Introduction
Under Armour, a global leader in athletic apparel known for its innovative technology and high-performance products, faced significant operational challenges in 2017 when both sales and profits declined sharply. The primary cause? A costly enterprise resource planning (ERP) system upgrade. This event not only impacted Under Armour's business but also served as a cautionary tale for organizations navigating digital transformation.
Background: Under Armour's Growth and Digital Needs
Founded in 1996, Under Armour revolutionized athletic wear with its moisture-wicking fabric technology. Over two decades, the company expanded its product lines across apparel, footwear, and accessories while growing its global presence. As operations became more complex, the company sought to upgrade its ERP system to improve efficiency, optimize supply chains, and enhance customer experiences.
The Critical Role of ERP Systems
ERP (Enterprise Resource Planning) systems serve as the central nervous system for business operations, integrating financial, human resources, supply chain, and customer relationship management functions into a unified platform. For global enterprises like Under Armour, advanced ERP systems are essential for managing complex supply chains, inventory optimization, demand forecasting, and customer service improvements.
Under Armour's ERP Upgrade: Objectives and Challenges
The company's ERP upgrade aimed to achieve several key objectives:
- Enhance operational efficiency through automation
- Optimize supply chain management with real-time tracking
- Improve customer experience through personalized services
- Strengthen decision-making with comprehensive data analytics
However, the implementation faced significant challenges:
- Technical complexity requiring specialized IT expertise
- Difficulties in data migration and integrity
- Necessary business process realignments
- Extensive employee training requirements
- Organizational change management hurdles
The Financial Impact: A Dual Blow to Revenue and Profits
In Q3 2017, Under Armour reported a 4.5% year-over-year sales decline and a 58% profit drop to $54.2 million, ending 26 consecutive quarters of 20%+ sales growth. While management characterized this as a temporary setback, the episode revealed fundamental challenges in digital transformation initiatives.
Root Cause Analysis
The ERP implementation difficulties stemmed from multiple organizational factors:
1. Inadequate Change Management
The transition extended beyond technical implementation to fundamental operational changes. Under Armour underestimated the adaptation period required for employees and manufacturing partners. As CEO Patrik Frisk acknowledged during earnings calls, change management issues significantly impacted the transition to new platforms and processes.
2. Insufficient Training
Despite technical success with the SAP implementation, training for suppliers and partners lagged. Inadequate preparation led to system usage errors and operational inefficiencies.
3. Poor Supplier Coordination
The complex supply chain required synchronized adaptation to the new ERP system. Communication gaps with suppliers created order processing delays and logistics disruptions.
4. Underestimated Risks
The company failed to fully anticipate how system migration could disrupt business operations, leading to the unexpected financial impact.
5. Potential ERP Selection Issues
While SAP represented an appropriate scale match for Under Armour, knowledge gaps may have created implementation challenges that smaller, more specialized systems could have avoided.
Corrective Actions and Long-Term Outlook
Under Armour implemented several remediation measures:
- Enhanced training programs for staff and partners
- Business process optimization for the new system
- Improved supplier communication protocols
- Ongoing system refinements
CFO David Bergman noted that while operational disruptions continued into Q4 2017, the system stabilized, with further adjustments planned for 2018.
Key Lessons for Other Enterprises
The case offers valuable insights for digital transformation initiatives:
- Develop Clear Digital Strategy: Align transformation objectives with overall business goals
- Prioritize Change Management: Implement comprehensive communication and support plans
- Invest in Training: Ensure all stakeholders achieve system proficiency
- Strengthen Supplier Coordination: Establish collaborative adaptation mechanisms
- Conduct Thorough Risk Assessment: Identify and mitigate implementation risks
- Select Appropriate Systems: Match ERP solutions to organizational needs and capabilities
- Commit to Continuous Improvement: Treat implementation as an ongoing optimization process
Conclusion
Under Armour's ERP upgrade represents both the challenges and potential of digital transformation. While the short-term impacts were significant, the experience provides critical lessons about the organizational dimensions of technological change. Successful digital transformation requires more than technical implementation—it demands strategic vision, careful planning, and sustained organizational commitment. As companies navigate this complex journey, Under Armour's experience serves as both warning and guide for the digital transformation road ahead.