Companies Don't Learn From Previous IT Snafus

Hazy goals, culture of hiding problems lead to more multimillion-dollar disasters

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As for Andersen, its people "were neophytes," said Mark Ressler, a lawyer from New York firm Kasowitz, Benson, Torres & Friedman LLP who represents FoxMeyer.

According to FoxMeyer, many Andersen workers were recent college graduates, and others lacked R/3 experience. "There's no better way to overcome that than [by] experimenting on a live patient," Ressler said.

They bungled data conversions by using incorrect drug product codes, for example, and built faulty interfaces between the old and new systems, the lawsuit charges.

As a result, most R/3 modules were rolled out to just six of 23 warehouses by the time the company filed for bankruptcy protection in August 1996.

Andersen didn't respond to requests for comments. The suits are slated for trials next May.

Meanwhile, FoxMeyer itself is being sued by stockholders, in part for allegedly hiding timely information about the computer problems and their effects on business.

High-Flying HMO Modernizes, Crashes

Oxford Health Plans Inc. was the Netscape of health maintenance organizations. It seemed to burst from nowhere, captivate customers and force competitors to change the way they operated.

Then Oxford decided to modernize its information technology.

It was 1995 and Oxford's old turnkey, Pick-based billing and membership tracking system would no longer do. A complete overhaul, using more modern Unix technology, is what the company wanted - and fast.

The project included many custom applications that ran with Oracle databases and other software. But key was a claims processing system, dubbed Pulse, that Oxford's internal IT people built with Oracle tools.

Trouble hit the Trumbull, Conn.-based HMO almost as soon as the rollout started in late 1996. Customers suddenly got claims laden with errors - when they got claims at all. The company paid bills it shouldn't have and denied claims it should have paid.

All the late and inaccurate paperwork caused New York state to fine Oxford $3 million for violating insurance laws.

Overall, the new software overestimated revenue by $392 million for 1997 and 1998 while also underestimating medical costs. That awful combination led to Oxford's $291 million loss in 1997.

Angry doctors and patients abandoned the HMO. Membership dropped 20% from 1997 to 1999, partly because of the systems problems and partly because Oxford withdrew from four of the seven states it did business in.

Ultimately, top executives left, and Oxford hired a new head of operations - Kevin Hickey, then an operations manager at Aetna Inc. - to help with an IT cleanup already under way.

Hickey immediately faced down the billing mess, which "wasn't just an inconvenience. This was a survival issue," he said in an interview.

First, he shelved Pulse and returned to the old Pick application. Pulse was never fully integrated with the Oracle software, he said.

Cambridge Technology Partners Inc. and Diamond Technology Partners Inc. came in for quick-hit assignments to help fix claims processing.

Oxford also shut down its advanced technology unit. Studying artificial intelligence software for possible future systems was frivolous now that "emergency" IT problems threatened to incapacitate the HMO, Hickey explained.

Oxford hired Computer Sciences Corp. to create a plan for outsourcing its entire IT operation.

But in 1998, a new CEO swept in and swept away that idea, along with most remaining legacy executives. Hickey, too, was replaced after just a year at the company.

Today, Oxford is smaller and smarter. It wrote off $5 million for hardware and software in 1998. Late last year, system fixes even took precedence over customer acquisition, according to documents filed with the Securities and Exchange Commission (SEC).

Oxford has since completed major systems fixes and put in place new quality assurance and other testing programs. But SEC documents warn that unexpected sales calculations could still turn up.

Oracle's Rotten Idea

Tri Valley Growers got caught in an Oracle Corp. software scheme that Oracle CEO Larry Ellison later admitted was a bad idea.

In November 1996, the $800 million agriculture cooperative in San Ramon, Calif., bought $6 million worth of services and software from Oracle. The core of the deal was Oracle CPG, ERP software for consumer packaged goods companies.

While the financial and manufacturing pieces of the CPG suite were from Oracle, order processing, production planning and other packages were from other vendors. Oracle consultants were hired to integrate it all.

The new software was expected to make Tri Valley more efficient, improve customer service and save it $5 million a year.

In a press release trumpeting the Tri Valley deal in 1998, for example, Oracle said Tri Valley customers would be able to file a single purchase order, no matter how the cooperative managed its many fruit product lines internally.

But the system never got that far. Oracle couldn't get most of its applications to work with the non-Oracle software.

Tri Valley claims to have spent more than $22 million before halting the project and turning to SAP AG software.

The Oracle software "never worked, has not and cannot be integrated and could not even be installed on Tri Valley's computers," according to a lawsuit the cooperative filed in February.

Last year, Ellison called the Oracle CPG bundle "a huge mistake" [News, April 21, 1999]. Oracle no longer sells it.

In July, Tri Valley filed for bankruptcy protection. So far, it hasn't blamed its poor financial shape on the failed Oracle project - but it might, and it might ask for more money, to boot, said Peter Sipkins, Tri Valley's lawyer, with Dorsey & Whitney LLP in Minneapolis.

Oracle has denied all allegations. Tri Valley IT officials didn't return calls seeking comment. But a former IT manager there called the situation "very tragic."

A trial is scheduled for next June.

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Copyright © 2000 IDG Communications, Inc.

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