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.
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
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.
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.
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
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.
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.