Seminar two, week 21 2011
The following case describes a major Enterprise Resource Planning (ERP) software
implementation project in a Scandinavian paper company. Like many ERP projects,
this project as well had very ambitious business and IT objectives, many of which
were not achieved. Instead, the company in these respects is worse off four years and
200 million Swedish crowns later. At present, it looks like the project will never be
completed. The objective in this weeks exercise is to discuss the mechanism that
might cause such a failure and the efforts that project management should have used
in order to avoid failure. Please read the discussion questions and case description
given below.
The seminar will take place in the discussion forum we have created in each project
group’s site in RedMine. You can only participate in the seminar in your group’s
RedMine site. The name of the discussion forum for this seminar is Seminarie 2
(Vecka 21). During the seminar you write your answer to each of the three discussion
questions below in the forum. Each answer must be a new message, that is, each
answer must be a new entry in the forum. In other words, you cannot write the
answers to all three questions in one message. In addition to answering the questions
you should also comment the answers of at least three other members of your project
group. Your comments must cover answers to all three questions below. i.e. you
cannot make three comments to answers to one of the questions. You make one
comment to an answer to question 1, one comment to an answer to question 2 and one
comment to an answer to question 3. A comment can consist of criticism, questions,
agreement, etc.
In order to stimulate discussion it is important that your messages are of an open
character. It is also important that they are about substantial aspects of the case
described below. Posting messages that deal with language, grammar, etc. is not so
meaningful but will only fill up the forum with a lot of messages.
You must write all your messages during the period May 23 until May 27. The
seminar will be graded with pass or fail. To get the grade pass you need to fulfill the
following criteria, you must have:
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
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Presented logically coherent answers to the three discussion questions,
Posted three logically coherent comments to the answers of at least three other
members of your project group, and
Formulated your answers and comments in a grammatically correct way and
with consistent use of concepts and terms.
Discussion questions
Do you think that the objectives for Orbit2000 project were realistic? If not, what
should project management have done differently before accepting the project, to
make the objectives more realistic?
One of the problems in implementing the SAP R/3 in the pilot case was, that it was
implemented in way that supported old work processes. Thus, the business objectives
of changing from production-oriented to customer-oriented company were not
realised. Can we blame project management for this? In your opinion, what should
project management had done differently?
The original objective was that the SAP R/3 system would later be implemented to all
paper mills within the enterprise (roll-out). This objective doesn't seem to be realistic
any more. Can we blame project management for this? In your opinion, what should
project management had done differently?
Case description
Organisational context and the origins of the project
The case company is a Scandinavian based enterprise in forest industry with mills in
Sweden, Finland, Germany, Austria, and France and sales offices and distribution
terminals in several European countries. Based on a new corporate strategy, a change
effort to make something of a Cultural Revolution in a large multinational company
was undertaken in mid 1990s. It included changes in attitudes and focus among
employees, changes in business processes, changes in organisation and changes in IT.
The new strategy involved close integration of the company’s business units, change
of attitudes among staff and reengineering of the sales organisation, all done in close
relation to the implementation of a commercial enterprise system (or ERP-system).
All these changes eventually merged in a project called ORBIT-2000, an acronym for
Overall Restructured Business-driven Information Technique, and 2000 refers to the
year all these changes were supposed to be implemented.
The company was, from its very beginning, built round its mills, with sales offices
selling the products. Although the company grew by purchase of other mills the basic
structure of rather independent mills, with their “own” customers and hence dedicated
salesmen, remained. It was a rather production, and product, oriented company, as
indeed most of their competitors at that time. These conditions became the target for
the change effort.
Mills become more like each other all over the world. Technicians benchmark mills extensively.
Production technologies thus converge. What at the end of the day could produce added value to the
customer is our ability to deliver and serve customers according to their wishes, with short delivery
times and all that. (Company controller, our translation)
So, rather than production-oriented, the company should be market-oriented. Such a
change however was hampered by the way the company was organised around its
mills. This also needed to be changed.
We have customers that operate in perhaps ten European countries that want to make one deal with
us. (Company controller, our translation)
A new business strategy was formed focusing on being offensive on the market, to
“lead” the development by delivering better service at lower costs than competitors.
This was to be achieved through increased integration between different parts of the
company, enabling both cutting of costs and better and more accurate service. The
CEO wanted to make the company “tighter”. One aspect of this is the slogan “one
face to the customer” which he used to signify his vision. At this time the company
showed “many faces to the customer”. Every single salesman in any sales office could
get orders on all the products the company produced, hence also having to enter the
different order systems of the mills. However, the sales offices did not handle
invoicing, but every mill invoiced independently. Thus, a customer who bought items
from one salesman was invoiced separately by each mill. Selling like the company did
implies that it acted like several small units on the market.
Changing the organisation of sales demanded that all the company’s information must
be available in all parts of it. The existing systems could not fulfil this requirement, so
in order to make the new business strategy come true the CEO realised that the
company needed a different kind of IT-support that would enable the necessary tight
integration of the company. The company therefore decided to implement SAP R/3 to
replace what they called the “systems archipelago”.
