Food Producer Files $20m Lawsuit Against Oracle

Food Producer Files $20m Lawsuit Against Oracle
P.J. Jakovljevic - March 6th, 2000

Event Summary

On February 11, a US agricultural co-operative filed a $20 million lawsuit against Oracle, alleging fraud, negligent misrepresentation, malpractice, and breach of contract. California based Tri Valley Growers (TVG), which processes and markets its members' fruit and vegetables, claims that the database giant failed to fulfill its contract to modernize the company's production and management systems using its enterprise resource planning (ERP) applications.

Jeffrey Shaw, TVG's president and chief executive, said: "I have never sued anyone in my life, and we certainly wanted to avoid litigation, but Oracle's refusal to be reasonable with our request after all of its promises and commitments left us no choice." The $800 million company hired Oracle in November 1996 to computerize and integrate its operations that span from raw product delivery to finished goods distribution. But according to the lawsuit, Oracle's consumer packaged goods (CPG) application never worked and could not even be installed on TVG's computers. When TVG installed Unix machines, the software would not work on those either. Instead, TVG had to modify and maintain its legacy system.

The company is currently implementing SAP, which Shaw says should be finished in May.

Shaw continued: "We trusted Oracle was selling a commercial product that worked. As we found out, not only did the product not work for us, but also a working ERP package did not even exist at the time it sold the product to us. I am completely baffled that Oracle thinks it can get away with this." According to TVG, Oracle had indicated that it had sold similar software to other packaged goods companies and would license, install, and support the software. Oracle refused to comment on the lawsuit.

TVG intended to use the software at its nine factories, which employ more than 9,500 workers, to process more than one million tons of fruit and vegetables annually. The company, founded in 1932, distributes products domestically and internationally.

Market Impact

It is not a secret any more that a large number of ERP implementations do not live up to their expectations. More importantly, implementation problems are often a major cause of short revenues and missed earnings. Most of these problems never make it to the front page because either a more convenient and less embarrassing scapegoat exists (Y2K) or the company cannot reliably trace the problem back to the software or implementation.

While we abstain from speculating which side is right or wrong at this stage, and while the amount of compensation demanded by TVG is less than one one-hundredth part of Oracle's annual costs for sales and marketing, this is bad news for Oracle. Moreover, we believe this and earlier bad news may have greater market consequences for larger ERP vendors than one would initially imagine.

These news will make it much more difficult for big ERP vendors to make inroads into the much coveted mid-market territory, where the prospective clients are forced to be cost conscious. One would indeed be hard pressed to find similar news involving a nimble mid-market ERP vendor, with a proven focus in a particular industry. Moreover, some mid-market ERP players go so far in their sales campaigns as to offer 50% software license payment deferral until successful project signoff.

User Recommendations

The foundation of any ERP implementation must be a proper exercise of aligning customers' IT technology with its business strategy, and subsequent software selection. Whatever the outcome, TVG's problems should serve as a warning to all users who are involved in implementations. Users involved in selections or early project planning should seek expertise from professionals who understand the pitfalls of implementations and can offer guidance. Otherwise, they risk repeating TVG's hardships.

IT organizations should conduct a detailed ERP software selection process where all critical business requirements are identified and pinpointed. Vendors' vertical focus and a number of reference sites within the users' industry should be thoroughly scrutinized. The scripted scenario demonstration phase of an ERP selection process is the perfect opportunity to put potential ERP packages through their paces, and we urge users to exercise this prerogative. Finally, users are strongly advised to require fixed time and cost contract commitments from both vendors and their affiliates.


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