Failure of FoxMeyer’s ERP System and Negative Stakeholder Influences
|✓ Paper Type: Free Assignment||✓ Study Level: University / Undergraduate|
|✓ Wordcount: 2947 words||✓ Published: 2nd Nov 2020|
This report was commissioned to Anu Bhardwaj , of Swinburne University of Technology. The aim of this report was to evaluate a real-world project. The assignment required to identify a successful or failed IT project and explain why the project succeeded or failed.
This report evaluates the failure of FoxMeyer’s ERP system and draws attention to the negative stakeholder influence the poor execution by senior management, lack of preparation towards the market environment and the poor planning surrounding the Delta III Project.
Recommendations discussed in this report include increasing stakeholder involvement, creating a contingency plan as well as an impact plan, communicating with stakeholders, evaluating software before making decisions and seeking advice from consultants before deciding the course of action.
Fox Meyer was incorporated in 1977, created with the intention to merge with Fox-Vliet Drug co. The merger between the Meyer brothers and Fox-Vliet Drug co. was successful, establishing the FoxMeyer Health Corporation. In the late 1980s FoxMeyer experienced rapid growth establishing themselves as one of the largest drug distributers in the country. After a successful decade where the wholesale drug industry grew by 300%, FoxMeyer expected similar growth. However, this was not the case, although growth decreased FoxMeyer continued to grow at a steady pace positioning them as the second largest wholesale drug distributor during the 1990s.
In 1993 the Delta III Project began with the sole purpose of using technology to increase efficiency. FoxMeyer conducted the market research and product evaluation and purchased the ERP software system which was the SAP R/3.
The chief operating officer claimed that it was a management failure, however the delta III project was bound to fail for various reasons. These reasons included stakeholder influence, execution and the environment.
This assignment will identify the reasons as to why the Delta III Project failed in four different criteria’s, as well as explain and analyze the criteria’s stated.
Criteria 1 (Stakeholder Influence)
Stakeholder influence is a very important concept to consider when managing projects. It is important to take in to account the amount of influence that stakeholders have when conducting a project.
The power/interest matrix formulized by Johnson and Scholes (1999) examines the level of interest each stakeholder group on decisions about the project, as well as the level of power that they can implement. Power can be used as a forms of influential attributes for some stakeholders who wish to bring about certain results. Researchers have argued that a projects survival is influenced by stakeholders’ power and is an instrument depending on how it’s used that can lead to the success and failure of a project. Interest is also extremely important as it translates to stakeholder engagement which often leads to the success of the project. When stakeholders are interested in the project, they are more motivated, active and supportive leading to better results all throughout the project.
According to the power/interest matrix (Johnson and Scholes 1999) it can be seen that stakeholder influence is a key factor that can play into the overall success and failure of the project.
Criteria 2 (Execution)
Project execution is a key factor to success or failure of a project, as they concern the actual implementation of the project. In the execution process stage of the project, it is important to consider various factors that pose as risks which may lead to the failure of the project. These factors include having insufficient staff, implementing the incorrect development methodology for the project, defining inappropriate roles and responsibilities, as well as wrongfully planning the project before the implementation.
These risks are often within the project managers control; however, project managers need to handle these risks with care. As failure to manage the execution of the project can lead to poor quality that is delivered late and over budget, which may lead to the overall failure of the project.
Overall to avoid poor executions project managers must follow an established development methodology and expect as well as respond to events that may threaten the execution of the project.
Criteria 3 (Market Environment)
The market environment of the project is often both internal and external, internal being within the organization and external being outside the organization. Both the internal and external environment pose their own types of risks which can lead to the downfall of the project.
Risks caused by the internal environment include conflicts that may arise between departments, as well as changing scopes and objectives due to pressure from senior management or the business itself. On the other hand, risks caused by external environments may include natural disasters or changes in the competitive environment, all of which are outside the project managers scope of control.
Project managers often have little to no control over controlling the environment and do not view it as important as the chances of environmental risks occurring are low. However, when environmental risks occur, they are extremely dangerous to the project.
Criteria 4 (Planning)
Planning is one of the key components of project management. It consists of making decisions and actions that will lead to the achievement of specific goals and objectives. The main motive behind the planning phase is to effectively plan time, cost and resources to estimate the amount of work needed, as well as successfully manage risks that may occur during the project’s execution. As failure to plan greatly reduces the chances of the project successfully accomplishing its goals.
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Planning the project usually consists of a wide variety of steps such as deciding how to plan, developing scope statement, selecting the planning team, identifying deliverables and creating the work breakdown structure, project schedules and risks list. As well as considering all project management knowledge areas. Essentially the planning process aims to plan for a workable and realistic schedule to make sure that the projects needs are addressed. It also allows for the consolidation of the design and makes it easier to apply necessary adjustments before proceeding with the implementation.
Project managers need to effectively plan projects to increase the chances of achieve the projects goals and objectives. When project managers fail to effectively plan projects it exposes the project to unforeseen risks and problems. Essentially putting the project at high risk of failing.
Criteria 1 (Stakeholder Influence)
In order for a project to succeed stakeholders must provide positive influence and engagement. The Delta III Project failed due to the lack of positive influence and engagement invested. Although the senior management engagement was high, other stakeholders were not as committed. There was a clearly stated distrust and skepticism expressed by warehouse employees towards senior management. This was due to the fact that integrating the project’s pinnacle warehouse automation with the SAP severely threatened the employees’ jobs.
