The Cost of a Failed ERP Implementation (+7 Infamous Failures)
Enterprise resource planning (ERP) software implementation can be a risky proposition — it’s not unheard of for companies to mishandle the process and see their operations grind to a halt. It’s also not just big companies making a mess out of their implementations. In one study, only 67% of companies rated their ERP implementations as successful or very successful.
Not only do these failures result in negative publicity, but they can also be financially catastrophic and cause rifts in organizations that take years to mend.
Studying the causes of ERP failures to gain an understanding of what caused them to go south can help you avoid the same issues when implementing your own solution, and empower your organization to find software ROI from a new ERP rollout.
7 Examples of Infamous Failed ERP Implementation Projects
- Hershey’s failed ERP implementation cost them over $100 million
- Waste Management claimed over $500 million in losses after ERP failure
- Lidl lost 7 years due to a failed ERP implementation
- The US Navy wastes 7 years on ERP implementation
- Nike’s ERP implementation disaster led to $500 million in lost sales
- HP’s ERP migration caused $160 million in lost sales
- Revlon spent $50 million recovered from their ERP implementation mistakes
How Much Can a Failed ERP Implementation Cost?
Failures in ERP implementation can reach millions of dollars. As a result of the complexity of installing new systems, development costs can quickly rise, and if there are problems with the implementation, the money is lost, and more funds need to be spent to repair the damage.
A few of the key risk areas associated with the high cost of a failed ERP implementation include:
- Setting organizations back months or years: From software development to employee training, transitioning to a new ERP takes time. A failed implementation wastes all of the hours dedicated to the project, plus the time it takes to get systems, people, and revenue back on track.
- More downtime, resulting in a loss of sales: Mistakes made during implementation lead to downtime, which can cause massive losses in current and future sales. This is especially true if an ERP is implemented to automate portions of a company’s supply chain.
- Expensive recovery costs: The initial failure of an ERP already incurs massive costs, and the fallout adds more items to the to-do list. Organizations that have experienced ERP failure are forced to shoulder additional operating costs to return to normal productivity levels.
7 Infamous ERP Implementation Failures to Learn From in 2022
According to research and statistics on ERP systems, a successful implementation can be a huge driver of innovation and productivity for organizations – with 95% of businesses saying an ERP greatly improved their business processes. On the flip side, a failed software implementation rollout for ERP systems can be massively detrimental to organizations.
Here are 7 of the most infamous ERP failures from the last ten years that cost Fortune 500 companies hundreds of millions of dollars and set them back years, why it happened, and how you can avoid the same fate:
1. Hershey’s Failed ERP Implementation Cost Them Over $100 Million
In the late nineties, Hershey discovered their legacy systems had a high risk of being affected by the Millennium Bug. Instead of spending lots of money to fix the date-related issues, they decided to replace their ERP. They chose to implement three separate ERP solutions from SAP, Siebel, and Manugistics, which proved too complicated and disjointed for the company to use properly, and their self-imposed deadlines proved to be unrealistic.
Hershey would go on to lose more than $100 million in orders for products they had in stock and experienced an 8% drop in their stock price in one day. The company eventually recovered a year later and completed full integration of an SAP ERP in 2002.
Why Hershey failed: Hershey’s mishap is one of the first major examples of an ERP failure at the highest echelons of business. Today, it serves as a landmark case study on a lack of due diligence and a disjointed ERP configuration.
2. Waste Management Claimed $500 Million in Losses After ERP Failure
A lawsuit filed by Waste Management against SAP in 2008 brought the company to the public’s attention. In the lawsuit, SAP was accused of providing a software mockup that was modified to appear as if it was fully functional.
Initially, Waste Management claimed losses of $100 million from both implementation costs and loss of revenue. They later bumped that number up to $500 million. Both parties would settle out of court two years after the initial lawsuit.
Why Waste Management failed: In the end, their implementation failed because they didn’t dig into the details of the software they chose. This case demonstrates the importance of due diligence when assessing the ability of an ERP provider to deliver on its promises.
3. Lidl Lost 7 Years Due to an ERP Implementation Failure
In 2011, German grocery chain Lidl worked with SAP to develop a modernized inventory management system. The partnership made perfect sense, and the transition was expected to be smooth. Unfortunately for Lidl, their unique method of record-keeping threw a wrench in the works and introduced several issues during their implementation process.
The result was over $580 million dollars and seven years of development down the drain. After all that time and energy spent, Lidl went back to their existing in-house inventory management system.
Why Lidl failed: Lidl’s downfall was in large part due to project-scope mismatches. The grocery chain wouldn’t make the needed adjustments to their existing processes, and without that willingness to change, they failed to sync with SAP’s new technology.
4. The US Navy Wasted 7 Years on ERP Implementation
From 1998 to 2005, the U.S. Navy tried — and failed—to launch a proper ERP system on four separate occasions. A report from the Government Accountability Office stated the small scope and redundancies of the ERP systems did not fulfill Navy requirements.
The cost of the four projects was gigantic — to the tune of $1 billion in total. Ultimately, the Navy worked with SAP again to develop a consolidated system — three of the four ERPs were discontinued and replaced with a single SAP application.
