The Cost of Program Failure

The statistics on business transformation failure are overwhelming.  Particularly where technology implementation is involved, and where the stakes may be highest, studies consistently report that over half (and up to almost three quarters) of all programs do not deliver the intended value.  For example, Michael Krigsman examined several analyst reports of the rates of failure for CRM implementation programs. ¹Michael Krigsman, “CRM failure rates: 2001-2009,” Beyond IT Failure, 3 August 2009, http://www.zdnet.com/blog/projectfailures/crm-failure-rates-2001-2009/4967. Although the statistics he gathered vary widely, and they represent very different criteria for determining implementation failure, there are some clear messages:

• One in four programs are abandoned outright with no value delivered.
• Over 50% (72% by one study) of implementations do not meet stakeholder expectations even if they do go live.

Krigsman acknowledges that interpretation across these studies is difficult and subjective at best. Caveats aside, though, one conclusion seems inescapable:  something is fundamentally broken with an organization’s delivery ability when program leaders are unable to successfully execute on their business capability goals nearly three out of four times. ²The Standish Group, in their “Chaos Manifesto 2013: Think Big, Act Small,” says that 2012 “represent[s] a high watermark for success rates….”  Even so, they report that 61% of projects are still either canceled and with no useful benefit or are implemented with less than expected value.  They also note that this improvement “has come with an increase in project overhead, along with a reduction in value and innovation.”

This pattern is not unique to CRM programs:

• KPMG found that “more than 50% of business intelligence projects fail to deliver the expected benefit”. ³KPMG, “Does Your Business Intelligence Tell You the Whole Story,” KPMG Advisory Report, 2009, https://www.kpmg.com/EU/en/Documents/does_business_intelligence_whole_story.pdf.
• Gartner has indicated that while spending on master data management (MDM) is growing significantly, “66 percent of organizations that initiate an MDM program will struggle to demonstrate the business value of MDM.” ⁴“Gartner Says Master Data Management Is Important in a Tough Economy, and Even More Important in a Growth Economy,” Gartner Newsroom. December 9, 2010, http://www.gartner.com/it/page.jsp?id=1488515.
• Researchers from Utrecht University and M&I/Partners reported failure rates for ERP implementations as high as 90%. ⁵Ronald Catersels, Remko Helms, Ronald Batenburg, “Exploring the gap between the practical and theoretical world of ERP implementations: results of a global survey,” Proceedings of IV IFIP International Conference on Research and Practical Issues of Enterprise Information systems, 25-27 August 2010, Rio Grande Do Norte, Brazil.

Despite these implementation challenges, most business transformation initiatives ultimately do go live.  However, when they fail to meet expectations, they do so with increased cost and frustration. Because a meaningful business case and value measurement are often lacking, it is rarely possible to evaluate the true net cost of failure, but timeline and staffing extensions have an obvious impact.  Additionally, the opportunity cost of lost or deferred benefits can be even more significant and is often overlooked.  When  remediation projects are required, they  may involve more effort than the original implementations did, and bolt-on enhancements can be difficult to support.  Most importantly, if the shortcomings in transformation leadership are not addressed, enhancement efforts are just as likely to compound the problem.

In the long run, the impact of missed expectations on leadership capital may be even more damaging than schedule and budget overruns.  When stakeholders don’t feel that the organization can deliver, they are drawn to shadow development teams and external point solutions to meet immediate needs.  Often there is insufficient review of these tactical solutions to ensure that they are sustainable and that they fit well within the enterprise environment.  This can significantly increase the complexity of the technology and vendor landscape, and it may require much greater support effort.  The pattern of mistrust and circumvention that follows can make governance impossible, and it decreases the effectiveness of capability leaders so that poor decisions become more likely in the future.  The consistent trend toward failure is a clear message that program leaders need to get serious about how they ensure the success of their efforts.  The stakes can be tremendously high—easily into the millions for a mid-sized program and much higher for a large enterprise transformation.