waste management erp failure case study

Promises, promises: A look at Waste Management's case against SAP

Waste Management's lawsuit against SAP for a "complete failure" of a $100 million software implementation boils down to promises. What did SAP promise Waste Management? And how much responsibility does Waste Management bear for believing those promises?

As background, news surfaced last week that Waste Management filed a complaint against SAP in the district court of Harris County, Texas. The suit, filed March 20, was fairly well publicized, but many of the accounts were thin on detail. Typically, IT failures aren't black or white. There are many shades of gray. Projects change, there's scope creep and often the vendor and the customer share some of the blame.

That disconnect isn't all that noteworthy. Enterprise software companies typically say there is no customization required and customers still need to tweak. What's interesting is that Waste Management is going after SAP in a very public manner. I'm familiar with Waste Management from a previous case study on the company. In a nutshell, it's a giant company that has been built via acquisition. Legacy systems were everywhere and a good chunk of them were outdated. From 2003 to 2005, Waste Management was becoming more than an army of small waste hauling firms and an integrated company. In 2005, Waste Management was looking to overhaul its order-to-cash process--billing, collections, pricing and customer set-up.

Also see: 7 common lies told by enterprise software sales people

A few choice excerpts and the lessons learned:

"In order to gain acceptance in the United States waste and recycling software market, and to obtain large monetary benefits from current and future license and implementation fees, SAP fraudulently induced Waste Management to license an 'United States applicable' Waste and Recycling Software solution. This software was represented to be 'a waste industry standard solution with no customization required.' SAP further represented that the software was an 'integrated end-to-end solution.' Unknown to Waste Management, this 'United States' version was undeveloped, untested and defective. Although SAP knew of the software's defects and its inability to function in the United States market conditions, it nevertheless represented that the software was a mature, 'out-of-the-box' solution with the functionality and scalability necessary to meet Waste Management's specific business requirements and transaction volumes."

Lessons learned: If your mother says she loves you check it out. One question: Wouldn't a pilot have surfaced this software as a joke? What were the probing questions being asked of SAP here? SAP had competition and formulated its pitch based on being out-of-the-box and being rapidly installed, according to the complaint. How realistic was that expectation? Let's face it: ERP is brain surgery and sometimes there is no anesthesia. I'm inclined to laugh at any software vendor that pitches enterprise software out of the box. It's not a magic pill. Another wrinkle: SAP's sales effort was led by Dean Elger, a former Waste Management controller. Is that too cozy?

"SAP represented that its software was a 'proven solution' and that SAP had 'the implementation experience to deliver productive functionality in less than one year.' These representations were false as the software modules used by SAP in its 'United States' version of the waste and recycling software had never been used together before and had never been tested in an actual productive business environment. To further its deception, SAP personnel also helped develop a 'business case' for Waste Management that detailed how SAP's software purportedly would enable Waste Management to obtain hundreds of millions of dollars in increased efficiencies and revenue assurance. SAP never told Waste Management that this business case depended on an undeveloped product."

Lessons learned: Why would you depend on a vendor to develop a business case? Here's the deal: Vendor makes up metrics, you consider them for what they are--a marketing pitch--and then you do your own work or hire someone else to do the legwork for you. SAP's analysis predicted net annual benefits of $106 million to $220 million a year and those savings convinced Waste Management to enter a contract under its Safe Passage program, which is designed to poach Oracle customers.

"SAP presented Waste Management with a series of pre-contract product demonstrations consisting of what SAP represented was the actual waste and recycling software. Yet Waste Management has discovered-- and, in internal documents, SAP has admitted -- that the pre-contract demonstrations were in fact nothing more than fake, mock-up simulations that did not use the software ultimately licensed to Waste Management. SAP's senior executives, including its president, Bill McDermott, participated in these fake product demonstrations, which were rigged and manipulated..."

