Producer Files $20m Lawsuit Against Oracle
Jakovljevic - March 6th, 2000
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.
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.
company is currently implementing SAP, which Shaw says should be finished in
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.
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.
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.
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.
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.
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.