What Was the Cause of the SAP Failure at Lumber Liquidators?

All Articles From Eric Kimberling November 7, 2010 3

Lumber LiquidatorsLate this last week, Lumber Liquidators attributed its poor quarterly results to its troubled SAP implementation. The interesting part of their ERP failure, which is consistent with what we see in the marketplace, is that the company claims the software itself works just fine and wasn’t the cause of their woes. If the ERP software works so well, then what was the problem?

The company’s reason for the failure: lack of user acceptance and adoption of the system. It wasn’t just that the new system was difficult for employees to figure out – it also had a measurable impact on the business, with the company estimating that it lost between $12 million and $14 million in net sales after go live. In addition, the company’s profit dropped 45% as a result. Lumber Liquidators is not a client of ours, but I would venture to say that the company’s executive team didn’t factor those opportunity costs into their total cost of ownership and ROI estimates.

This ERP implementation isn’t an isolated incident. Our research shows that most ERP initiatives cost much more than expected and fail to realize at least half of the expected business benefits.

So what could the company have done differently? As we published in our recent research report, A Guide to Increasing User Acceptance in ERP Systems, three factors have the highest correlation with positive user acceptance of a new system:

  1. Adaptability
  2. IT skills
  3. Level of understanding

As outlined in our report, these three areas must be addressed as part of an effective organizational change management plan, which Lumber Liquidators most likely did not adequately focus on. Many companies think that some quick end-user training a few weeks before go-live will do the trick, but as this example illustrates, that is simply not the case. Instead, organizations need to:

  1. Help employees adapt to and feel comfortable with change, via constant and early communications and relating the new business process and system environment to the “old way” of doing things.
  2. Ensure that employees have adequate IT skills in general, especially if they are going from a completely manual business process environment to a powerful, automated, and complex ERP system. This requires much more than transactional training; it also requires that employees are given plenty of time to become comfortable with technology in general.
  3. Help employees understand what is changing, how things are changing, and why. Employees need constant and frequent communications and training about how their business processes are changing, who is impacted by the changes, and the benefits of those changes. Again, system-based training alone is woefully inadequate in addressing these points.

Unfortunately, Lumber Liquidators isn’t alone in its insufficient attention to organizational change management, ERP training, and communications. Most companies view these activities as optional, nice-to-have activities. However, as many companies realize the hard way, these are critical necessities. As Lumber Liquidators illustrated in its Q3 results, a few hundred thousand dollars and even just a little more time focused on organizational change management would have easily taken a dent out of the $12 million plus of lost sales that resulted from poor user acceptance of the new system.

How can you avoid these same ERP implementation mistakes? Learn more about how you can avoid the ERP failure that Lumber Liquidators and countless other companies have suffered by attending our 3-day ERP Implementation Boot Camp in December. Our team of independent ERP experts can help ensure that you effectively address organizational change management, implementation project management, and other ERP system success factors.

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What Was the Cause of the SAP Failure at Lumber Liquidators?, 8.0 out of 10 based on 3 ratings

3 Comments »

  1. Guru November 10, 2010 at 9:23 am -

    Eric,

    Your analysis and comments are very apt and valid. It is not only ERP but for any system before going live, company need to think about user training, communication, plan for addressing user issues, etc. This critical factor is always given least priority and you know what happens at the end. Organizations Change Management is very critical at the beginning of any large / critical project and we learnt it hard way during our ERP implementation. Based on this learning we ensured that going forward for any project, we planned for change management , user training and communication and given sufficient time for these activities.

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  2. Eric Kimberling
    Eric Kimberling November 10, 2010 at 4:57 pm -

    Thanks for your comments. I agree with you and think that companies are finally starting to see the importance of organizational change management. Unfortunately, it is taking failures for companies to make this conclusions.

    Thanks for reading and commenting.

    Eric

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  3. Malcolm November 10, 2010 at 6:23 pm -

    It’s true that an ERP implementation requires buy-in from the users and it is up to management to endure the cultural shift. While this is a case of failure that one should learn from, there are also valuable lessons from successful implementations. One case in point is Colmobil in Israel who involved over 25% of their workforce in the planing and design of their new ERP system. See their video here: http://www.youtube.com/user/colmobilltd

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