It is not wrong to say that ERP deployment is a revolution for enterprises. It helps businesses achieve a new level of management, as a foundation for sustainable development. However, a failed ERP project will be a costly mistake, which can make businesses waste hundreds of billions of dollars for many years.
Why did ERP projects fail?
Many independent analyses show the failure rate of ERP projects in the world at a high level. For example, the statistics posted on ERP Focus show that 60% of ERP projects fail, 80% of customers are not satisfied with their ERP system, 57% of ERP projects are behind expected date with 54% ERP systems exceed budget expectations… These assessments have really caused concern for most businesses planning to do ERP. However, is that why we are not doing ERP anymore? Challenges to successful implementation of ERP projects are always great, risks are always present. The question that business managers should ask is not “Do ERP work?” But “How will we do it? What options are needed?”
The success of a project is usually determined by three factors: quality, time, and budget. The goal of project management is to ensure timely and costly completion and waste within the approved budget and to the satisfaction of the parties. The satisfaction factor of the main parties is to ensure the quality and achievement of the specific objectives of the project. The quality of the project is understood to be true to the commitment. ERP projects have many levels of scale. Projects for large-scale enterprises with solutions with specific industry factors can be invested up to tens or hundreds of billions of dongs. But there are also projects for small and medium enterprises with ERP solutions suitable for SMB worth only a few billion. Project quality does not depend on value. The project for SMB despite fewer implementation resources can be judged to be of higher quality than projects of tens of billions VND because it follows the set commitments corresponding to the value of the project.
As mentioned above, ensuring all three factors: quality, time and budget is extremely difficult. In Vietnam, this challenge is generally higher than the world level because the level of exposure and understanding of Vietnamese enterprises’ ERP has not been equal to that of developed countries. The causes of the challenges of the project are many. In terms of governance, there are several outstanding reasons. The first is that the scope of the project is often unclear. Usually, the most unclear part is the scope of operations to be implemented because, on agreement on the contract, many business problems are still not fully understood. After surveying, analyzing the process of building a business process, these “marginal” issues arise. New business situations can still arise at the later stages of the project, when construction, deployment, even operation of the system has been carried out. These developments are the cause of most conflicts between parties, affecting progress and may even lead to uncontrollable situations.
The second is unclear responsibility between the parties. For contractors, responsibilities are associated with the scope of work to be performed. For customers, responsibilities also need to be clearly defined: from leadership in issuing policies, directing projects to professional staff participating in training, testing, receiving, using, and technical staff in management and operation. Clearly defined responsibilities not only reduce conflict but also raise the spirit of project ownership to each member of the two parties.
The third reason is not high compliance. Doing ERP is similar to building and using a complex machine. This apparatus needs coordination by many levels of users, from company leaders to professional staff, technology staff… So, unlike using simple software, using ERP needs to be compliant at a high level. During the implementation process, the project members need to fully participate in the course of building business process, training, testing… In the process of operation, users need to comply with the rules of use. Poor adherence causes a big obstacle to changing from the old way of working to the new way of working, on the new system.
The above causes lead to waste in project implementation. In particular, it is a waste of time because it is necessary to clarify the scope and responsibilities many times. The parties are always passive in agreeing to request. Project resources are wasted due to repeated work. In particular, the resources of leaders are wasted in meetings that do not solve the problem. When responsibilities are not clearly defined and managed, the project will waste time waiting for approval. This is called “waste of responsibility.” Not only does it make the entire project team with dozens of people and many other resources congested due to waiting, but it also wastes the opportunity as the ERP system is slow to operate. In fact, a project is “wasted inventory of responsibility”, should only be deployed in 6 months may be extended to several years, or bogged down and cannot be completed.
It is possible to summarize the status of most ERP projects in Vietnam with the following three characteristics: bogged down, passive and low efficiency. As analyzed above, most projects exceed the specified time. Even the actual time may exceed many times the plans. The project is behind schedule mainly due to being bogged down in clarifying the scope, changing requirements and solving problems. In deployment, both customers and partners are often completely passive about how to sell, contract structure and how to negotiate to solve the problem together. Its consequences are their cost far exceeding the original budget. Costs are often statistically available through accounting documents. However, waste is seldom fully recognized and is difficult to manage. Waste affects the effectiveness of the project not only for now but also for the long term.
An effective way for the successful deployment
Successful ERP projects must have at least 3 elements: appropriate solutions, suitable partners and appropriate customers. The appropriate solution is the solution that can solve the problem of management and has the architecture in accordance with the long-term development plan of the business. A suitable partner is a partner that helps customers to successfully deploy ERP based on their capabilities, experience, implementation methods, culture, and philosophy. Appropriate customers are businesses that have the right and adequate investment in resources such as people and finance for the project. In fact, in developed areas in the world, many ERP projects with leading solutions (such as SAP or Oracle) are implemented by the world’s Big 4 consulting firms but still unsuccessful. Part of the reason is on the client side; the other part is in the way the project is implemented.
Successful projects must result from the leader. Therefore, project leaders need to be upgraded to express their role: “Project leadership as well as company leadership”. Thus, according to the 7P methodology, project leaders must establish and manage fully in their projects the elements: Philosophy, People, Process, Product, Place, Price, and Promotion. In it, Philosophy, People, and Process play a core role for success.
The way to implement the ERP project still needs to inherit the standard implementation methodologies of firms such as ASAP (SAP), OUM (Oracle’s), etc. because it is drawn from the reality of dozens of years of ERP development in the world, along with optimized forms and processes. Leadership spirit should be transmitted into each project process, to each group, each team according to their responsibilities. Therefore, they will create maximum activeness of each project member to the organization of both parties. Proactivity is specifically expressed in: proactively cutting waste and proactively eliminating risk (instead of handling risks).
A practical way to promote leadership and reduce waste in ERP project management is to apply the Toyota Production System (TPS). TPS builds a leader who understands the work, lives the philosophy and communicates it to others. The two pillars of TPS waste reduction are JIT (Just-in-Time) and Jidoka (exposing problems on the spot). Applying TPS in ERP implementation requires day-to-day validation. Thus, we split the project to the extent that it is easy to clearly see the scope to easily negotiate, agree and complete. This approach helps shift from conflict processing to active elimination of conflicts. When confirming daily work, both customers and partners clearly see their responsibilities in each specific job and must work together actively to complete on time. Project leaders also have the opportunity to interact more, always close to project practice and avoid giving bureaucratic instructions. This eliminates the waste of time waiting in the project, making things always just in time (JIT). The work of the project is broken down and done on a daily basis to allow early elimination of mistakes that can lead to redoing (Jidoka).
ERP statistics and failed project lessons in Vietnam as well as in the world always put pressure on business leaders to choose ERP projects for themselves. Making ERP is an inevitable path in the business development path. We are forced to face the risk of entering ERP implementation. But by understanding the nature of the problem and applying the right implementation method, we will control the risk to achieve the success target with the ERP project.
Mai Cong Nguyen, Ha Quoc Thach, Le Viet DungRelated posts: