American LaFrance (ALF), the “leading brand of custom-made fire fighting, fire rescue vehicles, ambulances, and heavy-duty work refuse vehicles,” has declared bankruptcy, blaming IBM and a failed ERP implementation.

According to filings in the District of Delaware bankruptcy court (PACER case no. 08-10178), problems occurred when ALF was spun out as an independent company from Freightliner, the previous owner. During the transition, ALF outsourced “accounting, inventory, payroll, and manufacturing process services” to Freightliner. As part of the transition, ALF developed a “standalone” ERP system designed to support the firm after the Freightliner separation was completed.

The bankruptcy filings describe the painful cutover from Freightliner:

Almost immediately upon the changeover to the ERP System, ALF recognized serious deficiencies with the system that had a crippling impact on ALF’s operations. Some of the problems that ALF encountered in implementing the ERP System included, among others: (i) inability to reconcile data between the Freightliner system and the ERP System; (ii) incorrect or incomplete inventory, purchasing and customer data due to either problems with the Freightliner system or the conversion of the data to the ERP System; (iii) inaccurate or incomplete vehicle configurations loaded in the ERP System; (iv) insufficient training on the ERP System; and (v) missing financial information including accounts payable detail, incomplete or inaccurate accounts receivable data, and inaccurate beginning general ledger balances.

For the next several months following the changeover, ALF attempted to solve the plethora of problems with the ERP system. Despite such efforts, as a direct result of the problems with the ERP System, ALF became unable to complete the manufacture of many pre-ordered vehicles.

The manufacture of highly-customized Emergency Vehicles requires the availability of a large number of inventory SKUs at key points in the production process. The conversion from the Freightliner system to the ERP System resulted in the inability to account for inventory on a reliable basis. This, in turn, severely limited ALF’s ability to deliver completed products to its customers. Consequently, ALF’s inability to deliver vehicles had an immediate impact on ALF’s cash flow and created a liquidity crisis.

ALF claims that IBM is responsible for the IT problems that precipitated the bankruptcy:

ALF is currently analyzing potential causes of action against IBM based upon services provided by IBM in connection with the problem-riddled transition to the ERP System.

The documents describe IBM Corp. (for the “customer agreement”) and IBM Global Services (for “systems applications project assistance”) as having open contracts with ALF. IBM is listed as a $5.5 million creditor, although ALF disputes the invoices:

THE PROJECT FAILURES ANALYSIS

In my reading of the documents, which only present ALF’s side of the story, it could be said that both ALF and IBM dropped the ball during the transition from Freightliner. Here are my conclusions:

• IBM did not manage the project properly. Given ALF’s dependence on Freightliner, “serious deficiencies” in production software should have been identified prior to the cutover, for example by testing and running the systems in parallel. IBM managed development, which typically includes extensive testing before deployment.
• ALF did not manage the project properly. IBM’s role does not minimize ALF’s ultimate responsibility for managing this mission-critical IT project. ALF’s management was probably distracted by the deteriorating Freightliner relationship, by a major facilities relocation that didn’t go well, and by generally poor market conditions.
• The ERP problems were managerial, not technical, in nature. The list of ERP and data problems cited in the filings suggest poor project management, rather than technical issues, were at the root of the difficulties. Since the division of labor between ALF and IBM is not made clear in the filings, it’s impossible to discern where responsibility lies.
• General market conditions made things worse. While all this was happening, the market for ALF’s products tanked:
  

[T]he Emergency Vehicle industry is currently depressed. Many competitive manufacturers are experiencing financial difficulties and several have ceased operations.

• All these issues created customer service problems, multiplying the negative effects of the market downturn. For example, the Bellingham Herald reported:

The city is trying to get a refund of the more than $362,000 it spent on an American LaFrance pumper that has had electrical problems 10 times [since 2005].

In addition, FireRescue1, an industry news source, states:

Several departments that have ordered apparatus have suffered lengthy delays in delivery.

“I think one of their problems may have been that they underestimated the problems with moving a plant and production and actively pursuing business for new apparatus,” [Bill Peters, who runs New Jersey-based Fire Apparatus Consulting Services] said.

“Perhaps they bit off more than they could chew, especially with the building of a new factory. It might have been wise not to take as many orders and not to have backed themselves up so much.”

This risky, high stakes project was primarily business in nature, despite the heavily technical components. Project failures often arise when non-technical senior management don’t fully understand the business ramifications of technical decisions made by IT. Poor communication and lack of understanding between IT and business management remains a serious problem contributing to many IT failures. My ongoing interview series, NakedIT: Conversations with Innovators, explores this issue in depth.

The combination of so many negative conditions ultimately created a situation where the company could not recover, leading to the bankruptcy. ALF was founded in 1832, so it’s a shame to see this happen. Unfortunately, many of ALF’s vendors will probably suffer as the company goes through bankruptcy.

