Promises, promises: A look at Waste Management's case against SAP

Promises, promises: A look at Waste Management's case against SAP

Summary: Waste Management's lawsuit against SAP for a "complete failure" of a $100 million software implementation boils down to promises. What did SAP promise Waste Management?

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Waste Management's lawsuit against SAP for a "complete failure" of a $100 million software implementation boils down to promises. What did SAP promise Waste Management? And how much responsibility does Waste Management bear for believing those promises?

As background, news surfaced last week that Waste Management filed a complaint against SAP in the district court of Harris County, Texas. The suit, filed March 20, was fairly well publicized, but many of the accounts were thin on detail. Typically, IT failures aren't black or white. There are many shades of gray. Projects change, there's scope creep and often the vendor and the customer share some of the blame.

wmi.pngWith that in mind, I've been perusing Waste Management's complaint against SAP (PDF download). For its part, SAP doesn't comment on ongoing litigation. If this spat ever does get to court, it will highlight the enterprise software sales process, which really revolves around promises. According to Waste Management's complaint, SAP said it could offer an out-of-the-box ERP system with no customization. Waste Management's reality was different.

That disconnect isn't all that noteworthy. Enterprise software companies typically say there is no customization required and customers still need to tweak. What's interesting is that Waste Management is going after SAP in a very public manner. I'm familiar with Waste Management from a previous case study on the company. In a nutshell, it's a giant company that has been built via acquisition. Legacy systems were everywhere and a good chunk of them were outdated. From 2003 to 2005, Waste Management was becoming more than an army of small waste hauling firms and an integrated company. In 2005, Waste Management was looking to overhaul its order-to-cash process--billing, collections, pricing and customer set-up.

Also see: 7 common lies told by enterprise software sales people

Amid that backdrop, you can see how SAP's pitch of an out-of-the-box "solution" held sway with Waste Management's selection team. According to Waste Management's suit, SAP made it sound as if software that was used for waste haulers in Europe translated to the United States. It didn't. At issue is whether SAP promised too much in trying to land Waste Management as a reference customer and whether the customer was duped into using software the German software giant knew wouldn't work.

A few choice excerpts and the lessons learned:

Excerpt:

"In order to gain acceptance in the United States waste and recycling software market, and to obtain large monetary benefits from current and future license and implementation fees, SAP fraudulently induced Waste Management to license an 'United States applicable' Waste and Recycling Software solution. This software was represented to be 'a waste industry standard solution with no customization required.' SAP further represented that the software was an 'integrated end-to-end solution.' Unknown to Waste Management, this 'United States' version was undeveloped, untested and defective. Although SAP knew of the software's defects and its inability to function in the United States market conditions, it nevertheless represented that the software was a mature, 'out-of-the-box' solution with the functionality and scalability necessary to meet Waste Management's specific business requirements and transaction volumes."

Lessons learned: If your mother says she loves you check it out. One question: Wouldn't a pilot have surfaced this software as a joke? What were the probing questions being asked of SAP here? SAP had competition and formulated its pitch based on being out-of-the-box and being rapidly installed, according to the complaint. How realistic was that expectation? Let's face it: ERP is brain surgery and sometimes there is no anesthesia. I'm inclined to laugh at any software vendor that pitches enterprise software out of the box. It's not a magic pill. Another wrinkle: SAP's sales effort was led by Dean Elger, a former Waste Management controller. Is that too cozy?

Excerpt:

"SAP represented that its software was a 'proven solution' and that SAP had 'the implementation experience to deliver productive functionality in less than one year.' These representations were false as the software modules used by SAP in its 'United States' version of the waste and recycling software had never been used together before and had never been tested in an actual productive business environment. To further its deception, SAP personnel also helped develop a 'business case' for Waste Management that detailed how SAP's software purportedly would enable Waste Management to obtain hundreds of millions of dollars in increased efficiencies and revenue assurance. SAP never told Waste Management that this business case depended on an undeveloped product."

Lessons learned: Why would you depend on a vendor to develop a business case? Here's the deal: Vendor makes up metrics, you consider them for what they are--a marketing pitch--and then you do your own work or hire someone else to do the legwork for you. SAP's analysis predicted net annual benefits of $106 million to $220 million a year and those savings convinced Waste Management to enter a contract under its Safe Passage program, which is designed to poach Oracle customers.

