SAP Watch

Dec 19 2008   10:09AM GMT

Will more companies halt SAP projects?

CourtneyBjorlin Courtney Bjorlin Profile: CourtneyBjorlin

Most companies that have already started IT projects will finish them even in this economy, analysts and customers have told me in the last month. It seemed like, for the most part, that was holding true.

But the paradigm seems to lose a little luster with Select Comfort’s announcement this week that it’s halting its SAP implementation as part of cost-cutting measures. It appears from SEC filings that the implementation was costing millions of dollars. The bed retailer is also laying off around 120 people — about 22% of its workforce.

No doubt there’s more than one reason why this implementation was halted. But there’s one clue that’s far more interesting than it perhaps being over-budget or behind schedule.

It seems like it was a huge project, and one which the company expected would be completed in early 2008. The company was implementing SAP ERP, CRM, SCM, PLM, SRM, HCM, SEM, BI and enterprise portal to replace its current disparate software systems and facilitate a growth strategy, according to an earlier SEC filing.

“Our current management information systems may not be adequate to support our growth strategy,” one SEC filing said. “We believe this SAP-based IT architecture, along with best-practices-based processes and greater utilization of off-the-shelf, packaged solutions, will provide greater flexibility and functionality for our growing and evolving business model and be less expensive to maintain over the long-term.”

The recession, however, changed everything. Select Comfort now plans to close dozens of stores, according to a press release from the company. Therefore, the software implementation it wanted to help pursue those business plans may need to change as well.

“There are several alternate SAP implementation approaches and given the smaller than anticipated current size of the Company, the approach to SAP software originally adopted may be outsized for the Company’s needs,” a letter from an investment adviser to the company’s board of directors filed with the SEC and quoted in this ComputerWorld story said.

It seems likely that other companies, which started implementations a year or more ago but haven’t yet finished them, may too be facing similar challenges.

4  Comments on this Post

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  • John Sicard
    I might add that this phenomenon may extend to all other "large" ERP providers with "large" budget projects spanning "long" periods of time. As you stated in your post, "The recession, however, changed everything". Under such uncertain times, Enterprises will be more inclined to invest in strategic solutions to better weather the storm. In such a case, rapid time to value will be key. We may very well see a shift in focus from tactical execution improvements (usually translates to large ERP projects/upgrades spanning months/years) to dramatically improving the their competency in "sense and respond", where best-of-bread vendors have long had the upper hand on ERP providers.
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  • Peter K
    It is not only that SAP projects are stopped or delayed. If you look at the example at hand, you see that basically the complete company would run under SAP: SAP ERP, CRM, SCM, PLM, SRM, HCM, SEM, BI and enterprise portal: sales, production, purchase, human capital, enterprise management, reporting. However, as customers in Germany recently found out, this can be an expensive undertaking or at least it is difficult to calculate. The main reason of complains in the last weeks was, that these companies, with a turnover between 1 and 10 billion Euro, had done exactly the same: build the IT completely on SAP. As most IT related people know, such an architecture can not be changed over night. A replacement would take years and cost millions. So what do you do ? -> You sign the new maintenance contract if you can not afford a frozen system ! That was what the trouble in Germany was about, as reported by these customers in Düsseldorf on December 10th, 2008.
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  • business implementation strategy
    business implementation strategy Your topic The Quality Stocks Stock Newsletter For Smallcap Companies Blog " Blog ... was interesting when I found it on Sunday searching for business implementation strategy"
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  • Eric Kimberling
    Good post. It's unfortunate, but sometimes it takes a bad economy in order for companies to rationalize their investments in ERP and other technologies. Even in good times, companies like Select Comfort, Hershey, etc. shouldn't be implementing SAP if they can't stay on time, on budget, and deliver measurable business benefits to the organization. Hopefully the trend toward demanding a rational return on investment in ERP technology will last long after the recession ends. Eric Kimberling Panorama Consulting Group
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