i2-Nike fallout a cautionary tale

But analysts believe that while problems will continue to arise in large-scale technology implementations, more times than not, many bumps can be overcome with proper planning and communication.

Dallas-based i2 saw its stock drop more than 22 percent after Nike said its supply chain management system--being developed by i2--led to excess inventory and order delays that in turn partly caused a profit shortfall.

While Nike's blame game with i2 caught Wall Street's attention, the situation is just one of a growing number of publicly aired technology implementation failures, especially at bigger companies where the investments are heavier and the projects more complex.

Some analysts say they won't be surprised to see more of these big-bang, high-budget projects go awry.

"We're talking about making fundamental changes in a company's business process," said Karen Peterson, an analyst at Gartner. "We expect 5 percent of major companies implementing new software to have some amount of failure by the second half of next year, with some even having a major PR nightmare like the Nike-i2 problem."

The stakes couldn't be higher for a number of high-profile projects now underway. IBM recently said it's joining German industrial giant Siemens' e-business project, which already includes software from i2 and Commerce One. i2 is also working with Kmart and Caterpillar to upgrade their supply chains; Caterpillar is creating an online marketplace using i2's software to link suppliers and dealers and help automate its logistics, planning and customer management processes.

"My concern is that considering technology plans of (giant) companies like Siemens and Caterpillar, we'll certainly see more of these big-bang attempts. But the question is, will we see more of these big-bang disasters?" said Joshua Greenbaum, an analyst who heads Enterprise Applications Consulting.

"Hopefully not. Hopefully there are lessons to be learned from Nike's disaster," he said.

Playing the blame game
But the stage for future conflicts is set as many companies aggressively upgrade and install new software to automate key business functions such as financials, order management, human resources and product inventory.

Over the past few years, a wide range of enterprise software clients including Hershey Foods, Whirlpool and the makers of Gore-Tex, W.L. Gore & Associates, have taken a walk in Nike's shoes, pointing the blame at their software suppliers for their economic pains.

During Halloween 1999, Hershey said computer problems with its SAP software system created a backlog of orders and slower deliveries, resulting in lower earnings. Other companies, universities and cities have run into snags transitioning from legacy applications to new, more complex business management software.

And it's not just software problems, observers said.

"What we know about a software implementation project is that it's just not about turning on the software," said Bill Wohl, a spokesman for German software giant SAP, which is also involved in the Nike project. "These projects often involve really wrenching changes in a company's business process...It involves changes in the way employees work, and anytime you make changes in the way employees are used to working, it can get difficult."

Although the process overall is challenging, the eventual goal is more than worthwhile, Wohl said. SAP customers Hershey and Whirlpool are operating more efficiently and have recently been enjoying successful quarters, he said.

Because these "global" implementation projects are so large and complex in scope, analysts say customers will inevitably face complications at different stages of the implementation cycle.

Likely, problem areas run from scheduling and communication breakdowns between the parties to broader challenges such as overcoming internal political and cultural issues.

"We're talking about a system with a magnitude of complexity just shy of the space shuttle," Greenbaum said. "This is a really complex and very difficult project and requires an enormous amount of software and integration."

Taking proper steps
When a company is knee-deep in a large supply chain software implementation, a number of steps need to be executed simultaneously, including converting massive amounts of data and changing many business processes.

Greenbaum said companies that undertake multiyear supply chain implementations should reassess plans to really understand the scope of their complexity. Another lesson from the Nike fiasco: If a company is going to implement a system to automate a global supply chain, test the system at least once before going live.

"Doing those things at a small company is hard, but doing it at a global enterprise like Nike ups the extremely high chances of failure. When these systems fail, they fail big," he said.

In addition, best practices should be followed for implementing systems that will be high in costs and time but low in risk, said Giga Information Group analyst Tom Harwick. "If you don't follow these best practices it becomes a high risk at a high cost."

An example of a best practice is when a company designs a business process that exploits the very software it is implementing, Harwick said.

"It is also very important that the company make sure the combination of the software, data and business process works together by first doing a pilot run of the system for a limited set of time, say three months," Harwick said.

Nike began installing i2's supply chain software last summer to automate inventory, order management and other parts of the supply chain for its footwear division. The project requires global deployment, meaning Nike's operations worldwide will eventually begin running on the new system. Nike calls the project a multiyear systems upgrade.

Declining to go into specifics, Nike spokeswoman Leslie Mundy said the company's quarter suffered partially from complications surrounding the i2 software implementation, but the two companies are working together to resolve the issues.

i2 representatives declined to comment.

i2, which competes against other software giants in the supply chain niche, including Oracle, SAP and Ariba, serves a long list of other big-name clients, including Boeing, Nortel Networks, Raytheon and Wal-Mart.

While hurdles and challenges will continue to arise in technology implementations, analysts believe many heartaches can be avoided with proper planning and communication.

Giga's Harwick made that point by comparing the Nike snag with that of the earlier Hershey-SAP disaster.

"SAP implementations had worked thousands of times before that. And i2 has had hundreds of successful implementations before Nike," he said. "Look, i2 software is not perfect, but if implementation is done correctly, with proper planning, investment and scheduling, it will work well."