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CASE STUDY ON FAILED IMPLEMENTATION OF ERP SYSTEMS

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 CASE STUDY ON
FAILED IMPLEMENTATION OF ERP SYSTEMS
Iris Efthymiou

Athens 2014

University of Piraeus
CONTENTS

PURPOSE
1. INTRODUCTION
1.1. STAGES OF IMPLEMENTATION
1.2. SUCCESS FACTORS, FAILURE FACTORS
2. FAILED IMPLEMENTATION—FIVE CASES
2.1. HERSHEY’S CHOCOLATE CORPORATION
2.2. NIKE Inc.
2.3. BEIJING DABAO COSMETICS Co., Ltd
2.4. FoxMeyer Packard—HP
2.5. Hewlett Packard—HP
3. SUGGESTIONS
4. CONCLUSIONS
5. REFERENCES
6. LINKS
PURPOSE

The implementation of Enterprise Resource Planning (ERP) is demanding, in terms

of financial, time, and human resources. It is an investment with certain benefits and
certain risks for enterprises. It is a strategic and administrative decision, while its
success is initially based on the selection of the appropriate tool and supplier, and
subsequently on the implementation of the work. In the present paper, there is a brief
presentation of the way in which these systems operate, as well as the success and
failure factors. Finally, five well-known cases of failed implementation and
application of ERP systems are presented.
1. INTRODUCTION

According to Davis and Olson (1985), a Management Information System (MIS) is a

complete system of association between user selections and machine operation,
which provides information that supports the functions of administration and
decision-making within an organization. Besides, an information system uses human
and material resources, software, and data resources, as well as networks, in order to
execute introduction, processing, extraction, storage, and monitoring of activities.
ERP systems are information systems that support an enterprise in managing
and distributing its resources effectively and efficiently, responding to its needs for
information processing.
The term “ERP” was coined for the first time in 1990 by Gartner Foundation,
and it concerned those systems called on to help relay information to big enterprises.
Essentially, it referred to developments of Material Requirements Planning (MRP)
systems. According to Davenport (1998), it is the most important application of
information technology in the corporate sector for 1990.
As Wallace and Kremzar (2001) note, ERP is a total of administrative tools
covering the whole spectrum of an enterprise. It balances out materials supply and
demand, has the possibility of connecting clients and suppliers through a complete
supply chain, provides standardised entrepreneurial procedures of decision-making,
and top-quality interoperable completion between sales, marketing, stock
management, transactions, economic aggregates, new-product development, and
human resources. This software acts as the backbone of the company as it collects
data concerning the different departments, and transfers them to others that can use
them efficiently. A normal ERP application consists of data bases, applications,
interfaces, and specific tools. According to Kallivokas and Vozikis (2009), an ERP
consists of 4 components: the users, the software, the entrepreneurial procedures, and
the hardware, along with the operating system. The first companies that came to the
fore as producers of such software applications were big enterprises, such as Sap,
Baan, Oracle, and J. D. Edwards.

1.1. STAGES OF IMPLEMENTATION

The implementation of an ERP system doesn’t happen overnight; it is a procedure

that involves the constant formulation and gradual implementation of the system in
such a way as to achieve all expected results, while it also leads to a redesign of the
procedure followed by the company (Business Process Re-engineering—BPR). The
life cycle of a system involves 3 stages: before implementation, during
implementation, and after implementation (Kallivokas and Vozikis, 2009).
Although various stages of implementation of an ERP system are cited in the
bibliography, the most basic ones are: designing the work and the setting of
specifications, the selection of supplier, or zero-based implementation of a system,
customisation of the system, and its validation, and the stage of full implementation
(Go-Live), whereby the system is up and running.
 The process of implementation can be either gradual or by means of the Bing
Bang method. The Bing Bang method is the most common method of
implementation, and consists of the parallel implementation of an original system,
while the previous system or systems are up and running (Kallivokas and Vozikis,
2009). It is noteworthy that, in order to manage such works, and much more, there
have been developed various methodologies, like Prince and ITPM, which determine
individual procedures that guide and monitor the implementation of the work.

