While there is no magic bullet for preventing an IT disaster, understanding why major transformational programs fail is a great first step to planning and implementing a successful program. One catastrophic IT project failure that is rich with lessons is Israel Chemical Limited’s (ICL) failed SAP implementation.
Ending before any major implementation began, the program ultimately resulted in a write-off of $290M in project costs, the resignation of the CEO, and a freshly minted lawsuit against IBM filed in an Israeli district court. Here we take a high-level look at some of the key events and decisions that put this project on a path to failure. This information was assembled from publicly available documents and confirmed with interviews with principals of the program.
For a deeper overview of the key decisions made during this project and an in-depth chronology of events that took place, download our white paper: A Hazardous Waste: Israel Company Limited’s Failed SAP Implementation.
Israel Chemical Limited (ICL) is an Israel-based chemical company with global operations in three primary markets (agriculture, engineered materials, and food). The company was on an aggressive growth trajectory as a result of acquisitions, and its sales and profits had grown over 300% in the 10 years leading up to 2012.
In 2012, ICL began a journey to put in place a new operating model which would require a new system platform. The company appointed a new CEO to drive synergies and shift the company from being product-focused to market-focused.
The Program Launch
ICL chose IBM to implement SAP because of IBM’s proposed approach with a high-level cost of $120M over a 5-year plan. The only other consideration made was for SAP’s proposed approach that would cost roughly $200M and take twice as long.
Within a year, ICL’s Board approved the project despite expected implementation costs growing to a $290M price tag, following the completion of a Phase 0 and Blueprint effort with the same 5-year plan.
The Shifting Environment
It wasn’t long for commodity prices in the market to fall and put severe profit pressure on ICL. As a move to push forward and capture synergies, the company decided to proceed with two operational changes that likely caused a distraction from the SAP implementation project:
- Installing global regional service centers to support HR, Accounting, Finance, Procurement, IT, and Legal.
- Changing its European operating model to conduct customer business through a single business entity.
This was followed by a worker strike in Israel at one of the manufacturing plants that was planned to be in the first deployment. The strike was resolved after a few months, but it likely inhibited the project team’s ability to access necessary internal resources. All of these external factors put a strain on the proposed timeline of the project.
The Project Began to Crumble
In addition to the external factors that were in play, the project was running into problems of its own. Prior to the first scheduled go-live, IBM was forced to replace some of its own consultants with SAP subcontractors. The lack of progress made on the project also prompted the team to delay large portions of the first go-live and implement only a small pilot in England. The pilot’s results were poor which led to the delay of the remaining (and more complex) portions of the first go-live.
Testing for critical portions of the design failed badly and significant gaps in functional capabilities were identified. In mid-2016, ICL appointed a new program manager who had significant operational experience. Soon after, ICL decided to delay the go-live even more – a full 15 months after the original target date.
The Project Ends Before Any Major Implementation
Shortly after the decision to defer the go-live, the CEO resigned from the company. When the Board requested a review of the project, it was told the cost projection had increased to $500M – more than 4 times the cost of the original estimate.
This is when the Board decided to kill the project, terminate the contract with IBM, pull out of the pilot implementation, and write off more than $280M in costs.
There were several important decisions made over the course of this project. A few of the decisions that may have had the greatest impact include the decisions to:
- Move forward on a sole source basis with IBM
- Move forward with program prior to consensus on business model
- Assign a Program Manager with a finance (not operational) background
- Split the pilot into waves
- NOT go-live (which likely saved the company)
ICL entered into negotiations with IBM to recover payments previously made on the contract. In formal mediation, IBM increased its claims in attempt to counter balance ICL’s claims.
In 2018, ICL filed suit against IBM citing breach of contract, negligence, and unlawful enrichment. Meanwhile, ICL shareholders filed a class-action lawsuit against ICL citing that ICL withheld material information regarding the failings of the project. We reviewed ICL’s 2013-2016 annual reports and found evidence that the risks associated with the program were indeed not identified.
What the Future Holds
UpperEdge will keep our eyes on this case as the lawsuit is still outstanding. In the meantime, you can learn more about this case by downloading our white paper that includes a thorough timeline of events and analysis of the key decisions that were made.
Best Practices for Chemicals
Understanding how IT disasters like this one happen can help organizations mitigate risks in their own programs. John Belden, UpperEdge’s Project Execution Advisory Services Practice leader, will be discussing this issue in more depth at the Best Practices for Chemicals conference in Houston on Tuesday, March 5th.
In his presentation, “Genetic Markers That Make S/4HANA Projects Highly Susceptible to Disaster”, he will discuss:
- Case studies of recent project failures, what went wrong, and what they have in common
- The one thing to get right before embarking on an SAP S/4HANA transformation
- Four early decisions that set the stage of success or failure
- Three practices to improve the quality of project decision-making