Excerpt:

"SAP presented Waste Management with a series of pre-contract product demonstrations consisting of what SAP represented was the actual waste and recycling software. Yet Waste Management has discovered-- and, in internal documents, SAP has admitted -- that the pre-contract demonstrations were in fact nothing more than fake, mock-up simulations that did not use the software ultimately licensed to Waste Management. SAP's senior executives, including its president, Bill McDermott, participated in these fake product demonstrations, which were rigged and manipulated..."

Lessons learned: If true, these demonstrations, which were given "on many occasions during an eight month time period in 2005," were on shaky ground and SAP should have disclosed its software was being developed. The software was built on SAP R/3. What do you do if you're a customer? Perhaps it all comes down to questions about other customers. If Waste Management would have asked what other waste and recycling companies used this software it would have likely caught SAP. For instance, there's no reason a company the size of Waste Management needs to be an early adopter and the suit notes that SAP only had small European waste companies as customers. Waste Management only has one major competitor--Allied Waste. It's a happy duopoly for the most part. If SAP's software was an alpha release at best Waste Management should have been the guinea pig for free. SAP would have made money for having Waste Management as a reference customer.

Excerpt:

"SAP represented that it had well-trained personnel with the requisite expertise, experience and knowledge of the software to implement it rapidly on a company-wide basis...These representations were also false."

And.

"SAP's attempted installation of the waste and recycling software at Waste Management was a complete failure. The installed software failed to contain basic functionality that had been represented and was unable to run Waste Management's most basic revenue management operation."

Lesson learned: Consultants have a role and it sounds like Waste Management could have really used an independent third party to evaluate and implement SAP. A law firm to create an escape clause out of this $100 million contract would also have been handy. This deal needed an escape hatch before a messy lawsuit.

Postscript: SAP had promised to implement this Waste Management system by Dec. 31, 2007. It never happened. According to Waste Management's complaint, SAP's solution to the contract spat is to convert the out-of-box implementation to a more involved software development effort.

Topics: Software, CXO, SAP, IT Employment

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33 comments
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  • Better than the other reason to give your garbage man's Daughter a computer

    Bolivia and Amar Maha Roma; spending his new life on his personnal Land Expansion off the Coast of India. It is beautiful there from the video I've seen, India. Best wishes California Associate and my former Laid Law Garbage Man, beautiful Daughter and(HD)Springer Soft-tail.
    rtirman37@...
  • I have had to deal with ERP Makers

    I can totally see this from WM's point of view. Dealing with ERP makers is almost like dealing with used car salesmen. It can get pretty nasty :/
    Stuka
  • Is WM run by children?

    If so, they needed a good consulting firm to manage this acquisition. Who in the hell buys a software package like SAP (especially SAP!) and expects not to customize it? Who buys a software package without visiting the reference customers to see it in operation?

    I do have one quarrel with the assumption that SAP wanted WM as a reference customer. TO SELL IT TO WHO ELSE??? Once you have Waste Management, you've got the market! What larger fish were they going after? Why would they give it to Waste Management for free? That's stupid.

    This entire story sounds like it lacks some input from seasoned consultants. Are these companies all run by recent MBAs with no experience?
    DaveMorris
    • In one breath you ask about...

      reference customers but then you say once you have WM you have the market and no one else to sell to.

      Plus if SAP says there is no customization why would WM think there will be?
      bjbrock
    • Consultants would have added another layer of lies,

      misrepresentation, and another million or so of bills to this debacle. In my experience there is no disaster so bad that a consultant can't make it worse.

      No, SAP lied and WM believed it. WM may have been foolish, but under contract-law only one of them is the criminal: the lier.

      Regards,
      Jon
      JonathonDoe
  • RE: Promises, promises: A look at Waste Management's case against SAP

    Sap implementations are always a disaster. The only differences are smart senor managements puts a political spin on it and some how pull bonuses out of the deal.
    MXWMXW@...
  • SAP implementations are always a disaster.