1.2. SUCCESS AND FAILURE FACTORS

One of the most significant factors that render the use of an ERP system successful is
the human factor. Implementation or customisation and, many times, the whole
operation depends on the team that is going to implement the system, along with the
counselors (whether it be individuals working in the company, or external counselors)
that participate in the procedure. Besides, the system will have to be appropriately
trained. Finally, the system will have to be customised to meet the needs of the
company and its employees, so as to facilitate their work. Apart from this, Nah et al.
(2001) pinpointed the factors that are essential to the successful implementation of an
ERP system:

• The work of the team producing the system, and its composition
• Differentiation between the programme of administration and that of the corporate
culture
• Transition support from higher executives
• Plan and vision of the enterprise
• Effective communication
• Work Management
• Software development, tests, and damage repair
• Monitoring and assessment of performance
• Work success
• Suitable entrepreneurial and information inherited systems

In 2002, Stratman and Roth conducted a study where 79 Northern American

construction companies took part, all of the users of ERP systems. Through the study,
it was found out that the following parameters played a significant role in the
successful adoption of an ERP system:

• Strategic planning of the system

• Dedication on the part of higher executives
• Work Management
• Capacity for software technology
• Capacity for entrepreneurial procedures
• Training on ERP
• Life-long learning
• Readiness for improvement
 According to Ziff Davis B2B (2013), the five most basic reasons for which an
ERP system fails are as follows:

• Non-realistic goals and expectations

• Failure to cope with organisational change
• No participation of stakeholders in the procedure
• Poor project management
• Failure to properly manage profits
 2. FAILED IMPLEMENTATION—FIVE CASES

ERP systems are complex, and possess a high level of completion, securing
information visibility for companies. Sometimes, however, companies are led to
wrong decisions of materialisation and implementation of such systems. It has been
found that ERP systems implementation works fail at a percentage of 60-70%
(Kallivokas and Vozikis, 2009). Almost 41% of companies are unable to use more
than 50% of the benefits that accrue from the use of such systems, while 2 in 5
companies face operational problems at the Go-live stage of an ERP system
(Krigsman, 2010).
There are quite a few examples of failed implementation at various levels. At
this point, it should be noted that failure can either be partial or complete. In the first
case, the company will be able to regulate the system somehow, but there will be
some disruptions in its everyday operations, while in the second case the process of
composing the system stops before its implementation, or finally, after it has been
implemented, there is substantial financial and operational damage to the company.
In the following section are presented some well-known examples of failed
materialisation of such systems.

2.1. HERSHEY’S CHOCOLATE CORPORATION

The company was founded in late 1880. The brand

name “Hershey Chocolate Corporation” was adopted
in 1927 and, initially, it was a successful caramel-
producing company. It was the first company that
produced milk chocolate in America. Over time, it
focused only on chocolate production and
manufactured many innovative products. After the
Second World War, it managed to export its products to 90 countries. In 2006, its sales
reached 5 billion dollars and employed over 14,300 people.
In 1996, to avoid the familiar problems that could arise from their
computational systems, due to the Y2K problems or the millennium bug, the
administration of the company proceeded to the project “Enterprise 21.” Its main
purpose was to replace its systems with the ERP system SAP R/3. This replacement
was due to be completed by April 1999. The new system would help reorganise the
company’s entrepreneurial operation, and provide data to suppliers and resellers, to
reduce storage and transportation costs, and providing better services to customers
(Peperu and Gupta, 2008).
In July 1999, orders dropped. Instead of 5 days, the company took 12 to deliver
an order, and, until August of the same year, the days went up to 15. The result was
that the company lost profits, credibility, and a prominent position on supermarket
shelves (Peperu and Gupta, 2008). Yet, warehouses were full of products. In
September 2000, the company had 25% more merchandise in its warehouses than
usual, but it failed to deliver it within the time limit.
Due to its failure, Hersey’s lost 150 million dollars, its share dropped by 8 units
in a day (when the company recognised there was a problem), and lost 0,5% of its
market share in 1999 (ibid).
One of the basic problems that led to the failure of the project was that part of
the system took some time to materialise, which had as a result that the company
implemented the method Bing Bang in July 1999. According to Gross (2011), there
was a mistake in the selection of the project’s time frame, as well as the period during
which it would be implemented. This period collided with the time when the
company received an onslaught of orders in view of Halloween in America. The huge
volume of works did not allow for the necessary controls or the appropriate training
of staff. Furthermore, the company used, apart from its warehouses—upon the
initiative of staff—, some offices and external warehouses as temporary storage
places—things that the system could not take into consideration. According to many,
the failure was due to administrative errors.
After changing its administration, the company proceeded to a new project in
2000 in order to materialise an ERP system. This was complete ahead of schedule,
cost 20% less than the initial estimate, and was crowned with success.

