SAP ROI — Enterprise Architecture & Business Solutions

SAP ERP Project Failures

The following SAP ERP project failures cover the importance of testing, change management, training, senior management involvement, scope management, and quality of the consultants provided by ERP implementation vendors.

With the exception of the inept, incompetent, or otherwise unqualified “con”sultants provided by some system integrators it is important to note that these failure overviews illustrate many of the points made by Steve Phillips in the post on Software Consulting Firms and Clients Myths and Half Truths .

There Mr. Phillips lays out pretty significant areas where the business must chart and then control their own project destiny.

For a table of the primary areas of responsibility for end customers to ensure project success please see SAP Success Factors for Vender Selection – Responsibility Matrix 2 .  The table developed there is derived from the academic literature and my own experience.  I have added my opinion on how the responsibility for those success factors is divided between the customer and the SAP implementation partner or vendor.

Continuing on the series of SAP ERP project failure overviews, here are three more.

SAP ERP Implementation Failure Overviews – part 2

Levi Strauss & Company – SAP Failure? (2008)

• After go-live shipping was prevented for one week and there were legacy system integration issues.  Levi was an interesting case study because many industry experts believe the SAP implementation was used as an excuse for broader economic issues affecting Levi.
  • One week of delayed deliveries was insufficient to explain the overall drop in financial performance (approximately 98% decrease in revenue could not be sufficiently tied back to the SAP implementation).
• Levi Strauss has since worked through and resolved the implementation issues and SAP is running smoothly.

Lessons Learned: Ensure that all legacy system interfaces are carefully tested before going live. Don’t use SAP or enterprise application implementations as an excuse for poor economic or poor overall market conditions.

Waste Management Incorporated – SAP ERP Failure Overview (2008)

• Waste Management claimed in its lawsuit that they “wanted an ERP package that could meet its business requirements without large amounts of custom development…” They also claimed “SAP used a ‘fake’ product demonstration” and “SAP’s technical team had ‘recommended that SAP deliver to Waste Management a later version of the software than the version SAP in fact delivered’.” They also claimed SAP knew the software was “unstable and lacking key functionality…” [FN1]
• SAP claimed that its application could meet the company’s needs without modification.
• SAP claimed in its legal counterclaims that “Waste Management didn’t ‘timely and accurately define its business requirements’ nor provide ‘sufficient, knowledgeable, decision-empowered users and managers’ to work on the project.” [FN1]

Lessons Learned: First and foremost any organization or company who implements SAP, ERP, or other enterprise software applications must ensure they are in control of their own project. This would generally fall under numerous critical success factors: business process engineering / change management, scope management, senior management support, formal project plan and schedule, consultant experience, implementation strategy, and amount of custom coding.  Delivering a project with standard system functionality, and on time / on budget requires strong leadership from both the customer and the integrator.  For additional insight and a somewhat different perspective please see the post where SAP and Waste Management Finally Settle .

Los Angeles Unified School District – SAP ERP-HR Failure Overview (2007)

• Fake Consultants / Trainees / unqualified consulting resources on the project
  • “[I]t appears Deloitte (the implementation partner) brought unqualified resources (i.e., personnel) to the project.” [FN2, pg. 28].
  • I personally encountered one of these fakes as a project manager for another company looking for a workflow resource.  Their ABAP and SAP skills were horrible but they got a great reference from LAUSD.
• Lack of cooperation with the Teacher’s Union and no user buy in.
  • This is a project planning and change management issue; the company and the integrator bear this responsibility.
• Has since worked through and resolved the implementation issues and SAP is running smoothly.

Lessons Learned: SAP implementation vendors and partners may allow margin desires to override quality to the point of presenting significant project risks.  It is critical to evaluate every consultant any integrator brings onto your project.  There are just too many fakes in the marketplace that do not have proper background checks.

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[FN1]  SAP, Waste Management settle lawsuit.  Business Week. May 3, 2010.
http://www.businessweek.com/idg/2010-05-03/sap-waste-management-settle-lawsuit.html (retrieved 5/11/2010)

[FN2]  Bhagwani, A. (2009). Critical Success Factors In Implementing SAP ERP Software, University of Kansas Graduate School. http://www.r3now.com/literature/2009-Bhagwani-SAP-Project-Success.pdf

Related Posts:

• SAP ERP Project Failures Lessons Learned and Mini Case Studies 3
• SAP Customer Responsibility for SAP Project Success
• SAP System Vendor Project Success Criteria 1
• SAP System Vendor Project Success Criteria & Factors 2
• Planning For a Smooth Go-Live: Part 3

The following SAP project failures are the first three of nine or ten we will review over the next few weeks.  The SAP project failures we will review were high profile examples with significant lessons to be learned.  In nearly every case where the SAP implementation actually occurred, within 1 to 2 years after the troubled go-live the SAP software itself was reasonably well-received and the business was generally satisfied.

