Nike Blames i2 For Finish In Losers Bracket

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Nike Blames i2 For Finish In Losers Bracket
S. McVey - March 29, 2001

Event Summary

Nike's unexpected shortfall in third quarter earnings sent tremors through an already shaken Wall Street. Accustomed to the sort of excellence portrayed in its high-end ad campaigns, the defeated sports apparel maker attempted to blame the results on a new supply chain management system from i2 Technologies. Philip H. Knight, Chairman and CEO, said, "We were anticipating a flat year-over-year third quarter largely because of weakness in our U.S. footwear revenues. During the quarter, we also experienced complications arising from the impact of implementing our new demand and supply planning systems and processes, which resulted in product shortages and excesses as well as late deliveries." Nike further warned that problems with its global supply chain could last from six to nine months, hurting near-term profits as the company reduces prices to move excess inventory.

A bad report for i2 meant the same for other supply chain management vendors. The day after Nike's warning, i2 rival Manugistics released a hastily drafted announcement reassuring the market that its footwear prowess was intact, an obvious attempt to limit collateral damage to its share price. Investors seemed unconvinced, as Manugistics' stock dropped 17% the next day.

Nike's troubles call to mind those that Hershey Foods Corporation blamed for its weakened third quarter results back in October 1999. Hershey Chairman and CEO Kenneth L. Wolfe attributed the poor showing to problems encountered switching over to new systems for customer service, warehousing and order fulfillment. In Hershey's case, the software scapegoats were SAP, Manugistics, and Siebel, but one potential mistake stands out in both cases: a "Big Bang" implementation.

Market Impact

Companies choose Big Bang approaches, those that switch business operations to a new system all at once rather than one bit at a time, to save costs. Many companies start out thinking in terms of a Big Bang, but later decide to follow a "phased" approach, in which new parts of the system are introduced incrementally. This more cautious strategy allows system bugs to be found and corrected before moving on to the next phase, while reducing the shock within the user community that inevitably accompanies new corporate-wide system implementations. Big Bangs are misleading in their promise of "once and it's done" benefits as investments made to remedy problems can quickly outweigh anticipated savings. That is not to say Big Bangs are always a bad idea, but they certainly present greater risk to the enterprise.

In the wake of Nike's announcement, analysts rushed to condemn the company for implicating i2 and not accepting responsibility for the implementation problems. This reaction is, of course, justified given that clients are ultimately responsible for project management, regardless of how project work might be divided between the vendors and consulting partners. Nike's comments went as far as to imply that the new system was responsible for manufacturing the wrong kind of sneaker, as if i2's system was an underachieving employee. What is more likely is that Nike failed to train its human employees to understand the new system, thereby creating an excess of the wrong product.

If any blame is owed the vendor, it might be that their sales and marketing forces are geared toward convincing clients their software is easy to implement. Many implementation nightmares can be traced to this subtly deceptive "no problem" attitude that lulls clients into believing that all is well.

User Recommendations

Whatever the outcome, Nike's problems should serve as a warning to all users who are involved in implementations. Project planning requires the same amount of due diligence as business IT strategy definition and software evaluation. Users involved in selections or early project planning should seek expertise from professionals who understand the pitfalls of implementations and can offer guidance. Vendors are rarely able to offer unbiased advice in this regard as they have a vested interest in the client feeling good about the implementation and their software.

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