2.2. NIKE Inc.

Nike is one of the biggest sportswear companies

worldwide. It is an American multinational founded
in 1964 by the brand name “Blue Ribbon Sports,” it is
head offices in Oregon. In 1997, its profits reached
9,19 billion dollars, while in 2012, they soared high to
25,3 billion dollars, employing44,000 people.
In 1998, because of the millennium, the company proceeded to a change in its
systems and the implementation of an ERP system. According to the Forbes list, after
spending 400 million dollars on software, it ended up losing 100 million dollars in
sales, its share dropped by 20%, and faced many lawsuits. It also experienced a big
rift in its personal relations as it could not manage the orders of the best-advertised
sports shoes “Air Jordan.”
This failure was due to a technical problem in the so-called “i2” system to do
with the process of order management. The specific system would be part of a
general ERP system but, according to analysts, its selection was wrong as its structure
could not “tally” with the entrepreneurial operation of the company. According to a
senior executive, the system operated on prediction algorithms that could not respond
to such voluminous sales. The company had an entrepreneurial plan understandable
to all its employees, so it continued to operate as usual, while the problems that arose
from the system failure didn’t impact its general course (Koch, C., 2004).
According to Nike, the problems that arose from the system had been restored
by autumn 2000, and its cycle of operations was not affected from then on. Three
years later, the company announced that it had the biggest profits since its foundation.
In 2001, it reduced the i2 system operation to a great extent and installed SAP ERP.
2.3. BEIJING DABAO COSMETICS Co., Ltd

The company “Beijing Dabao Cosmetics Co.” or, as it was

then called, “Sanlu Factory,” is situated in Beijing, China,
and was founded in 1985. It is one of the five top cosmetics
companies in China. The company produces, among other
things, natural cosmetics, and exports them to 30 countries.
In 1998, its sales reached 64,7 million dollars. The same
year, its administration realised that the software is used for
financial and logistic management could not respond to its
increasing activity (Xue et al., 2004). In 1998, the company decided to adopt the
implementation of an ERP system.
In March 1998, it chose the MOVEX system used by the Swedish company
Intenia AB and appointed the then Lenovo company—today’s Digital China—as the
contractor for the provision of services and the implementation of the system. The
project would cost 213,000 dollars, it had to be completed within six months, and the
contractor would pay 5% of the overall cost of the project, in case of delay.
After 15 months of painstaking efforts to successfully complete the project, the
whole operation failed, and “Sanlu Factory” in 2002, after litigation, received the
amount of 250,000 dollars as compensation.
The reasons for its failure were simple. The system was not fully adapted for
use by the Chinese company. It was not fully translated from English or adapted to
Chinese logistic standards, and the use of symbols on the financial tables was not
compatible with the Chinese financial standards, for example, the negative symbol
(minus) is placed after the number, not before (Xue et al., 2004).
It is noteworthy that in May 2001, the company started anew to implement an
ERP system, choosing Chinese software. The project lasted for a year, and in May
2002 it was successfully completed.