Lessons learned: If true, these demonstrations, which were given "on many occasions during an eight month time period in 2005," were on shaky ground and SAP should have disclosed its software was being developed. The software was built on SAP R/3. What do you do if you're a customer? Perhaps it all comes down to questions about other customers. If Waste Management would have asked what other waste and recycling companies used this software it would have likely caught SAP. For instance, there's no reason a company the size of Waste Management needs to be an early adopter and the suit notes that SAP only had small European waste companies as customers. Waste Management only has one major competitor--Allied Waste. It's a happy duopoly for the most part. If SAP's software was an alpha release at best Waste Management should have been the guinea pig for free. SAP would have made money for having Waste Management as a reference customer.

"SAP represented that it had well-trained personnel with the requisite expertise, experience and knowledge of the software to implement it rapidly on a company-wide basis...These representations were also false."

"SAP's attempted installation of the waste and recycling software at Waste Management was a complete failure. The installed software failed to contain basic functionality that had been represented and was unable to run Waste Management's most basic revenue management operation."

Lesson learned: Consultants have a role and it sounds like Waste Management could have really used an independent third party to evaluate and implement SAP. A law firm to create an escape clause out of this $100 million contract would also have been handy. This deal needed an escape hatch before a messy lawsuit.

Postscript: SAP had promised to implement this Waste Management system by Dec. 31, 2007. It never happened. According to Waste Management's complaint, SAP's solution to the contract spat is to convert the out-of-box implementation to a more involved software development effort.

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The Biggest ERP Failures of All Time

The enterprise technology landscape is riddled with ¬ERP failures from the last twenty years. Some are more extreme than others, but all have stories behind them. More importantly, they all contain important lessons that can help us in our digital transformations going forward.

Table of Contents

Overview of ERP failures

I used to dislike writing about ERP failures. My tendency is to write about case studies from current successful clients or focus on minor lessons learned. But it seems that my articles about failures generate much more interest than those relate to successful deployments.

It all started when a friend and colleague sent me a text suggesting that I write about the SAP failure at Lidl . I didn’t like the idea when I heard it, so ignored it for a few weeks. I figured I had better things to write about than a German retailer that didn’t manage its SAP implementation so well.

Then, one day I had writer’s block. I have religiously written at least one blog per week for the last 14 years, so it is quite unusual for me to be at a loss for words. With a looming deadline from our marketing team and nothing better to write about, I referred back to that text from my friend. To this day, my article about Lidl’s failure is by far the most read, shared, and liked blog that I have written.

The other problem with writing about failures is that there are so many to choose from. We have all heard about Hershey’s, Waste Management, and other high-profile failures, so just choosing one to write about can be difficult. Further complicating things is the fact that I have served as an ERP expert witness for some of the highest profile lawsuits in the industry, so I have court-mandated confidentiality orders that I need to abide by.

Ranking the biggest ERP failures

With so many to choose from, it was difficult to rank the biggest ERP failures of all time. By applying the following criteria, we were able to assemble a comprehensive list of the biggest to choose from:

• Overall price tag and magnitude of implementation time and cost overrun
• Severity of post-implementation disruption to the business operations
• The degree to which many of the failures could have been avoided

With these criteria in mind, we created a ranked list of the biggest disasters of all time. Some are clients that we served as either an expert witness and/or ERP project recovery consultant , while others are not clients of ours. In both cases, we do not reveal confidential information. Instead, we reveal only information made public by other media outlets, public court filings, or financial disclosures.

It should be noted that the criteria above tend to skew toward larger organizations. Many of us heard about Hershey’s when they couldn’t ship candy after their SAP failure, but many of us do not hear about the local, lesser known companies that didn’t experience failures of this magnitude. But even smaller organizations are not immune to the challenges outlined below.

Here are a few of the transformations featured in our top 10 ERP failures list, which you can view in its entirety by watching the video below:

Hershey’s SAP ERP failure

After Hershey’s suffered an SAP ERP failure , the company was incapable of processing $100 million worth of Kiss and Jolly Rancher orders, even though it had most of the inventory in stock.

