Why Andersen Cracked in IT SuitBy Baselinemag | Posted 2002-03-06 Email Print
March issue preview: In another blow for Arthur Andersen, the consultant agrees to shell out $11 million to collectibles-maker Department 56 over a failed information technology engagement. What went wrong?
Arthur Andersen is not just struggling with fallout of its auditing work at Enron, Global Crossing and Qwest Communications. Its information technology consulting also led to an agreement to pay Department 56an Eden Prairie, Minn., merchandiser of Snowbabies and other collectibles$11 million. This is the story behind the settlement, which was reported by the Securities and Exchange Commission on March 1.
By then, Department 56, a $200 million maker of collectibles, had hired a team of consultants to do ongoing fixes to an enterprise resource planning (ERP) system installation the company claims nearly brought it to collapse nine months before. Department 56 would ultimately file suit against Arthur Andersen, accusing it of fraud in taking on the project and negligence in managing it.
"Sussman was brought in to salvage things," says Arnold Weiner, the lawyer who drafted Department 56's $6 billion lawsuit, a lawsuit that was finally settled March 1 when Andersen paid Department 56 $11 million.
Sussman seemed well-equipped to lead Department 56's information technology rebound, considering his background. He was a former Andersen Consulting senior manager who grasped the machinations of the systems integration business. Sussman had also tackled a J.D. Edwards integration project when he was vice president of information technology at Rollerblade.
Sussman would be a key player in moving Department 56 past information system problems the company says cost $18 million in non-recurring charges in 1999 and 2000. That write-off didn't count the cost of ill will created by the company's failure to accurately ship and bill orders to its customers.
Enterprise software problems are by no means unique to Department 56, which imports collectibles from about 190 mostly Chinese manufacturers and trading companies. In recent years, Nike and Hershey Foods provided disaster stories of their own. But it's also possible Department 56 helped create its own mess when it went live with its new planning system in January 1999 and woke up horrified, like a homeowner who lays down sod one evening and finds it shot through with weeds the next morning.
It was actually Andersen that fired the first official salvo 18 months later, suing Department 56 for nonpayment of $600,000 in consulting fees. Department 56 retaliated, filing suit against Andersen Worldwide Société Coopérative, the Geneva-based umbrella organization that oversees Arthur Andersen. And so began the blame game.