ERP implementations and outsourcing: The white board rarely reflects reality

ERP implementations and outsourcing: The white board rarely reflects reality

Summary: In the things you must read today department check out Michael Krigsman's analysis of a bankruptcy filing by American LaFrance, a maker of custom firefighting equipment. In the filing, American LaFrance alleges that IBM is responsible for the company's bankruptcy because of a botched ERP implementation.

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In the things you must read today department check out Michael Krigsman's analysis of a bankruptcy filing by American LaFrance, a maker of custom firefighting equipment. In the filing, American LaFrance alleges that IBM is responsible for the company's bankruptcy because of a botched ERP implementation.

Michael outlines all of the moving parts between American LaFrance (ALF) and IBM nicely, but the big lesson is that these big-bang implementations always have problems. Sometimes these problems tar the technology vendor involved, but more often than not management at the buyer gets a hefty dose of blame too. And when management tries to outsource technology without doing any of the grunt work that needs to happen it's a potential disaster.

Michael writes:

According to filings in the District of Delaware bankruptcy court (PACER case no. 08-10178), problems occurred when ALF was spun out as an independent company from Freightliner, the previous owner. During the transition, ALF outsourced "accounting, inventory, payroll, and manufacturing process services" to Freightliner. As part of the transition, ALF developed a "standalone" ERP system designed to support the firm after the Freightliner separation was completed.

From there all hell broke loose with the implementation managed by IBM.

You can imagine the setting where this disaster got rolling. ALF is spun off, but as an operating unit it had no IT staff to speak of. ALF's plan was to toss its ERP system over the fence to IBM. ALF executives saw a whiteboard sketch and fell in love with the plan. Outsourcing always looks good when you don't know what you're doing. IBM comes in with its pitch and says it can complete the task (it only does thousands of ERP implementations a year). By time folks really figure out what's going on the project management has turned into a complete mess.

Who's to blame? Everyone.

Is IBM responsible for ALF's bankruptcy? I seriously doubt it. ALF's market tanked as this ERP debacle ensued. It appears ALF's management--the same folks that probably didn't map processes and think through its ERP system--is looking for a scapegoat. Tag, IBM you're it. But the big lesson is that nothing every works out the way you sketched it out on a white board.

Topics: IBM, CXO, Enterprise Software, Legal, Outsourcing, Software

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9 comments
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  • Myriad of errors, but...

    the IT failure itself can only be blamed on IBM. And it is possible for your IT to break you. Whether it did or not will probably be decided by 12 people in a jury box... who won't understand a fraction of what took place.

    It failures sure seem to be grabbing a lot of the news lately.
    bjbrock
    • Blaming IBM is silly

      That would be like blaming the sunny day for you getting a sunburn.

      The real issue is that ALF didn't know what it was getting into and didn't take the time to find out. I've been on the other side talking until I'm blue in the face to the customer - AND THEY STILL DIDN'T LISTEN. In the end, exactly what I predicted, happened. But I had left by then because the customer wouldn't do what it actually needed to do.
      trent1
  • Disagree a little...

    only a little mind you.

    But to me, outsourcing has become an overhyped piece of overcooked bad chinese food. Looks great on paper, bad on implementation. Look at outsourcing customer support, it long longer supports the customer, but AGGRAVATES them. Companies nowadays only care about the bottom line. ONLY. Customer service is now a secondary problem, and they wonder why people are telling them to sit on their product and rotate.

    Outsorcing your ENTIRE IT department is asking the same thing. You are a specialized company, quit being a cheap-a** and outsourcing everything, you obviously need someone On HAND to do all this. This facination with outsourcing is not helping companies.

    And, to be blunt, I have friends who work at IBM and worked with companies that are resourced out to IBM, and I just have not really been impressed with their protocols and works. Great computer (when they made them) but thier IT "solutions" do not exactly rate very high to me
    ivanotter
  • RE: ERP implementations and outsourcing: The white board rarely reflects re

    The prospect of Yahoo uniting with AOL and Disney is amazing in what it reveals: The biggest merger acquisitions of this coming year will involve Internet Customer base(AOL, Yahoo, Juno, Lycos) and wireless access (Verizon, Sprint, T-Mobile) plus OS platforms mixes with Hardware manufacture.
    Larry Dingmans of ZD/Net reported accurately in May 2007 the possibility of MS buying Yahoo(http://blogs.zdnet.com/BTL/?p=4986 ), this has been public and cooking for almost 10 months.
    My point MS is desperately positioning itself as not to be bought by the lies of Sonny or GE. This is not about increasing value through Yahoo.
    The stock market shows that MS stock dipped "Microsoft's shares traded Friday at 4 p.m. on Nasdaq at $28.56, up 44 cents, lower than when the deal was first announced." -WSJ
    Think: Apple teams up with Fox and AT&T, Nortel with TI...my point is THINK GLOBAL I MEAN GEOGRAPHY LESSONS GLOBAL.
    redserpent
    • Not Very Lucid

      "My point MS is desperately positioning itself as not to be bought by the lies of Sonny or GE. This is not about increasing value through Yahoo."

      Sony is worth $45B and MS is worth $265. It would be impossible for Sony to buy MS.

      GE is worth $350B, but to buy a company like MS, they'd have to offer 10% to 20% over market. What would possess a GE to buy a company nearly it's same value with a similar P/E?
      Regulator1956
  • It is seriously possible IBM is to blame...

    The quest for billings despite clear indications that the client is not listening, does not understand, and is stepping into a serious debacle can cloud the judgement of a project manager in IBM's situation. It takes a very mature manager to say: "We cannot convert to this system until you are comfortable it works, you have audited the data, and you have a fallback plan if it's not enough."
    I worked for a company that made "custom" products with a unique bill of materials for each customer's equipment. When we converted to a new (we called them MRP systems back then...) we discovered our engineers had not understood what they were up against, and needed more time and training, our accounting folks had similar problems, and our inventory control folks were not used to the level of data entry needed.
    Thankfully, our colleagues on the factory floor had a fallback plan, threw people at the problem, and gave us enough time to recover.
    But the signs were all there. ALF seems to have waved them off, and IBM accepted money to ignore them. Bankruptcy becomes them both.
    Jim from Indy
    • We do things different

      I work for a computer services firm that does staffing, implementations, consulting, and software development and integration. We make sure the client understands the scope and is involved at every step. If they aren't committed and involved, we harrass them until they get involved. We can't afford not to. The client's success story and subsequent endorsements are worth far more to us than the fees from any job. But I guess IBM is too big to think like that.
      geedavey@...
  • The problem is that everyone is only interested in getting paid as much as

    Supply a product or service comes second to getting paid.
    hugh@...
    • Still a Management Failure

      Certainly IBM and any systems integrator is interested in getting paid as much as they can. That's not the problem--that is a powerful lever that the competent project manager deploys by carefully crafting interim deliverables that motivate the SI to do things like testing and running the systems in parallel and developing a solid backout plan.
      IfUInsist