Hershey’s made a textbook implementation mistake in relation to project timing. It first tried to squeeze a complex ERP implementation project into an unreasonably short timeline. Sacrificing due diligence for the sake of expediency is a sure-fire way to get into ERP implementation trouble.

Hershey’s made another critical scheduling mistake: it timed its cutover during its busy Halloween candy holiday season. It was unreasonable for Hershey’s to expect that it would be able to meet peak demand when its employees had not yet been fully trained on the new systems and workflows. Even in best-case ERP implementation scenarios, companies should still expect performance declines because of the steep learning curves.

Waste Management ERP failure

Waste Management spent approximately $100 million on its ERP failure . The project started in 2005 and SAP promised it would be done around 2007. SAP had promised Waste Management that they would have net annual benefits of $106 million to $220 million a year. With the plan not materializing as promised, Waste Management is stuck with trying to find a suitable ERP system for their business processes.

“From the beginning, SAP assured Waste Management that its software was an ‘out-of-the-box’ solution that would meet Waste Management’s needs without any customization or enhancements,” a public statement from the company reads. “Unfortunately, Waste Management ultimately learned that these representations were not true.”

Waste Management said product demonstrations by SAP prior to the deal employed “‘fake software environments, even though these demonstrations were represented to be the actual software.” The company ultimately settled out of court with SAP.

Nike’s ERP failure

In an attempt to upgrade its systems for the modern age, Nike spent roughly $400M in its ERP failure . The net impact on its operations were profound: it couldn’t properly forecast customer demand and get the right products to the right customers at the right time, which is a big problem for a large consumer products company like Nike.

Due to result of the improper handling of its ERP implementation, Nike lost sales of $100M dollars and saw an additional decrease of 20% of its share price. The company had to invest another 5 years and millions of dollars more to overcome the problem and to get the software working properly.

The rest of the biggest ERP failures of all time

These are just a few of the case studies featured in our top 10 list. These aren’t at the top of the list, and there is much more to be learned from the remainder of the list as well. You can also read more about some of these failures in past articles I have written, such as ones about the SAP failure at Haribo and the more recent ERP failure at Revlon .

You can learn about the rest of them by watching my YouTube video here . Those at the very top may surprise you – and chances are that you weren’t aware of many of them.

Lessons from the biggest ERP failures

The intent of this list is not to celebrate ERP failure. Instead, it is to understand and learn from those that have made some of the biggest mistakes ever seen in this industry. In some cases, ERP vendor hoaxes and other questionable economic biases were the culprits. In others, the client themselves were largely to blame. In many cases, it was a combination of both.

The biggest takeaway? Your ERP implementation is your transformation – not your vendor’s. Even if you are getting “Accentured” by your ERP systems integrator or being sold a bill of goods by your ERP vendor, it’s your job to fix it. Sticking your head in the sand – as many in this list clearly did – will only make matters worse.

Below is a free online ERP implementation risk assessment tool to determine your risks and to provide customized recommendations to mitigate those risks:

Please feel free to contact me to brainstorm ideas on how you might identify and mitigate the risks that pose challenges for you and your team. I am happy to be an informal sounding board as you continue on your digital transformation journey in 2020 and beyond!

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Waste Management’s Share of Liability

Just on the PR battle, SAP is getting pretty banged up. WM is also taking its share of hits. A close reading of its own court filings shows that it’s partially responsible for its own losses.

Here are two of the most glaring examples taken from WM’s court pleadings:

#1: “Waste Management relied on [SAP’s] Business Case estimates in agreeing to license the SAP software.”

As part of its sales pitch, SAP prepared a “business case.” SAP stated that its software would enable WM to achieve between $106 million and $220 million of annual benefits.

WM showed questionable judgment in relying on SAP’s projections. Clearly, SAP was partial. It was trying to make a big sale. In my analysis, WM was imprudent and arguably negligent when it decided to rely on an obviously conflicted business case projection.

