By now, you may have heard about Lidl, the German retailer than spent 500M Euros ($580M USD) on their SAP failure. As painful – and unbelievable – as it is to read about, there are some good lessons from SAP failure that we can take away from this story.
I generally prefer to focus on the positive and learn lessons from SAP S4/HANA implementations that haven’t failed. However, looking at extreme cases of SAP failure often underscore why critical success factors and implementation best practices are so important. It also shows how important it is to have a strong implementation team to help you through the process.
Here are five lessons that we can learn from this SAP failure. These lessons are relevant whether you are implementing SAP S4/HANA, Oracle Cloud ERP, Microsoft Dynamics, or any other ERP software:
1. Organizations are often unwilling to change the way they need to, which can lead to SAP failure
The story cites an interesting example of how the company refused to adapt to SAP’s standard inventory management based on retail price, versus Lidl’s tradition of basing on purchase price. I don’t know how big of a deal this was to Lidle, or whether they could have realistically been expected to change, but it shows how even the smallest details can disrupt a project.
It also underscores the damage and risk that can be caused misalignment between business operations and software functionality. If not managed correctly, digital transformations can get sideways very quickly as a result. Organizational change management is one of the most important ways to reconcile these inevitable differences that every ERP project faces.
2. Software customization can lead to SAP failure
Along those same lines, customization is a risky way to reconcile your off-the-shelf ERP software with the realities of your business. Our research shows that 90% of organizations customize their ERP software to some degree. But, should they? That’s a different question.
Customization creates headaches by breaking other parts of the software, introducing risk to implementation, and making ongoing maintenance very difficult. It is important to have stingy project governance processes in place to validate and rationalize any requests to change the way the software was initially built.
And here’s an important takeaway: too much customization is often a symptom of not having a good enough organizational change management strategy and plan in place. Ensuring you have SAP implementation readiness is an important way to mitigate this risk (learn more in the below video).
3. Choosing the best SAP system integrator is important, but not the only answer
Choosing the best SAP system integrator is important, whether it be Deloitte, Capgemini, Accenture or another firm. However, this is just one component of a successful ERP project. It is important to not have blind faith in your integrator, because they won’t solve all of your problems, either.
4. The trickle-down effect of executive misalignment can lead to SAP failure
Lidl experienced quite a bit of executive turnover throughout their transformation. It is difficult to maintain alignment and momentum against this backdrop. As executive priorities and personalities change, it is highly likely that your ERP project will become misaligned with those new people. This is where projects often fail.
No one wins when a project is misaligned with executive priorities. Resources aren’t committed to the project the way they need to be. The project team lacks clear direction. Project and software decisions don’t tie into bigger-picture business decisions that need to be made. I could go on, but the point is that executive misalignment can derail projects like these.
5. SAP software works
According to SAP, 80% of the retailers in the Forbes Global 2000 are SAP customers. This suggests that grocers like Lidl are successfully using the software. Even setting this statistic aside, there are thousands of organizations that are successfully operating on SAP S4/HANA and other legacy versions of the software. Simply put, the software works.
The more relevant question is: does or can SAP software work for your business? Are you willing to do the hard work required to reconcile the inevitable differences between your business and the vanilla software? This is where so many organizations fail. It sounds like Lidl was one of them.
In my years analyzing failures as an SAP expert witness, I have seen more than my share of disasters like this one. The good news is that failure can be avoided. It all comes down to how you plan and execute proven best practices.
Here are few of them: our lessons from 1,000+ ERP implementations.