Special Report: Make Mine Vanilla
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Waste Management Inc. has no intention of letting its name be dragged through the dirt by its new ERP system. The $12 billion, Houston-based firm -- the largest solid-waste management company in the U.S.--recently began a $100-plus million installation of financial and human resources software from PeopleSoft Inc. of Pleasanton, Calif. It is determined, says Tom Smith, Waste Management's CIO, to make the new system succeed.
The company's current, AS/400-based system, had been built completely with proprietary, custom code. One of the keys to making the new system succeed, Waste Management realized, was using the software -- as much as possible -- just as it came from PeopleSoft.
The risks of installing big-ticket software applications are certainly clear. The complexity of installing enterprise-wide systems has led to some spectacular failures in recent years. High-flying shoemaker Nike Inc. stumbled last quarter, when problems related to a complex installation of supply chain software from i2 Technologies, Inc. forced it to write off $100 million in inventory and miss its sales goals. In the last two years, both Phoenix, Ariz.-based PETsMART, Inc. and Hershey, Penn.-based candy maker Hershey Foods Corp. saw revenues suffer as a result of problems implementing ERP systems from SAP.
|At a Glance |
The company: Waste Management Inc. is the largest solid-waste management firm in the U.S., Houston-based Waste Management has 57,000 employees and revenues in 2000 of $12.5 billion.
The problem: Install a new enterprise-wide accounting and human resource package on schedule and within budget.
The solution: Use the packaged ERP software "out of the box" as much as possible, keeping modifications to a minimum.
The IT infrastructure: PeopleSoft financials, benefits, time and attendance, and other software, running on IBM RS/6000 servers under AIX, and an Oracle database.
"The lesson learned from failures like Nike is that having to customize complex environments can kill you," says Joshua Greenbaum, principle of Enterprise Applications Group, in Daly City, Calif.
That's a lesson that Waste Management is paying careful attention to. After a pilot last December, the company is now rolling out the PeopleSoft software to about 250 of its 1,500 locations each month, and expects to complete the installation by the end of 2001. In the process, it is keeping a tight reign on customizations, intentionally making it difficult for users to modify the system. "Any customizations required need to be approved at a higher level than the team working on it," explains Smith. "We believe that we will greatly enhance our chances of success by keeping our system very plain vanilla."
That doesn't mean Waste Management can avoid customization altogether. The company has modified the PeopleSoft system, for example, to accommodate differences in contracts negotiated with different unions.
But custom programming will not make up a significant part of the total work involved in the project. Smith estimates the changes will make up about only about one percent of the total effort.
Deploying right out of the box
That is exactly what the ERP vendors like to hear. All of the major players encourage their customers to minimize customizations and deploy their software right out of the box whenever possible. For the vendors, simple installations mean less chance of failures that can be both embarrasing and potentially expensive; New York, NY-based clothing manufacturer Warnaco is suing SAP, for example, over a troubled R/3 installation. And it's much easier for a vendor's tech support engineers to provide support for standard installations than for ones that have been heavily modified.
To help nudge customers away from customization their R/3 installations, in mid-1996 SAP introduced a rapid implementation program called AcceleratedSAP (ASAP)--now called ValueSAP--that promised faster, less expensive installations. Oracle's similar FastForward program and PeopleSoft's Select (now PeopleSoft Accelerated E-business Solutions) were both introduced in 1997. SAP estimates that 90% of its customers now make some use of its accelerated implementation methodology.
Initially, these rapid implementation programs were a way for the ERP vendors to expand their market to smaller companies, says Katherine Jones, managing director of Collaborative Business Applications at the Aberdeen Group in Boston, Mass. "They had cleaned out the Fortune 1000," she says, "and they knew they couldn't sell seven-year rollout plans to mid-market companies."
The rapid implementation programs, Jones says, let smaller companies--those without programmers on staff to customize applications, or the budget to hire consultants to do the work--install ERP systems. "But now, the vendors are looking at the approach and saying 'this may not be a bad idea for everyone,'" she says.
And indeed, Waste Management is not the only large company aiming to install ERP applications without extensive customization. GE Power Systems, for example, a $14 billion division of General Electric, is in the process of implementing Oracle's manufacturing software--without making a single modification--according to Oracle CEO Ellison. That, says Ellison, should enable GE Power Systems to get the first factory up and running within five months of signing the contract.
