As one of the largest investor-owned power distribution companies in the country, National Grid USA (NGUSA) knows the importance of timely delivery. So, when its much-anticipated SAP ERP project was stalling out after three years of development, team leaders made the decision to push ahead with the go-live date as planned.
The result? A catastrophic domino effect that impacted nearly every facet of the business, from financial reporting to payroll.
Understanding the details behind this failure can be enlightening to companies gearing up for their own ERP implementation. Today, we’re exploring the details behind the National Grid ERP failure, along with how your company can avoid making the same mistakes.
The National Grid ERP Failure: What Happened?
In 2009, NGUSA (part of the UK-based National Grid Ltd.), embarked on an SAP ERP project to streamline its internal operations and improve customer service capabilities.
The new system was scheduled to go live on November 5, 2012. As that date approached, however, it was evident that the company wasn’t quite prepared to launch the software.
Missing the critical deadline would be costly in terms of both time and money. Not only would it push production back an additional five months, but it would cost upward of $50 million in extra spending.
In addition, the overrun would also require new approval from the Utilities Rate Commission, a move that would add time and money to the already-over-budget initiative.
All of these factors persuaded the company to try to go-live on the original date. Another reason they wanted to stick to this date was Hurricane Sandy, which hit in October 2012 and caused National Grid customers on the East Coast to suffer massive damage and extensive power outages.
Needless to say, the NGUSA project team stuck with the original go-live date with the chief goal of restoring power to impacted communities. The assumption was that any kinks in the ERP system would iron themselves out.
It Wasn’t That Easy
Some of the first issues that became apparent were found within the new payroll system. In addition to the miscalculation of time, the new SAP system also made errors on pay rates and employee reimbursements. As a result, workers were paid incorrectly, if at all.
Then, there were others that were paid too much. In fact, NGUSA spent $8 million on overpayments that were never recovered. At the same time, the company also owed $12 million for short pays or inaccurate deductions.
Meanwhile, roughly 15,000 vendor invoices sat waiting, unprocessed. Inventory management and supply chain operations were likewise unorganized.
Arguably the worst impact of all was the way the SAP implementation affected NGUSA’s financial reporting capabilities. Prior to implementing the SAP system, the company could close its books in less than a week.
After November 5, that timeline shot to 43 days. This cost NGUSA many short-term borrowing opportunities, along with valuable time.
In response to this plethora of problems, NGUSA launched a massive stabilization effort. Around 850 contractors worked to correct the issues, at a cost of about $30 million per month. In all, the corrective actions took two years to complete, costing a total of $585 million.
4 Lessons Learned from This SAP Failure
The cost of NGUSA’s ERP cleanup was 150% of the price of the original SAP system. Let’s take a look at a few of the lessons that companies can glean from this particular failure to avoid making the same costly mistakes.
1. Project Managers are a Must
In 2009, Deloitte signed on as the system integrator for the NGUSA project. However, that position changed to Wipro in 2010.
In the aftermath of the failure, NGUSA sued Wipro for $140 million and eventually settled for $75 million. Among other issues, they claimed that Wipro forced them into signing agreements and misrepresented the features of the SAP software.
Specifically, NGUSA cited that Wipro failed to:
- Create design documents that met industry standards
- Perform appropriate testing and problem-detecting activities
- Inform NGUSA of problems detected
- Inform NGUSA of potential deterrents to the projected go-live date
While these are all important tasks, such finger-pointing reveals the need for strong project management.
Before any designs or strategies go live, a project manager should review and sign off on them. The same goes for test results. There should be expert, in-house personnel on hand that can identify the correct requirements and ensure they’re captured in the documentation.
Assuming that the systems integrator will perform these tasks without guidance can lead to crossed wires and missed deliverables.
2. ERP Testing Should be Comprehensive
In 2014, the New York Public Service Commission sponsored an audit of the NGUSA failure. The findings revealed many shortcomings, including the fact that system testing activities were focused on fine-tuning parts of the system that were actively working.
Though these tests were performed at each phase, they failed to identify areas where the system was not working.
Up until the final tests, there were errors present and noted. Although fixes were put in place, there was not enough time left to test and validate them.
A thorough ERP system testing strategy considers the system as a whole, including all working and non-working components. We recommend putting a wide range of scenarios in place and ensuring data availability at each phase.
3. Complex Designs are Costly and Time-Consuming
This SAP implementation was overly ambitious from the very beginning. At the time, SAP summed up the different components of ERP software with the acronym RICEFW, standing for:
In the NGUSA project, there were more than 635 RICEFWs! This was incredibly complex, even for a utility company of their size. This level of complexity can make every step, from testing to ERP data migration, difficult and laborious. Such a project requires a substantial number of ERP internal resources and dedicated attention, which NGUSA failed to allocate.
This issue was compounded by the fact that most internal personnel were otherwise occupied, trying to assist with Hurricane Sandy recovery efforts. With such a tightly-packed agenda, rushing such a huge business investment was unwise.
4. Training Cannot be Overlooked
If managers required information or reports from the new SAP system, they were supposed to request that data directly from the system, relying on SAP’s Decision Support analysts for guidance. However, that process was intricate and involved many moving parts.
In addition, there was a lack of dedicated training during the NGUSA implementation, especially on how to query data. There was also confusion on how to use the data to create tailored reports for upper management.
A stronger focus on end-user training could have ensured that all employees knew how to navigate and make the best use of the new software.
The Road to ERP Success can be Rocky
The National Grid ERP failure highlights the importance of a strong ERP project plan. This can help you bypass roadblocks and head straight to the finish line.