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Compensation For ERP Failure
Tuesday, April 16, 2013

The ERP landscape is littered with the corpses of failed or non performing ERP projects. Failure is defined as: abandoned, implemented but not working, not achieving the returns expected, massive cost over-runs, lost business and brand damage as a result of post-live ERP issues.

Surveys consistently show 55-70% of companies fall into the above categories with many angry and disillusioned with their ERP software and implementation services provider and are looking for some form of recompense.

Seeking redress from ERP vendors and their implementation partners is not a simple exercise. My experience has been the vendor carries out an investigation based upon the complaints put forward by the client and concludes that they, the vendor and their implementation partners, acted in accordance with the contract and in good faith and the problems were the fault of the client. No surprises here? They are not about to accept any responsibility as that could lead them to having to compensate the client. They may in some cases, as an act of good faith, offer some token additional training or some other service that goes no way near compensating for the losses incurred.

So what are the options for the aggrieved client? The difficulty is the “Devils Triangle” whereby all parties share responsibility for the problems. The issue is what extent of the blame really falls to the client and what portion is the responsibility of the ERP vendor and the implementation consultants.

For the most part the vendor and implementation consultants are able to obscure the real issues to the point the client goes away confused and licking his wounds vowing to never use them again and feeling ripped off by the ERP industry.

For the ever increasing number of disgruntled ERP clients who simply don’t accept the “It was all your fault” from the ERP vendors and the implementation consultants there are remedies available even if they share some of the responsibility for the failure. The real issue is who is more to blame for the outcomes.

Our experience has been once the software vendors and their implementation consultants realise the company is pursuing them and undertakes some form of case establishment they are more willing to sit down and discuss the issues. This does not mean that they will agree but at least they are under notice that the client is simply not going to walk away from the problems he is left with.

There are many issues at play here. What was the wording of the contract? Did the vendor and his implementation partners, so called experts, recognise at the time issues that signalled the project was running into trouble and escalate this to the client? Did the software perform to the contractual requirements? Did the third party suppliers have the necessary skills to implement the system? etc.

This can only be established through analysis and case establishment but the payoff for the client can be significant compensation for losses and disruption if the vendor and his partners did not perform in a manner that ensured the use of the software and provided sound advice at critical periods. Of course the balance to this is did the client accept the advice when given, can this be proven etc. etc.

The starting point is to carry out a project analysis and establish the grounds for any further action. Once this has been done the ERP vendor and the consultants, depending on the analysis findings on who and what has been established as the causes of failure, be called to mediation to try to resolve the issues in a more friendly environment.

The option of proceeding beyond mediation is always available where vendors and the consultants dig their heels in and refuse to accept a mediated outcome. Where the dispute proceeds to the courts most disputed ERP litigation is settled out of court particularly where the case has been well established in terms of negligence and non-contract performance. Vendors and their partners don’t really want the bad press that comes from a legal battle in the public arena.

The key is a proper analysis of the project, identification of the issues relating to who was responsible for what and the shortcomings in each of the parties. This is referred to as case establishment which may be strong or weak depending on how the project was conducted by all parties.

The confusion generated by the ERP industry to cover their tracks and absolve themselves of responsibility is being dissipated by companies refusing to accept huge costs for work that does not produce satisfactory outcomes. The rise in companies prepared to take action may well ultimately force a clean-up of an industry that up to now has not been seen as honest or ethical.