| Introduction | | | | adopter of SAP R/3. After the project began, |
| An Enterprise Resource Planning (ERP) system | | | | FoxMeyer signed a large contract to supply university |
| covers the techniques and concepts employed for | | | | health system consortium (UHC). This event |
| the integrated management of businesses as a whole | | | | exacerbated the need for the unprecedented volume |
| from the viewpoint of effective use of management | | | | of transactions on their HP servers which they could |
| resources, to improve the efficiency of an enterprise. | | | | not copeiv) Customer mandate – the |
| They have many advantages both direct and indirect. | | | | commitment from the top management and users. |
| The direct advantages include improved efficiency, | | | | This was not the case for some of the senior |
| information integration for better decision making, | | | | management. There was a morale problem among |
| faster response time to customer queries etc. The | | | | some of its warehouse workers. The pinnacle |
| indirect benefits include better corporate image, | | | | warehouse automation integrated with SAP R/3 |
| improved customer goodwill, customer satisfaction, | | | | threatened their jobs. With the closing of the three |
| and so on. | | | | warehouses, the transition to the first automated |
| Many organizations and businesses in the world today | | | | warehouse was a disaster. Disgruntled workers |
| as part of their strategic development plan, advocate | | | | damaged inventory, and orders were not filled, and |
| for ERP solutions which would help to re-engineer | | | | mistakes occurred as the new system struggled with |
| their business processes in order to accomplish their | | | | volumes of transactions |
| long-term goals. | | | | Project Factors |
| The ERP market is very competitive and fast | | | | Factors that attribute to escalation of costs include |
| growing market, which is attributed to three primary | | | | but not restricted toa) Project factors- there was a |
| factors:a) ERP vendors are continuing to expand | | | | perception that continued investment could produce a |
| market presence by offering new applications such | | | | large payoff. FoxMeyer expected a saving of $40 |
| as supply chain management (SCM), sales force | | | | million annually.b) Psychological factors- the |
| automation, customer relationship management | | | | consultants had prior history of success that |
| (CRM) and human resource.b) To sustain their rapid | | | | encouraged them to continue the project. “we |
| growth, ERP vendors sell more licenses into their | | | | delivered an effective system, just as we have for |
| installed base.c) While ERP originated in the | | | | thousands of other clients” (Computergram |
| manufacturing market, ERP usage has spread to | | | | international 1998). This created the impression that |
| nearly every type of enterprise including retail, utilities, | | | | the project would radically improve the |
| the public sector and healthcare organizations. | | | | company’s critical operations. FoxMeyer bit more |
| Among the industry players include SAP (Systeme | | | | that what it could chew but embarking on a fast |
| Anwendungen Produkte), Oracle, QAD, SSA, | | | | track project with unskilled staff.c) Social factors- the |
| Jenzabar, Datatel, Peoplesoft, Baan, JD Edwards, | | | | consulting company did not externally justify the |
| Scala, Navision, Sungard just to mention but a few. | | | | project. De-escalating the project through |
| Even within themselves they categorise each other | | | | abandonment would have meant bad publicityd) |
| into High-end and low-end range. In Kenya a cross | | | | Organization factors-The advocates for the project |
| section of companies are indeed on the warpath of | | | | later were forced to resign because of the delays in |
| undertaking or planning to invest in an ERP business | | | | realizing the projected savings. A change in |
| solution. The future will see fierce battle for market | | | | management was needed in order to control the |
| share resorting to mergers and acquisition for | | | | increasing costs – which was too late. |
| strategic and competitive advantage. | | | | Recipe for failure |
| There is much hype when the vendors are out to | | | | · When the management is not controlling the |
| move their products, and will always sell and tell you | | | | scope of the project especially when you expect the |
| about their success stories and how you will leapfrog | | | | consultant to provide a magic bullet, is a recipe for |
| into your vision. They never tell you of any failures | | | | failure. |
| of such ERP projects, and there seems to be no | | | | · Changing the sails in midstream, by certain |
| attention paid to lessons learnt from the famous | | | | deliverables expected within a third of the |
| FoxMeyer Corporation scenario, which lead to its | | | | documented times and volumes is a recipe for failure. |
| bankruptcy and the lengthy legal battles in the | | | | · By engaging in other corporate projects competing |
| courtrooms with their consultants thereafter. “My | | | | for the meager finances midway, is a recipe for |
| basic principle is that you don’t make decisions | | | | failure |
| because they are easy, you don’t make them | | | | · By not having proper change management policies |
| because they are cheap, you don’t make them | | | | and procedures, is a recipe for failure |
| because they are popular but you make them | | | | · By going for consultants without prior experience |
| because they are right”- Theordore Hesburgh. | | | | or ERP solutions in which you are the only company |
| If not properly planned for, the investment may | | | | within your industry, could be a recipe for failure |
| drive you out of business. The epicenter for the | | | | · If you do not have a knowledge transfer inscribed |
| problems that rock the corporate world as far as | | | | in the consulting contract, is a recipe for failure |
| ERP or in general IT project failure is concerned has | | | | · If the vendor does not understand your business, |
