Evaluating Erp Systems Failure: a Comparative Study

Introduction

This assignment is basically a comparison between two journal articles to understand the procedures that have been used in implementing new ERP systems in the two different companies discussed in the respective journals. From the list provided, I have chosen “The FoxMeyer Drug’ bankruptcy: Was it a Failure of ERP?” by Judy E. Scott and “Examining the ERP Implementation Process from a Failure Case” by Ada Wong, Harry Scarbrough and Patrick Chau. The context of new ERP system requirements in both of them are different. Also the timeframe and geographical locations are also different. Choosing these two, I hope I have brought a tinge of diversity. Following the assignment requirements, ten other journal articles are also referenced, all discussing about how ERP failed in various companies from different countries. Surprisingly, most of them showcases human related factors and managerial factors as reasons for IS failure rather than technical factors. For the critical factor analysis I have used both Tony Feghali and Imad J. Zbib, 2007 framework and Schmidt et al. (2001) framework. APA Sixth Edition format has been used for referencing these ten articles.

Task 1: Identifying failure types

Article 1: The FoxMeyer Drug’ bankruptcy: Was it a Failure of ERP?

Interaction Failure: These failures basically arises due to the lack of user satisfaction. When the users cannot use the designed system efficiently and fail to meet their expectation they tend to abandon the system. In this case of FoxMeyer, workers feared of losing job because of the automation. The morale problem among the warehouse employees was evident from all sides. The first step of shutting down three warehouses for automating one warehouse itself threatened them. Workers feared of losing their control over the warehouse and processes. They started damaging the inventory and did not fill the orders and made mistakes when the system was having issues handling huge volume of transactions. They were in short of in-house skills and knowledgeable personnel. FoxMeyer majorly depended on external consultants to implement R/3 system and to integrate the ERP. Lack of training on the new systems created plunge to the resistance of workers and led to the high attrition rate. There was no initiative for knowledge transfer from the external consultants either by the senior management level or the warehouse workers’ side. The external consultants were themselves inexperienced and new the system. The interaction was at zero level between the new implemented system and the warehouse workers.

Process Failure: The budget and estimation method use by FoxMeyer wasn’t the best. The lack of management control on the implementation of SAP R/3 and warehouse automation. They tried to put in two different interfaces altogether. The design of implementing two new different systems, for the company’s most important business systems, at same go ended up as a massive failure. The management overestimated the capacity of R/3 in 1994. The volume of transactions SAP R/3 could handle was magnificently less in front of the volume of transaction that was handled by original mainframe system of FoxMeyer. They also fell behind in controlling the risk framework associated with heavy automation and project management. Their budget estimation also seems to be not on a safer side ($65 Mn) because the FoxMeyer used to showcase themselves as a cost leader, they should’ve kept budget on such a way that they can keep up at least a small margin. The deadline they kept was unrealistic, they set 18 months for completing the entire implementation. The initially set output for the new system was changed afterwards to extreme high standards which wasn’t possible considering the stage of implementation and other aspects of business. The capacity of SAP project also increased drastically. These two clearly indicates the loose controls maintained by management over the scope of the project. The adaption of a relatively new technology, when it hasn’t been proved very successful, also added up the risk to the business. While adapting these new measures they failed to educate the users (vendors and workers).

Correspondence Failure: This failure is more attributing towards the perspective management hold. “It was not a failure of automation. It was not a failure of commercial software per se. it was a management failure”. The higher level management of FoxMeyer was too emotional to be in business with the project Delta III. FoxMeyer CIO Robert Brown felt a high degree of personal responsibility saying, "We are betting our company on this." The investment made into this project was way too high for a company like FoxMeyer especially when they started implementing changes on two vital systems of the business. The dedication put by senior management was way too high to be practical when the lower level management showed zero percent of that. The change in project focus lead to high project costs. The case also states that there was a warning from Woltz consulting on the scheduling of completion of the project but still the management insisted on 18 month schedule. They also expected a savings of $40 MN annually. This shows how unrealistic the scheduling goal was. Whereas the vendors, Anderson Consulting and SAP, didn’t call off the project assuming the abandoning of the project will defame their prestige and will lead to low sales in future. The payoff from Delta III was overestimated by both the senior management as well as the vendors.

Article 2: Examining the ERP Implementation Process from a Failure Case.

