ERP Failure Case Study - Nike

Summary

This video explores the lessons learned from Nike's high-profile ERP failure, where the company spent $400 million on a system upgrade, only to face significant operational disruption and a $100 million loss. The video highlights key takeaways for avoiding ERP project failures, such as choosing the right software, selecting a competent system integrator, and taking charge of risk mitigation. It emphasizes the importance of investing in organizational change management and avoiding cost-cutting measures that compromise the project's long-term success, ultimately aiming to help companies navigate successful ERP transformations.

Takeaways

• 😀 A high-profile ERP failure example is Nike's $400 million system upgrade, which resulted in a $100 million loss and a 20% drop in stock price.
• 😀 After the failure, Nike invested another 5 years and $400 million to get their ERP project back on track, eventually finding success.
• 😀 The key question remains: could Nike have avoided such a massive investment and heartache by optimizing their ERP transformation process?
• 😀 Choosing the right software is crucial; organizations should ensure that their ERP system genuinely supports their business needs and avoid biased decisions.
• 😀 It's important to select the right system integrator. Big-name companies don't guarantee success, and a poor fit can still lead to failure.
• 😀 The success of an ERP project lies in the hands of the organization. Companies must actively manage and lead their project, rather than relying solely on software vendors or integrators.
• 😀 If a system integrator is not performing, organizations should course-correct, provide clear direction, or replace them to ensure project success.
• 😀 Independent risk mitigation is essential. System integrators might not adequately identify or address risks, so it's important for organizations to take charge of this process.
• 😀 Operational disruption during ERP implementation can be one of the biggest risks and costs, often resulting in long-term financial damage after go-live.
• 😀 Cutting corners on aspects like organizational change management, timeline compression, or budget reduction can lead to significant operational issues and a lower ROI in the long run.

Q & A

What was the primary cause of Nike's ERP failure?

Nike's ERP failure was primarily caused by the inability to properly implement and integrate their new ERP system, resulting in a significant financial loss and operational disruptions. The company had to invest additional time and money to get the project back on track.

How much money did Nike initially invest in their ERP system, and what were the consequences of the failure?

Nike initially invested $400 million in upgrading their ERP system, but the project resulted in a $100 million loss and a 20% drop in stock price. The company had to invest another $400 million and five years to fix the issues.

What lessons can be learned from Nike's ERP failure regarding software selection?

The key lesson is to choose the right software that aligns with your business needs. It's crucial to avoid implementing software based on brand reputation alone, and instead focus on functionality and suitability for your company.

Why is selecting the right system integrator so important in an ERP implementation?

Choosing the right system integrator is vital because they play a major role in ensuring the successful implementation of the ERP system. Relying on a well-known integrator without thorough vetting can lead to failure, as seen with Nike.

What is the most important factor in ensuring success during an ERP implementation?

The most important factor is taking ownership of the project. The company should lead the implementation process, ensure clear communication with the integrators, and be willing to make course corrections as needed.

How should companies handle a system integrator that is not performing well?

If the system integrator is not performing well, companies should either provide clear direction or consider firing them and bringing in additional help. It's essential to act promptly to avoid further delays and complications.

What is the role of risk management in an ERP project?

Risk management is critical in an ERP project. Companies should independently identify and mitigate risks, as system integrators may not always be proactive in doing so. Ensuring that risks are properly managed can prevent costly disruptions later.

What does 'operational disruption' refer to in an ERP implementation, and why is it so costly?

Operational disruption refers to the negative impact on a company’s day-to-day operations due to the implementation of the ERP system. It is costly because it can halt or slow down critical business processes, leading to more significant financial losses than the money saved during the implementation phase.

Why do companies sometimes fail to invest in organizational change management, and what are the consequences?

Companies often fail to invest in organizational change management to cut costs or speed up the implementation process. However, neglecting this aspect can lead to resistance from employees, inefficiency, and a longer recovery time after going live with the ERP system.

What is the long-term impact of cutting corners on ERP implementation costs?

Cutting corners on ERP implementation costs can lead to significant long-term consequences, such as operational disruptions and additional costs required to fix problems after the system is live. The short-term savings are often outweighed by the long-term damage caused by poor planning and inadequate investment.