I apologize for the timing of these posts so close to the Christmas and New Years seasons but considering that a number of new SAP or other ERP projects are starting in the first quarter of next year I didn’t want to wait.

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One interesting feature of the SAP project failure research is that none of them I could find can be attributed to the actual SAP software itself.  Although a few customers claimed it was the software when doing more thorough research I have only found structural problems with the project itself and not directly attributed to the software. After all, as of this post, SAP software has been installed or implemented over 100,000 times.  Careful research shows that none of the high profile SAP project failures were related to technical failures of the standard software, SAP architecture, application depth, or the breadth of the application.

Problems with SAP projects from the published literature usually involves:

• poor project management and control,
• little or no change management,
• poor training,
• significant custom coding, or
• poor consultants from the SAP system implementation partners or vendors.

This sampling of project failure issues will start from the most recent to some of the older ones.

SAP ERP Project Implementation Failure Overviews

Marin County California – SAP ERP project failure overview (2009)

Financial, HR, and Payroll systems were implemented by Deloitte.  This project led to a lawsuit filed by Marin County (the customer) in 2010 alleging fraud.  For example, from the introduction to the Marin County legal complaint Marin notes:

Deloitte [claimed to have] assembled a team of its ”best resources” who had “deep SAP and [business] knowledge.”  These representations were fraudulent. Indeed, at the time Deloitte made them, it knew that it did not have the ability or intention to provide the skilled resources necessary to deliver a successful SAP implementation… Deloitte also knew that because the County did not have any prior ERP implementation experience in general, or SAP experience in particular, it  would be depending on Deloitte to oversee, guide and manage the project.  Notwithstanding such knowledge, Deloitte made these false representations in order to obtain the contract for the County’s lucrative SAP project.  [R]ather than providing the County with SAP and public sector expertise, Deloitte used the County’s SAP project as a trial-and-error training ground to teach its consultants – many of them neophytes — about SAP… software, all at the County’s expense.

A number of significant problems were caused throughout the project and Marin County is in the process of abandoning its SAP software implementation.

• Fake Consultants / Trainees / unqualified consulting resources on the project
• Pay rates, payroll, and wage information were incorrect.
• Huge amounts of custom coding to replace standard SAP functionality (which Marin County claims would have been sufficient).
• Inability to easily make adjustments and resolve compensation issues (much of this because of custom ABAP programming).
• Insufficient training and change management.
• Lawsuit claims improper relationships and ethical problems with the Deloitte and Marin County employees involved in the project.
• Has since announced they are abandoning the SAP project after working for a couple of years to resolve the underlying problems.
• Lawsuit is still ongoing and proceeding slowly in Marin County, CA.

Lessons Learned: Throughout the legal complaint by Marin County against Deloitte Consulting there were allegations of fraud with the consultants they provided.  Taking the Marin County complaint at face value they knowingly provided inexperienced and incompetent consultants for the government project.  Worse still, at least according to the complaint, this was done knowingly and deliberately.

For more information on the required skills, as well as how to screen and interview good SAP consultants please see these posts:

Screening and Interview Methods to Find the Right SAP Consultant
Screening and Interview Methods to Find the Right Consultant – Part 2

Shane Company – SAP ERP project failure overview (2008)

• Shane Company had 23 stores in 14 states and filed for bankruptcy in January of 2009.
• Shane initially blamed their company bankruptcy on SAP as a software application suggesting that their bankruptcy was partly due to SAP project cost overruns and SAP project delays.
• The initial project cost was budgeted or planned for $10 million but ended up costing approximately $36 million and was planned for 1 year but ended up taking approximately 3 years [FN1, pg. 26]
• After initially blaming SAP, Shane later admitted that their (“low cost”) SAP system implementation vendor, Ciber Novasoft, was more responsible for the SAP project failure than the SAP ERP software.

To summarize Shane’s SAP ERP failure “Enterprise Matters” offers succinct insight:

[L]arge enterprise systems, that have been installed in thousands of companies, don’t cause customers to lose money due to implementation failure (This is true for SAP, Oracle, and everyone else). It takes the customer’s managers, usually aided and abetted by a company like Ciber, to get it really wrong. [FN2]

Lessons Learned from the Shane Company SAP ERP project failure [FN3]:

• Poor SAP ERP management, both on the project management side and the Shane Company senior management.
• An improper budget and implementation plan.
• Scope and cost were not properly managed.
• Poor or undefined processes along with poor or untested system functionality.