Figure 1. The systems archipelago. (Company brochure)
There were also ideas on how these IT-supported changes could contribute to the
further development of the company. A marketing manager envisioned the future use
of ERP system as follows:
There are two important aspects of our development that can be identified. One is when the system
has been operational for a while and people know the system and see opportunities that we don’t
utilise. For instance the Sales and Distribution module could be used as a form of sales-support
system. That is, to record information about customers that do not only concern orders, how much
they buy and how much we earn. But also to record VIPs in the customers’ organisations, who
visited the customer last and what was said, visiting reports, etc. In other words, the system would
be some kind of a customer database. Second is how to use this more concrete towards our
customers. Can we in some smart way connect them to us, so that we simplify their operations and
ours at the same time? We have said that this requires a permanent organisation only dealing with
such issues. It should not primarily be IT-people but people who know the system and how it is
used.
In general, the project was based on an identified need to develop business operations.
There was, however, no formal strategic IS planning process in the sense that first a
corporate strategy would have been developed and then the IT supporting this strategy
would have been proposed. Rather, the process through which IT became an essential
part of the new strategy was more or less an incremental process. The new business
processes described in the strategy partly are designed with IT already in mind, as
shown for instance in the earlier quotation from the market manager. The new
processes are enabled by the technology. These processes are not entirely founded on
earlier manual work, and consequently there are no manual routines to copy and
computerise. The new information system is way beyond automating of manual
routines, and ”create” a deep dependency of IT.
This complicated the situation, as the new strategy required a new system to be
installed and adapted at the same time as changes in work routines and organisational
structure were implemented. It also demanded that a majority of the data used in
business processes were digitalized. This forced the project to carry through an
organisational change at the same time as SAP R/3 was implemented. ORBIT-2000
thus got two tasks, to implement both the new organisation and the new system.
When business activities are as dependent of IT, the traditional option of choosing
between what to implement first, the new organisation or the new systems, just is not
there. In this case technology and organisational changes have to be implemented at
the same time. Otherwise the organisation will either face a new way to do business
without the necessary IT support, or face a new system that is not adapted to the
present business processes.
Together with senior management the CEO devised a strategy based on IT. Then they
formed the ORBIT-2000 which task was to implement both the new organisation and
the new systems, SAP R/3. In spring 1998 the original change program and the
accompanying SAP R/3 implementation were joined together in ORBIT-2000.
Objectives of the ORBIT-2000 project
Upon initiating the project, several goals were specified. On strategic level, the
project aimed at achieving an integrated company with one face to the customer.
Through this integration, other goals were sought such as increased level of service
and increased use of capacity.
Operative goals were also specified for different parts of the company. Sales and
distribution had as their goals to achieve 100% correct orders, 95% of all orders
verified within 30 seconds, 98% delivery accuracy and 100% control of stock.
Improved production planning and monitoring of production were the goals for
production planning, while finance and controlling should achieve improved decision
support, quicker annual reports, and in general more controlling and less accounting.
Finally, as common goals the project aimed at 100% functional integration, full
flexibility and global accessibility.
The project management was determined to take full advantage of SAP R/3 standards.
There was an explicit ambition from the beginning to set up the new information
system as close as possible to the SAP standards. This meant that “re-think” popped
up as a frequent concept in the project, referring to the need to think again on the way
business processes presently were conducted and how they could be adapted to fit into
SAP’s standard solutions. This was not necessarily because the project management
believed that SAP had a supreme knowledge of IT-support of business processes.
Rather, “re-think” was based on the idea that the closer the company’s system
followed SAP standards the larger the part of SAP’s development budget working
directly for them.
The organisation and schedule for the pilot project
One mill was chosen for a pilot installation of the system which took place in two
steps, the accounting and controlling module (FI/CO) on May 1, 1999 and the sales
and distribution (SD), production planning (PP) and materials management (MM)
modules on May 29, 1999. The SD module was implemented in some of the sales
offices of the company shortly thereafter. After a period of live operation of these
modules and some corrections and adjustments, the company had what they called a
“core system“, e.g. an operational model of the system. After necessary adjustments,
for instance due to different legislation in different countries, the plan was to “rollout“ the core system throughout the company.
A number of key persons from the company were selected and appointed to work part
time in the ORBIT-2000 project together with external consultants and staff from the
company’s IS-department. The persons selected came from departments that would be
effected by implementing the chosen modules of SAP R/3. It was an outspoken
ambition from the CEO and the project management to select the “best” from the
different departments to participate in the project. These persons were named superusers and performed several tasks. They provided detailed knowledge of business
processes to the project group, they participated in producing user documentation of
the system, they participated in planning of and occasionally in giving user education
and they was a link integrating the project activities with the daily business of the
company.
During the project a sort of stepwise validation were arranged, where future users and
managers were told to assess the functionality of partly finished modules and “sign
off“ that they approved of the module (with this or that exception). Staff from all
different production units and sales offices participated in the validation process.
