SAP LIDL
CASE STUDY
This example underlines and reinforces the value that good project management and change management practices add. It shows how behavioural science, which we have talked about throughout our book, has many applications, including, perhaps surprisingly, in project management.
Why this example?
We examine the case of the SAP Lidl ERP (Enterprise Resource Planning) failure as this is a well-known and widely-communicated case study, at least in tech project circles! The authors were not involved in the project so we can discuss it objectively. The project is probably on a bigger scale than your product or service, but hopefully this makes the lessons learned all the more obvious.
The failure of this project ended up costing Lidl around USD 580m, so it is worthy of our attention. This is a well-known but by no means an isolated case. We could just as easily have reviewed the Queensland (Australia) Department of Health payroll system failure, which is estimated will ultimately cost the Australian taxpayer an incredible AU$1.5 billion (US$850 m) and even brought down a state government. This project also included SAP, in this case, an SAP HR and WorkBrain rostering solution, but we don't mean to pick on SAP here as there are plenty of examples from other vendors of famous project failures. Indeed, the most significant ERP failure of all time is reputedly the US Air Force's failed Oracle ERP project which cost over US$5 billion! Maybe these two case studies are something for another Humology book!
But let's get back to our Lidl ERP Case study. For those who don't know, an ERP or Enterprise Resource Planning System is a category of software that organisations implement to support core business processes, including Finance, Procurement, HR, Payroll, Supply Chain management, sales, distribution, etc. The leading players in this sector include SAP, Oracle, Microsoft Dynamics, Infor, and Workday. Readers in Europe and the US will probably be very familiar with Lidl and will indeed have probably shopped there on occasion. Lidl, whose headquarters is in Germany, is a leading budget supermarket chain with over 11 000 stores in 29 countries, employing over 300,000 people.
In 2011 LIDL initiated a project to replace its in-house developed inventory management system with a ‘SAP for Retail’ solution. The project was named "eLWIS," - electronic Lidl merchandise management and information system, and was intended to replace the legacy system and increase efficiencies across the network of stores and 140 plus logistic centres. The project team comprised of approximately 1,000 staff and 'hundreds of consultants'.
What Happened?
During the project's lifecycle , the organisation experienced a high level of executive turnover, which most have undoubtedly impacted the project's continuity. In 2014 Lidl appointed a new CEO who subsequently stood down from his position in 2017. During this period their Head of IT also left.
The project really started to come a cropper when Lidl decided to customise the solution rather than adapt their business process to align with the delivered functionality. Specifically, they wanted to retain their practice of basing its inventory on purchase prices instead of the SAP standard approach of using retail prices. By the way, this is probably a cardinal sin for ERP projects; you should always change your process to suit the delivered functionality. If you can't amend your business process and the system can't do what you need to do, then that should have been picked up in the system selection process.
The project progressed to the stage where it went live in some smaller countries but in July 2018
the plug was pulled on the project with Lidl citing that "the originally defined strategic goals cannot be achieved with reasonable effort".
Lidl ended up spending approximately Euro 500m on the project with little or no return on investment. In addition, they had gone without a new system for over seven years and would ultimately end up reverting to their old system, presumably by then an outdated one. During this time, this project diverted efforts away from other, possibly more worthwhile projects. It would also have added to any existing change fatigue or saturation and reduced the organization's appetite for future change.
Lessons Learned
What can we reasonably infer about what Lidl have done differently? Let's examine that under the headings of 1) project management and behavioural science and 2) change management.
The Behavioural Insights Team from the UK research indicates that project management is generally subject to three cognitive biases: optimism bias, sunken cost bias, and groupthink.
When planning and initiating this project, we can assume that some of these potential challenges were discussed. Did the group suffer from optimism bias, particularly planning fallacy, assuming these challenges would be overcome, and did they outweigh their chances of success over their chances of failure ? With such a prolonged duration and significant executive turnover, it is safe to assume the project passed through several stage gate reviews, perhaps at the 100k or 250k mark?. Did the team suffer from sunken cost fallacy? This is the bias whereby we are influenced by past sunk costs which should have no bearing on future outcomes. 'Well, now that we have already invested 300k, with nothing to show for it, so we might as well keep going and invest some more' – an executive may have postulated . We feel it is safe to assume that groupthink had a part to play in this failed project. Indeed, one or two individuals must have seen the writing on the wall when the decision was made to customise the solution. Perhaps peer pressure and groupthink prevented them from voicing their concerns.
Assuming there was a significant change management team on the project, what might they have done differently? Did they manage the resistance to change effectively, i.e. resistance to changing the business process and opting to customise the solution instead? With an effective change management strategy in place, the project team may have managed this resistance by communicating key messages and enlisting the support of a change champion community.
The turnover of senior executives presumably played a role in the outcome of this project. This underlines what we have said elsewhere in our book about the importance of stakeholder management. Were the change team able to proactively identify the new executives as key stakeholders and take steps to both manage them as stakeholders and support them as executives?
Research from Prosci indicates that active and visible sponsorship is at the top of the list of contributing factors for project success. Change management professionals also have a pivotal role to play in supporting project sponsors, particularly those who may be new to the position of project sponsor.