(To research this post, I studied the bankruptcy documents, left messages for ALF’s proposed Chief Restructuring Officer and its IT manager, spoke with two attorneys connected with the case, and got barked at by a third. All facts, conclusions, and interpretations in this post are based on information obtained from publicly-available filings.)

Microsoft is pursuing Yahoo. Does anyone really know why?

Perhaps it’s to “steal the company,” as Yahoo’s board claims. Of course, a lovely Yahoo dating site would surely work wonders for Microsoft Exchange and SQL Server. Perhaps the acquisition is about adding coolness to those stodgy, decidedly unsexy, Microsoft products. You know the ones: Office, Windows, the things no one cares about anymore. Well, they generate huge revenue, but WTF. Maybe Microsoft sees Yahoo as its savior in the eternal search war against Google? Doubtful, because Yahoo hasn’t whipped Google’s ass in search for a long time.

No, this takeover is all about Microsoft and its long-lost mojo. It’s quite simple: Microsoft has become tired and is grasping at straws. Bill Gates is gone, the booming stock days are over, and the company is a house divided. It can’t decide whether it’s a hot Internet services business or an old-line enterprise software company.

My advice to Microsoft: forget Yahoo and break your company up along consumer, enterprise, and Internet lines.

Infrastructure tools, business applications, and operating systems would go into the “I’m boring but rich” division. Internet services would go into the “I love to spend and wanna be cool” group. Games, consumer applications, and hardware (like mice) would be sold everywhere ordinary consumers flock and congregate.

People working in the enterprise business will get corner offices. Those working in the Internet division will get sunglasses, drinks with little umbrellas, and Twitter accounts. The games crowd would get big headphones, so they can be comfy in their own world.

The new enterprise business won’t need Yahoo, because they’re already selling to the largest companies on the planet; that’s why they get the corner offices. Can you think of any reason why the games group would need Yahoo? Neither can I.

All of which brings us to the new consumer Internet group. It suffers at the hands of Google and is boring. Sounds like Yahoo, doesn’t it? Well, maybe Yahoo will want to buy them after the post-split dust settles.

Matthew Miller, from Loughborough University in the UK, seeks respondents to a questionnaire related to IT failures. He’s currently working on his dissertation:

This dissertation aims to investigate the level of success within IT projects within the last 3 years. The results will then be analysed to find any common factors to success and failure, to see if some projects are destined to fail and to see if certain industries, type of projects or methodologies/models are more likely to fail. The final result will be statistically supported advice for IT project managers. This research is about both project success and failure. It is through understanding failure that we can begin to improve. As such, please do not view failure as a negative in this context and please include projects that have failed as these are very relevant to this study.

Please take a moment to answer his questionnaire, which will advance research in this important area:

http://www.questionpro.com/akira/TakeSurvey?id=816578

Matthew will send the results to everyone taking the survey.

According to a recent report from Parliament, Her Majesty’s Revenue and Customs (HMRC) in the UK continues to pursue EDS for compensation over a major failed IT implementation. The settlement totals £71.25 million and includes a direct cash payment along with £26.5 million in credits from EDS against future work performed by the company for the UK government. Not surprisingly, EDS hasn’t received much follow-on work, so a substantial portion of the compensation hasn’t been paid. The government is prepared to sue EDS over the remaining amount.

This is one of those Twilight Zone IT tales that comes out of nowhere from inside the bowels of the UK government. Granted, EDS has proven itself to be anything but a model corporate citizen, and without doubt managing such a behemoth is a difficult and challenging task in the best of circumstances. Nonetheless, such hare-brained schemes remind one of the fox guarding the hen house. Ah, the power of large corporate legal departments with sufficient resources to successfully fight the government.

When negotiating the settlement, EDS put forth self-serving projections related to future government procurement plans (paragraph 21):

EDS informed the Department that it expects to receive a large amount of new business from the Government as a result of its participation in various procurement competitions both for new agreements and under existing agreements.

Did EDS have more accurate knowledge of future government procurement plans than the government itself? I wonder who actually negotiated this settlement on behalf of the government.

The secrecy provisions around this settlement are also interesting. See this exchange during House of Commons testimony (Sir David Varney was Chairman of HMRC at the time):

Q507 Mr Todd: Do you want to set out what you can on this matter, bearing in mind that some of it appears to now be in the public domain?

Sir David Varney: Yes. I find myself in an extraordinarily and exquisitely difficult position. I gave evidence in private to the Public Accounts Committee in some considerable detail. They also intimated to me that they were thinking of publishing that evidence and our legal advisers wrote to them to raise two legal concerns, one of which was the exposure of the details of EDS’s contract book. The second was about the nature of the settlement with EDS, which is that we get £71,250,000 over a period of time. We have got about £47 million of that so far. If we do not get all that money—

Q507 Mr Todd: Sorry, is that £47 million in cash?

