Overpromising in order to land a big contract is always tempting to a business. But it can be a disaster when you don’t deliver.
Such was the situation with the Fox-Meyer Drug company in the mid-1990s. They committed to a customer to produce a product for them. Having just implemented a new $65M Enterprise Resource Planning (ERP) system and new warehouses, they saw it as a way to demonstrate their production prowess with new tools.
The strategy was risky in concept: testing a new ERP system with a big customer order. Everything would have to go right for it to be a success.
It was a big gamble that ultimately brought the company to bankruptcy.
The specifics are interesting but unsurprising. As the system failed to deliver the product to the customer, the expected cash flow dried up. One Chapter 11 filing later, it was all over. Fox-Meyer, valued at $40B prior to the ERP project was eventually sold for $80M.
So what is the takeaway from this?
This was a case of project management hubris. The new ERP system was in place but untested. The test was done in real time, a risky move. Internally senior management was pressuring them to get it into place as their previous legacy system was woefully inadequate. That pressure led them to push the new system into implementation to disastrous effect.
In our work Managing Risks is one of our most important Key Success Parameters. If the project team behind the ERP had emphasized to senior management the risks of testing the system during an actual important production run, they would have discovered the flaws in their system.
But it was all but over the day they accepted a customer contract that they had no realistic way of fulfilling. What happened next could have been foretold.
Knuckling under to management pressure cost the company everything. The Fox-Meyer name now crops up mostly in the annals of project failures.
There is plenty to learn from the mistakes of the past. The key is to make certain your project doesn’t end up in the same book as Fox-Meyer’s.