Why the U.S. Navy failed: The Navy’s mistakes showcase that an ERP too small in scope can be just as damaging as one that is too large. To find the right fit, stakeholders need to scale their requirements to align with their true business needs.
5. Nike’s ERP Implementation Disaster Led to $500 Million in Lost Sales
Around the turn of the 21st century, Nike was the premier name in the sneaker industry. To secure their market dominance, the company worked with i2 Technologies to develop an ERP solution for the company’s demand planning processes. However, Nike’s leadership rushed the timeframe, and their new ERP went online with major bugs that tanked the company’s ability to distribute their flagship product at the time — Air Jordans.
The result was a total loss of $500 million dollars from both lost sales and project costs, as well as several lawsuits resulting from unfulfilled orders. They adopted a more robust SAP ERP in 2003.
Why Nike failed: Nike’s unrealistic timeframe caused their implementation to spiral out of control and led to a serious hit to their revenue.
6. HP’s ERP Migration Caused $160 Million in Lost Sales
Computer hardware giant HP sought to migrate one of their largest divisions onto an ERP system from SAP in 2004. The company’s IT division already had success migrating five of HP’s other manufacturing arms onto SAP systems, with contingency plans in place to help with the transition. Unfortunately, the contingency plans weren’t enough to save them —their supply chain was unable to keep up with the backlog of orders resulting from bugs in the new system.
The $30 million migration ended up costing HP $160 million in lost sales — a $120 million order pileup that led to $40 million in revenue losses. They eventually cut their losses and sorted out their supply chain and ERP issues the following year.
Why HP failed: HP’s blunder illustrates the importance of change management. Their CIO blamed their implementation team, citing issues such as not collaborating across silos and ineffective practices with manual inputs.
7. Revlon Spent $50 Million Recovering from Their ERP Implementation Mistakes
The initial failure of an ERP already incurs massive costs, and the fallout adds more items to the to-do list. Organizations that have experienced ERP failure are forced to shoulder additional operating costs to return to normal productivity levels.
After Revlon acquired cosmetics company Elizabeth Arden in 2016, they called on SAP to implement the S/4HANA ERP system. Rather than streamlining operations, S/4HANA caused massive disruptions when it launched in early 2018. The new ERP system caused Revlon’s Oxford, North Carolina, manufacturing location to experience service level disruptions that impacted their ability to “manufacture certain quantities of finished goods and fulfill shipments to several large retail customers in the U.S.”
In early 2019, Revlon broke the ERP failure news on a shareholder call — their stock fell almost 7% within 24 hours, and the confession triggered multiple lawsuits by investors. Revlon dedicated $54 million toward reversing the damage at their North Carolina facility, which included trashing the S/4HANA system.
Why Revlon failed: Revlon said a “lack of design and maintenance of effective controls” in connection with the ERP implementation was the reason for the failure. In a nutshell, they misjudged the risks of implementing S/4HANA and didn’t have the right processes in place to properly manage the project.
What Are Common Reasons for ERP Implementation Failure?
Many ERP failures are caused by unexpected technical or organizational issues. Some companies don’t effectively research their ERP software to determine if it meets their business requirements. Others are overly optimistic about implementation timelines.
ERPs can be complex, and implementation requires multiple components and interdependencies, which increases the vulnerability to project failure. Underestimating the complexity and the effort required to install, configure, and roll out a new system is a recipe for failure.
By avoiding some of the most common issues with ERP implementation, you can reduce your chances of failure and keep costs minimal.
1. Poor Change Management
Improperly defining business processes and not paying enough attention to change management can lead to implementation failures. For ERPs to succeed, employees have to adapt to new processes and adjust to new technology. This is a challenging task for any size organization and even more difficult for organizations at the enterprise level.
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2. Lack of Onboarding & Traiing
Lack of proper ERP onboarding and training results in a greater likelihood of poor digital adoption and ERP failure. Any transition to new technology should be accompanied by proper preparation, instruction, and a full implementation plan — no one can benefit from a new system if they don’t know how to use it.
3. Project Scope
Project scopes that are mismatched with organizational needs can cause ERPs to go over budget and miss deadlines. For example, the scope may be too large for the chosen timeframe, or the project could fall victim to scope creep. Both issues can cause missed deadlines and budget overruns.
4. Unrealistic Expectations
Overestimating an ERP’s abilities is a recipe for failure. Implementing a new ERP can reduce costs and increase productivity, but expecting it to solve all of the company’s problems will lead to trouble.
5. Lack of Due Diligence
Many organizations jump right into a new implementation project without spending enough time on the basics. A new system is needed, a vendor is found, and a contract has been signed. But don’t forget the basic questions. Will this integrate with my existing systems? How will I support my IT team post-launch? How will end-users be able to get support on questions?
The first step toward implementing any type of ERP software successfully is making sure everyone in your organization understands the reasons for the new ERP and agrees on the scope of the project. You’ll need your stakeholders’ and leadership’s full support, as well as anyone who will be affected by the changes.
To solicit support, develop a clear picture of how your organization will benefit from this significant change and explain why the impending disruptions will be worth it. This foresight can go a long way toward buy-in for your implementation. Expose the consequences of sticking with an outdated system, and demonstrate the specific value of a new ERP so stakeholders can’t help but jump on board.