In fact the lack of trust and confidence in FoxMeyer management grew to the extent that angry and dissatisfied workers “damaged inventory”, refused to fill orders, and purposely caused “mistakes” in the “new system” as it “struggled with the volume of transactions”, leading to “$34 million worth of inventory” being “lost” (Jesitus 1997).
In addition to the unengaged employees, there was a conflict of personal interest between IT professionals’ personal interest. The Delta III Project was something very new for the wholesaling industry as a whole, and IT professionals wanted to learn the SAP system as it was something that made them more employable. These IT professionals held their own personal interests in learning the SAP technology above the interests of the company in getting more efficient technology. This led to many system bugs and errors being hidden from senior management, and once they were reported it was too late.
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To prevent the negative stakeholder influence amongst various stakeholders, senior management and project managers need to increase stakeholder involvement by effectively communicating to stakeholders and getting all stakeholders to understand the goals and objectives of the project, as well as encouraging them to voice their concerns and opinions. Impact analysis should also be carried out when planning to see the units that will be negatively affected by the project.
Criteria 2 (Execution)
The success and failure of a project depends on the implementation of it. The execution of the Delta III Project was poorly implemented due to a variety of reasons.
One reason was due to FoxMeyer sacrificing reengineering their business process to make the software more efficient. FoxMeyer placed a higher value on meeting customer needs rather than making the implementation of SAP R/3 a success. FoxMeyer’s delivery of the end product was planned to start in early 1995, however FoxMeyer pushed their deadline forward by 90 days just to meet their customer’s needs. Demonstrating that FoxMeyer was lacking the ability to restructure their business processes to suit the needs of the Delta III Project.
In addition, the Delta III Project, faced the problem of poor management support. Originally the management were highly engaged and supportive to the project. However, once the execution of the project began, management were stubborn in acknowledging the problems the system faced. As stated by Christopher Cole, the chief operating officer at Pinnacle, the Delta III project failure was "not a failure of automation. It was not a failure of commercial software per se. It was a management failure" (Jesitus, 1997). Management of the project neglected to understand the difficulties and risks of the project and ultimately “agreed to have 90 days early implementation although the system was not fully tested”.
In order to avoid poor execution, the risk migration strategy would be communicating with stakeholders as well as continuously reviewing the project to keep it on track. With the purpose of keeping the project on track the correct development processes and methodology need to be used allowing the project to be broken into feasible chunks. Furthermore, to deal with the issue of having insufficient staffs, the roles and responsibilities of the project must be clearly defined as well as contingency plans incase an unexpected outcome occurs.
Criteria 3 (Market Environment)
Project managers must consider the market environment when planning for a project. Although project managers can not completely control the market environment, they can create contingency plans to prepare for the risks brought by unpredictable changes in the market environment.
FoxMeyer lacked contingency planning to deal with changes. This was clearly apparent when one of FoxMeyer major customers, Phar-Mor Inc. declared themselves bankrupt right after FoxMeyer launched their SAP R/3. In addition, Phar-Mor Inc represented more than 15% of FoxMeyer’s business, all of which went toward their competitors.
When Phar-Mor Inc declared themselves as bankrupt, instead of preparing for the worst possible outcome, FoxMeyer president Robert King said “it is too early to speculate about possible changes in FoxMeyer’s sale volume” and stated right after that “the management team knows how to respond to these situations, aggressively eliminating any related servicing costs and developing new businesses”(UPI, 1998).
Environmental risks are very difficult to expect and plan for as they happen suddenly without warning or preparation. Hence the best way to handle it include contingency planning using ideas and strategy related to disaster planning.
Criteria 4 (Planning)
Project managers need to effectively plan before implementing the execution of the project. Failure to plan leads the project to unexpected risks and problems. These risks take away funds and time from the project.
The SAP R/3 system was created for manufacturers not wholesalers, specifically those doing a multitude of transactions. Furthermore, FoxMeyer was the first wholesaler to attempt to use SAP R/3, however it lacked numerous requirements for it to be successful. It lacked two requirements that were crucial to FoxMeyer. The first was it was inflexible, meaning to make changes required time and investment. The second was that it struggled to handle large number of orders. Both of which were a huge detriment to FoxMeyer. To put it in perspective FoxMeyer totaled orders of up to 500,000 per day, while the SAP processed 10,000 per day.
In the early stages of Delta III Project FoxMeyer refused to listen consultant’s advice. One firm even warned FoxMeyer that the SAP R/3 would not able to provide what FoxMeyer needed. However, FoxMeyer ignored to consider consultants’’ advice and decided to select the SAP R/3 because of its reputability. However, when FoxMeyer realized the project was at risk, they heavily relied and depended on its consultants and vendors which prevented it from resolving the problem at hand.
The lack of planning and choosing the correct software to increase the intended goal of increasing efficiency with technology led the Delta III Project to fail. FoxMeyer could have avoided the failure of the project, by comparing different software’s and evaluating their pros and cons to identify which one best fits their needs. It would also be wise to seek advice from many consultants and gain their options and beliefs to form a judgement.
Overall, FoxMeyer’s’ Delta III Project failed due a wide range of reasons. These reasons included negative stakeholder influence, poor execution, failure to consider the market environment, as well as failure to plan. Following the failure of the project, in 1996 FoxMeyer was driven to bankruptcy.
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