The late-night phone call that led to a $150 million IT investment

Summary:After years of under-investment, grocery cooperative Foodstuffs Auckland was on the brink of IT failure, saved only by its DR system.

On June 6, 2012, just after 4am, the CFO and acting CIO of New Zealand grocery chain Foodstuffs Auckland received a call from his head of IT operations.

It was a call that would crystallise fears about the stability and reliability of the co-operative's IT systems and lead to a $150 million "transformation" to what would become a fiercely vanilla SAP implementation.

That night, the head of IT operations told CFO David Stewart that the back-end system supporting the chain's operations was unable to be rebooted after routine maintenance. With just a few hours to go before stores opened, disaster was looming.

Foodstuff managed to switch to its disaster recovery environment just in time to avoid any impact on customers, but it was a near miss that could not be ignored.

It focused the executive and the board on the need for change.

"It was a gift in many ways," Stewart told a CFO Summit event in Auckland this week. "Prior to the transformation, we were facing underinvestment in our IT environment over many years."

But before any development or implementation occurred, Foodstuff embarked on recruiting a network of evangelists for change from among its independent grocer owners. From this came the creation of a "design authority", which mapped business processes from end to end, and which could step the group's 450 grocers through what was being planned.

That process also allowed gaps in processes and capabilities, areas of high risk, and areas where processes deviated from what was considered standard SAP and standard Retalix point of sale to be identified, Stewart said.

Any deviation from standard would increase costs and had to be strongly justified. Such deviations required sign off from the CEO at least, and, depending on cost, from the board.

ZDNet understands a proposal for a mobile solution to be plugged into the project was rejected for these reasons at the eleventh hour.

"We were able to push the design as close to standard as possible," Stewart said.

"Any deviation from standard increases costs several time over."

The vision, or "True North", as it was called, was to have one standard system across all stores, irrespective of their branding: Four Square, Pak 'n Save, or New World.

"It sounds simple, but it's not," Stewart warned.

The transformation program was Foodstuffs' number one priority, and stayed that even after a major merger with associated cooperative Foodstuffs Wellington was announced early last year.

Stewart said such major initiatives can't be run as an IT "project", they are far bigger and far more important than that. The scale of the transformation justified it becoming the top business priority for Foodstuffs over several years.

Stewart and members of his transformation group flew to Tel Aviv to meet with Retalix and on to Waldorf to meet with SAP's head of retail. SAP executives even came on board as project sponsors.

That engagement was invaluable, Stewart said, especially when "inevitable" roadblocks were encountered.

Stewart advises any others heading towards a project of such scale to ensure that they are set up for success. They have to ensure that they can break down legacy structures and processes, remove individual obstacles, and have assurances of the right budget.

"If you need a third party to provide assurance to the board, do it," he said.

It is not what you can see, but what you can't see that will disrupt your plans, Stewart said.

That was the case with the merger. Should that have become the number one priority?

Despite the temptation, that didn't happen at Foodstuffs.

"Incredibly, the transformation became the enabler for the merger," Stewart said.

Ernst & Young partner and IT leader Paul Mahan, who advised on the project, said there are many possible points of failure and "value leakage" in transformation projects. These should be identified and planned for early.

Early in the piece, a sense of urgency needs to be developed and a clear understanding of the drivers of change, the potential impact of standing still, and the impact on individuals.

For Foodstuffs, a phased go-live was critical.

"Quick wins can be destroyed by a false start. It may not feel like it at the time, but a delay may be better," Stewart said.

After a single store pilot, the system now operates in eight stores and a support centre, and the project has been an absolute success, Stewart said.

He warned, however, that there are danger zones after each milestone is achieved, so you shouldn't celebrate prematurely.

When the team relaxed after the first go-live, it was the chairman who brought everybody back down to earth.

"I've seen many teams win the first half and go on to lose the game," chairman Rob Redwood said.

Now the focus is on crystallising the benefits of the large investment.

The challenge is about being open to change, ready to evolve and manage risks, and become better at what you do.

"You need to eat, sleep, and drink it until it's part of your DNA," Stewart said.

Topics: New Zealand, Enterprise Software, Project Management

About

Rob O'Neill is a writer for CBS Interactive based in Auckland, New Zealand covering business and enterprise technology for ZDNet. He has previously worked for IDG, The Sydney Morning Herald and Melbourne's The Age as well as various business titles, most recently editing the Business Sunday section of New Zealand's weekly national news... Full Bio

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