San Diego fires Axon over ERP implementation problems

San Diego fires Axon over ERP implementation problems

Summary: The city of San Diego, CA terminated its software implementation contract with services provider, Axon, citing "systematically deficient project management practices."

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The city of San Diego, CA terminated its software implementation contract with services provider, Axon, citing "systematically deficient project management practices." The project is running $11 million (27 percent) over-budget to date, a number which will likely increase.

San Diego's termination memo highlights key Axon governance and implementation process deficiencies. Tom Fleming, president of San Diego Data Processing Corporation (DPC), a municipal IT contracting agency, wrote the document:

  • [Axon failed] to adequately maintain the project plan in a manner that permits effective resource utilization, "critical path" management, cost control and ... overall status against agreed upon project timelines and deliverables.
  • Axon has not maintained a project risk register and issues register in a consistent manner.
  • Axon has generally not followed the change control process, issue escalation procedure or project control protocol as stipulated in the SOW.
  • The cumulative effect project management deficiencies are an estimated ten month delay in the completion date....

The termination memo also criticizes the quality, caliber, and skills of Axon's consulting resources:

  • [C]ertain Axon functional resources have not demonstrated sufficient knowledge of public sector business practices.
  • Axon was not following the best practices as promulgated by the Software manufacturer.
  • Axon has submitted incomplete work product for acceptance and payment.
  • [T]he division of responsibility and workload between Axon consultants and their City Counterparts does not meet the spirit of the contractual arrangement between DPC and Axon.

Mary Lewis, San Diego's Chief Financial Officer, wrote a memo explaining the city's decision to replace Axon with implementation consultants from SAP, the software vendor:

SAP is uniquely positioned to resolve complex implementation challenges and to complete projects where previous efforts by other firms have failed to meet client expectations. In fact, several other local, state and federal government agencies have recently experienced similar implementation difficulties and have turned to SAP to resolve implementation issues.

These Agencies include:

  • City of Portland, Oregon
  • Tarrant County, Texas
  • Minneapolis Public School District, Minnesota
  • State of Washington
  • Northern Kentucky University, Kentucky
  • United States Postal Service
  • Army Medical Material Agency

A section of that memo raises a significant red flag, suggesting the city plans to customize the SAP software:

The engagement of SAP permits a direct line of contact to product development teams at SAP which will facilitate quicker resolution of product customization issues that are required because of business requirements unique to the City.

In general, customizing code in packaged software like SAP carries risk, as I explained in another blog post:

Custom code in a packaged solution creates a variety of evils, which taken together lead to cost and time over-runs downstream, aside from increased development costs and risks during the project.

In a relatively interesting disclosure, city officials released a report describing San Diego's financial arrangements with SAP:

[San Diego] executed a single source fixed cost contract with SAP for an amount not to exceed $14.2 million, using a fixed price deliverable based payment and phased go-live approach. There is an additional $1.5 million time-and-materials contract for 90 days of "post go-live" support, for a contract total of $15.7 million. It is important to note that the Axon contract had only 30 days of post go-live support as part of their fixed price.

THE PROJECT FAILURES ANALYSIS

This project reads like a stereotype how a local government transformation initiative can go wrong:

  • San Diego, the client, didn't understand the full scope and extent of the undertaking
  • Axon, the system integrator, is accused of supplying inadequate resources, project governance, and oversight, all of which substantially caused the failure

Local government responsibilities. In general, it's not unusual to see an enterprise software implementation overwhelm a small local government's capacity to handle change. In an interview with the San Diego Union Tribune, the city acknowledged its own contributions to this situation:

Chief Operating Officer Jay Goldstone said in an interview that the city had underestimated the cost and been too aggressive about the timing at the start.

“Hindsight is always 20/20,” Goldstone said. “This, maybe on Day One, if we could have rewritten the script, might have been a $45 million project.”

A recent PeopleSoft implementation failure in Oak Park, IL shared similar issues:

On the surface, it’s easy to blame the original system integrator as well as PeopleSoft. Both of these participants should probably have worked more closely with the town to ensure that process change expectations were clear and realistic. However, it’s entirely possible the external folks explained everything to the town, but somehow the information didn’t sink in.

Marin County, CA faces another similar situation on its SAP project, as described in the local newspaper, Marin Independent Journal. [Disclosure: I coached the Marin reporter how to analyze and understand this failure]:

[A] complicated system more sophisticated than necessary was installed, based in the wrong department and implemented too quickly as officials bowed to advice from consultants they now question. Critics were all but ignored. Training was minimal. Management was erratic.

Top managers overseeing the project bailed out in midstream to join software firms. The county's in-house computer experts were shunned as consultants moved in, and the high-tech staffers remained out of the loop until auditors threw up their hands in despair.

