Jyoti Bandopadhyay, VP--IT for Indian company Torrent Power, was a worried man. He was in charge of an ERP implementation for the company, and had spent US$5.5 million on software licensing and US$82 thousand on hardware -- but the project was going nowhere.
And it stayed like that for 18 months.
In the meanwhile, users fumed. "There was much frustration among users," says Bandopadhyay recalling those dark days. They were not the only ones seeing red. Eager to take the business to the next level, the management of the power utility company was not pleased with being shackled down.
A Season of Failure
The inability of Torrent Power's ERP to take launch and its subsequent impact on business was not unique -- it was reflective of a time when ERP projects failed. The end of the century was strewn with examples of bad ERPs causing business damage. Among the most notorious examples included big brands like Hershey's. In November 1999, Hershey's reported a 19 per cent drop in third quarter net earnings, and placed part of the blame on 'computer problems'. The chocolate maker was having issues with its new order-taking and distribution system, a US$112 million combination of ERP, CRM and SCM software.
In the same year and month, Whirlpool blamed a shipment delay in part to its ERP implementation: apparently, orders for quantities smaller than one truckload faced snags in areas of order processing, tracking and invoicing.
But, by far, one of the biggest ERP failures of the time was at pharmaceutical company FoxMeyer. In a study The FoxMeyer Drugs' Bankruptcy: Was it a Failure of ERP? Judy E. Scott from the University of Texas lists project management problems similar to what Torrent faced. One of the problems, according to Scott, was that FoxMeyer did not have the necessary skills in-house and relied on an external consultant to implement their ERP. At the height of the project there were over 50 consultants at FoxMeyer playing puppeteer-- many of who were inexperienced -- and consultant turnover was high.
The result of the badly put-together project was a disaster of nightmarish proportions. In a case in which the left hand did not know what the right hand was doing, FoxMeyer's systems began doubling all its shipments -- to the same customers, causing huge losses for the company. Thanks to glitches in the ERP system, customers who complained that they had received only a partial order, were sent new consignments. What the folks at FoxMeyer could not know was that the rest of the order had already been shipped -- only, it was going in another truck. Soon unrecoverable shipping errors amounted to the tens of millions. FoxMeyer was forced to file for bankruptcy and the main operating division of the US$5 billion company was sold for a mere $80 million.
Scaling a Mountain
The botched up project at Torrent Power wasn't going to take the then US$1.4 billion power company to the cleaners, but it was definitely proving to be a bug bear to the management.
In the latter end of the 1990's, putting together an ERP was critical to Torrent Power. At that time, the company was in high-growth mode. It had acquired management control of Surat Electricity Company in 1996-97. The company had also bought up The Ahmedabad Electricity Company in 1998-99.
A look at the four years leading up to the beginning of the ERP in 1998 shows how fast the company was adding on substations and business.
This fast growth needed reliable and scalable IT systems to back it up. But, in 1998, Torrent Power was using a spreadsheet-based reporting system, which was not adequate for its functioning or for its future growth plans. "There was no software for accounting, hence accounts were maintained purely on spreadsheets or manually," recalls Bandopadhyay.
"There were islands of departmental information, and the management decided to seek the help of a consultant to implement an ERP solution."
And in that choice lay a seed for disaster.
Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.