As we outlined in a blog post earlier this year, ERP implementations fail for five key reasons. Unfortunately, some of these failures lead to heads rolling, millions of dollars of budget overruns, and in some extreme cases, lawsuits against software vendors. In fact, the number of inquiries we have received to act as expert witnesses in ERP lawsuits has increased dramatically in the last twelve months.
When working with clients, we often hear the perception that most ERP failures or lawsuits must pertain to SAP implementations . After all, Hershey’s, Waste Management, and a host of other high-visibility failures involved SAP’s ERP software. However, our research shows that there is no pattern to ERP failures and lawsuits, other that they happen more often than they should and no one ERP vendor appears more or less likely to experience failure than the others.
For example, two new lawsuits were announced in the last 30 days: one against Oracle and another against JDA’s i2 unit.
In fact, we looked at the most recent lawsuits to see if there was a pattern among vendors and software solutions. As you will see in the table below, there is no apparent pattern to the vendors named in recent legal matters. If anything, when expressed as a percentage of total client base, SAP and Oracle probably have a lower lawsuit rate than other vendors on the list. However, because large and high-visibility companies are more likely to embark on Oracle or SAP implementations, those organizations are more likely to receive attention when something goes awry.
Lawsuits Againt ERP Vendors
| ERP Vendor | Year | ERP Customer | Reason for ERP Lawsuit | Article Link |
|---|---|---|---|---|
| Epicor Software Corporation | 2009 | Ferazzoli Imports of New England | Epicor’s system never worked as intended or promised. Initially paid: US$184,443.61. To date: US$224,656.42 (included the additional software and services meant to make the system operate properly). | Read the article. |
| Infor Global Solutions | 2009 | Vaughan & Bushnell | ERP software giant Infor is taking legal action against customers as it seeks to recoup license fees it claims it is owed. An attorney for the tool company, which sued Infor in this case, confirmed that his client paid Infor something. | Read the article. |
| Lawson Software | 2009 | Public Health Foundation Enterprises | Failed ERP implementation | Read the Article. |
| Lawson Software | 2009 | Sisters of Charity of Leavenworth Health System | Hospital chain sues Lawson Software over retiring ERP apps, a breach-of-contract. Its agreement with the ERP vendor requires Lawson to provide — for just a small fee — replacements for two software modules that will be decommissioned next year. | Read the Article. |
| Infor Global Solutions | 2008 | Carver Pump Company | The company sued Infor over a disputed $451,000 invoice Infor sent Carver in August 2008 for allegedly using the Maxim ERP package without a license since 2000. Carver says it received a perpetual license from CA (which acquired Maxim’s original developer, NCA) in 1998 as part of a Y2K upgrade, and claims it stopped using Maxim anyway in 2006. The companies settled out of court in November. | Read the Article. |
| Infor Global Solutions | 2006 | Scientific Components | Scientific Components sued Infor in U.S. District Court in New York over a dispute concerning temporary license fees needed to access MAPICS running on a secondary iSeries server connected via iTera’s high availability software. The companies settled in December 2006. | Read the Article. |
| Infor Global Solutions | 2006 | Western Textile Company | The Company sued Infor over allegations by Infor that the company owed it more than $100,000 for exceeding the number of sessions in its license agreement; Western Textile claims its original license with CA was measured by concurrent users, not sessions. They settled in March 2007. | Read the Article. |
| PeopleSoft and Kaludis Consulting Group | 2004 | Cleveland State University | A faulty installation of the company’s ERP applications. The lawsuit charges PeopleSoft with breach of contract and negligent misrepresentation, among other counts, and claims PeopleSoft’s solutions for managing student applications amounted to little more than “vaporware.” | Read the Article. |
| Baan USA Inc. | 2003 | Dexter Axle Company | Dexter asserted twelve claims: breach of the Software Agreement and the Consulting Aggrement, two claims of breach of express warranties, breach of implied warranties, fraudulent inducement of the Software Agreement and the Consulting Agreement, fraud, negligence, constructive fraud, statutory deception, and unjust enrichment. | Read the Article. |
