The five biggest pitfalls of SAP projects and how to avoid them
In 2018, the German retail company Lidl provided one of the most prominent examples of a failed SAP implementation. According to market estimates, the project eLWIS consumed around half a billion euros of its budget before Lidl abandoned it. As part of its product policy, SAP pushes existing customers to upgrade to the S/4HANA environment. Many companies take this as an opportunity to standardize and simplify their complex process landscape within a large-scale project. Unfortunately, these projects come with steep price tag and large risks to the company.
Critical to the success of such an implementation is solid management. A good project manager will help you navigate around the five biggest pitfalls of SAP projects. Of course, these lessons also apply to the implementation of any other ERP package, for example, Infor LN or Microsoft Dynamics.
What are the risks?
1. Underestimating process complexity
Senior stakeholders tend to underestimate the complexity of process standardization. The devil lies in the details, i.e., complex in-house developments, countless interfaces, and non-transparent functionalities. A business redesign can often help here, however, custom-made functionality can prove to have critical business value. Business redesign costs money and ties up scarce in-house resources. Surprisingly, most SAP implementations start without identifying the key capabilities defining the exact nature of the business redesign.
2. Insufficient quality of advice
The SAP business is booming. Qualified SAP consultants are rare and highly paid, and consultancies tend to lack specialists with multiple years of experience. Highly experienced specialists care about their work-life balance; few tend to plod along with the grueling life of a traveling consultant and high-pressure implementations. End customers, offering work close to home, can achieve long term retention more easily.
An underestimation of complexity combined with a lack of skills will give rise to a host of follow-on complications.
3. Lack of transparency regarding technical risks
Although SAP S/4HANA is now a relatively stable product, it is still significantly more complex than the older SAP R/3 application. For example, planning and forecasting, the BI environment, the integration of EWM in S/4, and the Fiori applications are technically much more challenging. When the real problems start, you may find yourself without the qualified skill to handle critical issues efficiently.
4. Overly optimistic project planning
Instead of complete project planning with a small team of experienced consultants, junior consultants flood the project. A ratio of three juniors per senior is not unusual. Due to the invisibility of major risks and key capabilities, project plans become overly optimistic and create the illusion of an on-time and in-budget project.
5. Decision paralysis
Cost pressure and a lack of results in the project often lead to decision paralysis. Decisions, such as rethinking processes or changing the consulting company, are tough. Management may have confidently committed itself to the consulting partner. The supervisory board needed convincing to start the project. Now, they will want to know why the acclaimed consultancy suddenly seems incompetent.
What skills should a project manager possess to prevent the project from turning into a money pit?
A good project manager must possess a strong focus on process and a willingness to communicate at all levels. SAP knowledge can be useful, but if there is a solid supporting internal SAP team, SAP skills are not crucial.
Project managers may be internal or external
Generally, only larger companies have a pool of qualified SAP project managers. Hence, the position is often staffed by interim or external project managers. They must first familiarize themselves with the company and its stakeholders, which should take no longer than a month. Their independence is an advantage when there is a misalignment between business and IT.
What does a project manager do?
A project manager must be hands-on and actively intervene in the project. Therefore, a clear view of processes and authority over the consulting partner are paramount.
1. Blueprint and key capability definition
Clarifying critical issues is a full-time job that requires a good dose of hands-on experience. Process knowledge and IT know-how are also essential. The role of the project manager is to actively lead the creation of the blueprint and list of key capabilities. This will provide a clear view on the scope and functionality of the business redesign.
2. Partner selection
In addition to a precise process definition, the qualified partner is the decisive factor for success. Therefore, the project manager must carefully examine a consultancy’s industry experience, reference customers, and ownership structure.
3. Bridge between IT and the business
The exchange between IT and the business departments is often inadequate, sometimes resembling an entrenched battlefront. The project manager must act as an independent intermediary between IT, business process leads, and management. Without smooth communication between these stakeholders, a successful project is practically impossible.
4. Development of informal structures and prototypes
A company would do well to combine process design/development and standardized SAP processes in a prototype. By leading such an agile project, the project manager can train process experts, put ideas to the test and validate SAP processes. If this succeeds, it is the most decisive contribution to risk minimization and cost optimization of the overall project.
5. Intelligent change management
Unfortunately, many companies invest a fortune in inexperienced change managers to reduce friction within the project. A change manager should be independent of the consultancy, helping to identify issues rather than pacify critical voices. Change managers with an overly psychological approach and lack of underlying process skills should be avoided at all costs. They may do more harm than good.
6. Control of the consulting partner
It takes a lot of experience to manage an experienced consulting company. A project manager can help with the selection and act as a quality gate for external consultants. You may want to consider hiring freelancers directly, not via the consultancy. Not only will this save you twenty to forty percent of the cost, it will also ensure that these highly skilled experts can voice their opinions freely.
7. Support of the decision-making process
In critical situations, good project managers can draw on a wealth of experience and, if external, can use their independence to good advantage. CIOs typically lack the time to manage the ins and outs of a full-time project, and CEOs generally have neither the time nor the expertise. The project manager plays a vital role in making the project a success.
Integrity makes all the difference!
In 2018, Lidl announced that the future supply chain platform would be an enhanced version of its legacy software. Lidl’s stakeholders demanded inventory valuation on the basis of sales price. This was tantamount to a profound break from standard business practice, mandating a valuation on the purchase price. After a seven-year project and half a billion Euros spent, the project eLWIS had failed.
In complete contrast, Aldi Nord successfully implemented SAP S/4HANA Retail within two years. Having started in 2014, the platform provided goods movement, master data distribution, inventory planning, local accounting, and statistics. In a short press announcement of 2015, Aldi Nord also thanked their consulting partner and SAP for a highly successful project that would furnish the company with a holistic view of their global markets.
What made the difference between Lidl and Aldi Nord?
An excellent project manager would have gone through a crystal-clear analysis of key capabilities. What is the business benefit of pricing according to sales versus purchase price? Are there alternative ways of achieving similar results? What are the costs of entirely re-engineering a complex standard software package? The project manager would have challenged the consultancy and gauged its capability to architect and deliver the solution.
A fact-based decision-making process would have significantly enhanced stakeholders’ perceptions of the issues at hand. It would have enabled the board and IT management to present a straightforward story to Lidl’s owners. Once the solution design is faulty, a turnaround is difficult and extremely costly. Tight deadlines in the beginning may put at risk a good project execution plan and undermine the future of the project. Sunk costs will accumulate, decisions lose their focus, and endless meetings achieve little.
Eventually, various Lidl board members and CIOs lost their jobs over the botched project. The consulting partner is still strong and marketing itself as a prime retail expert in SAP. Yet, the project has dealt a big blow to SAP’s reputation and its retail suite.
A project manager needs to deeply dive into the project with skill and dedication. Smooth talkers who gloss over difficulties and carry on by ignoring critical voices are a dime a dozen. They carelessly let the project slip and enjoy the ride as long as possible.
Most important of all, having the integrity to stand one’s ground is what separates the men from the boys in project management. Make sure you hire a project manager with high intellectual standards and backbone. During the euphoric project start, tough questions may seem awkward. Make sure you can hire a trusted advisor and provide empowerment, so the project can be a success.
