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Error and Trial
Can lawsuits by victims of botched software implementations hold vendors and consultants to a higher standard?
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Due to an apparent glitch in a newly installed PeopleSoft application, in the fall of 1998 Cleveland state University in Ohio could not process more than half of the 4,000 financial aid applications filed by students. The alleged failure of the $4.2 million application--a system which would eventually cost CSU more than $15 million--prevented students from registering, leaving the entire university in administrative chaos.

Around the same time, Delaware-based W.L. Gore, maker of Gore-Tex fabric, was suffering from its own implementation hangover. A two-year-old PeopleSoft ERP system designed to link payroll, personnel and other back office departments was allegedly not working, resulting in problems throughout the company.

It would be easy to link these two incidents through PeopleSoft, but the Pleasanton, Calif.-based business systems giant is hardly alone in the arena of failed implementations. No, the common ground shared by CSU and W.L. Gore is found in a courtroom: W.L. Gore recently filed suit against PeopleSoft and Deloitte & Touche, the consultant in the implementation. CSU, now some $11 million over budget on the implementation project, consulted legal counsel and has let it be known that litigation is a very viable option in its dispute with PeopleSoft.

Increasingly, software vendors and consultants face the threat of legal action if products and implementations do not deliver as promised. This dynamic will certainly impact the entire high-tech industry as general technological knowledge increases and legal precedent is established.

"I think cases like these do have an impact," observes Rod Johnson, service director at AMR Research in Boston. "Everyone evaluating PeopleSoft will have read about them. They'll want to know what drove a company to get the lawyers involved."

Tricky Subject
According to Johnson, because of the complicated nature of software sales and implementations, determining what factors led to or justify legal action is no small task. "This is a tricky subject because it is so complicated to prove who is responsible for the failure. So many implementations involve third-party consultants. A lot of the time, the failure is the fault of internal employees."

Vendors, says Johnson, can only get in trouble if they grossly misrepresent their products' capabilities. Unfortunately, in the highly competitive software market, such misrepresentation is not uncommon. "Most vendors are pretty guilty of extending the truth when it comes to their software," says Johnson. "The people selling it don't know the software that intimately, and are relying on general information to sell it.

"Also," he adds, "it is very, very competitive. When you have two or three vendors slugging it out, usually all of them are stretching the truth." Technological ignorance on the part of users also comes into play. "During a sales pitch, vendors have highly trained software specialists that can make the software do things users can't," says Johnson.

Finally, consultants charged with the actual implementation can bear considerable responsibility when things go bad. "In many cases, user companies lose control of the implementation project," says Johnson. "Consultants are working for your company, and if you don't manage them, they will manage you."

In too many cases, all of these factors result in costly failure, the kind experienced by CSU and W.L. Gore. It would be unfair to limit the scope of such failure to PeopleSoft clients. In the CRM industry alone, experts estimate that more than half of all implementations ultimately fail. Most of these failures--particularly the ones that end in legal action--go unreported. "A lot of times these things are settled out of court," says Johnson. "Sometimes damages are paid, but very few of these incidents ever get beyond filing."

While it may be hard to gauge the impact of legal action accurately, it is clear that implementation failures are quite common throughout the entire high-tech industry. Anecdotal statistics put PeopleSoft in very good company. For instance, in a highly publicized incident last year, candy giant Hershey Foods claimed that its third-quarter earnings dropped 19 percent when its CRM system--with components provided by SAP and Siebel Systems, among others--failed. Allegedly because of problems in new customer service, order fulfillment and warehousing systems, Hershey was unable to meet its Halloween candy orders.

Other high-profile organizations recently reporting software failure problems include NASDAQ, Whirlpool, Ohio state University, Proctor & Gamble and the Pentagon.

New Competitive Landscape
All of these failures make users wary of vendor promises, leading to a new competitive landscape in which vendors will be held accountable for their promises. This new market dynamic comes just as the stakes grow higher, particularly in the CRM industry. According to Johnson, to date, ERP systems, which directly impact the bottom line, have been more vulnerable to user backlash. That, however, is changing.

"CRM implementations have the highest failure rate of application initiatives, not due to software issues, but due to cultural issues," he explains. "When an ERP system fails, it is the core transaction running your business, and the impact is immediate. But as CRM becomes more mission critical, it will probably face more liability."

And that liability is very real. Though no one on any side of the suit will comment, W.L. Gore's case against PeopleSoft and Deloitte & Touche has not settled. As for CSU, though the university says litigation against PeopleSoft is still an option, the software giant has already been tried and damned in the court of public opinion. According to local press reports, students unable to enroll in the fall of 1998 formed an on-campus group called "People Against PeopleSoft," and even went so far as to make a video documentary to "get the PeopleSoft horror stories on record."

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