WM should have done its due diligence. If it needed help, it should have turned to an impartial third-party advisor . An independent analysis might have shown that the SAP software wasn’t the best choice.

#2: “Waste Management believed that developing a new software posed unacceptable risk… and instead decided to look for an ‘off-the-shelf’ solution that was already fully developed and fully tested.”

Before it selected the software, WM admits it knew that SAP’s “Waste and Recycling Software had been developed specifically for Waste Management,” according to court pleadings.

This is a case of WM both having and eating its cake. On the one hand, WM wanted a generic and well-tested system. In the end, though, WM selected the SAP system knowing it was designed for WM’s business alone.

I agree with the prudent approach that WM considered but didn’t follow. A company of its size and scale had little reason to assume the risks of early technology adoption. It should have made sure that system stability and system track-record were unassailable selection criteria. Had it done so, it wouldn’t have selected the SAP system and wouldn’t be embroiled in this lawsuit.

In the end, if SAP acted deceptively, there’s probably little that WM could have done to protect its investment. However, it could have mitigated some of its losses had it applied more rigour to its project management.

Originally published here by Manufacturing AUTOMATION on February 26, 2010.

Update on the SAP vs. Waste Management ERP Failure Lawsuit

The lawsuit between WM and SAP was settled in 2010 with SAP making an undisclosed, one-time cash payment to WM according to court documents and a regulatory filing .

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Lessons Learned from Epic SAP Failures: Avoiding Costly Mistakes

In the realm of enterprise resource planning (ERP), SAP has long been regarded as a leading provider, offering comprehensive solutions to streamline business processes and drive efficiency. However, despite its widespread adoption and proven benefits, SAP implementations can sometimes go awry, resulting in costly failures that impact organizations both financially and operationally. Let’s delve into some notable examples of epic SAP failures and the lessons learned from these experiences.

1. Waste Management Inc.:

In the early 2000s, Waste Management Inc., a leading waste management company in the United States, embarked on a multi-million dollar SAP implementation project to modernize its business processes. However, the project encountered significant challenges, including billing errors, financial misstatements, and customer service issues. As a result, Waste Management filed a lawsuit against SAP, alleging that the software was not capable of handling its complex business requirements. The lawsuit was settled in 2010, with SAP paying $68 million to Waste Management.

Lesson Learned: Thoroughly assess the compatibility of SAP software with your organization’s unique business requirements before embarking on implementation.

2. Hershey's:​

In 1999, Hershey’s, a renowned chocolate manufacturer, faced disruptions in its supply chain and distribution operations during the critical Halloween season following the implementation of an SAP ERP system. The new system encountered issues with order processing and fulfillment, leading to delayed shipments and inventory shortages. Hershey’s reported a loss of $150 million in sales and incurred additional costs to rectify the situation.

Lesson Learned: Plan for potential disruptions during the implementation phase and ensure adequate contingency measures are in place to mitigate risks.

Lidl, a German supermarket chain, experienced challenges during its attempt to implement SAP’s ERP system in the mid-2000s. The company encountered delays and technical issues with the implementation, leading to disruptions in its supply chain and operations. Lidl ultimately decided to abandon the SAP project and develop its own customized ERP system.

Lesson Learned: Properly assess the readiness of your organization for SAP implementation, including evaluating internal capabilities and resources.

4. Woolworths Holdings Limited:

In 2004, Woolworths Holdings Limited, a South African retail chain, embarked on a major SAP implementation project to upgrade its supply chain and distribution systems. However, the implementation encountered significant challenges, including delays, cost overruns, and operational disruptions. These issues impacted Woolworths’ ability to meet customer demand and resulted in financial losses and a decline in stock price.

Lesson Learned: Prioritize effective change management and stakeholder engagement throughout the implementation process to mitigate resistance and ensure smooth adoption.

Conclusion:

While SAP implementations hold the promise of increased efficiency and competitive advantage, they also present inherent risks that must be carefully managed. The failures highlighted above serve as cautionary tales, underscoring the importance of thorough planning, rigorous testing, and effective change management in SAP projects. By learning from these experiences and adopting best practices, organizations can minimize the likelihood of costly failures and maximize the benefits of SAP implementation.

