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