5 Most Popular ERP System Implementation Failures: Even Nike Failed, and Why?

ERP system implementation failures are a common occurrence, affecting even industry giants. This blog explores five notable ERP failures, analyzing the causes of their downfall and the lessons to be learned. From Nike’s supply chain missteps to Hershey’s order fulfillment crisis, these case studies illustrate the potential pitfalls of ERP implementations and offer valuable insights for businesses considering similar projects.

Read more: An Expert's Insight into CRM and ERP Integration – Do You Need It and to What Extent? (2024)

Top 5 ERP System Implementation Failures 

Many large corporations choose ERP solutions to optimize their operations and improve business efficiency. However, the reality is that ERP implementation failures occur in 55% to 75% of projects, and even up to 87% according to research by Garnier. These ERP failure case studies show that failure in ERP projects is often unavoidable. 

Below are 5 major global companies that faced significant ERP project pitfalls during their implementations, Nike, Hershey, National Grid, Revlon, and MillerCoors. 
 

1. Nike’s ERP Failure: Lessons from a Costly Transition

"This is what you get for $400 million?"

Phil Knight, Nike's President and CEO, famously asked this question during a conference call, just days before announcing that the company would miss its third-quarter earnings by at least 28%. This was due to a glitch in their new supply chain management software, which caused Nike's stock to plummet by 19.8%. The Dallas-based vendor, i2 Technologies, also took a hit, with its stock dropping 22.4%. Ultimately, the fallout from this implementation would cost Nike around $100 million.

This situation highlights the serious challenges Nike faced during their supply chain overhaul. The failure not only hampered their ability to meet market demands but also hurt their reputation in the retail industry. Nike's experience serves as a cautionary tale for businesses looking to implement new technology.

Timeline and Strategy

In 1999, Nike began its ambitious Supply Chain project, aiming to centralize its operations and improve efficiency. The project involved a total estimated cost of $400 million, including a $10 million payment to i2 Technologies for their software. The goal was to streamline Nike’s existing 9-month product cycle, which had become fragmented due to rapid growth in the 1990s.

Nike planned to implement several key systems:

• i2 Technologies Supply Chain Management Software
• SAP ERP Software
• Siebel Systems Customer Relationship Management Software

However, launching all these systems at once proved to be a significant misstep.

Problems Arise

After implementation, numerous issues quickly surfaced. The different departments within Nike experienced conflicts, leading to poor communication and misunderstandings. This resulted in failed system tests and inadequate training for employees. Consequently, Nike struggled to meet customer orders, losing over $100 million in sales due to inventory mismanagement. This failure also negatively impacted their stock price, which fell dramatically in the aftermath.

2. Hershey’s ERP Failure: Lessons from a Failed Transition

"What do you do when your $112 million investment leaves you unable to fulfill $100 million in orders? Just ask Hershey."

This situation highlights the seriousness of their challenges during the ERP implementation. The failure hurt their ability to deliver products during peak sales seasons. It also led to a significant drop in stock prices and profits. This experience serves as a cautionary tale for businesses looking to modernize their systems.

Timeline and Strategy

In 1999, Hershey started its ERP project with a tight deadline, planning to finish in just 30 months instead of the recommended 48 months. They decided to use three key systems: 

• SAP R/3 ERP software
• Supply Chain Management (SCM) software
• Customer Relationship Management (CRM) software

However, launching all three systems at once turned out to be a big mistake.

Problems Arise

After the implementation, things quickly went wrong. Different departments within the company clashed, leading to poor communication and misunderstandings. This resulted in failed tests, incorrect data transfers, and not enough training for employees. Because of these issues, Hershey couldn’t fulfill about $100 million in customer orders, even though they had the products in stock. This failure not only hurt their profits but also caused a drop in their stock price, leading to negative headlines in the news.

3. National Grid

National Grid, a major gas and electric company serving customers in New York, Rhode Island, and Massachusetts, sought to modernize its operations by replacing its legacy system with a new ERP solution. The goal was to streamline processes and enhance efficiency. However, the ERP implementation faced significant challenges that would ultimately lead to disaster.

Timeline and Strategy

The new ERP system was scheduled to go live on November 5, 2012, just a week after Hurricane Sandy wreaked havoc on the East Coast. Missing this deadline would result in an estimated $50 million in cost overruns and require additional approval from the Utilities Rate Commission, delaying production by another five months. Despite the system not being ready, National Grid pressed forward with the planned launch.

