Customer blames bankruptcy on IBM IT failure

Customer blames bankruptcy on IBM IT failure

Summary: American LaFrance (ALF), the "leading brand of custom-made fire fighting, fire rescue vehicles, ambulances, and heavy-duty work refuse vehicles," has declared bankruptcy, blaming IBM and a failed ERP implementation.According to filings in the District of Delaware bankruptcy court (PACER case no.

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Customer blames bankruptcy on IBM IT failure

American LaFrance (ALF), the "leading brand of custom-made fire fighting, fire rescue vehicles, ambulances, and heavy-duty work refuse vehicles," has declared bankruptcy, blaming IBM and a failed ERP implementation.

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.

The bankruptcy filings describe the painful cutover from Freightliner:

Almost immediately upon the changeover to the ERP System, ALF recognized serious deficiencies with the system that had a crippling impact on ALF’s operations. Some of the problems that ALF encountered in implementing the ERP System included, among others: (i) inability to reconcile data between the Freightliner system and the ERP System; (ii) incorrect or incomplete inventory, purchasing and customer data due to either problems with the Freightliner system or the conversion of the data to the ERP System; (iii) inaccurate or incomplete vehicle configurations loaded in the ERP System; (iv) insufficient training on the ERP System; and (v) missing financial information including accounts payable detail, incomplete or inaccurate accounts receivable data, and inaccurate beginning general ledger balances.

For the next several months following the changeover, ALF attempted to solve the plethora of problems with the ERP system. Despite such efforts, as a direct result of the problems with the ERP System, ALF became unable to complete the manufacture of many pre-ordered vehicles.

The manufacture of highly-customized Emergency Vehicles requires the availability of a large number of inventory SKUs at key points in the production process. The conversion from the Freightliner system to the ERP System resulted in the inability to account for inventory on a reliable basis. This, in turn, severely limited ALF’s ability to deliver completed products to its customers. Consequently, ALF’s inability to deliver vehicles had an immediate impact on ALF’s cash flow and created a liquidity crisis.

ALF claims that IBM is responsible for the IT problems that precipitated the bankruptcy:

ALF is currently analyzing potential causes of action against IBM based upon services provided by IBM in connection with the problem-riddled transition to the ERP System.

The documents describe IBM Corp. (for the "customer agreement") and IBM Global Services (for "systems applications project assistance") as having open contracts with ALF. IBM is listed as a $5.5 million creditor, although ALF disputes the invoices:

IBM

THE PROJECT FAILURES ANALYSIS

In my reading of the documents, which only present ALF's side of the story, it could be said that both ALF and IBM dropped the ball during the transition from Freightliner. Here are my conclusions:

  • IBM did not manage the project properly. Given ALF's dependence on Freightliner, "serious deficiencies" in production software should have been identified prior to the cutover, for example by testing and running the systems in parallel. IBM managed development, which typically includes extensive testing before deployment.
  • ALF did not manage the project properly. IBM's role does not minimize ALF's ultimate responsibility for managing this mission-critical IT project. ALF's management was probably distracted by the deteriorating Freightliner relationship, by a major facilities relocation that didn't go well, and by generally poor market conditions.
  • The ERP problems were managerial, not technical, in nature. The list of ERP and data problems cited in the filings suggest poor project management, rather than technical issues, were at the root of the difficulties. Since the division of labor between ALF and IBM is not made clear in the filings, it's impossible to discern where responsibility lies.
  • General market conditions made things worse. While all this was happening, the market for ALF's products tanked:

[T]he Emergency Vehicle industry is currently depressed. Many competitive manufacturers are experiencing financial difficulties and several have ceased operations.

  • All these issues created customer service problems, multiplying the negative effects of the market downturn. For example, the Bellingham Herald reported:

The city is trying to get a refund of the more than $362,000 it spent on an American LaFrance pumper that has had electrical problems 10 times [since 2005].

    In addition, FireRescue1, an industry news source, states:

Several departments that have ordered apparatus have suffered lengthy delays in delivery.

"I think one of their problems may have been that they underestimated the problems with moving a plant and production and actively pursuing business for new apparatus," [Bill Peters, who runs New Jersey-based Fire Apparatus Consulting Services] said.

"Perhaps they bit off more than they could chew, especially with the building of a new factory. It might have been wise not to take as many orders and not to have backed themselves up so much."

This risky, high stakes project was primarily business in nature, despite the heavily technical components. Project failures often arise when non-technical senior management don't fully understand the business ramifications of technical decisions made by IT. Poor communication and lack of understanding between IT and business management remains a serious problem contributing to many IT failures. My ongoing interview series, NakedIT: Conversations with Innovators, explores this issue in depth.