Sir David Varney: Cash or cash equivalent.

508 Mr Todd: Cash or delivery of works?

Sir David Varney: No, not works, but can I just say the net effect on our resource account is as if it was cash, but it is not cash.

509 Mr Todd: So you are talking about software, or kit, or whatever?

Sir David Varney: Whatever. Can I just not go there….

Although details have leaked, EDS apparently considered the settlement less sensitive than specific terms and conditions of the original contract. I suspect that’s why the settlement details ultimately came out but the contract details did not.

This story is far from over, and you can be sure we’ll follow it in the future.

As excitement heats up around Microsoft’s proposed acquisition of Yahoo, Google feels threatened and has jumped into the fray, as reported by Dan Farber, ZDNet’s editor in chief. Rightfully concerned about the impact the merger may have on its own core search business, Google is trying every trick in the book to influence the outcome.

Larry Dignan, ZDNet’s executive editor, has some choice words on the matter:

For now it appears that Google is launching a two front war. First, Google wants to help Yahoo disrupt Microsoft. And if that effort fails Google is going to make damn sure regulators look closely at this deal.

Add it up and you have a monopoly pissing match with Google and its search dominance in one corner and Microsoft and its Windows market share in the other. Pick your poison.

DON’T BE EVIL

All of which suggests it’s time to take a look at Google’s corporate Code of Conduct:

“Don’t be evil.” Googlers generally apply those words to how we serve our users. But “Don’t be evil” is much more than that. Yes, it’s about providing our users unbiased access to information, focusing on their needs and giving them the best products and services that we can. But it’s also about doing the right thing more generally – following the law, acting honorably and treating each other with respect.

This position is amplified in Google’s philosophy, where the company states:

You can make money without doing evil.

Wikipedia offers a little background to help interpret the meaning behind “don’t be evil”:

By instilling a Don’t Be Evil culture, the corporation establishes a baseline for decision making that can enhance the trust and image of the corporation that outweighs short-term gains from violating the Don’t Be Evil principles.

WHAT DOES EVIL MEAN, ANYWAY?

In discussing the Microsoft-Yahoo merger, Google’s Chief Legal Officer said:

Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors’ email, IM, and web-based services? Policymakers around the world need to ask these questions — and consumers deserve satisfying answers.

Microsoft’s Chief Counsel responded:

Today, Google is the dominant search engine and advertising company on the Web. Google has amassed about 75 percent of paid search revenues worldwide and its share continues to grow. According to published reports, Google currently has more than 65 percent search query share in the U.S. and more than 85 percent in Europe. Microsoft and Yahoo! on the other hand have roughly 30 percent combined in the U.S. and approximately 10 percent combined in Europe.

Does the “don’t be evil” mantra cover Google’s disingenuous statements that present partial truths, in a clear attempt to confuse the market, consumers, and regulators around the world? You decide.

Microsoft’s announced acquisition of Yahoo may alienate and confuse the software giant’s enterprise customers. Given Yahoo’s focus on consumer content, enterprise customers must ask whether this acquisition signals dilution of Microsoft’s enterprise focus and strategy.

Over the years, Microsoft has assembled an impressive collection of enterprise software, designed to help the company dive deep roots into the heart of corporations and governments. The company has based its enterprise-oriented strategy around such product categories as:

• Operating systems, such as Vista and Windows Server
• Mid-range ERP, CRM, and accounting, such as Dynamics and Solomon
• Technical infrastructure, including SQL Server and Exchange
• Virtualization, such as SoftGrid

In comparison, Yahoo is a consumer-oriented media company delivering content via a software user interface. Yahoo products include:

• Consumer email
• News
• Mapping
• Music
• Job search

Few companies have succeeded simultaneously in both enterprise infrastructure software and consumer content. There’s a reason for this: the skills, mindset, culture, economics, and sales environment are completely different in the two domains. The acquisition will make Microsoft appear schizophrenic and unfocused to enterprise software buyers.

I spent the last ten days in London and Frankfurt in a morning-to-night whirlwind of business meetings. While the trip was great, it left me literally no time to blog, which was a drag. Nonetheless, walking through Frankfurt security, I looked up and saw beautiful blog material — a public Windows blue screen of death. It was almost an omen, signaling return to the land of blogging.

After taking the photo, your intrepid blogger was accosted by security who unsmilingly explained, in extremely definite and clear terms, that “Cameras are not allowed.”

The senior White House IT official, Karen Evans, said she believes software as a service (SaaS) can improve government IT projects and systems.

