When Global ERP Implementations Fail: Underestimating the Impact of Culture
When Lenovo acquired IBM’s PC business, the Chinese leadership team was determined to fully integrate these two distinct brands and create a new, global business culture. Lenovo’s IT organization was put in charge of replacing legacy systems with an Employee Resource Planning (ERP) system that could “foster standardized processes yet remain flexible enough to handle variations in local markets”, as Lenovo former CIO Xioayan Wang described in 2011.
Staying agile and innovative as a global player boosts the demand for faster changes within the technology landscape – often faster than management can handle. “IT is more important and intense than ever before and that requires an ongoing effort to transform IT and improve its agility, to make the business more productive and competitive,” Alan Matula, former global CIO at Shell (per McKinsey report, 2010)
Why do global ERP implementation projects fail?
As in Lenovo’s example, implementing or changing existing Enterprise Resource Planning (ERP) systems is one business transformation that is essential for companies to remain competitive and successful in the global market (Light et al., 2013). ERP systems improve business processes through centralized admin operations and facilitate communication and coordination. They can decrease costs through their ability to deploy new information system functionality and reduced maintenance costs.
Yet a look at research by Sarker and Lee suggests that ¾ of ERP implementation projects are considered a failure, with many of them leading to millions of dollars in loss (Sarker & Lee, 2003). This estimation is in line with McKinsey’s most recent report that the failure rate of large-scale change programs lies at around 70 percent (McKinsey, 2016).
One of the main reasons for failed ERP implementation projects is the continued underestimation of the impact of culture (Soh, et al., 2000). Some of the cultural factors that have been identified to influence ERP implementation projects are as follows: (per Light, et al., 2013):
- Mismatch with local culture
- Lack of “ownership culture” in regional markets
- Local management culture
- Lack of adequate cultural change management processes
- Cultural fragmentation (diversity) in the marketplace
- Unaddressed cross-functional diversity
- Information flow
Balancing global and local needs in ERP implementations
Listen to our Managing Partner, Ernest Gundling, describing a case in which Aperian Global supported a client to successfully implement a global ERP system across cultures.
Lenovo’s former CIO Wang describes the main challenges of the global IT transformation project after the acquisition:
“The key has been balancing the demands of operations such as finance and the supply chain that can be globally standardized with those of areas such as sales and marketing, which have specific local requirements.”
In addition to the transformation of systems and processes, Lenovo paid attention to its changing organizational culture and whether it had the cultural agility necessary to deliver products and services across different cultures. In a previous interview we had with Yolanda Conyers, VP of HR Operations at Lenovo, she notes:
“From the beginning, we knew that we had to take on a ‘zero-mindset’ to ensure diversity across all of Lenovo’s business functions. We achieved this by being more humble and focusing on listening in order to understand how to combine our employees’ range of knowledge and expertise. Ultimately this has given us the edge in the marketplace.”
Focus on cultural agility
Global IT transformations, such as implementing an ERP system, require cultural agility. In order to obtain consistent business results across cultures, your organization and its people need to develop the ability to understand and respond to multiple local contexts.
To successfully deliver on project outcomes, global IT business transformation projects, therefore, require an investment and continued focus on global “people skills” in a scalable way. The Boston Consulting Group confirms that large-scale transformations “hinge on capabilities.” The difference between the sustainable success of a business transformation and short-term effects stems from the organization’s ability to identify and develop the requisite capabilities (BCG, Transformation, 2016). The challenges for team leaders and individual contributors in global IT transformation projects span across boundaries and can be quite complex, involving multiple time zones, diverse cultural norms, cross-functional silos, generational differences, and diversity of thought.
Wang describes the learning process during Lenovo’s global ERP implementation:
“Our people were from different cultures and were just learning to work with each other, while most of us were new to a transformation on this global scale.”
Enhanced people skills to work across differences enables individuals and teams to improve understanding, build stronger relationships, and communicate more effectively, while responding to local customer demands in an agile manner. These skills and abilities are critical to collaborate successfully on global IT transformation projects.
Key aspects of working across style differences:
- SEE: Understand your own communication and work styles in a global context
- DISCOVER: Explore how your style compares with the cultural norms of other countries as well as the preferences of colleagues on your team
- ADAPT: Bridge style differences to accomplish key tasks with others and build stronger relationships (i.e., communicate effectively, establish trust, influence others, give feedback, get a clear agreement, and resolve conflict)
Have you considered the impact of culture on your global business transformation project? Are your people ready to work across cultures? Get an early glimpse into our new 30 Day Learning Solution offering, Working With Diverse Styles, a scalable learning solution designed to develop skills and change behaviors in 30 days. Click on the button below to try it out!