In the dynamic landscape of ERP, success often hinges on the ability to navigate challenges with resilience and foresight. Let these epic failures serve as valuable lessons in the journey toward SAP excellence.

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10 notable ERP implementation failures and why they failed

Erp consultants share their analysis and takeaways from such spectacular erp failures as ranpak, national grid, revlon and millercoors and give advice on avoiding erp pitfalls..

• George Lawton

There are a lot of ways ERP systems can fail. For one, many businesses rush into rolling out new functions without careful consideration of details -- or knowing beforehand the common reasons for ERP implementation failure.

"It takes time, dedicated training and adequate management for ERP to flourish as a proficient tool within your business," said Jenny Chua, business development manager at The World Management, an ERP consultancy in Singapore.

John Belden, chief of strategy and research at Boston-based UpperEdge, an IT negotiations consultancy, commonly sees three key characteristics of these projects that often contribute to ERP implementation failure.

First, ERP implementations are often two to 10 times bigger than previous projects. Second, they are transformational, which means there are winners and losers in the organization as a result of the digital transformation enabled by the implementation. Third, they are generational, which means an organization might not have done anything comparable in 10 to 15 years.

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"A program will have problems when enterprises don't recognize these issues and try and mitigate these risks," Belden said.

These 10 well-publicized cases of ERP implementation failure illustrate some of the main reasons why these operations fail and how to avoid them .

1. Cover Oregon's outsized project

Bigger projects tend to put an organization in the position where it is not prepared for the volume and magnitude of decisions required. As a result, overwhelmed teams end up piling on one bad decision after another.

Belden said a classic example was the 2012 attempt by the state online healthcare marketplace, Cover Oregon, to simultaneously implement Obamacare and replace all of its supporting transaction processing systems. It ultimately spent more than $300 million and was unable to process a single insurance application through the exchange.

"They created a scenario where the project got so enormous, they could not meet the due dates," Belden said, or make the decisions that were required. Problems were exacerbated by the need to meet the hard deadline imposed by Obamacare. Belden said he believes the project would have worked out if Cover Oregon had kept the ERP project smaller and restricted it to what would have been required for Obamacare.

The big lesson: Limit the scope of the ERP project to the appropriate time frame.

2. Israel Chemical Limited's narrow focus

Generational problems can occur when no one on the program management team understands where the problems are.

"They may have prior experience, but it was 10 to 15 years ago and the people who learned the lessons are somewhere else in the organization or have moved on," Belden said.

A good example is Israel Chemical Limited's (ICL) failed SAP ERP implementation in 2014. The project cost ballooned from $120 million to more than $500 million. Ultimately, ICL's CEO resigned and the entire implementation was cancelled.

The CEO had assigned the project to a relatively new person in the CFO's office, according to Belden. This project lead was primarily focused on making sure financials were properly incorporated into the ERP project, rather than also considering the needs of the manufacturing and supply chain sides of the business. Employees in the first factory revolted after they had the new system imposed upon them.

"They got more focused on financial integrity rather than operational integrity," Belden said.

The lesson: Focus on all users of the proposed ERP implementation and not just one part of the business.

3. National Grid's lack of disaster testing

National Grid's ERP implementation was essentially blown away by Hurricane Sandy when the utility attempted to consolidate all of its U.S. operations on a common SAP system in 2012. Ultimately, the project took two years to clean up, at a cost of $585 million.

The parent company had successfully worked with the Wipro consulting firm on a similar ERP consolidation in Europe. But the ERP project team struggled with major differences in the regulatory environments in the U.S. Wipro suggested the SAP ERP project was ready to go live based on test results, but the actual system did not hold up under the increased workload. Emergency business processes were required to repair the electric grid after the hurricane, which involved special procedures for bringing in workers and materials from other utilities for the extensive repairs.