    The only differences are smart project managers inflate the budget and over estimate time. So they come in on time and under budget. Put the right spin on the problems, emphasize the ?Future savings? and pull a bonus out you butt. Lately it seems like success is really all about knowing how to play senior management
    MXWMXW@...
  • RE: Promises, promises: A look at Waste Management's case against SAP

    Did WM spend 100 million trying to implement SAP or are they going after them for more just to teach SAP a lesson?
    lehanrp@...
  • RE: Promises, promises: A look at Waste Management's case against SAP

    I was a consultant for Exelexis Pharaceuticals, caught SAP lying ... exactly the same story about SRM for Pharma (SAP stated it was in productive use at multple pharmas), when we had problems I checked and found not one of the "references" had the software in production, software was still buggy, etc. Due to pressure on the integrator from SAP AG CEO (acquantance of the German CFO of Exelexis), I was released from the project. FYI, the client in two years was able to finally do what the product was supposed to do. Daemeon Reiydelle
    Daemeon.Reiydelle@...
  • RE: Promises, promises: A look at Waste Management's case against SAP

    I would only add that legacy decomissioning, and maintaing legacy systems (SOA) is an area where we can expect sales force optimism and lies ... EAI/decom is nearly always grossly under estimated in planning. My specialty is around this area of EAI, legacy decomissioning, etc. I have NEVER seen a client allocate sufficient resources for this "it must be easy because our systems currently work" scoping problem. E.g sophisticated Excel spread sheets that are the legacy planning tools when moving to SAP SEM/BPS or even Hyperion ... SAP sales has told clients "no problem, just excel" ... I have seen million dollar projects fail for this mis-scoping. Daemeon Reiydelle
    Daemeon.Reiydelle@...
  • It is not just Waste Management

    I formally worked for a large semiconductor company who is likely now still trying to get a end-to-end solution to replace legacy systems that were never broke in the first place. Management never asked the end users if we needed a new planning system that encompassed everything. Management is at fault for thinking a enterprise software company has any answers at all to replacing any system without talking to the end users.
    ralph@...
    • RE:It is not just Waste Management

      Management might have some blame but many software companys have for years promised more that what can be delivered. Oh its real easy, you dont need much training, not much set up etc etc. We just know its a fact of life what is promised by software venders is no always true. That is why we tend to wait a while for any upgrades to the software.
      april1987
  • Missed Lesson Learned

    Did WM have their IT people look at the demo and the product before it was purchased? Oh, yeah, the WM executives use laptops, so they know about computers and don't need to ask their own IT people whether this was "snake oil." How many times have I seen that one???
    ashford50
  • Well if they wrote those promises into the contract like we do

    They shouldnt have any problem getting their money back.

    Contingencies, testing, retesting and references are cruicial to making sure things go the way they are suppoed to go.
    Been_Done_Before
  • RE: Promises, promises: A look at Waste Management's case against SAP

    Larry, your obvoiusly biased. Dignan is a great alias for Ellison.
    master 1
  • RE: Promises, promises: A look at Waste Management's case against SAP

    Page 3 of the Plaintiff's Petition:

    "10. SAP's fraud began in late 2004 or early 2005 when it targeted Waste Management as ripe for it's Waste and Recycling product"

    It it me, or was 'ripe' a wonderful play on words from said garbage company's attorney?
    aroberts@...
  • Reuirements, pilot, testing, lather, rinse, repeat

    Wow, it is amazing to read about all the resources wasted. As a person who has been on both sides of such conversations, I believe both parties bear some responsibility. The seller appears to have been deceptive in their approach. The buyer did not exercise due diligence, a few phones to the alleged customers who were supposed to be using the "SAP for Waste Management" product would have saved time and money. Once WM verified the claims of the vendor then they can make their choice. It is not unusual to run a test, get some real life data and import it into the product being considered. While not a perfect representation of real world performance, some of SAP lies would have likely been exposed far earlier. Since WM failed to do this, they bear some responsibility for their fate. And SAP should be ashamed for lying about their product offerings.
    ThePrairiePrankster
  • RE: Promises, promises: A look at Waste Management's case against SAP

    No due diligence, no reference checking, probably no IT input into the decision....

    Should SAP lose the lawsuit? probably.
    Should a whole slew of WM managers be in the unemployment line? definitely.
    anarky@...
    • The most reasonable comment

      It is amazing how few lessons were learned about these disasters and how little strategic management competence in the area of organizational transformation was developed. I also wrote about this debacle in my blog
      www.evolutionofbpr.com.

      We will keep seeing these disasters as long as we insist on shopping for a "silver bullet".
      GregY
  • RE: Promises, promises: A look at Waste Management's case against SAP

    You make it sound as if it is wrong to take the word of a large company when they assure you that they can deliver a given thing. Do you keep your money in a sock? Do you ride a bike? SAP LIED. Repeatedly, over a long period of time, about many things at many levels. They deserve it.
    raykirk@...