The combination of so many negative conditions ultimately created a situation where the company could not recover, leading to the bankruptcy. ALF was founded in 1832, so it's a shame to see this happen. Unfortunately, many of ALF's vendors will probably suffer as the company goes through bankruptcy.

(To research this post, I studied the bankruptcy documents, left messages for ALF's proposed Chief Restructuring Officer and its IT manager, spoke with two attorneys connected with the case, and got unpleasantly barked at by a third. All facts, conclusions, and interpretations in this post are based on information obtained from publicly-available filings.)

Update 2/22/08: IBM ignored a request for comment on the story. Larry Dignan wrote a great follow-on post.

Topics: Software, Enterprise Software, IBM

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72 comments
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  • IT personnel often don't understand...

    the business aspects of what makes a company work. From accounting, to management, to marketing and everything else in between. IT is meant to facilitate all of these and by itself is worth nothing.

    The best IT personnel I have ever met are people with a business background who have moved to IT and are self trained.

    If all one knows is technology, one won't be of much value to the company or customers they serve.
    bjbrock
    • Your point is well made...

      You're correct in your statement however, it works both ways. Management attitude
      towards IT is crisis management. Many times I've seen managements treating IT as
      a noise little brat always getting in their way.

      Management doesn't understand IT, looking at IT as a cost not asset. Until
      something goes wrong they pay little attention to IT, e.g., cannot get e-mail,
      cannot transfer files and the like. Other than that IT isn't included until after the
      fact then IT will state an obvious wherein management will then ignore them.

      When management completely includes IT in their management discussions then
      there will be a harmonious existence between the two that will better affect
      managements mission.

      Many IT folks I deal with have this attitude towards management "we the few have
      done so much with so little we can accomplish almost anything with nothing". IT
      seems to be in quiet desperation knowing the house of cards will fall while having
      their suggestions fall on deaf ears.
      BubbaJones_
      • True. Most upper mgt....

        consider IT as nothing more that a cost center (not generating profits). When in fact, in todays world, most companies, especially larger ones, could not do business without IT. In which case it is instrumental in generating all of the profits.

        I consider a company's investment in their IT second only to their investment in HR. Both of which may not get a fair shake from upper management.
        bjbrock
        • Desks are also essential to doing business.

          IT can be considered a necessary resource not requiring attention, standard solutions delivered in a standard manner. Little attention is required from anyone except the maintainers.

          If IT does come to managment attention, it would be the result of a problem the maintainers were unable to solve. That problem might be delivering current services or in the response to new situations. That's not a reference to improving IT by innovation, which can be an irritant.

          There's a reason that IT is not considered a stepping-stone to important positions in many organizations.
          Anton Philidor
        • RE: True, Upper Mgmt

          Upper management in my experiences has always seen IT as a cost to be cut. It is, to me, one of the most shortsighted attitudes I have ever seen. I have a friend, who tried to increase the IT budget to allow for replacement of some aging equipment. That request was shot down, "We can't afford it!!!" the owner bellowed. He quit in disbelief; three months later, they called him up, begging him for assistance. Apparently that piece of equipment failed; and the system was down. His response to management was, to put it politely, [b]"do something biologically impossible"[/b] Sometimes [b]you get what you pay for....[/b]
          fatman65535
        • Most people OUTSIDE of management ....

          Most people outside the loop of management consider bean counters
          and managers productivity parasites that contribute nothing and
          consume almost everything. This is like the old "Who is the most
          important organ in the body" joke. There is probably ample blame
          to spread around in this unfortunate company's downfall.
          kd5auq
    • How data is converted to information within ...

      a business is what makes a company unique. That said, applying templated finance and inventory applications won't work for most companies. Clearly this IT project was not managed well because it would appear the functional-analysis was not complete. So how could the IT staff implement a system to this company's specific use of data? Even if they rolled it out without a technical hiccup, then the business still wouldn't function for not having it's individuality in business/functional processes met.
      Spats30
    • Actually this attitude is part of the problem

      What you have stated is the equivalent of saying an HR person can move right into managing the accounting department with some self training and not miss a beat. I say management because every decision made by even the lowest developer can be critical as if it were a management decision. Its just as risky to put your data in the hands of someone what doesn't know the business as it is with someone that knows the business but doesn't know what they are doing with the data.