Interaction Failure: The consultants hired for ERP implementation and the middle and operational level staff couldn’t sync well because of the language barrier. Although the project manager knew about this, he didn’t help much, and thus wasted two months of implementation period. This showcases the lack of motivation among staff. The functionality needed for new system was lacking in many sense. They did not try to accommodate the need to understand their current business process and the capability of prospective ERP system. The staff members involved with the business then didn’t have essential business analyst experience and thus the business requirement wasn’t addressed accurately. The staff leaving the company because of the complexity is the way they abandon the system.

Process Failure: The resources for complete implementation of the new system was proved to be insufficient. The budget allocated was less than required for whole ERP adoption. The deadline was set to six months, initially, by top management, project manager and the consultants. It was clearly inadequate. In addition to the budget and time deficiency, the complexity increased with the nature of new technology. Consultants weren’t acquainted enough with the technology to configure the system, it lead to many bugs in the system, which ultimately contributed to shelving the project. The project had to struggle with less human resources to cope up with increased load. The staff were incapable to cope up with the complexity and pressure. Some staff members resigned because of high stress and workload. So the company had to hire new consultants and train them on this new ERP system. It again led to more time and budget than planned.

Correspondence Failure: The senior level management and middle level management focused more on the advantages of the new ERP system and ignored the fact of considering the disadvantages or setbacks the business can face because of this new system. All levels of managements kept unrealistic expectations and did not take into consideration of the potential risks or the need of business process re-engineering to accommodate new ERP system. Even before the system was completely ready, the management went ‘go-live’ assuming they would be able to tackle the problems gradually, which turned out to be bad decision. If these were the slip-ups committed by management, the vendors also kept up with them. Vendors didn’t do enough testing of the system before delivering to the company.

Task 2: Identifying critical failure factors.

Article 1: The FoxMeyer Drug’ bankruptcy: Was it a Failure of ERP?

Introduction of new technologies (Technology factor)

The technologies used in Delta III was a new technology in that period. According to the case vendors didn’t get enough time to run ample of tests before introducing to the market. FoxMeyer, was unfortunately preyed to be served as a prototype platform when they decided to implement two new different systems, for the company’s most important business systems, at the same time. It would have been better if they at least waited for the technologies to prove successful in the market. Or else, they could have tried implementing one technology after another to see how successful first one is running for them.

Not properly managing changes (PM related factor)

FoxMeyer’s mainframe production was 420,000 customer orders per night. The new system could only cater for 10,000 orders per night. Before implementing the system into practice they didn’t consider the actual requirement versus system capacity. During the initial phase of implementation itself they tried to incorporate production in large volume without changing the business environment. Also, with huge cost incurring related to new system, their focus of being cost leader drastically changed. They didn’t try to manage the change efficiently.

Insufficient staffing (PM related factor)

The lack of in-house skill was another vital reason for the project failure. FoxMeyer depended on the external consultants for ERP implementing and operational purposes. They didn’t train in-house staff or didn’t hire professional who have knowledge in similar systems to the company. Without proper staffing, the lack of commitment from external consultants was evident. That too the external consultants were inexpert but FoxMeyer had to pay high consultant fee for inexperienced guidance. If they had experienced or trained staff for both systems the process of integrating new system and old would have been easier and worthwhile.

Poor quality of IS planning (i.e. poor estimation, monitoring, planning) (Managerial factor)

The senior managerial level expectations on Delta III were unrealistic from all the perceptions, the time approximation, production budget and profit planning as well. Even after noticing the loss occurring at various stages, they believed after a point of time they’ll reach breakeven and will start earning profit thereafter. They could have had a second thought then at least. The Woltz consulting had given many warnings against their tight deadline, but FoxMeyer chose to stick on with the 18 months plan and had to surrender to the unrealistic timeline.

Article 2: Examining the ERP Implementation Process from a Failure Case.

Lack of team skills (Organisational factors)

Communication plays a vital role in any project/business. In fact that should be the first step in building a new project. It helps to build a team, exchange ideas and understand things in various perspective. Here, the consultants and staff failed in that very step. The communication level among consultants and project team members was very low during the initial phase of implementation. The consultants were hired from India, who had fluent English but with strong Indian accent which the staff couldn’t understand. Due to this, they couldn’t understand the ERP concepts, functionality and the use of ERP system for day-to-day operations. Without understanding the basics of new technology the staff might have gone through immense pressure and vulnerability. The project manager who knew about this situation didn’t take much actions thus resulting in wasting two months out of the six month execution timeline. That again shows the lack of team skills from manager’s side.