Belden said the implementation team had focused on "happy path" testing, which involved testing functions under ideal circumstances, but there had been insufficient testing of the system in emergency scenarios. National Grid decided to go live as the hurricane was making its way up the coast.

The key takeaway: It is vital to assess all of the factors that can affect readiness before going live with a large ERP implementation.

4. Waste Management's failure to verify vendor claims

Waste Management ran into some major snags when it attempted a massive SAP installation in 2005. After numerous problems and delays, the company ended up in a $500 million lawsuit against SAP that was eventually settled out of court.

SAP had suggested Waste Management could achieve $106 million to $220 million in annual benefits from a consolidated ERP system that could be implemented in 18 months.

Deepak Lalwani, principal and management consultant at Deepak Lalwani & Associates, an IT consultancy, said one big problem was Waste Management's failure to verify SAP's claims before making an executive decision. The company quickly discovered there were significant gaps between what was promised and what was delivered in the software .

The takeaway: Verify vendor claims with internal business and technical teams. "Performing a proof of concept on critical functionality … can reduce significant risk," Lalwani said.

5. Nike's unrealistic goals

Nike thought it could Just Do It when it embarked on a $400 million upgrade of its ERP system in 2000. But the new system resulted in $100 million in lost sales and a 20% drop in stock price when it couldn't fulfill orders for Air Jordan footwear.

"Nike was overly optimistic in their goals, and they failed to verify business process met operational needs before deploying the system," said Alex Sharpe, founder of Sharpe Management Consulting, based in Bridgewater, N.J.

The lesson: It's important to set realistic goals in the implementation plan, especially with regard to ERP functionality and project schedules. Sharpe also recommends defining operational and business requirements early on and keeping them in mind when developing systems.

"Ensure you take enough time to test the system for any kinks that need to be ironed out before putting your system into production," he said.

6. MillerCoors' hiring the wrong people for the job

MillerCoors embarked on an ambitious plan to consolidate all of its financials on a single ERP system to reduce costs and improve operational efficiency. In 2014, it hired HCL Technologies to implement the project, which was stalled by numerous defects. MillerCoors ended up suing HCL for $100 million, which was finally resolved in 2018.

Lalwani said the problem arose because the planning and architectural phases were not given adequate consideration. In addition, many critical defects and other additional problems were identified, but not fixed.

HCL's core competency was generally regarded as implementation, not planning and architecture.

The lesson: Ensure you have the right expertise for the particular project. "IT is often the toughest and the most expensive part of integrating multiple companies, and they rushed through the planning and architecture phase only to get hurt by it later," Lalwani said.

7. Revlon's underestimation of operational impact

Revlon attempted to integrate all of its ERP processes across business units after a merger with Elizabeth Arden in 2016. The new system failed spectacularly after it went live in 2018, resulting in a loss of $64 million in sales, a 6.4% loss in stock price and an investor lawsuit .

A key issue was that Revlon had attempted to consolidate Microsoft and Oracle systems on a new SAP implementation but lacked hands-on experience with SAP. It also decided to go live without making sure the ERP business processes would work as intended.

"Rolling out a system that does not meet operational needs and requirements often leads to adverse business impacts," Lalwani said.

The lesson: Mind both the operational and business sides of the ERP equation .

8. Ranpak delayed by unexpected global conflict

Packaging firm Ranpak rolled out a new ERP in January 2022 to coincide with the new year. It also happened to occur just before the Russian attack on Ukraine, which has strained supply chains and added further complexity to cost structures. As a result, sales dropped, and shipping times increased. All of these factors combined to slow ERP implementation and increase costs. The company finally started to achieve some success after working through the resulting additional ERP implementation challenges much later than expected.

"While certain risks can never be predicted, a good ERP implementation project plan always has some flexibility built into it," said Gaurav Joshi, a director at global management and technology consulting firm AArete based in Chicago.