Problems in the ERP-implementation case
As the change efforts proceeded, problems started to appear. Very early in the change
effort top management realised the mutual dependence between IT and business
processes. This lead to an attempt to simultaneously develop and implement new IT
and new business processes. The way the ERP-system was actually implemented did
not, however, appear to support the top management's objectives of market oriented,
IT-dependent business processes. Instead, the implementation of the ERP system
modules was more based on copying the old systems. Everyone acted as if ITdevelopment was a known area, and as if ORBIT-2000 was any regular IT-project.
IT-development was based on existing work practices and it did not imply that people
started to behave in new ways. Rather, they did what they always had done during ITdevelopment, that is, they automated and rationalized existing work processes and
tasks.
In ORBIT-2000, most users spent quite a lot of time figuring out how they could
adapt R/3 to be as similar to their old systems as possible. It was not only users that
behaved this way, but also some consultants were more than willing to help out. So, in
the systems development phase of the project, it was “business as usual“. Staff and
designers sat together trying to grasp the work practice, and then to come up with
suitable IT-support. Those who were actually designing the way SAP R/3 were not
aware of the strategic intentions behind the project. One of the users described the
interaction between SAP R/3 consultants and users as follows:
"Yeah, they [staff and consultants implementing SAP R/3] should have showed the business
advantages of the system which would result from getting all the information out, that is, reports of
different kinds. There was nobody that mentioned anything of this from the beginning. But to
mention this, one has to have the background knowledge. You need to know ‘what is it that the
economists want from the system"
- They didn’t know?
No, they didn't know. They only wanted to know what I did today [i.e. what she was doing in her
work].
This behaviour also had the consequence that it made the new corporate strategy
somewhat unclear. When SAP R/3 was adapted so that it both looked and felt like the old
systems, this also meant that it became difficult to see the advantages of the new system and
the new organisation. This is confirmed by a majority of the interviewed users who say that
they work the same way in SAP R/3 as they worked in their old systems. The only difference
being that R/3 is an inferior tool for doing the job. Users for instance claim:
[…], it’s a lot more work. […] As R/3 works today some things are harder than before and take
longer time. (User 5, our translation)
It’s more stress now, more frustration. It’s…I think that people feel worse than they felt before.
(User 2, our translation)
It is interesting to note that several users believe that the simultaneous implementation
of new technology a new organisation was a huge mistake. They claim that it created
a lot of confusion and problems during both the implementation of R/3 and the first
months of use.
To make things even more difficult, in the beginning of May 1999 newspapers
reported of a merger between the company and another approximately as big
company producing similar products. The official date for the merger was October 1,
1999. This implied significant changes and had great impact on ORBIT-2000. The
board for the new company appointed the former CEO of the other company, as CEO
for the new company.
As a result, former CEO in “our“ company and the Primus motor in the ORBITproject left the company. The primary task for the CEO of the new company was to
make one organisation out of two. This involved designing a new organisational
structure and appointing senior managers. These managers then had as their primary
task to design “their part” of the company and appoint middle managers. It was in the
middle of this process, which in it self caused a lot of turbulence in the organisation,
that the pilot implementation of SAP R/3 took place. So, during the implementation
and first months of use of R/3, most middle and upper managers were either very new
at their job, or held a position they were not sure they would keep.
Problems in the roll-out phase
A foreign mill was next after the pilot implementation and scheduled to run SAP R/3
in spring 2000. However, ORBIT-2000 ran into problems in this roll-out, and in the
last minute it was stopped, except for the FI/CO-module. This was of course a
dramatic decision, as the project group had worked several months and were in full
control of all the necessary adaptations, mostly due to legislation, to the core system.
In the view of the external consultants, stopping the foreign implementation was
caused by inadequate alignment between the business processes in the foreign mill
and the pilot implementation mill.
Management in the foreign mill felt that the idea of a core system implemented in
every location of the company somehow became dissolved in the pilot project and
that a Swedish solution was superimposed on them.
However, there were different views among the consultants of how to handle the
situation. The first approach, advocated by some consultants, was that management
should stop the project until the “necessary” agreement on how to do business was
reached. The other approach, advocated by some other consultants, was that the
system implemented in the pilot mill represented such an “agreement” and in fact was
the core system of the company. Hence the foreign roll-out should continue, in a more
forceful way if necessary.
The merger in October 1st, 1999 meant that the roll-out of SAP in foreign country
were to be solved by partly different managers than those who initiated ORBIT-2000.
These new managers also, due to the merger between the companies, were facing a
partly different situation than when the change effort was initiated. To ORBIT-2000,
the merger meant that it lost its top priority in the company. The new CEO moved the
IT-manager, who was also the project leader of ORBIT-2000, from senior
management to the financial department, with the financial manager as his boss. It
was also decided to cut costs and reduce risks, which meant that the project lost some
of its momentum.
Eventually, in the first roll-out of the core system only the FI/CO module was
implemented. Gradually the project lost its top priority and the users that eventually
came to use the system were in general quite dissatisfied.