Yes, they were opposed project because it is a new technology for them that will replace the legacy system Unisys and there are also many changes in the process especially for the warehouse automation that direct affect the worker.
So they did sabotages such as distorting the products, damaged inventory, did not fill the order to the system, make mistake by missing parts in customer shipment.
The personal loss may include:
They afraid to lose their job because three warehouses were closed and staff lost their job.
The replaced by the automated robot at warehouse threatened their job or lost benefit.
They may feel less prestige, less self-valuable for the people who expert in legacy system (Unisys) that replace by newer system (SAP).
If you were the boss of FoxMeyer, would you have managed this change any differently? Briefly describe what you would have done. (5 marks)
Yes, I would. I may use Technology Acceptance Model (TAM) as to a tool to avoid resistance of changes:
"Perceive Usefulness": Provide them the information about the situation of the company in the high competition industry and the expansion for the new coming projects that also effect directly to their job and work (such as work much harder or time-shift or overtime needed). Then introduce the technologies that benefit to them (for example, more efficiency with the same exertion) and this will support them, not to replace them.
"Ease of Use": Provide the training, documentation and consulting support to demonstrate the technology, let them feel that they're easy to use.
"Attitude toward Using": if they perceived both usefulness and ease of use without any fear or personal loss they may have good attitude to the system.
"Behaviour Intention": After that users may have intent behaviour to use the system. So we may use phrase adoption or trial use in some part, get the feedback and solve the problem until they're confident to use and familiar with the system.
"Use behaviour / Actual System Use": then Company might launch the system in actual use.
A short question about costs and benefits:
At the start, how much was the project supposed to cost, and what savings was it supposed to generate? (2 marks)
The project supposed to cost around $65 million including $4.8 M for HP computer system, $4 M for SAP software, $18 M for new computerized robot warehouse and millions of dollars for Andersen consulting.
And they hoped to save around $40 million annually.
In the end, how much did it actually cost, and how much in extra losses did it cause? Include uncollectible losses, sabotage, and extra costs to fix errors. (2 marks)
It actually cost more than $100 million
They had to spend around $ $16 million to fix the errors.
Not only that. They lost over $34 million on uncollectible costs from customer and inventory problem. Also lost customers sales around 15% of sale revenue.
Do you think it's reasonable that the estimated numbers were so different from the real numbers? In lectures, we have said that costs and benefits are difficult to estimate, but as managers should we expect more accurate estimates? (6 marks)
It may reasonable for the initial cost and saving cost they estimated if the business is in steady state but there're changes in processes, using Big Bang adoption and did not aware the risks and the bad implementation.
So it is also not reasonable for that the actual cost was double from the estimated because they did not covered the hidden cost, cost of the risks using this new technology (on that time) and the cost of downtime.
As a manager, yes it is difficult to estimate but we should make it more accurate, that there are methods can be use: (Keri E. & Carol S., 2010)
Basic method that add all the cost of the components including Hardware, Software, Network and People involved
Activity-Based Costing (ABC) that account on Direct and Indirect Cost
Total cost of ownership (TCO) is a technique used to calculate a more accurate cost that look beyond the initial cost that
IT Infrastructure cost:
Computer Hardware Platform
Operating System Platform
Enterprise Software (SAP) and Enterprise middle ware to work with legacy system and different vender (Pinnacle- Automation System)
Network, telecommunication between locations, Internet (customer access channel)
Consulting and System Integration Services
Additional cost: Installation/Implementation, Support/ Helpdesk, Maintenance, Cost of Downtime, Data centre room space, Electricity, Cooling.
FoxMeyer was the 4th-largest wholesale drug company, and they wanted to expand.
The new contract with University Health System Consortium (UHC) was worth how much in sales each year? Was this a big expansion? (2 marks)
The UHC project estimate to worth around $1 billion annually that was a big expansion compare their revenue sale of $3.4 billion in 1992 (Peter K., 1998). Also not only in the sales, they have to deal with nation-wide teaching hospitals across the country and had to add new 6 more warehouses.
