IT improvements to stave off digital disruption are vital - but don't get them wrong.
It's a little-known fact – about 25 percent of all system implementation projects globally are failures.
That's a daunting statistic, particularly when you look at the desirability and huge potential of information system software roll-outs. They are the way companies integrate core business processes which can hugely boost efficiency and growth and, in the realm of big companies, we are talking millions of dollars of potential earnings and profits.
But does that mean typical New Zealand businesses get it right 75 per cent of the time? Not really.
The problem is, according to Craig Gower advisory & information technology partner at BDO, many get it wrong – in New Zealand, an average of 30 per cent of all such projects are late, over budget and do not deliver on original expectations.
With the worrying statistics around systems implementation failure, Gower says it's not surprising many New Zealand companies put off what can be a very substantial investment – even though many are facing digital disruption scenarios in their markets.
Internationally, a whopping 25 per cent of all IT projects end in outright failure, according to one international research paper last year and backed up, in a 2015 survey, by Panorama Consulting Solutions (which put the figure then at 21 per cent).
Perhaps the biggest fall from grace in recent New Zealand history is the Novopay school payroll system which was regularly in the headlines. Launched in 2012, the original system cost $30m to develop but immediately ran into problems – with errors in the pay of thousands of school staff, many of whom did not get paid at all. The government spent $45m stabilising the system and supporting and compensating schools.
There have been some glaring international examples as well. One of the most infamous was Nike's $400m enterprise resource planning (ERP) makeover in 2000. The idea was to blend the ERP, supply chain and CRM (customer relationship management) systems into one. The result: US$100m in lost sales, a 20 per cent drop in the share price and class-action lawsuits.
The new system was too slow, didn't integrate well, was plagued by bugs, and Nike's planners were inadequately trained in how to use the system before it went live. Nike said all these problems were fixed later in 2000.
So what is the most common error? Gower says: "Not following good project management practices, including elements like the documentation of business processes and requirements. It sounds simple but it is not an easy task to find out what everyone who will use the system actually wants and needs.
"We often see companies who haven't defined their business processes and requirements, or fail to document and organise them properly. They just jump in."
Gower remembers one client who came seeking advice about selecting a new ERP system. They decided to do it themselves rather than engage BDO to run a systems selection process but were back six months later, seeking help.
"They hadn't really got anywhere and they had no viable options," he says. "Their efforts were not meeting the requirements of their business."
BDO got started, taking a structured approach to the problem – working through and documenting all user and stakeholder requirements, looked at potential solutions and then set up a series of vendor workshops where the software vendors could address the company and show how their software could meet requirements.
"We and the client could question vendors; a key thing from that process is references – finding out which comparable businesses have implemented their software in New Zealand."
With a software vendor appointed, then an implementation plan was formed and contracts negotiated, ensuring all requirements were met; the client ended up with an efficient system, successfully implemented – allowing them to take advantage of new opportunities and grow.
Most of BDO's clients are in the small-to-medium range and Gower says doing a system implementation programme incorrectly can cost such companies up to $50,000.
"It's nothing like the Novopay or the Nike scale," he says, "but the same basic principles are vital to our clients."
"And it's highly important for businesses in these days of digital disruption. So many companies haven't done much in this area since the global financial crisis and it is vital they do – and are not put off by a process which has caught people out but which is manageable with the right help."
As featured in the New Zealand Herald.