In May 2004, Hewlett Packard (HP) completed a significant change in its organization; the migration of the Industry Standard Server (ISS) division in North America onto a centralized Enterprise Resource Planning (ERP) system and the development of a new single order management system for the division. Unfortunately, this project was not a success. This paper’s aim is to provide a strategic analysis on HP’s ERP project that experienced difficulties due to a poor change management approach. It firstly describes HP’s (the ISS division) business strategy.
That is, the drivers behind HP’s decision to apply the change. Second, the paper goes on to critically evaluate the change strategies used at HP, the effects of the change and how the change management approach could have been improved. This discussion of the change management implications of the ERP project is divided into four key areas; organizational structure/culture, implementation, business processes and users of the new system. The paper then provides an actual change management strategy for such an ERP project.
The strategy outlines the critical success factors to ensure a valuable outcome for any similar future projects. The paper concludes with a summary of the analysis on the ERP project failure at HP. HP is one of the largest computer manufacturers in the world and has several business segments. The ISS division is one of the biggest. As part of HP’s Business Process Architecture project, the organization decided to migrate the ISS division’s existing ERP system onto HP’s centralized (worldwide) ERP system.
HP also had the ambition to implement a single order management system for the ISS business. This project’s vision was to reduce HP’s 35 ERP systems implemented worldwide to four SAP R/31 code bases along with a reduction in applications from 3,500 to 1,500. In addition, the new order management system would achieve greater efficiency and flexibility with the development of SAP Fusion Order Management (FOM) Platform – enabling customers to receive exact product build and delivery dates without placing multiple orders.
Thus, HP’s business strategy was to firstly reduce costs by simplifying processes and systems, increasing efficiencies, and reducing duplication and complexity of existing networks and secondly increase revenue by providing new integrated supply chain services. The next section of the paper will go on to discuss the change management implications of the project in four key areas; organizational structure/culture, implementation, business processes and users of the new system. While the ERP project in the ISS division was being carried out, HP was also creating a new organizational model.
The model aimed to merge the Business and Information Technology (IT) groups at both regional and country level. Thus, the organizational structure at HP was in a state of flux. In fact, this led to many vice-presidents across HP, including those in the ISS division, leaving the company to join rival firms. A survey of employees at HP cited that employees were worried about their job security. It also revealed that there was ample distrust of upper management and they were perceived as being overpaid and inefficient (Chaturvedi, 2005).
Furthermore, to implement the new order management system, HP was working with Compaq2 to unite its separate HP and Compaq legacy order management systems. Unfortunately, the two groups had different working cultures, as a former high-ranking HP staffer said, “HP is traditionally very methodical, over-cautious and slow. Compaq folks are the opposite. There is this obsession with being very aggressive and risky” (Vance, 2005). Lastly, HP had a very IT driven and SAP orientated culture. That is, HP is known to be a top SAP consulting company.
HP and SAP have a strong relationship working together on numerous deals in the past. Some employees pointed to a culture divide within the company which they felt was a matter of serious concern leading to non co-operation between the IT team and the business team (Chaturvedi, 2005). This paper identifies three strategic improvements in HP’s organisational structure/culture to accommodate the technological change the ISS division was undergoing. Firstly, it is known that introducing a change into an organization is a challenge as it is usually faced with resistance.
The fact that HP were trying to carry out the ERP project in the ISS division “while” the company was undergoing structural reorganization is a recipe bound for failure. The reorganization of HP’s structure was already creating a low morale among employees. Therefore, these two changes should not have happened simultaneously. When two different work cultures, such as HP and Compaq employees, are working together towards implementing change there can be a lack of commitment and cooperation between the two groups.
In this case, management needs to establish appropriate communication channels and a set of common goals and principles (that meet the organisational objectives) across the different teams. HP could have also employed an outside consultant to manage the integration of the HP and Compaq legacy systems – their role would be to act as mediator between the two groups, introduce cross-functional processes and ensure the project was meeting the business objectives. Finally, the bureaucracy and politics between HP’s IT and business departments needs to be resolved by encouraging a more business orientated approach in the IT department.
IT’s role is to serve the business, therefore IT should engage in how the ISS business operates. IT should be educated on the potential profits for the whole organization so that they are motivated in contributing to the business objectives. The paper will focus on the development of the new order management system for the ERP implementation analysis. The following phases of the implementation will be discussed – customization of SAP FOM software, testing and roll-out. HP saw the centralized ERP system and the new order management system as the enabler of the business strategy.
The company had faith in its SAP products and may have been complacent in managing the changes required to the data model of the new order management system and therefore customization of the SAP FOM solution. Unfortunately, this complacency led to issues. Immediately after the new order management system went live, approximately 20 percent of customer orders for servers stopped dead in their tracks between the legacy order-entry system and the new SAP (FOM) system. Data modeling issues between the legacy system and the SAP system prevented the SAP system from processing some orders for customized products (Koch, 2004).
Furthermore, the system had been tested for standardized orders but it was not adequately tested for customized orders because the business team failed to envision all the configurations, customers could order. HP went ahead with the new system despite warnings from staff not to roll out the new system until it had been subjected to more vigorous testing. HP chose the slowest quarter for the roll-out and did not predict the demand for customized server products accurately, which turned out to be 35% higher than anticipated.
Sales staff suggested that some kind of backup system should be put in place to overcome failure risks but the company’s top management turned a deaf ear to this (Chaturvedi, 2005). Consequently, the new system resulted in the following; 1) delayed order fulfillment that led to order backlogs increasing, 2) customers receiving systems with incorrect configurations 3) dissatisfied customers 4) loss of sales and decrease in revenue. HP should have ensured its implementers were sufficiently equipped with in-depth knowledge of the ISS business operations so that the data modeling issues would not occur.
This requires commitment from the IT department to work co-operatively with the business team to understand the business requirements and then implement them in the new system. HP employees did not have faith in their top management’s capabilities. By carrying out the project without any employee input, this reinforced the employees’ opinions of the management team. Therefore, constant conflicts existed within the organization and communication channels closed down. HP employees had a good understanding of the current system which would have been beneficial during the requirements gathering phase.
They also were aware of the current problems facing the system, so any knowledge they could have passed on would have been of huge benefits. Instead, top management ignored their employees’ input in regards to the implementation of the new ERP system and carried out the change even though the employees were aware that the project consisted of huge risks. It is important to consult employees on any major change, gather their opinions and ideas into the successfulness of the system. This exposes critical areas that need to be addressed so that potential problems do not occur.