| EDS | 2003 | British Sky Broadcasting | Sky has alleged that EDS dishonestly exaggerated its abilities and resources when bidding for the contract, resulting in late delivery of the project and lost benefits that make up the the £709m in damages it is claiming | Read the Article. |
| Oracle Corporation and KPMG Consulting | 2001 | The University of Cambridge in the United Kingdom | Considered possible legal action against Oracle and KPMG Consulting for a faulty computer system that the university estimates it spent $13 million installing, with the aid of the two companies. | Read the Article. |
| SAP (R/3) and Andersen Consulting (now Accenture) | 2001 | FoxMeyer Corp. | The company claimed that a botched SAP R/3 implementation in the mid-1990s ruined the company, driven the company to bankruptcy. Six years later the bankruptcy trustee and Accenture settled out of court and the lawsuit was dismissed on August 8, 2002. | Read the Article. |
| SAP | 2001 | Arkansas State | The National Federation of the Blind of Arkansas had sued the state in 2001 claiming the AASIS system was not fully accessible to blind persons. The state, in turn, filed a third-party claim against SAP, blaming the vendor for the accessibility problems. SAP agrees to fix Arkansas ERP system. | Read the Article. |
| PeopleSoft and Deloitte & Touche | 2000 | Gore & Associates | Alleges PeopleSoft sent in unqualified consultants to do the job, forcing Gore to rely on PeopleSoft’s customer service hotline to set up the program after major problems occurred when the system went live. | Read the Article. |
| Oracle Corporation | 2000 | Tri Valley Growers | Alleging fraud, negligent misrepresentation, malpractice, and breach of contract. TVG claimed that the database giant failed to fulfill its contract to modernize the company’s production and management systems using its ERP applications. | Read the Article. |
| J.D. Edwards and IBM | 2000 | Evans Industries Inc. | The suit alleged that OneWorld was “defective and failed to operate and function as promised by the defendants.” Failed and refused to fulfill its obligations under its agreements” and with IBM failed to install the OneWorld software “such that it is operational. | Read the Article. |
So what are some of the best ways to avoid becoming wrapped up in an ERP lawsuit? There are five key factors that can help you stay out of trouble during your ERP selection and implementation process, regardless of which software you are considering:
- Ensure functional and technical fit of the software you select
- Have realistic expectations about how long the implementation process will take and how much it will cost
- Ensure adequate executive buy-in and support
- Where possible, avoid customizing software rather than leveraging standard functionality
- Ensure sufficient internal and external ERP software implementation expertise on your project team
Read more about these five implementation factors by reading the full blog, Welcome to the Jungle: Lessons Learned from ERP Implementation Failures. In addition, share your opinion about which of the five failure points is the most crucial by taking our poll below.
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An Appetite for Destruction: The ERP Implementation Lawsuits Continue…,
Having litigated hundreds of failed ERP implementations, I agree with your reasons, but the biggest reason by far in my experience is the utter failure of the customer in the sales cycle to vet the vendor enough to understand how the software works and what it will take to get to where the customer wants to be. All other reasons are very valid, but most of them are eliminated if the customer does what it should do before it signs the contract. This is easily exposed during the litigation process. Not to say that vendors are perfect, they certainly are not, but the “expectation gap” is often too big to overcome. Customers do not read their contracts, nor do they want to.
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Eric,
Thanks for another interesting post.
I’m just not clear what were the criteria for inclusion in the table.
It certainly doesn’t appear to be a comprehensive list.
Are these just the ones you have provided evidence for?
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having experience of more than 10 yrs ERP implementation, i feel that the vendors are not giving the clear picture of expenditure or cost of ownership. At the end customer pays many many times higher than the initial cost envisieged. In general cost of communication, training, travellings are not considered too low….Customer also feel frustrated while they are not getting desired result but paying a exorbitant license maintenance cost.