For more information on proper scope, management, and project oversight see the following posts:

Aligning SAP Scope to Meaningful Business Requirements
Effectively Scope Your SAP Project
SAP System Vendor Project Success Criteria & Factors 2

Select Comfort – SAP ERP project failure overview (2008)

Select Comfort is included as a recent example of an SAP project that was abandoned rather than actually failed.  As a brief summary: the entire project was improperly conceived from the beginning because there was no pressing business need to change systems; a new CIO initiated the project; the scope was massive (ERP, CRM, SCM, APO, etc.); and the project was performed only by internal employees.

I’m sure there are other factors but it is obvious this project was destined to fail from the beginning.

Lessons Learned: Enterprise applications should be implemented one at a time (or at least very limited), scope must be carefully managed, and there should be a proper justification or business case for enterprise applications.

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[FN1]  Bhagwani, A. (2009). Critical Success Factors In Implementing SAP ERP Software, University of Kansas Graduate School. http://www.r3now.com/literature/2009-Bhagwani-SAP-Project-Success.pdf

[FN2] Shane’s Blame Game: Management, Not SAP Retail, Sinks Jewelry Company
http://ematters.wordpress.com/2009/01/14/shanes-blame-game/

[FN3] Some of these were derived from: Shane Company: Lessons Learned From an ERP Implementation Failure
http://www.erpko.com/articles/erp-articles/shane-company-lessons-learned-from-an-erp-implementation-failure/

Related Posts:

• Lower SAP Application Support Costs – TCO – by Reducing Custom Solutions
• SAP Implementation Partner or Company Selection Criteria
• Tactics, Strategy, ROI, TCO and Realizing Business Benefit from SAP
• Planning For a Smooth Go-Live: Part 3
• SAP Customer Responsibility for SAP Project Success

A recent post from my friend Steve Phillips who runs a great site entitled “Street Smart ERP Blog“.  This is a nice complement to the series I just finished on SAP and ERP critical success factors.

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Steve Phillips writes:

Having spent the majority of my career in the shoes of a software consultant or client, I have often wondered why many find it necessary to perpetuate the old myths and half-truths regarding the consultant / client relationship. My feeling is given the track record of ERP we are not doing anyone any favors. In fact, we are causing more harm than good by setting false expectations regarding what consultants are, what they are not, and what the client should be doing.

One answer is …the myths are self-perpetuating. That is, consultants want clients to believe them (more billable hours) and clients desperately hope they are true (even though deep down they know better).

The other answer could be consultants actually believe they are super-human and clients play into this by getting the consultants to assume all the project risks. The real answer is …we are all a lot smarter than that.

In this and the next series of blog entries, I explore this topic by addressing each of the fifteen myths. No doubt, some will not like what I have to say. But if we cannot acknowledge the problems, we certainly cannot address them (and for the sake of everyone involved, let’s face it, they really do need to be addressed). Here is the first one.

MYTH #1: “THE SOFTWARE CONSULTANTS WILL MAKE US SUCCESSFUL”

TRUTH: Consultants can educate, suggest and coach but cannot make the client do much of anything. In fact, for most ERP “critical success factors” consultants have no direct authority or control over the outcomes.

There might be a few superhuman consultants out there, but 99.9% of them are not.

Only the client can:

• Own and communicate the business case and drivers for the change.
• Clearly define and communicate their project objectives.
• Implement measurements to support the desired behavior and process changes.
• Approve and contain the project scope.
• Require (not just sell) the cooperation of employees at all levels of the organization.
• Assign the right internal employees to the project team.
• Free-up the required time for those assigned to participate.
• Expect (not hope) the internal team eventually becomes software experts.
• Hire employees with the right skills and knowledge when necessary.
• Manage and utilize outside consultants correctly.
• Hold functional managers and the team accountable for fulfilling their roles
• Make necessary changes in operating paradigms and business processes.
• Limit software mods through justification or changing business processes.
• Remove the people barriers and naysayers that get in the way.
• Tackle project issues and decisions in a timely fashion.
• Take end-user training seriously and require employees to attend.

Again, no matter how great your ERP software or consultants, these are things only the organization can do.

So can your software consultants make you successful?

Related Posts:

• SAP Implementation is an Investment NOT an Event
• A New SAP Implementation Methodology and Implementation Steps
• SAP Success Factors for Vendor Selection – Responsibility Matrix 1
• Toward an SAP Center of Excellence or SAP Competency Center – PART 1
• Reduce SAP, ERP, or Technology Project Stress: Part 2