Problems Arise

The results of this hasty decision were catastrophic:

• Payroll Errors: Many employees were either underpaid or overpaid, with some not receiving payment at all.
• Financial Losses: National Grid incurred $8 million in overpayments and faced $12 million in settlements due to short pays and inaccurate deductions.
• Vendor Invoice Issues: The company was unable to process over 15,000 vendor invoices, leading to significant operational disruptions.
• Impact on Financial Reporting: The implementation of the SAP system severely affected financial reporting. Before the new ERP system, National Grid could close its books in four days. However, this timeframe ballooned to 43 days following the implementation, causing the company to lose crucial short-term borrowing opportunities vital for cash flow management.

4. Revlon

Revlon, a multinational cosmetics company known for its diverse portfolio of over 15 brands, aimed to implement a new ERP system to enhance efficiency and reduce operational costs. However, the transition to a new system would prove to be fraught with challenges.

Timeline and Strategy

Initially, Revlon utilized Microsoft Dynamics AX as their ERP solution. In 2016, following the acquisition of Elizabeth Arden—whose operations relied on Oracle Fusion Applications—Revlon decided to adopt SAP S/4HANA. This choice aimed to integrate processes across all business units for greater efficiency. However, the implementation faced significant hurdles that hindered operations.
 

Problems Arise

The implementation of SAP S/4HANA encountered numerous issues that had severe consequences for the company:

• Order Fulfillment Problems: Revlon’s North Carolina manufacturing facility struggled to fulfill approximately $64 million in orders due to the problems with the new ERP system.
• Financial Losses: In 2018, Revlon reported a net loss of $70.3 million, significantly impacting its financial standing.
• Stock Price Decline: The company's stock price fell by 6.4%, prompting shareholders to file lawsuits against the company.

5. MillerCoors

MillerCoors, a brewery based in Chicago, aimed to streamline its operations by unifying its SAP environment. At one point, the company was running seven different instances of SAP ECC. To tackle this complexity, MillerCoors hired HCL Technologies, an Indian tech firm, to create a more cohesive SAP system.

Timeline and Strategy

After awarding the project to HCL and transferring a work order, MillerCoors quickly expressed concerns regarding the quality of the implementation. In response, HCL issued a new work order that extended the timeline and added $9 million to the implementation costs. Unfortunately, these changes did little to resolve the underlying issues.

The initial phase of the project went live in November 2015, one month later than initially planned. However, a subsequent lawsuit revealed that the first rollout contained 80 defects, including eight of “critical severity” and 47 of “high severity.”

Problems Arise

The challenges faced during the ERP implementation led to significant repercussions for MillerCoors:

• Quality Issues: The rollout experienced numerous defects, severely impacting functionality and reliability.
• Increased Costs: The changes made to the project scope and the additional funding did not rectify the issues, resulting in wasted resources.
• Contract Termination: By June 2016, MillerCoors terminated its contract with HCL and filed a lawsuit seeking $100 million in damages, citing HCL's inability to adequately staff the project and maintain the schedule.

7 Reasons for ERP System Implementation Failures, Cited by Experts

With the ERP failure case studies from major corporations mentioned above, you can draw valuable lessons for your own business. Here are 7 key reasons you should consider carefully when undertaking any ERP project to avoid costly mistakes and ensure long-term success.

Lack of Process Understanding 

An ERP system isn’t a quick fix that creates processes for you; it’s meant to improve the workflows you already have. Before starting ERP setup, make sure your processes are clearly laid out, either on paper or in tools like Excel. While technology can make things run smoother, it can’t fix processes that aren’t well-defined.

Poor Data Hygiene

A lack of data hygiene refers to poor quality, inconsistent, or outdated data being integrated into the ERP system. If organizations fail to clean and prepare their data properly before implementation, it can lead to inaccurate and unreliable information being used throughout the system. This can result in significant issues such as data corruption, where reports, inventory management, and financial data are compromised. Additionally, business decisions based on flawed data can lead to inefficiencies and costly mistakes, and organizations may face further delays and expenses as they attempt to clean up the data post-implementation.

Weak System Requirements

Flimsy system requirements occur when an organization does not take the time to define clear, realistic, and comprehensive needs for the ERP system. This lack of well-defined requirements can lead to selecting an ERP system that doesn't fully align with the business's processes, causing a mismatch between the software's capabilities and the company's core operations. This often results in the need for costly customization or adjustments to meet the business’s requirements. Additionally, without clearly established requirements, the scope of the project can quickly grow, leading to budget overruns and extended timelines, while users may also struggle to adopt the system if it doesn't meet their needs.

