Enterprise Software

Lawsuit against an ERP consulting firm could signal more litigation for the industry

A botched implementation of SAP R/3 forced former drug distributor FoxMeyer Corp. into bankruptcy, according to a lawsuit filed against SAP and Andersen Consulting. Does this signal more litigation threats for ERP vendors and consultants?

While the majority of ERP implementations don’t result in a lawsuit against the implementation consultant, a lawsuit against an ERP vendor and a consulting giant could bring sweeping changes.

FoxMeyer, once the fourth-largest pharmaceuticals distributor in the United States, sued both SAP and Andersen Consulting (now Accenture), claiming that a botched SAP R/3 implementation in the mid-1990s ruined the company.

Some suggest that a judgment for the plaintiff in the case—brought by the FoxMeyer bankruptcy trustee against Andersen Consulting and now pending in a Texas state court—could galvanize dissatisfied customers and bring on a flood of similar suits against ERP vendors and consultants.

We'll get FoxMeyer's legal counsel's take of some of the reasons why the implementation failed, and we'll take a look at how this lawsuit may affect the industry going forward.

(Neither SAP nor Accenture agreed to comment for this article.)

Inexperienced consultants
FoxMeyer’s lawyer, Mark Ressler, contends that Andersen lured FoxMeyer into a services contract by giving the false impression that it had extensive SAP implementation expertise.

While inexperienced implementation consultants aren’t uncommon, the practice “became something of a joke,” says ERP implementation consultant Mike Donovan. “The school bus pulls up in front of the building and out jump a bunch of Big Five consultants.”

But highly experienced SAP technologists have always been hard to find.

“It’s not like the old days, when you could ask for and get a COBOL programmer with ten or more years of experience,” said Dan Steinberg, an Ottawa-based consultant. “No one has ten years of experience with SAP.”

The real issue might boil down to how much you pay for the services. Many companies continue to overpay for ERP implementations, said Bruce Blitch, CIO of Tessenderlo Kerley Inc.

A couple of years ago, while overseeing the implementation of SAP R/3 at his Phoenix-based chemical company, Blitch was told by the implementation consultant that the firm planned to use apprentices who would perform administrative tasks while learning on the job.

“We included those people as part of the team and provided them with room and board," Blitch said.

But Andersen Consulting did not match that company’s upfront attitude, according to the FoxMeyer lawsuit. Even so, some say, the consultant should not necessarily shoulder the entire blame. “No one buys these systems without evaluating them, conducting demos and pilots, and visiting other users,” said AMR Research analyst Jim Shepherd.

Who is really to blame?
“Every project suffers from overenthusiastic claims and expectations,” Shepherd said, “and most companies don’t achieve all the results they hope to.”

Transforming a company’s business processes, Shepherd claims, requires extensive testing and planning on the customer’s part, not just a technology switch.

“Oftentimes, companies look to technology to provide a quick fix to flawed operational models,” Donovan said. “Adopting new and better business processes involves changing how the entire organization thinks about how it does business.”

The FoxMeyer lawsuit alleges that SAP and Andersen Consulting lied to the customer about the volume of transactions that R/3 could handle.

“The highest total transaction volume it could handle was 10,000 invoice lines a day,” Ressler said. “FoxMeyer’s old Unisys system, the outmoded war-horse the company intended to replace, handled 425,000 invoice lines a day.”

Shepherd, however, is skeptical of that claim, saying that McKesson Corp., the company that eventually acquired FoxMeyer’s assets, uses SAP R/3 to process 1.5 million transactions per day. But Ressler contends FoxMeyer’s pre-3.0 version of the software lacked that capacity.

What’s next?
The insurance industry is already nervous about its potential level of exposure surrounding the lawsuit.

While insurers were never hit with the expected flurry of Y2K-related lawsuits, there’s significant litigation related to the buildout of technology infrastructures, said Tim Ehrhart, assistant vice president for worldwide errors and omissions underwriting at The Chubb Group, the largest insurer in the IT sector.

The reasons? The size and scope of contracts for integration and consulting have mushroomed. Contracts that lasted for three to six months and cost $50,000 to $100,000 now take 24 to 36 months and run from $5 million to $10 million, Ehrhart said. As a result, insurance companies are lowering policy limits, charging higher premiums, and demanding heftier deductibles, if they take the business at all.

Still, even dissatisfied ERP customers don’t always sue. Whirlpool Corp., for example, made headlines in 1999 when it complained that problems with an SAP implementation led to shipping delays. However, the appliance-maker worked things out with its vendors and moved on, said Whirlpool company spokesman Christopher Wise.

CIO Bruce Blitch believes that the issue of dollars and cents may yet prove to be the bugaboo that bedevils implementation consultants.

“If someone successfully sues a consultant for charging too much,” he says, “then you may see the lawsuits coming out of the woodwork.”

Are businesses unfairly blaming implementation consultants?
Are enterprises all too ready to lay blame for poor business practices at the feet of technology consultants when things go awry? Post your comment in a discussion below.

 
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