went on to implement the SAP ERP in 2004.
2. Lidl ERP implementation neglected change management
German supermarket chain Lidl replaced its in-house legacy ERP system with a $580 million project to implement SAP HANA. Lidl wanted to transform its inventory management system and aid its growth in the market by centralizing information and maintenance. The company ran project eLWIS (electronic Lidl merchandise management information system) for 7 years before bringing it to a halt.
Why did it fail?
It’s reported that Lidl had developed over 90 different in-house solutions that it tried replacing with one standardized solution. The SAP system also based its inventory on retail prices, while Lidl’s was based on purchase prices. Rather than adapt the company to the new ERP, Lidl attempted to adapt the software to the organization. These complex customizations along with a complete lack of organizational change management, ineffective and inefficient implementation, brought the project to its knees.
What was the impact?
Lidl lost 7 years of international development and analysis into the new ERP as well as $580 million invested into the project. It was a hard hit financially but also harmful to their reputation.
Lidl eventually reverted to its original in-house inventory management system.
3. Revlon ERP failure led to rare class action lawsuits by its own investors
Revlon’s ERP implementation project was inspired by its acquisition of Elizabeth Arden in 2016. Revlon rolled out SAP HANA to help streamline its operations by integrating planning, sourcing, manufacturing, and distribution to name a few.
Why did it fail?
However, Revlon was left unable to file its annual financial report because of numerous issues with the implementation. The company was unable to manufacture the correct quantities of goods and even fulfill their orders.
What was the impact?
Poor planning led to a project deployment that failed instantly. Revlon met with a domino of problems, including delayed financial reporting and a 6.9% fall in stock price within 24 hours of the news. Revlon was unable to fulfill orders due to the inability to record and account for an inventory in the ERP, which then led to lawsuits from its investors. The company was not able to fulfill product shipments of approximately $64 million and spent an additional $53.6 million mitigating the fall in customer service levels.
Revlon was unable to recover lost sales and experienced disrupted customer service levels. It’s also reported that their management team was left distracted by the ERP failure.
10 steps to avoid ERP implementation failure
How could Nike, Lidl, Revlon, and any other scaling startup or company avoid ERP and software failure? Any company going through digital transformation can take preemptive steps to avoid failure and reduce risks.
- Start by choosing the right software for your business.
- Select the best fitting software integration and the right partners to aid implementation. It means selecting the best fit over the best-known software in the market to support your needs.
- Clarify the roles and responsibilities of each stakeholder, especially at the c-level and management level
- Plan the implementation project strategically: define scope, resources, budget, time, risk, and mitigation.
- Create clear and structured change management processes to educate stakeholders on the value of change, advocate the goals to be achieved, and outline potential project risks.
- Software training should be a consistent, accessible, and adaptable source of information to avoid risks and ensure the proper handling of tools.
- Practice risk management to improve the control over risks and threats for faster mitigation.
- Operational disruption is the biggest risk and cost for software implementation. When companies cut corners to save costs and underinvest in change management, training, or support, the price to mitigate errors is always far greater than the initial cost of preparing the project correctly.
- Roll out large-scale projects incrementally and step-by-step. It creates room to test the implementation strategy and identify risks and issues early on.
- Allocate time and resources for improvements and optimizations during implementation
🍋 Lemon Learning tip: your digital transformation project is only as successful as the change management and training you implement
With a digital adoption platform, scaling startups or scaled companies can implement structured onboarding, training, change management and support to maximize user adoption and the proper handling of your tools.
Want to know more? Get in touch! Or check out our case studies page.