ERP Implementation Failure: MillerCoors Sues HCL for $100M
The Chicago-based brewer MillerCoors has sued India’s fourth-largest technology services firm, HCL Technologies and its U.S. arm for $100 million over a breach of contract in a project to implement business software SAP. The clients claimed that HCL has failed to meet the deadline of the enterprise software implementation project. In this article, I will discuss the details of this incident as well as other infamous ERP implementation failures.
In 2013, MillerCoors wanted to upgrade its IT system and hired HCL for the deployment of enterprise software SAP. The primary business objective of the project was driving efficiencies, innovation, and growth across MillerCoors' various breweries by adopting a common set of best practices, business processes and implementing them in a new enterprise SAP software solution. Since the project involved customizing various SAP modules, the beer maker believed that HCL expertise would be the best fit for their IT initiative. However, it didn’t work out that way.
The contract was then worth about $53 million and an additional $9.6 million was added to the initial contract price to adjust for time frames. "HCL was unable to adequately staff the project and maintain the project schedule," said the lawsuit. The lawsuit also alleged defects in the software. MillerCoors also claims that in June they sent HCL a notice of termination and plans to secure a new supplier.
The lawsuit doesn’t set up favorable publicity for HCL, of course, but HCL doesn’t believe that the incident will have any adverse financial impact for the quarter ending March 31, 2017. “This specific project started in December 2013 and ended in June 2016. The Company continues to have good business relationship with MillerCoors. We have other ongoing projects with MillerCoors running smoothly,” HCL said in regulatory filings. “We are in discussions with MillerCoors to resolve this matter amicably. “
Are ERP Implementation Failures on the Rise?
Not to strike fear into your heart if you are contemplating ERP implementation or upgrade but seeing troubled multimillion-dollar software deployment contracts ending up a costly lawsuit over mismanaged implementations and intellectual property breaches are more common than you think in the industry. When that happens though the projects can turn into a nightmare for both sides. To put this into perspective, let’s look into some infamous ERP blunders that happened to the Fortune 500 companies in the past:
Hershey’s Bittersweet Halloween
This incident is perhaps one of the most dramatic failure stories of ERP implementation failure. Founded in 1876, one of the largest North American chocolate manufacturers, Hershey’s undertook a project to implement SAP R3 ERP software. However, nothing went according to plan. In the end, its new order-taking and distribution computer system which was a $112 million combination of software from ERP maker SAP, CRM provider Siebel and supply chain software from Manugistics, failed to deliver $100 million worth of Kisses and Jolly Ranchers for Halloween. It was told that the incident happened because of malfunctioning of the ERP system. As a result, the stock price declined 8 percent in a single day, profit dropped by 19 percent, and sales plunged by 12 percent, not to mention the credibility they lost in the market.
HP’s Nightmare ERP Project
Christina Hanger, HP's senior vice president of Americas operations and IT, was tasked with moving one of Hewlett-Packard's biggest North American divisions onto a centralized ERP system from SAP. Since she had an undisputed record of success migrating five product groups within the two former companies onto one of two SAP systems, that project didn’t seem a big deal to her. Due to her deep expertise, she knew what could go wrong during the roll out of the project but obviously her team wasn’t prepared enough for an accumulation of problems that happened at once.
As soon as the new system went live, 20 percent of customer orders for servers stopped dead in their tracks between the legacy order-entry system and the SAP system. The company couldn’t fix that many issues quickly so throughout that summer, HP’s customer service personnel had to deal with the frustrated customers. HP Chairman and CEO Carly Fiorina disclosed the financial impact at $160 million: a $120 million order backlog that resulted in $40 million in lost revenue. As a result, the incident cost HP more than five times the project's estimated cost.
Marin County Sued Deloitte Consulting
Marin County bought SAP software in 2005 and engaged Deloitte Consulting to perform the implementation; after spending almost $30 million dollars, the county abandoned the effort, citing problems and deficiencies, and initiated a fraud lawsuit against Deloitte. In the end, Marin County received the $3.9 million settlement which didn’t even cover the $5 million it spent on legal fees. Meanwhile, “SAP strongly believes in the value and performance of its software in use in Marin County," said spokesman Andy Kendzie. "Our software works exactly as it should, and any issues in this implementation in no way reflect on SAP. Our software is installed and functioning perfectly in tens of thousands of public sector agencies, including dozens in California."
In the end, Marin County hired Phoenix Business Consulting, at a cost "not to exceed $50,000" to fix the SAP problems which occurred post-implementation and to implement the software properly.
In 2015, a study conducted by Panorama Consulting unveiled that 21 percent of companies surveyed considered theirs a failure, 58 percent a success and the balance was either neutral or they didn't know. However, the data from the revised study in 2016 demonstrated a 1-percent decrease in success rates since last year, while there was also a decrease in the percentage of respondents that view their project as a failure from 21 percent last year to 7 percent this year. There was a corresponding increase in the percentage of respondents claiming neutrality in regard to project outcomes from 21-percent last year to 36-percent this year. The potential reason behind the neutrality is that organizations fail at allocating enough time in software selections, evaluating expectations, or post-implementation audits.
How to Minimize These Implementation Dramas
There are so many factors to consider when it comes to executing big IT initiatives, and keeping everything in line is much harder than one can expect. In the end of the project, the most common issues are:
- Running over budget and deadline
- A lack of transparency regarding the process involved
- Difficulties for staff to adapt to the new processes
One of the main reasons behind running over budget and deadline is the high level of customization. Therefore, it is so important to thoroughly outline the business process before setting up the budget for the project, so technology partners can transparently include the cost of building customization in the first place. It is also wise not to go overboard with the customization as 10 to 20 percent of customization is typically suggested.
The main reasons behind those failure stories are improper software selection, lack of expertise and inadequate focus on people and processes. Selecting the right ERP consultant can minimize the potentially unfavorable implementation outcomes. However, transparency from the beginning is as important as choosing the right technology partner as often, clients and consultants are ending up with budget overruns due to underestimated consulting fees.
As all the stories mentioned in this article tell, any delay or overspend can have a huge impact on business process and brand’s reputation. Therefore, every aspect – especially human side- of the project should be carefully considered. In the end of the project, if your organization doesn't even know how to classify their project’s outcome, I would say it is another way of indicating that the project has failed because it is all about ROI, after all, and you should be able to measure all the changes.
To paddle back to the lawsuit between MillerCoors and HCL, even though the main reason behind the failure is not clear yet, it is not hard to guess the possible causes. Losing the suit would certainly be really bad publicity for HCL but I don’t think it would completely tarnish their reputation as we all know ERP implementations are complicated and there have been some failures in implementing such solutions.