2.4. FoxMeyer Drugs

The company “FoxMeyer Drugs” was founded in 1977, and

situated in Texas, USA. It employed over 4,000 workers,
with 5 billion dollars in sales (1995), and was the fourth big-
gest distributor of pharmaceutical products in the world,
second in the US.
In 1993, intending to use technology to increase its
efficiency, the company proceeded to the adoption of an
ERP system. This project was called Delta III and started in the same year. The
company purchased the SAP R/3 system, along with a system of warehouse
automation by Pinnacle (an international provider of the English information systems
Sage), while it appointed Andersen Consulting as a contractor for the implementation
of both systems, as well as their unification. The project would last for 18 months,
cost 65 million dollars, and was estimated to reduce costs by 40 million dollars a year.
Many employees, however, were opposed to the implementation of the systems
as warehouse automation threatened their posts (Scott, 1999). They took action and
massively abandoned the warehouses that would close down to be replaced with a big
centre. SAP at the time did not have a great share in warehouse systems (Jesitus,
1997), and FoxMeyers, after the commencement of the project, branched out, making
new agreements, and increasing its transactions. Furthermore, FoxMeyers did not
have any trained staff to execute the project, so it relied on a contractor and used the
whole work as an opportunity to train its executives. Finally, there was already some
leeway for profit as the company’s prices were competitive— and this margin for
profit narrowed considerably due to the great cost of the project.
As a result, the project lasted 6 months longer than expected, cost 100 million
dollars, and suffered damage to products in the warehouses worth 34 million dollars.
For some, its failure led to bankruptcy in 1996. Two years earlier, the system could
process only 10,000 orders a day, in contrast to 420,000 orders its previous system
could handle. In 1998, it was announced that the company would sue SAP and
Andersen Consulting, today’s Accenture, claiming half a billion dollars from each
(Scott, 1999). Finally, the companies reached a compromise without having recourse
to justice.

2.5. Hewlett Packard—HP

It is one of the best-known companies in the field of

informatics. The company started in 1938 as a company
of electronic products and tools, and its development
was particularly boosted by service provision to the
USA administration during the Second World War. In
2004, its turnover reached 80 billion dollars, and its
profits 4,2 billion dollars.
Hewlett-Packard—HP worked closely with SAP as of 1989 as over 50% of the
latter’s clients used HP infrastructure and counselors for the implementation of ERP
systems.
During the third quarter of 2004, the company’s sales had decreased by 5%,
and it announced that this decrease was partially due to the failed attempt at the
materialising the ERP system. The overall damage the company suffered is estimated
at 160 million dollars, 5 times the cost of the system implementation. This fact
puzzled the market as HP was the main counselor for the implementation of SAP’s
ERP systems. The company revealed that the problem lay in the execution of the
project and technical difficulties, not in the software.
In the past, HP had decided to redesign its strategy to produce a big volume of
cheap electronic products. To this end, in 1993, it decided to replace the numerous
systems it used with SAP R/3. This replacement was completed in 1998. Over time,
the company constantly upgraded its systems to meet with new needs, such as
electronic orders and ended up using 35 ERP systems on a global level. The
company’s administration wanted to reduce these systems down to 4, and finally, in
2004, its order-taking systems were pared down to 7.
Still, the administration wanted to further increase the company’s efficiency
through the SAP FOM platform.
The first results were visible after fully implementing the system in June 2004.
20% of the orders could not pass through the old systems due to programming
problems, the company lagged with the execution of orders, lost its credibility, and
increased its costs. Many times, during that period, they ended up dispatching
merchandise by air, to keep the deadlines. Besides, the company did not allow the
employees to actively participate in the chance, which had as a result that the workers
had no access to useful information, and were not sufficiently trained (Chaturvedi and
Gupta, 2005).
According to Gilles Bouchard, the then CIO of the company, the problem was
that a lot of small technical problems occurred together, which deteriorated the
system, in terms of operationality. As he once stated, “We had a series of small
problems that were not difficult to tackle individually. All of them together, though,
brought a perfect storm.”
In 2005, HP proceeded to the adoption of the Genesis system, which failed, too
(Chaturvedi and Gupta, 2005).
3. SUGGESTIONS

The companies are goaded into action by some comments and decide to install an
ERP system to achieve specific goals. In conclusion, based on the five examples in
the previous chapter, we could say that it is important to select an expandable and
configurable system, whereby the provider will give the right support. Apart from
that, there should be plans drawn up leading to a short period of implementation with
enough time for controls and staff training. Furthermore, drawing on the example of
“FoxMeyer Drugs,” attention must be paid to the international character of the
software, suppliers’ demands, and clients’ needs, while from the “Hersey’s” example,
it is made clear that, in such a determining movement on the part of the company,
there should be the right incentives for all those involved, to consent to the
materialisation of the programme, and/or get actively involved in it.
According to Ziff Davis B2B (2013), when a company decides to install an
ERP system, its administration should be well trained, to be cognisant of the
importance of the system, and its dangers, have a clear picture and knowledge of the
company’s entrepreneurial process and, if there is no such thing, should draw up a
common terminology for all the procedures internally used, so that there will be no
misunderstandings and differences from one department to the other.
Indisputably, a basic component of the successful materialisation and
implementation of a system is the administration and workgroup. The company’s
administration must properly design the project, and closely watch it during and after
the implementation of the system. It must appoint the right leader at the helm of the
group and, if it does not have such an employee, it has to appoint a contractor. Any
putative problems, delays, and failures can be dealt with to a great extent, as long as
there are the right planning and proper setting of deadlines, and the time schedule is
strictly adhered to. It is more than clear that the materialisation and installation of an
ERP system is an important decision, brings many changes to a company, is costly
but, if it is successfully completed, it can rake in a lot of profits.

