ERP Failures and Lawsuits: It’s Not Just For the Tier I ERP Vendors

All Articles From Eric Kimberling January 12, 2011 3

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Just as we released some initial data from our 2011 ERP Report showing that ERP implementation costs declined again in 2010, ERP lawsuits continue to proliferate through the industry. For example, Marin County filed a lawsuit against their system integrator in 2010 and Lumber Liquidators blamed a botched SAP implementation for their financial woes late last year.

Over the years, it seems as if SAP and, to a lesser degree, Oracle take a majority of the hits in the media for high profile failures and lawsuits. Waste Management, Hershey’s, the Shane Company, Overstock – all of these examples are well-known companies that blamed their new ERP systems for their difficulties, and the solutions are all provided by Tier I ERP vendors such as SAP and Oracle in these examples. However, as we published in a blog last year, Tier I ERP vendors aren’t the only ones with failures and lawsuits on their hands. For example, just a few weeks ago, a jury awarded pet food maker Sunshine Mills a $61M award against Ross Systems, a division of CDC Software, which was its Tier II ERP vendor.

Several months ago, one of our business analysts put together a list of public information about recent ERP failures and lawsuits, going back several years. As you will see in the table below, there is a fairly even distribution of failures among all types of ERP vendors.

Review of ERP Failures and/or ERP Lawsuits

Year ERP Vendor ERP Customer Reason for ERP Failure and/or Lawsuit Further Information
2010 SAP Lumber Liquidators Problems appear to be largely related to employees having trouble acclimating to the new system, versus malfunctions in the software itself. Read the Article.
2010 JDA Software (i2) Dillard’s, Inc. Dillard’s had alleged i2 failed to meet obligations regarding two software-license agreements for which the department-store operator had paid $8 million. Read the Article.
2010 SAP and Deloitte Consulting Marin County, California The lawsuit alleges that Deloitte committed fraud and “misrepresented its skills and experience.” Read the Article.
2010 Capgemini and SAP Dorset County in the UK Some workers claimed a job which previously only took a minute was now taking an hour. The system still has to shut down a few days each month to allow data to be processed. Read the Article.
2009 Epicor Software Corporation 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.
2009 Infor Global Solutions 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.
2009 SAP and Axon City of San Diego The city of San Diego, CA terminated its software implementation contract with services provider, Axon, citing “systematically deficient project management practices” and a project that was running $11 million over budget. Read the article.
2009 Lawson Software Public Health Foundation Enterprises Failed ERP implementation Read the Article.
2009 Lawson Software 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.
2008 Infor Global Solutions 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.
2008 SAP Levi Strauss The company was forced to take shipping systems at its three massive US distribution centers off line for a full week only to lose business and customer orders. Read the Article.
2008 SAP Waste Management Waste Management wanted an ERP package that could meet its business requirements without large amounts of custom development. Read the Article.
2008 Oracle Overstock.com “When we upgraded our system, we didn’t hook up some of the accounting wiring; however, we thought we had manual fixes in place. We’ve since found that these manual fixes missed a few of the unhooked wires.” Read the Article.
2008 SAP City of Portland Portland’s SAP project, budgeted at $31 million in 2006 for a 2007 go-live date, is now estimated to be nearly $50 million. Portland has fired its systems integrator, Ariston Technologies and Consulting, and is working directly with SAP services to get the system up and running. Read the Article.
2006 Infor Global Solutions 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.
2006 Infor Global Solutions 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.
2004 PeopleSoft and Kaludis Consulting Group 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.
2003 Baan USA Inc. 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.
2003 EDS 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.
2001 Oracle Corporation and KPMG Consulting 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.
2001 SAP (R/3) and Andersen Consulting (now Accenture) 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.
2001 SAP 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.
2000 PeopleSoft and Deloitte & Touche 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.
2000 Oracle Corporation 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.
2000 J.D. Edwards and IBM 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.
1999 SAP, Siebel, and Manugistics Hersey Foods The company was having problems with its new order-taking and distribution computer system. Read the Article.

Looking at the above table (recently updated from the version originally published last year before the Marin County failure), one might expect to see SAP and Oracle with much higher incidents of ERP lawsuits and failures since they have the industry’s largest market shares and typically work with the world’s largest high-profile companies. However, the data doesn’t suggest that this is the case. It would be interesting to calculate the number of implementation failures or lawsuits per 1,000 customers or end users of their software. If we did, I suspect that there wouldn’t be a significant difference between the leading ERP software companies.

Unfortunately (or fortunately, depending on how you look at it), Tier II and Tier III ERP implementations are just as likely to fail as Tier I implementations from SAP or Oracle. The reason is that success and failure does not have much to do with the software – it is more affected by how the software is implemented. Even the best ERP software solutions entail a fair amount of business and organizational risk, which is where most companies struggle. Assuming you have selected a software solution that is a good fit for your organization, things like project management, process design, organizational change management, scope management, and other business related factors are much more likely to impact your odds of success than the software itself.

So the lesson is simple: choose the right software and implement it well as a business initiative rather than a pure technology project. You can’t have success with just one of the two and failing in either area almost ensures that your overall project will fail, no matter how good the software may be.

Learn more about how to manage ERP implementation success by attending one of our upcoming ERP webinars or by attending our upcoming ERP Boot Camp training seminar.

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ERP Failures and Lawsuits: It’s Not Just For the Tier I ERP Vendors, 9.0 out of 10 based on 3 ratings

3 Comments »

  1. Mike Minter January 19, 2011 at 7:39 pm -

    You should probably include the Queensland Health problem in March 2010 – new HR/Payroll system implementation – part of SAP ERP.

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  2. Jim Shepherd January 20, 2011 at 9:58 am -

    I am struck by how few lawsuits or “failures” have been reported in a decade where there have been well over 100,000 ERP implementations. Given the size and complexity of these products and projects it seems remarkable that you could only find 25 or 30 problems. There were undoubtedly more but they are difficult to hide since the press loves these stories and publicly traded vendors and customers have to report them. I find that most people are under the impression that anywhere from 10% – 30% of ERP projects fail even though there is no evidence to support it.

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  3. Mark Chinsky January 21, 2011 at 1:16 pm -

    Jim, I think there are a few reasons. We all know the status that about 20% are complete failures and 50%+ are way over budget, time and reduced functionality.

    Most of the time when there are blow-ups and things get to the legal phase, the majority settle and part of the settlement is a gag order. The bad PR is much more damaging to the software publisher than the settlement money. That’s why we don’t hear about it.

    Most of the lower mid-market projects that are under $500k don’t get to the legal phase (just lots of yelling) because both parties know that in smaller dollar amounts the only one who wins in lawsuits are both parties lawyers.

    Most products that are fundamentally ‘garbage’ just don’t survive due to the Word of Mouth factor. The other failed projects usually go back to a crappy selection process built on ‘sex and sizzle’ demos and a purchasing decision built on getting the cheapest solution and seeing the cheapest implementation quote versus getting the right solution with the right expectation of services.

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