Inadequacy of the technical environment (Technical factor)

The quality of service provided by the consultants were poor. They had minimum expertise in Hong Kong market requirement and new ERP system. They failed to conduct a proper market study to understand the business requirement is different from India. Instead of identifying the gap between current business system and prospective ERP system functionalities they implemented the exact copy version of Indian branch office. The necessity of business process engineering wasn’t taken into account at all. The hired consultants also lacked in the business analyst experience. They couldn’t communicate their ideas on ERP concepts to the operational staff due to their strong accent in language. The vendors of new system didn’t do enough testing before introducing the system to the market. This also made the technical environment so unfit for new IS implementation.

Unrealistic expectation of management (Cultural factor)

The top management, being so sanguine, snubbed the downsides and undesirable impacts the ERP system can cause on the business. They ignored the need for conducting business process reengineering to grip the convolution of new ERP system. All levels of management agreed to complete the project implementation in six months with a budget of $1.3 Million initially. Both of them proved to be insufficient for the project completion.

The high turnover rate of the team working on the IS project (Managerial factor)

The staff working on this new ERP project had to go through tremendous pressure. Along with the communication problem with the consultants, they had to go for the training whole day and then had to complete the work after training. There were no additional human resources made available to share the increased workload. The staff couldn’t handle the pressure and complexity of the project. Many started resigning in-between the program. Some even left immediately after receiving the ERP training. The company had to hire new professionals in the last minute and had to train them on new technology again.

Task 3: Cross Case Comparison

Cross case comparison is a research technique allows us to understand the similarities and differences in the activities, and method used in those articles or reports that are being compared. It helps us to understand the approach used by the respective authors in their article. It also helps us to understand the influence of geographical and time factors on research. The first article taken in this assignment was authored by Judy Scott in 1999 and the second one was authored by Ada Wong, Harry Scarbrough and Patrick Chau in 2004. In both the cases, senior management set themselves very high expectations which turned out to be very unrealistic. Also, the staff/consultant dealing with new IS were either from vendors or from other branch, who had little knowledge about the particular system and the business environment. The budget and time allocation was also on down side in both the cases. Most of these are mistakes from managers’ side rather than technical factors.

When most of these reasons causing IS failures in both cases have similar root cause, let us look at how they differ. First difference is the time of authoring both articles, they’ve almost 5 years difference. The authors input on research technique can improvise in this five year. The methodology used in latter article was more focused on what was happening in different stages whereas in former the approach was to view things from different stakeholders’ perspective.

Task 4: Recommendations

Article 1: The FoxMeyer Drug’ bankruptcy: Was it a Failure of ERP?

1. One step at a time: Given I was the CIO of FoxMeyer, I would have implemented the two different systems not simultaneously. I would start implementation of one system in a small scale and see how it progress, its impact on the business, how much ease/difficulty staff has to adapt to this new system. If in small scale, system showcases positive impact on the business, then expand it to large scale. Even if the system bloomed positively on small scale, it’s always better to measure the impact after every stage of implementation. Also, after completing the implementation, I’d monitor the effects for some time and afterwards only second system implementation would start.
2. In-house skill: After putting up the plan for implementation, educating in-house employees are very important. I’d strongly ask my software vendors to conduct workshops for my employees so that they’ll understand the need of automation from the same perspective as senior level management. They should be educated for operating the new systems and should be given the fact about how these systems are going to change their jobs once implementation is completed. By doing this staff will be made assured of their job safety and FoxMeyer will have in-house skills rather than depending on vendor consultants for each operations.

Article 2: Examining the ERP Implementation Process from a Failure Case.

1. Business process re-engineering: Business Process Reengineering implicates the fundamental remodeling of main business processes to accomplish intense enhancements in efficiency. The company should have started with comparing the Indian market needs and Hong Kong market needs, understand how Hong Kong market is different from India’s. That will help the company to redesign the existing Indian branch office model to cater the needs of Hong Kong, or could have designed entirely a new model keeping reference of any existing model.
2. Careful selection of consultants: I would focus more on selecting the correct set of consultants for my project. They should have prior experience with similar system as well as similar market. They should also be at same par as my staff on communication as it plays a vital role in building team and understanding the concept, nature and requirements of system.

Conclusion

Before starting any ERP or other IS projects, it is always better to study about the business environment, understanding the business requirement, current capacity and what the prospective system can offer. Without proper understanding of these factors, building a new system can end up in vein. Also educating the current employees and hiring right persons are important for integrating new system with current system and for the efficient functioning of new system. These were two main reasons for failure in both the cases.