How Did This Grocery Store Waste $600M on SAP?

Summary

In this video, Eric Kimberling, CEO of Third Stage Consulting, delves into the $600 million SAP implementation disaster at Lidl. He explores key factors behind the failure, including resistance to change, excessive customization, over-reliance on external consultants, and executive misalignment. The case highlights the importance of balancing business needs with software capabilities, effective change management, and internal ownership of the project. The video offers valuable lessons for organizations facing digital transformations, especially when implementing complex ERP systems like SAP. Kimberling emphasizes the need for strategic alignment and careful planning to avoid costly mistakes.

Takeaways

• 😀 Resistance to change is a major factor in failed ERP implementations, as seen with Lidl's SAP project.
• 😀 Over-customization of ERP systems can create long-term technical issues, delays, and increased costs.
• 😀 External consultants can be invaluable, but over-reliance on them leads to lack of internal ownership and accountability.
• 😀 Frequent changes in executive leadership can cause strategic misalignment and confusion, further delaying projects.
• 😀 It is essential to align your executive team before starting the implementation to avoid shifting priorities during the project.
• 😀 It’s crucial to balance between standardizing business processes and customizing ERP software to fit legacy systems.
• 😀 Failing to make tough strategic decisions upfront during an ERP project leads to increased costs and delays as the project progresses.
• 😀 The blame for project failure should not be placed solely on the software; implementation and organizational factors are often the root causes.
• 😀 High levels of customization in ERP implementations often trap organizations into that specific software version, making future upgrades and changes difficult.
• 😀 Clear organizational change management processes are necessary to help employees adapt to new systems and processes.
• 😀 Implementing an ERP system like SAP requires careful planning, executive buy-in, and a strong internal project management team to ensure long-term success.

Q & A

Why did Leal's SAP implementation fail despite the large investment?

Leal's SAP implementation failed due to a combination of resistance to change, excessive customization of the software, over-reliance on external consultants, and a lack of alignment within the executive leadership team. These factors led to technical issues, cost overruns, delays, and eventually, the abandonment of the SAP system.

What was the key factor behind Leal's resistance to change during the SAP implementation?

Leal's resistance to change was largely due to the difference in business processes between their legacy system and SAP. For example, Leal valued inventory based on purchase price, while SAP’s system used retail value. Rather than adapting to SAP, Leal chose to customize the software to fit their existing processes, which created more problems.

How did customization contribute to the failure of Leal's SAP project?

Excessive customization of the SAP system led to breaking the software's core functionality, making it difficult to maintain and manage. This also caused technical issues that escalated project costs and timelines, ultimately making the system unsuitable for Leal's needs.

What role did external consultants play in Leal’s SAP implementation failure?

Leal over-relied on external consultants and system integrators, which led to a lack of internal ownership and accountability. This over-dependence resulted in significant cost overruns and delays, as the organization failed to manage the project effectively.

What was the impact of executive turnover on the SAP implementation at Leal?

Frequent turnover and misalignment within Leal’s executive leadership created confusion about the project’s goals and priorities. This inconsistency affected decision-making, leading to shifting project directions and a lack of clear strategic focus, which contributed to delays and budget overruns.

How did SAP get unfairly blamed for the failure of Leal's project?

SAP was often blamed for the failure, despite the fact that the issues were related to poor implementation, resistance to change, and internal misalignment. SAP, as a product, worked as intended, but the failure stemmed from how Leal implemented it and managed the transformation process.

What are the key lessons organizations can learn from Leal's SAP failure?

Organizations should focus on aligning leadership and ensuring strategic clarity before implementation. They should avoid excessive customization, properly manage the balance between internal and external resources, and prioritize effective change management to ensure smoother ERP transformations.

Why is it important for the leadership team to be aligned before starting an ERP implementation?

Alignment at the executive level ensures that there is a clear, consistent vision for the project. When leadership is not aligned, priorities may shift throughout the implementation, leading to confusion, delays, and cost overruns.

What risks come with over-customizing an ERP system like SAP?

Over-customizing an ERP system can break its core functionality, making it harder to maintain, scale, or upgrade. It also increases costs and project timelines, as the system becomes more complex and difficult to manage in the long term.

How can organizations avoid the 'learned helplessness' mentality when working with external consultants?

To avoid the 'learned helplessness' mentality, organizations should maintain a balance between leveraging external expertise and ensuring internal ownership of the project. This means setting clear roles and responsibilities, fostering internal knowledge, and not relying entirely on external consultants to manage the entire implementation.