"We acknowledge this hasn't been the best implementation," said County Administrator Matthew Hymel, conceding that mistakes were made as the county tried to do too much too fast.

System integrator problems. System integrators can also contribute to their clients' failure situations. My recent interview with Forrester analyst, Natalie Petouhoff, focused on exactly this issue:

System integrators have a long-term business model based on projects going on and on and on; it’s a little like foxes guarding the hen house. Completing projects quickly is not necessarily in the integrators’ best interest. Many consulting firms went out of business because their old model of writing change orders and blaming it on the client no longer works. Customer pushback has kicked system integrators in the butt.]

My take. Given tightly interwoven accountability on both sides, it's difficult to accurately dissect the strands of responsibility. I suspect both San Diego and Axon bear responsibility for this failure. Regardless of what happened in the past, the new contract puts SAP squarely on the hot seat to get this project back on track.

Update 2/25/08 4:00pm EST: I received the following comment from SAP. Note the emphasis on improving governance:

SAP and SAP Public Services are 100% dedicated to the success of the project. We recognize the importance of this project to the citizens and officials of San Diego and we"ll deploy the resources necessary to complete the project. We know that transparency and team work at all levels of both SAP and the city are necessary as we work together to complete this successfully and we're encouraged by the strong alignment between the City and SAP senior executives. We know this leadership team will guide the project through the various decision points.

We have brought two major changes designed to ensure the project's success: 1) Methodology and 2) A refined governance model to help ensure swift decision-making and adoption. We believe this will help provide the project with transparency and accountability as we move forward together. Our goal with this model is to bring the project into line with expectations on cost and schedule, user satisfaction and performance.

[Thanks to an anonymous reader for bringing this situation to my attention. Readers, I love you! Video clip summarizing the situation from the San Diego News. Neither Axon nor San Diego Data Processing Corp. responded to my requests for comment.]

Topics: SAP, CXO, Enterprise Software, Outsourcing, IT Employment

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13 comments
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  • Popularity vs competence ?

    The reason this seems to happen regularly to government is that upper management is elected based on popularity and not competence to manage. Unfortunately as we have seen in the last few years, substituting "private initiatives" does not solve this problem since greed takes the place of popularity.
    kd5auq
    • Givernment vs. liberty


      The argument of having to substitute populist government with private contractors is a nasty left-wing social trap. Private subcontrators or not it's still a government project. The point is not to have givernment do so much that its projects are so big.

      The conservative principals are such that the government is limited in their functions: courts, defense, fire, security, patents, and a few other things. It shouldn't be a nanny state. We now have givernment tendencies with all the 'hope' and 'change'.

      Givernment - part of the problem or solution
      Vladimir_Jabotinsky
  • RE: San Diego fires Axon over ERP implementation problems

    Mike,

    This caught my eye "The engagement of SAP permits a direct line of contact to product development teams at SAP which will facilitate quicker resolution..."

    Is this true? I cannot believe from experience as an ERP Consultant and Project Manager that hiring the software company's people is going to change anything. Knowing people in development never paves the way for product enhancements and other things that clients want. What it does do is annoy the hell out of development people. In the end, the only benefit of a 'direct line' to development is that when you tell the client that the functionality they want is not possible and not on the drawing board for any future release, they believe you.

    No software company worth its weight is going to start changing their product development blueprint because of one company who thinks they have found the holy grail of transaction processing and cannot possibly deviate from it.
    tfoydel
  • RE: San Diego fires Axon over ERP implementation problems

    I've seen some of SAP's delivered and non-delivered products and San Diego may have made a very bad decision here but, I agree the planning and execution of the plan to this point appears to be poor at best.
    netfixer06
  • RE: San Diego fires Axon over ERP implementation problems


    Major lesson learned: Stay away from government, if possible. The last thing you'd want is to be dependent on business (bureaucrat) users who can't get fired.


    The project costs were estimated 37 million. It's running over 11 million over budget. SAP comes in at 15 million fixed cost to finish it.

    Although 15 mill. looks attractive for SAP, my guess is it will be money looser for consulting. But at least they'll be able to keep selling software to governments.



    It's a tricky market. We have Obamunism crowding out private sector and replacing it with reliably inefficient government. Or should we say givernment given all the bailouts, assistances, welfare checks named tax credits, etc.

    However, someone will profit and steal tremendously in the new era. There is a lot of money being thrown around by stubborn/can't get fired bureaucrats.

    So which is it for you? Loosing money because of shrinking private sector or tons of money because of stimulus spending boondoggles?
    Vladimir_Jabotinsky
  • Private Sector Experiences Similar Problems

    While public sector projects have the added complexity related to taxpayer money (including its attendent issues), plenty of projects in the private sector fail too.