Apart from buying SAP, did FoxMeyer's management have any other ideas on how to expand? If so, were they purely technical improvements (robots in warehouses?) or were there any improvements that did not rely on a computer? (3 marks)
Yes, they did. They should compare different software as IT department tried to send out request for proposals. (Woltz consulting also advised that SAP would not be able to deliver what they needed.) And the CIO, Mr. Schwinn, also mention that there are cheaper way to do it and better ways to do without quite advance technology.
No, only purely technical improvement cannot improve profit or business. They also needed to restructure their business process to make the software (ERP) or warehouse automation more efficient or reengineering their business process to improve supply chain, customer relation, transportation, logistics and warehouse management.
And there are also improvements that can be done without relying on the computer system. Such as improve business process and strategy of managing efficiency inventory, lower operating cost, improve sales & marketing and expand the services. Then using IT should support or help to stronger or efficiently the improvements.
Remember lecture 7, the signs of a risky project are:
Technical size (measured in dollars, or lines of code)
Organizational size (how many people, how much coordination)
Technical novelty (is it a mature technology, or is it very new)
Technical expertise (can our people do it, or do we need consultants)
Did this project have any of these signs of risk? (4 marks)
Yes, the project had all these signs of risk.
Technical size: this project is a huge IT investment ($65 million) that make the project more risk.
Organization size: they're more than 2,700 staffs involving with this system and a lot of involvement from different locations that make more risk but without good stakeholders' involvement including customers, the project cannot be success.
Technical novelty: if looking back to that period, ERP is quite new technology especially for SAP R/3 that was the first pharmaceutical information system launched in that period and never been use in distribution industry before so these projects was high risk.
Technical expertise: They did not have expertise in this technology so they needed to rely on the consultant and hired Andersen consulting to integrate the system but because this also new for SAP R/3 in this industry, their staffs also lack of expertise that make project had high risk.
Remember in lecture 5, we talked about how to stop using the old, legacy system and starting using the new system? A direct cutover or big bang adoption is very risky, while a parallel conversion is less risky.
Which approach did FoxMeyer take? [Hint: look up "foxmeyer" on Wikipedia and look for "big bang adoption"] (2 marks)
They use big bang adaptation or direct-cut over, that they will move from legacy system (Unisys) to the fully function of the new system gain the competitive advantage on the given date so this instant changeover have high risk than others adoptions (Phase and Parallel) and it is not easy to roll back to the old system when got problem. Also training play important role that all users need to be trained.
Did FoxMeyer management prepare the warehouse workers with enough training on the new SAP system? (3 marks)
No, they don't have enough training because of time limit and very tight schedule to meet the deadline.
And using big bang adoption, all staffs need to be trained but they did not prepare the buffer of experienced staffs to take over the daily work while others users need to be trained. (Scott, Vessey, 2000)
They assuming that the workers have enough knowledge about the system and also had been teach the wrong skill
Also they were lost experienced worker so when the problem occur to the warehouse automation, the new works did not have enough experience to handle that situation.
FoxMeyer management claims that SAP and Andersen Consulting were deliberately deceptive and incompetent. In your opinion, is there any evidence to support the management's position? Use a list, or bullet points, to summarize the evidence.
For example, how many orders did FoxMeyer process every night with the old computer, and how many orders was SAP capable of processing? Does that seem deceptive? (10 marks)
Yes, there are evidences to support.
With the old system (Unisys), they can process up to 420,000 transactions per day but in the new SAP can process only 10,000 transactions per day.
The SAP R/3 was new; it was the first pharmaceutical information system implementation at that period. It was design initially for manufacturing industry and never implemented in distributor industry before so it lacked many features for wholesale distribution business. And they (SAP, Andersen) also lack of expertise to implement in this industry.
Lack of adequately test prior to the actual use, because of the tight schedule, many tests had been skip and not enough time to correct the system.
Most of the consultants from Andersen were trainee, unexperienced and the turnover was high. They use this project as the training ground (Computer gram International, 1998) or research (Financial Times, 1998)
The project schedule proposed by Anderson of 18 months for the entire implementation was totally unrealistic. Waltz mention that only General Ledger module may take at least 1 year and others module may take 2-3 month each so every stage of implementation had to shorten including testing, simulate running.
SAP claim that FoxMeyer management were expecting the software to fix their bad business decisions. In your opinion, is there any evidence to support SAP's position? Again, bullet points or a list would be okay.