      Self trained normally amounts to assumed knowlegde. This is how you end up with poor server admins that think they know Windows server because they use Windows at home. This is how you end up with crappy business systems because the developers were never properly trained in computer science. The people you have described are best suited as business analysts. They know the business and know enough about IT to communicate the business needs effectively to those that are properly trained in implementing these systems. Thats not saying a self-taught person can't excel because I have seen them. But I have seen first hand the mess thats created when too many self-taught "IT" personnel run a shop. Talk about slow systems and alot of downtime.
      storm14k
      • Yes, spot on.

        But there are exceptions, I've seen my fair share of IT people
        who weren't IT people from the start. But they almost all have
        another Technical degree or longer technical training.
        I've seen a lot of self proclaimed IT experts who has a
        background in economy or Management.
        These are the people who you normally hear utter phrases like:

        "Installing and configuring 10 servers can't take more
        than a few hours?"
        "I don't need to know about Unix, just give me a filemanager"
        "No, let me explain you can do everything in SQL,
        it's a much better computer language than C or C++".

        These are all true quotes.

        And all to often I've seen, specially people with a degree in
        computer science, relatively fast become more of an expert on
        a subject than the people that they are trying to design a
        solution for.
        It's just in the nature of the education that you quickly have
        to be able to analyze a problem and come up with a solution.

        // Jesper
        JesperFrimann
      • MSCE's make the worst...

        server administrators. I've been doing this for fifteen years and I still say the best IT people I've seen are self taught. And a background in business allows them to understand how to make IT increase the bottom line.

        Assumed knowledge? Only idiots assume. No matter what their background is. It is usually the computer science major who assumes they know everything and will therefore never learn.
        bjbrock
        • Well if you want to call them idiots...

          then so be it. But it has always been that self taught Windows admin that taught themselves on Windows XP that screws stuff up. And you can normally pick them out by asking them to apply general concepts to a Unix or Linux environment. They normally shy away quickly. This is because they have not learned concepts and basically know a set of icons. They probably don't have Linux at home to learn so they fight it. And an MSCE or any other certified person is not a fair assessment. Anyone can read a book and get these certs without having touched a server. The same goes for PMP's (looking past the required experience). In fact I was 7 questions short of becoming a Master Electrician and had never so much as wired an electrical outlet. Certified people can often be the worst of any bunch.

          Now don't get me wrong. I have run across some good self-taught people. But its not the norm. And in fact I'd dare say its becoming a problem in the developer realm. I happen to be have a computer science degree and I also know that I cannot be an expert at everything. I respect for instance an accountants degree and the work they put into it as much as I respect mine. Therefore I rely on a business analyst to properly lay out the problem so that I can apply my technical knowledge. I and other computer scientists have a deep bag of tricks to throw at a problem while alot of self taught developers usually throw only what they are comfortable with. Once again this is how you end up with unstable systems and many square pegs being forced through round holes.

          The solution is to meet on a middle ground and not to be a SME on everything. In fact this is the whole purpose of a SME. Communication is key.
          storm14k
  • Message has been deleted.

    Linux Geek
    • Huh?

      This article is OS independent. It's a management issue that an OS choice wouldn't
      solve. Allow me to suggest re-reading the article.

      Please go pick a fight someplace else.
      BubbaJones_
    • Message has been deleted.

      No_Ax_to_Grind
    • Message has been deleted.

      Hallowed are the Ori
    • IBM buys licenses from MS, but that's hardly the core issue afoot.

      n/t
      HypnoToad72
    • quit deleting my messages!

      what the heck is going on here, this is not North Koreea.
      and there was not a single personal atack too!...seesh!
      Linux Geek
      • Content-free messages are deleted

        Personal attacks are deleted on this blog, as are messages with absolutely no content, spam, and blatant advertisements.
        mkrigsman
  • Message has been deleted.

    rtirman37
  • Whence the IT expertise?

    If the company had no IT resources of its own, that would suggest complete relance on IBM to identify and solve problems before they occurred. With minimal monitoring because of the business situation.

    In such a situation, wouldn't advising the company of unavoidable difficulties far enough in advance that the company could respond be part of IBM's job? Calling on a Friday afternoon to say, "I'm sorry to tell you this, but your company is sunk." would not be meeting responsibilities.

    In return for what I suspect will prove a significant amount of money, the company may have thought itself justified in thinking that IBM was part of the solution rather than part of the problem. Okay, so there was a company management problem.

    Seems a key question was, What did IBM promise to provide and how well could the company monitor its contractor? Some clarification would be appreciated.
    Anton Philidor