    In fact researchers in general have found that 30-60% of projects fail, if you consider a failed project to be one that is either off budget, off schedule, or that delivers questionable benefit to the organization.

    Often times initiatives have unrealistic expectations, staff lacks experience with projects of a particular level of complexity, stakeholders interests are not considered, change management strategy and tactics are lacking, amongst many other issues.

    And if a company doesn?t have a lot of experience with such projects, it?s hard to know:

    * Whether decisions have been made that will substantively compromise how well the solution will work for the organization

    * What are problems of technology versus problems of poor (business) process / practice or just plain change

    * How to work with your vendors to best resolve issues


    People assume failure is due to technology, or an unscrupulous vendor, or bad tools, because these items are easy to think of--- they?re visible. But the real causes of the project failure are often hidden and relate to organizational, cultural, and political factors including organizational readiness to undertake an IT-enable initiative.
    elizab
    • When you don't know what you are doing....

      Wow!! What else do you need to consider that a project is a failure??

      Axon's top man was candid? enough to express during one of his last visits to Dubai that it was about 80% (bit higher) of IT projects that fail.

      How reliable is an IT company with 60%-80% chances to fail implementing IT?

      But IT companies keep using the same project management approach. And in Roll-outs they REPLICATE, use TEMPLATES, Copy Paste. They even make PM softwares..to fail quicker...

      And still most IT companies believe it has nothing to do with them.

      Specially the ones that agree with your last statement "the real causes of the project failure are often hidden and relate to organizational, cultural, and political factors including organizational readiness to undertake an IT-enable initiative". So if it doesn't work clients are the ones to blame?.

      We must keep in mind that IT Specialist are NOT Change Management/Business Transformation Specialists

      In any field there are Pretenders and Contenders.

      At the end since customers are ACCOUNTABLES for their business is their CHOICE to pick the right one...and make CHANGES down the road if necessary like in this case..



      tagi1116
  • RE: San Diego fires Axon over ERP implementation problems

    The issue is "Readiness". It is always risky trying to make SAP functionality fit Client's Processes and Culture using glorified IT specialists. You need Business Transformation specialists. There are more cases like this. In the Middle East some Clients are already creating their own "SAP utilization Department" to maximize SAP utilization and ROI. Guess Why. Systems integrators Lack of bandwidth/Readiness. Just ask HP, Atos, SAP Arabia
    tagi1116
    • Readiness is More Than Just That

      You?re really not talking about Readiness, but rather whose business process a company should keep --- whether to adopt the business processes that are "built into" a package solution like SAP versus keeping one?s own business processes, which requires customizing a package solution.

      There are many factors that determine whether a company is organizationally ready to embark on a strategic initiative that is powered by IT. Being ready means having:

      * A realistic understanding as to what the initiative will really enable the company to achieve

      * A realistically configured project

      * The right kind of support from both executives and other stakeholders

      * Sufficient resources (people, $, etc.) to see the project through to full transition

      elizab
      • You just confirmed my point!

        You need to understand what "Readiness" means first in order to address it.....

        Is technology to serve the business or the other way around?

        Did you read the termination memo? Why do you think Axon was terminated and didn't even question that?
        Why do you think SAP is directly involved "tryng" to fix things?
        Keep in mind that even SAP is facing the issue of Lack of Readiness (Why do you think they are searching for what they call "SAP Change Managers"?)

        Unfortunately for the IT providers pressure will increase given current financial crisis.

        Clients will continue to take over and even be more demanding for quicker and tangible ROI and maxmize SAP utilization...Good for them!!
        tagi1116
  • overwhelm a small local government...

    [pre]In general, it?s not unusual to see an enterprise software
    implementation overwhelm a small local government?s capacity to handle
    change.[/pre]

    San Diego is the 2nd largest city in California and the 8th largest in the
    US with a 2008 population of 1.367 million people.
    philip.robar@...
  • RE: San Diego fires Axon over ERP implementation problems

    Axon is a poor choice by City of SanDiego for such a complex project. Axon is a UK based company with very limited people in USA. Most of the people AXON are part time contractors. XON did not have sufficient in house team to do this project.

    I remember the time time Steve PEck CEO of AXON USA - When he was SR VP of SAP Allainces was critical of other partners when Tarrant County TX sued on similar condition.

    Now he knows what it is like to be on the other side. What goes around- comes around
    Crazydog FromTexas
  • RE: San Diego fires Axon over ERP implementation problems

    As a retired City of San Diego drone, aka 1st level supervisor, I watched in amazement as they spent tens of millions of dollars on SAP (and they'll have to spend millions more before they get it to "sort of" work). A system ill-suited for handling public works calls, it's really stressing out any employee who has to use it "hands-on". And you have to stand in awe of how the people at SAP have been able to blame the buyer (customer!) for its many failures.
    retiredsandiegodrone