For example, in lectures we have talked about how using software to speed up a money-losing process will just lose money faster. At the end of the article by John Jesitus, we read "If you put in new systems hoping [that] will give you efficiencies, without improving your overall processes, it rarely works". (10 marks)
Yes, there are some evidences to support SAP's position: (SAP claim that they met all contractual commitment otherwise they could not get paid.)
Bad business decision that did not improve business process. E.g. The warehouses and customer representatives: It is true that IT can improve business' productivities because it can speed up the information flow throughout the operation but it also it also can speed up the damages or losing money. FoxMeyer lost a lot in inventory process and one of the reasons because bad cooperation and decision from their team. In the case, the shipment information the customers had in their hand was the full list of orders but the first shipment is only half-finish orders (cause by warehouse automation gridlock problem) so after customer compliant back, FoxMeyer customer representative did not aware and recheck within their warehouse team that the second-half order has been shipped afterward. With the help of this IT system, they can resend the duplicated second-half shipment very fast and without good cooperation and communication process these cause them lost money with inventory problem very fast too.
Bad business decision to use the two most important business processes with two different venders. That made more complexity for integration and cooperation with different knowledge (Woltz). SAP claimed that they had to involve with others software that they thought they could provide both systems. (Peter D. SAP US EVP, 1997).
Bad decision to control the scope of the project and with UHC contract, senior management had very high commitments to meet customer's satisfaction but some users were not as committed. Also that was making dramatically change with their plan and the throughput capacity of the SAP project had to be increased substantially that FoxMeyer did not have adequate change management policies and procedures.
Bad management decision to save cost by let experienced warehouse workers left and there are morale problem with warehouses' workers.
The project schedule requirement was not realistic and even forced to shorten 90 days sooner than planned.
Bad management decision to use Big Bang Adoption instead of Phase adoption that had less risk.
Bad decision on asked CEO who advocated since beginning to resign due to the delay in new warehouse and projected saving on the new system before project finished that might cause project implementation interruption.
FoxMeyer management made a lot of mistakes. If you were the big boss of FoxMeyer back in March 1992, what would you have done differently? Briefly sketch out the steps you would do to keep the company alive. (10 marks)
If I were the big boss of FoxMeyer, I would do it differently before decided.
Strategy
Using the framework Information Systems Strategy Triangle that to design Organizational Strategy and Information Strategy complementing with Business Strategy.
As their business strategy to use price-cutting strategy may not a smart plan (from my opinion), I may use differentiation strategy by improving quality or services instead of Cost Leader ship
Then design organization strategy to support business strategy that I would do the business process reengineering to achieve it.
Develop IT strategy to support business strategy
Use Vision to implement to make Blue Print to translate business strategy in to IT Plan that are:
From Strategy to Architecture
From Architecture to Infrastructure
Project evaluation, Risk, Cost and benefit
Evaluate the cost using Total cost of ownership (TCO)
Evaluate benefit / return using The Balanced Scorecard, Return of investment (ROI), using Option pricing: NPV
Use IT Portfolio Management to define the risk. As we evaluate from question 4, this project had high risk so may pick up some part of the project to implement that may start from warehouse automation first.
Using Hype Cycle to evaluate timing and risk. (Looking back to 1994) ERP is very new and I may not take the risk at that time to use ERP in all processes.
Realized the risk of using this new technology in the early year and negotiate with Andersen/SAP to share the risk by binding compensation or payment according to the project results.
Project Implementation
Technology or software selection, I would use the selection process to compare different technology/software also ask recommendation from more than one consultant to confirm.
Change Management: Total quality management (TQM) or incremental change instead of radical change for less resistance
Use realistic expectation and project schedule to achieve IT strategy that has been decided and supported business strategy.
Using Technology Acceptance Model (TAM) I've mention above
Adoption method: Using phrase adoption method instead of Big Bang adoption that has less risk and has more time for implementation team to test and solve the problems also all users has been well training and familiar with the new system.
Business Continuity Planning (BCP) or Disaster recovery plan
Knowledge management - ensure that the knowledge from consultants have been transfer to company's staffs; develop skill for in-house, to let company using and maintenance the system after consultants left.