For example, AArete recently worked with a client experiencing rapid growth that expected accelerated turnaround times for its ERP implementations, so it developed contingency plans in case any acquisitions were announced during the migration, which occurred twice. This planning streamlined training for the acquired company's functional users, incorporated required business needs and data sets and found compromises where necessary.

Key lesson: A substantial ERP implementation can take time, so it is important to identify and plan for contingencies that might affect the rollout.

9. The University of Washington struggles to pay vendors

The University of Washington initially planned a migration to a cloud-based finance platform in 2022 as part of its $340 million five-year UW Finance Transformation project. The rollout was delayed by a year but finally started making some headway in 2023. Many core processes for taking payments and paying staff made it to the new system. However, payments to vendors and funneling research grants were massively delayed.

Gaurav has seen many instances where large ERP systems designed to enhance financial performance ended up creating disruption for the HR, procurement and accounts payable teams, as well as the vendor base. As a result, an organization does not realize the expected efficiency and data visibility benefits of the project, as it can sometimes spend multiple years battling bugs, organizational tension and operational disruption.

Proactive change management should start with recognizing and acknowledging that an ERP upgrade is one of the most complex projects the organization will undertake. It also requires involvement from key decision-makers spanning all important functions and user groups.

It is also important to consider all the stakeholders affected by the project. This includes not just business and functional users, but the larger ecosystem that includes customers and vendors.

Key takeaway: "Keeping all stakeholders abreast of the impacts the project will have on their day-to-day jobs is critical," Gaurav said.

10. Invacare's ERP solution catches a cold

Medical device manufacturer Invacare's ERP project faced a key setback in rolling out a major SAP upgrade in 2021. Unfortunately, the company had to pay a monthly maintenance fee to the system integrator as the project dragged on into 2022, and the fed-up board went shopping for a new CEO in August 2022.

"ERP implementations are one of the most resource-intensive projects a company can pursue; budget and timeline mismanagement can derail an ERP project or stop it altogether," Gaurav said.

The software and support vendors a company chooses can make all the difference. Gaurav has found it important to conduct an RFP process that includes a comparative bid analysis, vendor demos and a scorecard filled in by key stakeholders.

Final takeaway: It is important to accurately estimate the total cost of ownership, have a timeline that considers all services and partners, and develop a plan to avoid cost overruns due to change orders or delays.

George Lawton is a journalist based in London. Over the last 30 years he has written more than 3,000 stories about computers, communications, knowledge management, business, health and other areas that interest him.

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Promises, Promises: Waste Management's Case Against SAP

Waste Management’s (WMI) lawsuit against SAP ( SAP ) for a “complete failure” of a $100 million software implementation boils down to promises. What did SAP promise Waste Management? And how much responsibility does Waste Management bear for believing those promises?

As background, news surfaced last week that Waste Management filed a complaint against SAP in the district court of Harris County, Texas. The suit, filed March 20, was fairly well publicized, but many of the accounts were thin on detail. Typically, IT failures aren’t black or white. There are many shades of gray. Projects change, there’s scope creep and often the vendor and the customer share some of the blame.

With that in mind, I’ve been perusing Waste Management’s complaint against SAP ( PDF download ). For its part, SAP doesn’t comment on ongoing litigation. If this spat ever does get to court, it will highlight the enterprise software sales process, which really revolves around promises. According to Waste Management’s complaint, SAP said it could offer an out-of-the-box ERP system with no customization. Waste Management’s reality was different.

That disconnect isn’t all that noteworthy. Enterprise software companies typically say there is no customization required and customers still need to tweak. What’s interesting is that Waste Management is going after SAP in a very public manner. I’m familiar with Waste Management from a previous case study on the company. In a nutshell, it’s a giant company that has been built via acquisition. Legacy systems were everywhere and a good chunk of them were outdated. From 2003 to 2005, Waste Management was becoming more than an army of small waste hauling firms and an integrated company. In 2005, Waste Management was looking to overhaul its order-to-cash process–billing, collections, pricing and customer set-up.