Lack of Direction

A lack of direction in an ERP project stems from unclear leadership or undefined goals, often due to insufficient executive sponsorship or poor communication across teams. This lack of guidance can cause the project to lose momentum, with critical decisions delayed or left unmade. It also makes it difficult to adapt to changing business needs or unforeseen issues, resulting in a system that ultimately does not serve its intended purpose. Moreover, without strong leadership and clear direction, employees involved in the project can feel unsupported, leading to disengagement, low morale, and resistance to change, which undermines the overall success of the ERP implementation.

Insufficient End User Training 

ERP systems won’t automatically solve all operational problems. The success of ERP largely depends on how well users understand and use the software for routine tasks. If users don’t get enough training, productivity can drop, and data accuracy may suffer. A system that’s hard to navigate can frustrate employees and harm overall performance.

Insufficient Employee Engagement 

A smooth switch to an ERP system needs full support from your team. If employees aren’t actively involved and processes aren’t clearly documented, things can quickly fall apart. Many companies wrongly assume ERP is an easy plug-and-play tool, but the truth is every business is different, and adapting the system to fit takes effort.

Lack of Funding and Resources 

ERP systems often require substantial spending, both upfront and after launch. Budget estimates can be too hopeful, leading to overspending. It’s important to choose a solution within your budget and plan for continued support after setup. Outsourcing can be a good option, especially if you work with an IT firm that knows both ERP planning and development.

How to Avoid Common ERP System Implementation Failures

As an expert, here are my key strategies to avoid common ERP implementation failures:

1. Comprehensive planning

One of the most important steps is to ensure comprehensive planning from the outset. Define clear, detailed system requirements that align with your business needs. A common reason for ERP failure is the lack of proper scope definition. Without clear goals, it’s easy to get distracted by unnecessary features or overlook critical functionalities. Make sure all departments involved have their needs heard and documented.

2. Realistic Timeline and Budget

ERP projects often fail due to unrealistic timelines and budgets. It’s crucial to set expectations that are achievable. Rushed timelines often result in rushed testing, poor training, and insufficient data migration, all of which can cause major setbacks. Additionally, it’s important to allocate a reasonable budget, considering the long-term investment in software, training, support, and possible post-implementation adjustments.

3. Clean Data Preparation

Before migrating data into the new ERP system, ensure that your data is clean and accurate. Poor data hygiene can cause serious issues down the line, from incorrect financial reports to inventory mismanagement. Invest time in cleansing and verifying your data before integration, and run extensive tests during the migration phase to ensure everything works smoothly.

4. Strong Executive Support and Leadership

A lack of executive sponsorship can be one of the biggest obstacles to ERP success. Senior leadership should not only advocate for the project but also be actively involved in ensuring that it aligns with the company’s strategic goals. When management is engaged, it sends a clear message to the rest of the organization about the importance of the project and encourages greater collaboration and focus.

5. Choosing the Right ERP Vendor

Selecting the right ERP vendor is critical. The vendor has a proven track record with businesses in your industry and offers the support you need. Additionally, look for vendors who are flexible and willing to adapt their solutions to meet your unique business processes. Don't choose the first option based solely on cost—consider the long-term relationship and the vendor’s ability to support you post-implementation.

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Conclusion

The ERP implementation failures discussed in this blog underscore the importance of meticulous planning, thorough testing, and effective change management. By understanding the common pitfalls and learning from the experiences of others, businesses can significantly increase their chances of successful ERP implementation. It is crucial to invest in adequate resources, involve all stakeholders, and prioritize user training to avoid the costly consequences of ERP failures.

FAQs

Q1. Why Do ERP Projects Fail?

ERP projects fail for several reasons, including poor planning, lack of clear requirements, insufficient training, and unrealistic expectations. Additionally, issues like inadequate data hygiene, resistance to change from employees, and lack of executive sponsorship can derail the project. The complexity of integrating an ERP system with existing processes and ensuring it meets business needs also plays a significant role in many failures.

Q2. What is the Major Disadvantage of ERP?

The major disadvantage of ERP systems is the high cost and complexity of implementation. ERP systems often require significant upfront investment in both time and resources. Businesses may face disruptions during the transition period, and there is always the risk of poor user adoption or system incompatibility with existing processes, which can lead to inefficiencies or additional costs.

Q3. How to Avoid ERP Implementation Failure?

To avoid ERP implementation failure, start with clear project planning, well-defined system requirements, and realistic timelines. Conduct thorough testing and provide comprehensive training for employees. Additionally, securing strong executive support and fostering buy-in from all users are crucial for success. Regular communication, proper change management, and focusing on data quality are key elements for a smooth and successful implementation.