4. CONCLUSIONS

Nowadays, ERP systems constitute the necessary informational infrastructure that

secures efficient operation and supports a company’s entrepreneurial decisions.
Despite its high cost and high rates of failure, companies do not seem to abandon the
idea of unifying all their systems. The successful unification of an ERP system can
bring a lot of profits to companies and increase their efficiency. As is shown by the
very notion of an ERP system and the examples presented in the previous chapter, the
successful materialisation of such a system is no mean feat, and failure can prove
even destructive to the companies, while it can also be due to seemingly petty
imponderable factors.
New enterprises still at the stage of planning could achieve the completion
provided by an ERP system, probably with no major risks. For those already in the
productive process, the installation of an ERP system may be the springboard for
constant improvement, while the benefits that can accrue will prove lifesaving for an
enterprise, especially in today’s unfavourable economic conditions.
5. REFERENCES

• Chaturvedi R. N., Gupta D. (2005). ERP Implementation Failure at HP, ICMR

Center for Management Research, India. Available
online:http://astro.temple.edu/~wurban/Case%20Studies/HP's%20ERP%20Fail
ure.pdf

• Davenport T. (1998). Putting the enterprise into the enterprise system, Harvard
Business Review July–August, pp. 121–131.

• Davis, G.B. & Olson, M.H (1985). Management Information Systems, 2nd Ed.,
McGraw-Hill International Editions.

• Jesuits, J. 1997. "Broken Promises?; FoxMeyer 's Project was a Disaster. Was
the Company Too Aggressive or was it Misled?", Industry Week, pp.31-37.

• Gross J. (2011). A Case Study on Hershey’s ERP Implementation Failure: The

importance of Testing and Scheduling, PEMECO Consulting. Available οnline:
http://www.pemeco.com/a-case-study-on-hersheys-erp-implementation-failure-
the-importance-of-testing-and-scheduling

• Kallivokas D., Vozikis Ath. (2009). ERP projects failure: Analysis of critical
factors based on international experience, Proceedings of the 2nd international
conference: Quantitative and qualitative methodologies in the economic and
administrative sciences, pp. 196 -202.

• Koch C. (2004). Nike Rebounds: How (and Why) Nike Recovered from Its
Supply Chain Disaster
http://www.cio.com/article/32334/Nike_Rebounds_How_and_Why_Nike_Rec
overed_from_Its_Supply_Chain_Disaster?page=1&taxonomyId=3207

• Nah F.FH, Lau J.LS (2001). Critical factors for successful implementation of
enterprise systems, University of Texas-Austin, Austin, Texas, USA.

• Ngai, E. W., Law, C. C., &Wat, F. K. (2008). Examining the critical success
factors in the adoption of enterprise resource planning. Computers in industry
59(6), pp. 548-564.

• Peperu I., Gupta V. (2008). ERP Implementation Failure at Hershey Foods

Corporation, ICMR Center for Management Research, India.

• Scott, J. E. (1999, August). The FoxMeyer Drugs' bankruptcy: Was it a failure

of ERP. In Americas Conference on Information Systems, pp. 13-15.
 • Xue, Y., Liang, H., Boulton, W. R., & Snyder, C. A. 2005. ERP implementation
failures in China: case studies with implications for ERP vendors. International
journal of production economics, 97(3), pp. 279-295.

• Ziff Davis B2B (2013). Top 5 Reasons ERP Implementations Fail and What
You Can Do About It, White paper, San Francisco, USA.

6. LINKS

• FUNDING UNIVERSE
http://www.fundinguniverse.com/

• SAGE – Software for business

http://www.sage.co.uk/

• CIO
http://www.cio.com/

• FORBES
http://www.forbes.com/

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