Amid that backdrop, you can see how SAP’s pitch of an out-of-the-box “solution” held sway with

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SAP v. Waste Management: A $500M ERP implementation fiasco

February 26, 2010 By Jonathan Gross

With the enterprise resource planning ( ERP) software battle between SAP and Waste Management heating up, Manufacturing AUTOMATION asked Ontario lawyer and ERP consultant Jonathan Gross to give his views on the lawsuit.

Earlier this month, Waste Management (WM) upped the ante in its lawsuit against SAP to $500 million. The root of WM’s claim is that it was allegedly deceived and defrauded by SAP during the ERP selection and implementation phases.

The jury should have its hands full trying to untangle this mess. Assuming that all of the allegations are proven, in my opinion, SAP should end up on the losing side. WM, however, would probably end up sharing part of the blame.

The Fraud Allegations  According to the plaintiff’s petition, SAP pitched WM on a well-tested, sector-specific, ready-to-install ERP package. WM alleges that it learned after the implementation had started that no such software actually existed. Rather, the ERP system in question was still in development and had “never been tested in a productive environment.” 

WM’s fraud allegations go much deeper. Before buying the product, SAP purportedly demonstrated the fully functioning software to WM. WM claims it relied on SAP’s demonstrations when it finally chose the SAP software. WM says that it only later learned that SAP demonstrated a “mock-up” version and that the demonstrations “were rigged and manipulated to depict false functionality.” 

SAP denies the allegations. However, if WM wins on its fraud and misrepresentation claims, this case could drive a stake through the heart of the world’s leading ERP vendor. No customer would want to build its business operations on a foundation of lies and deception. In addition, SAP would likely become exposed to criminal investigations.

It’s important to note that members of SAP’s C-Suite were directly involved in landing the WM account. It’s also worth mentioning that some of those executives are no longer with the company. There’s plenty of speculation about whether the departures are related to WM.

Waste Management’s Share of Liability Just on the PR battle, SAP is getting pretty banged up. WM is also taking its share of hits. A close reading of its own court filings shows that it’s partially responsible for its own losses.

Here are two of the most glaring examples taken from WM’s own court pleadings:

#1: “Waste Management relied on [SAP’s] Business Case estimates in agreeing to license the SAP software.” 

As part of its sales pitch, SAP prepared a “business case.”  In it, SAP stated that its software would enable WM to achieve between $106 million and $220 million of annual benefits.

WM showed questionable judgment in relying on SAP’s projections. Clearly, SAP was partial. It was trying to make a big sale. In my analysis, WM was imprudent and arguably negligent when it decided to rely on an obviously conflicted analysis.

WM should have done its own homework. If it needed help, it could have turned to an impartial third-party advisor. An independent analysis might have shown it that the SAP software wasn’t the best choice.

#2: “Waste Management believed that developing a new software posed unacceptable risk… and instead decided to look for an ‘off-the-shelf’ solution that was already fully developed and fully tested” 

Then, before it selected the software, WM admits it knew that SAP’s “Waste and Recycling Software had been developed specifically for Waste Management," according to court pleadings.

This is a case of WM both having and eating its cake. On the one hand, WM wanted a generic and well-tested system. In the end, though, WM selected the SAP system knowing that it had been specifically designed for WM’s business. 

I agree with the prudent approach that WM had considered but didn’t follow. A company of its size and scale had very little reason to assume the risks of early technology adoption. It should have made sure that system stability and system track-record were unassailable selection criteria. Had it done so, it wouldn’t have selected the SAP system and wouldn’t be embroiled in this lawsuit.

In the end, if SAP acted deceptively, there’s probably little that WM could have done to protect its investment. However, it could have mitigated some of its losses had it applied more rigour to its project management.

Jonathan Gross LL.B., M.B.A., is a lawyer and consultant who specializes in aligning business with IT, selecting IT systems and implementing IT systems. He can be reached at [email protected] and on Twitter at twitter.com/Pemeco .

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