In a white paper that I had written in 2007 titled “SAP Procurement for Public Sector” I had highlighted how the challenges with failed ERP-centric initiatives extended beyond the public sector to include the private sector. The difference as one senior Colgate-Palmolive executive told me shortly after scrapping a failed program was that “unlike the public sector in which a failed initiative becomes front page news, private sector company ERP failures rarely make a blip on the media’s collective radar screen.”
The lack of media awareness notwithstanding, the frequency of failures in the private sector is comparable to the number of setbacks that occur in the public sector.
For example, and I am quoting from the above referenced SAP paper, “Following an SAP R/3 implementation in the mid-to late 1990s,” the bankruptcy trustees for FoxMeyer Drug “filed a $500 million lawsuit in 1998 against SAP, and another $500 million suit against co-implementer Anderson Consulting, claiming the companies’ software and installation efforts had contributed to the drug company’s demise.”
On June 23, 2004, “SAP reached a settlement with FoxMeyer pursuant to which SAP was required to pay a specified amount.” For those who would like to get more into the specifics of the FoxMeyer, as well as the myriad of other similar misadventures, here is the link to the “25 Terrifying Information Technology Horror Stories” article that appeared in CIO.com. A kind of “scared straight” version for organizations that are still for whatever reason contemplating a traditional-type licensing model initiative.
In today’s post by Martin Murray in his “Martin’s Logistics Blog” on About.com, he shares with us the breaking story regarding nonprofit’s Public Health Foundation Enterprises (PHFE) suit filed against Lawson Software for “more than $1 million over an allegedly failed ERP (enterprise resource planning) implementation.
What is amazing is that issues Murray lists has part of the PHFE complaint have been a long-standing problem in the ERP world. Specifically that “the consultants did not possess the knowledge necessary to answer PHFE’s questions,” and “the consultant Lawson initially assigned did not know how to properly configure the system to meet guidelines.”
The piece de la resistance is that “PHFE has spent more than $1 million on various programs, rather than one integrated program as promised, that do not work.”
Murray’s article concluded by stating the PHFE is “now using its previous system to run operations.” (Here is the link to access Murray’s post titled “Non-Profit Organization Suing ERP Supplier.”)
This is an all too familiar story that is repeatedly played out the world over as demonstrated by the 85% rate of ERP-centric initiative failures.
The reference to the “consultants not possessing the necessary knowledge” and, not “knowing how to properly configure the system” is in line with a comment I received from an individual who attended one of my seminars. During a break in the session, and in response to my disclosure of the 85% rate of failure statistic, the individual who at the time was (and may still be) a consultant with CGI (a major systems integrator), indicated that the number seemed about right.
When I asked this individual to provide their perspective as to the reasons for the dismal results, they said that within CGI there are only a handful of consultants who possess the necessary knowledge and expertise to take on the majority of the contracts the company wins. Unfortunately, once they land the deal, they are reassigned to landing the next opportunity.
Subsequently, the implementation team (or second team as referred to by the individual) is then left in charge of the project. Rarely, if ever do they possess the prerequisite skill necessary to successfully implement the program.
All this of course leads to a simple question . . . when will companies stop capital commitments to pay exorbitant up front fees based on the promise of a result that only occurs 15% of the time?
Regarding Lawson, they were highlighted as an up-and-coming small ERP player in an August 30th, 2007 Canadian Business On-line article “ERP: Small fish, big sea” by Mike Ouellette. I myself had referenced the Ouellete piece (and Lawson) in my August 2007 “The Ariba Interviews” post, in which I cautioned against using financial performance as an indication of market acceptance. The “warning” while directed more towards Ariba, extends to include performance capability as well.
What does this all mean. It means that the market is finally cluing into the fact that bigger or global is not necessarily better. It might also be an indication that some – not all of course – of the traditional sources of industry insight and analysis (i.e. blogs, analysts etc.) have become somewhat stagnate.
Ultimately it should mean that the days of big dollar capital projects should cede very quickly to the adaptive and results-conducive on-demand models provided by the more technologically savvy and seasoned SaaS vendors.
But that is a story for another day.
Procurement Insights 
Posted on August 25, 2009
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