| remained the same over the years. | | | | is a recipe for failure |
| The following examples are typical of the projects | | | | · If the project has no clear phases, deliverables and |
| that failed from statistics available from The Standish | | | | quality control components, is a recipe for failure |
| group CHAOS database | | | | · If you have not re-engineered your business |
| · The Hershey foods ERP system implementation | | | | processes to be compatible with the capabilities of |
| failure lead to massive distribution problems and loss | | | | the technology, is a recipe for failure |
| of 27% market | | | | · Having multiple vendors within the one project, is a |
| · The FoxMeyer drug ERP system implementation | | | | recipe for failure |
| failure lead to the collapse of the entire company | | | | · Not having an external project audit committee, is |
| · The IRS project on taxpayer compliance took | | | | a recipe for failure |
| over a decade to complete and cost the country | | | | · Not having a clear end-user training program to |
| unanticipated $50 billion | | | | transfer skills to employees, is a recipe for failure |
| · The Oregon Department of Motor Vehicle | | | | · Having the project run as a “one-man |
| conversion to new software took eight years to | | | | show”, is a recipe for failure |
| complete and public outcry eventually killed the entire | | | | · Having the management over- committed |
| project | | | | (excessively ambitious, prompting unrealistic |
| · State of Florida welfare system was plagued with | | | | deadlines), is recipe for failure |
| numerous computational errors and $260 million in | | | | · Team member not being accountable for actions, |
| overpayments | | | | is recipe for failure |
| · AMR Corp, Budget Rent A Car, Hiltons | | | | · Low morale within team, is recipe for failure |
| Corporation, Marriott “ confirm” project | | | | · Unclear statement of requirement, is a recipe for |
| crumbled having spend over $125 million over four | | | | failure |
| years | | | | · In no standard implementation methodology use, is |
| · Snap-On Inc project to convert to a new | | | | a recipe for failure |
| order-entry costed the tools company $50 million in | | | | · Inadequate requirements definition (current |
| lost sales for the first half of 1998 | | | | processes are not adequatelyaddressed), is a recipe |
| · Greyhound Lines Inc. “Trips” reservation | | | | for failure |
| and bus-dispatch system” failed having spent $6 | | | | · Poor ERP package selection (the package does |
| million | | | | not address the basicbusiness functions of the client), |
| · Norfolk Southern Corp. “Systems integration | | | | is a recipe for failure |
| with merger target Consolidated Rail Corp”. failed | | | | · Inadequate resources employed by the client, is a |
| having lost more than $113 million in business | | | | recipe for failure |
| · Oxford Health Plans Inc. “New billing and | | | | · Internal resistance to changing the 'old' processes, |
| claims-processing system based on Unix International | | | | is a recipe for failure |
| and Oracle Corp. databases” resulted in hordes of | | | | · A poor fit between the software and users |
| doctors and patients angry about payment delays | | | | procedures, is a recipe for failure |
| and errors. | | | | · A bottom up approach is employed (the process is |
| · Universal Oil Products Project “ Software for | | | | not viewed as a topmanagement priority), is a recipe |
| estimating project costs and figuring engineering | | | | for failure |
| specifications” resulted in unusable systems | | | | · The client does not properly address and plan for |
| IT projects regularly fall short – and quite few | | | | the expenses involved, is a recipe for failure |
| are abandoned entirely. Many IT failures have to do | | | | · If any functional gaps have not been identified |
| with perceptions and expectations rather than | | | | (GAP analysis), is a recipe for failure |
| absolute bankruptcy of purpose. Most of the so | | | | · If the implementation does not take into account |
| called failures are better classified as | | | | future technological convergence, is a recipe for |
| “discouraging successes” events wherein the | | | | failure |
| major purpose is accomplished, but not without a | | | | Conclusion |
| good deal of frustration and inefficiency – and a | | | | The lessons learnt from the failed ERP projects |
| sour taste in the mouth of many users. | | | | should be a wake-up call for corporations currently in |
| Project risks | | | | ERP projects or contemplating to go that way. The |
| The FoxMeyer Corporation Delta III project had the | | | | lessons learnt can as well, serve as a harbinger for |
| following project risksi) Environmental- the | | | | failure or bankruptcy by serving as the jetty for |
| management had little or no control. They depended | | | | launching the rocket to propel you out of the |
| 100% on consultants and vendors who obscured | | | | business orbit. The experiences highlighted provide a |
| them from gaining control. The focus of the project | | | | litmus test on how to avoid ERP failure. There is one |
| dramatically changed prompting the projects costs to | | | | final aspect to be considered in any degree of |
| escalateii) Execution- the project lacked skilled and | | | | project failure. All success is rooted in either luck or |
| knowledgeable personnel. FoxMeyer did not have the | | | | failure. If you begin with luck, you learn nothing but |
| necessary skills in-house and was relying on Andersen | | | | arrogance. However, if you begin with failure and |
| consulting to implement SAP R/3 and integrate it with | | | | learn to evaluate it, you also learn to succeed. Failure |
| an automated warehouse system from Pinnacle. | | | | begets knowledge. Out of knowledge you gain |
| Over 50 consultants were inexperienced and their | | | | wisdom, and it is with wisdom that you can become |
| turnover was high.iii) Scope- FoxMeyer was an early | | | | truly successful. |