Evans made her remarks during a talk at the Saas/GOV 2008 conference. From InfoWorld:

“Our track record is clear — we are not very good at delivering our own software in the time frame set,” Evans said at the conference. “We’re also not very good at managing large projects.”

Some agencies haven’t embraced the service approach, often because they want hands-on control of software development, Evans said. But government agencies can’t afford to keep developing their own software without sharing with other agencies, she said.

“We can’t continue to maintain all of the things we have,” she added. “We have to start shutting down some of our legacy systems. We really have to move to a … service-oriented market.”

As Administrator of E-Government and Information Technology, for the Office of Management and Budget, Evans oversees the government’s CIO Council, comprised of Chief Information Officers from various agencies. In September, 2007, she testified before the Senate, about high-risk IT projects:

Each quarter agencies evaluate and report to us on the performance of high risk projects. These projects are considered high-risk, requiring special attention from the highest level of agency management and oversight authorities due to the size, complexity, and/or nature of the risk of the project, but are not necessarily at-risk. For example, a successfully performing project may still be classified as high-risk due to exceptionally high costs and or complexity.

Evans’ comments represent a clear acknowledgment, directly to the IT industry, that many government projects are seriously flawed. Although she’s previously testified to Congress on these issues, coming clean at an industry trade show is another thing entirely. Even more importantly, she suggests that SaaS may help solve the serious problem of late IT projects.

By legitimizing SaaS adoption in the government, Evan’s remarks may well catalyze the entire SaaS market.

The Los Angeles Unified School District (LAUSD) seems to have ended it’s year-long payroll system failure. For most of the last year, many teachers have faced incorrect paychecks resulting from problems during the implementation of an SAP system.

According to the Daily News in Los Angeles:

Errors due to defects in the system were below 1 percent based on Thursday’s payroll numbers, meaning 99.2 percent of the district’s employees were paid accurately, said Dave Holmquist, LAUSD’s interim chief operating officer.

That’s down from a 1.27 percent error rate in December and 2.97 percent in November.

Also, the number of people coming in to the payroll center with paycheck problems has dropped substantially - to 119 so far this month compared with 759 in November and 237 in December.

“We’re under 1 percent … which was one of the goals we had … and we’re hoping to improve upon this,” Holmquist said. “The goal was three consecutive, improving, reliable payrolls, and we believe we’ve reached a place of stability in our payroll.

“We’re nearing an end to our crisis.”

The human toll on teachers has been extreme, so I’m glad system errors have finally come down to a manageable level. I believe the problem was rooted in a combination of arcane union work rules together with poor project management by Deloitte & Touche, the implementation firm:

“We’re hoping to get this resolved through a negotiated settlement,” Holmquist said. “We don’t want to have to sue. We’re not sure it’s the best way to spend tax dollars.”

But Assemblyman Kevin de Leon, D-Los Angeles, who introduced legislation Monday prompted by the LAUSD payroll fiasco, has said he will push the district to recover lost money from Deloitte through a lawsuit or negotiated settlement.

Both sides were most likely at fault here. Still, the project is estimated to be almost $40 million over-budget (original plan: $95 million). That’s far too much and Deloitte should demonstrate it’s own skin in the game, by giving up some of its “ill-gotten” profit.

Note to LAUSD: I suggest you push Deloitte hard on this. Dig deep into actual costs they incurred, but watch out for “Hollywood accounting,” where they bring overhead into real costs, reducing apparent profitability. However, remember your folks also played a role creating the problems, so be fair and reasonable with Deloitte while you dig into their finances. Deloitte is hardly blameless, but LAUSD’s program management also fell short of the mark.

Philadelphia has finally finished it’s ill-fated water utility billing system, called Project Ocean. Following a series of high-profile failures, with costs that approaching $47 million, the final phase was complete on-time and under-budget.

To complete the project, Philadelphia dumped most of its planned Oracle applications, and went with off the shelf software from Prophecy International PTY in Adelaide, Australia. According to Computerworld:

Project Ocean started in 2002 with Oracle on board, but work was stopped in October 2005 after the city spent $18.9 million, twice what it expected to spend. The city signed an amendment to Oracle’s contract in which Oracle agreed to pay or forgive $6.9 million of those costs to fund the revived Project Ocean.

Philadelphia’ CIO, Terry Phillis, said he learned that:

“[T]echnology is not the prime concern in being successful in a project of this size.” Instead, he said, success is a matter of “process, collaboration and leadership,” although he said it is obvious that “the technology has to work and it has to match your skill sets.”

A year ago, he said, “we had to spend a lot of time upfront deciding how to run this and how to collaborate between three departments.”

Huh? The CIO of a major US city, overseeing a budget of millions of dollars, has only now learned that technology isn’t the primary driver of IT success and failure? Shaking my head in disbelief as I write this.