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I fully agree with Ken , I have been implementing , mainly SAP solutions, for 15 years in Belgian SME businesses, and I see each time the same thing happening. Change is the biggest hurdle for those organisations, but not only in processes, also as an organisation and mainly for the people in it. Customers most of the time over-estimate the capability of their own organisation to cope with the change that will come when implementing ERP. They do not read and interprete the contract with scope and roles and responsibilties in it, and most of the time fail to comply with it. This puts them in a very weak position when the implementors need to be put under pressure to comply with their obligations.
I am surprised that none of the lawsuits are targeted at Microsoft ERP solutions , are there none ?
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I’m a little surprised to hear that Ken has litigated “hundreds of failed ERP implementations” – was that hyperbole? If that was meant to be an accurate statement, please contact me through my blog site (http://dbmoore.blogspot.com/) – I wanna know more!
Perhaps this table would be more useful if it were a bit more comprehensive, and if it showed the lead systems integrator on the project; after all, it is generally not the software which failed, but instead the project that failed.
Thanks for a good contribution on the topic.
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Dennis Moore
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Hi! I have been able to supervise two successful SAP implementations, although I have purely a finance background. In my opinion, top management can play a critical role in ERP implementation failures. Top management sometimes increases the scope of work beyond their actual requirements or restrict it to a very myopic view or has no idea as to the required scope of work which results in critical adjustments in ERP implementations. Top management in general has the capability of running out of patience very quickly if there is any crisis which affects the decision making process. As a result the implementation team may resort to work-arounds and short cuts to meet the targets. There is always a resistance to change in organizations. Sometimes top management is unable to handle this resistance and remain bowed to old practices. Failure to form a right team can cause serious issues as they may not be able to transform the user requirement into ERP functional utility. Finally, a lot of in-house pre-ERP studies must be initiated by the top management (which generally are not carried out) with respect to gap analysis between what is required and what is available. Deliverables must be defined with time frames. These deliverables can be vetted by an outside consultant as well.
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We have just gone through a nightmare integration where the integrator had overpromised and under delivered. Whie I can agree with Dennis and Ken that the organizations who are looking at an ERP solution don’t understand the complexities or the resources that will be needed, it is also fair to assume that the Integrators, having experience with this time and time again, should be able to plan for that.
Organizations rely on the expertise of the itnegrator to put all the cards on the table. Unfortunately, many integrators, who are in a bidding process, will lower the price to something that they cannot afford to do. They then expend minimal resources and try to hold the organiztion over a barrel for “out of scope” fees.
The integrator we used did this as regular business practice. To this day, we still do not have the system we were promised and contracted for. We are suing our integrator for a severely botched implenatation in which we couldn’t bill for two months. Our company was in turmoil for almost two years because of over promising and under delivering.
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Great points – thanks for all the stimulating comments. I quite frankly didn’t expect the post to generate this much discussion or interest!
I wanted to respond to a couple of points/responses. First, I completely agree with the points that poor organizational change management and mismanaged expectations are key contributors to these and other ERP failures. In fact, you could make a pretty strong argument that either one of those are the #1 contributor to any given ERP debacle.
Second, this is not by any means a comprehensive list. It is merely a list based on public records that one of our business analysts put together for us, so I’m sure that with enough digging we could find lawsuits for other vendors not listed here, such as MS Dynamics. Due to confidentiality and non-disclosure issues, we also intentionally left out cases where we have provided independent expert witness services to the cases.
Thanks again for the great comments – keep an eye out for a follow-up post in coming weeks.
Eric
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I’m doing a series on the SAP implementation failures and the common denominators I can find fall broadly into 2 primary categories:
1. System integrator mismanagement (crummy consultants, poor project management, fouled up / faked testing, etc.)
2. Clients who do not adequately control their own projects (unrealistic expectations, poor management involvement, improper scope, allowing too much software engineering and not enough business process engineering – i.e. change management).
Keep in mind, these are SAP specific evaluations and do not consider any other ERP application.
SAP ERP Project Failure Lessons Learned and Mini Case Studies 1
http://www.r3now.com/sap-erp-project-failure-lessons-learned-and-mini-case-studies-1
SAP ERP Project Failures Lessons Learned and Mini Case Studies 2
http://www.r3now.com/sap-erp-project-failures-lessons-learned-and-mini-case-studies-2
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