Over time, ERP products have gained more and more functionality, which makes it easier to install them without customization. Oracle, which entered the application software market in 1987 with Oracle Financials, now sells some 75 different applications covering a broad spectrum of business requirements. SAP offers software specialized for 22 different industries, from paper mills to retail to oil and gas refining; PeopleSoft has tailored its applications for eight vertical markets, including government, education and telecommunications.
The danger with installing software without customization, of course, is that it may not do everything you need it to do. That is a tradeoff vendors, particularly Oracle, are urging their customers to make. "You are better off with an 80% solution installed and working in six months," Oracle CEO Larry Ellison told users at Oracle's AppsWorld conference in February, "than fantasizing about a 100% solution that you might finish in two years after you write lots and lots of custom code."
As commercial ERP packages become more complete, more and more companies are looking carefully at the upgrades they receive to see if what comes on the CD-ROM can replace some of their custom code. That's what Pacific Coast Feather, a $300 million retailer of bed linens, comforters and pillows, is doing this spring, as it upgrades its SAP R/3 ERP system to the latest version.
When it first installed R/3 in 1995, the Seattle-based firm had vowed not to modify the system. It quickly realized that was unrealistic, says Gwen Babcock, Pacific Coast Feather's CIO. "Sometimes," she says, "business reality requires you to make exceptions."
Pacific Coast Feather had no choice but to write its own code, says Babcock, because some of the functionality it needed simply didn't exist in R/3 in 1995. "We had much greater EDI requirements then R/3 provided at the time," she recalls. R/3 version 4.6, however, which Pacific Coast Feather is installing now, includes EDI capabilities, and so the company is replacing its custom code with standard R/3 code.
That's a wise move, says Mike Mansfield, a partner and Oracle practice managing director at systems integrator Computer Sciences Corporation (CSC), of El Segundo, Calif. LOCATION. "When we go through an upgrade with a client," he says, "we always try to do an education session with them on the new functionality, and encourage them to reassess any older modifications to determine if they are now redundant."
Less customization could mean less work for companies like CSC. But in the short term, at least, the consultants don't seem to be too worried. There's plenty of work doing upgrades, and even companies doing relatively straightforward installations rarely choose to go it alone. Waste Management, for example, hired Miami, Flor.-based consulting firm AnswerThink to help install its new PeopleSoft system.
Babcock believes using standard R/3 code as much as possible lets Pacific Coast Feather take advantage of the knowledge about business processes that it built into SAP's software. "R/3 is designed around best business practices," Babcock explains, "and if they do it a certain way, there's got to be a reason. So if the upgrade takes a different approach, we look at it and ask ourselves, 'should we change the way we do things?'"
Replacing Pacific Coast Feather's code with standard R/3 functionality should also improve the system's reliability, Babcock says. "When we have performance problems or data integrity issues," she says, "it's invariably our custom stuff, because otherwise the system is rock solid."
Driving customization to zero
Babcock also expects that removing custom code will make the next upgrade easier. Pacific Coast Feather has upgraded R/3 twice since installing it in 1995, and while SAP's upgrade process is designed to deal with customization, the process is still time consuming. Pacific Coast Feather has been careful to separate out all its custom code--each file is marked with the prefix ZD or ZE--so Babcock's team can pull off its custom code, do a standard upgrade, and then reapply the customizations. The upgrade tools supplied by SAP can identify conflicts between user customizations and the new version of R/3. Those sections of code have to be re written, and then tested, first by the programmers to make sure they compile cleanly and execute, and then by business analysts to make sure they function the same way the older version did. As a result, Babcock estimates that dealing with customizations can take up to one-third of the total time involved in an upgrade.
Even with all the work involved, Pacific Coast Feather may be ahead of other companies in simply being able to do an upgrade. "I've seen plenty of users who have done so much customization that they can't do an upgrade at all," says Enterprise Applications Group's Greenbaum. "They end up having to do a full-blown implementation."
So it's no surprise that Babcock is not the only CIO who hopes to reduce customization. "Wherever possible, our ERP clients want to go vanilla," says Mansfield. He estimates that three-quarters of CSC's clients with extensive customization plan to use upgrades to remove a significant portion of the custom code. They don't expect it to happen overnight, he says, "but their long-term plan is to drive customization to zero."
But Mansfield finds that not everyone can--or wants to--avoid customization. "There will always be a few people out there who are convinced they need to modify things to make it fit their environment," he says.//
Dan Orzech is a Philadelphia-based writer specializing in technology. His work has appeared in the Los Angeles Times, the Philadelphia Inquirer, and many computer industry publications. He can be reached at firstname.lastname@example.org.