Lessons to Be Learned

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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?

Lessons to Be Learned

In this case, Andersen was only Department 56's technology consultant; it did not audit the company's financial statements. But even though some facts are murky, and Andersen wound up paying a tidy sum to Department 56, what is known serves as a cautionary tale.

Among the lessons: Even if your own company lacks the experience to do a software implementation, avoid blind faith in brand-name consultants you may hire. Test the software assiduously before turning on the switch. Keep your fingers crossed that the system will work as well in production as it worked in the lab. And just in case it doesn't, have a backup plan in place to avoid any disruption to your business.

Department 56's failure to take many of these steps may reflect the low-tech nature of its business. The company ferries product—everything from small, lighted ceramic villages to water globes to Snowbabies collectibles—from its distribution center in rural Minnesota to 1,600 independent gift retailers across North America. Company executives refused numerous interview requests for this story, even one posed after the lawsuit was settled this month. But much can be gleaned from legal documents and from interviews with those at Department 56 at the time.

Department 56 hired Arthur Andersen in 1996—around the same time that it was promoting Susan Engel, a former consultant, to CEO from COO. After an evaluation of Department 56's existing technology, Andersen recommended a new system, intended to prevent potential Year 2000 bug problems and improve inventory management.

As a key part of the collectible makers' implementation team, Andersen dispatched Tim Poehling, a senior business consultant who Department 56 would later blame for many of its problems. Department 56's goal was to move the company from J.D. Edwards' "World" software to its new "OneWorld" software, making it easier to collaborate with partners online. Department 56 had already been using J.D. Edwards' World for some back-office functions, but wanted to add warehouse and distribution components, which Poehling was in charge of.

At the time, J.D. Edwards had about 28 customers using its OneWorld software, compared with 1,500 today, a fact that should have raised a red flag, some experts say. "If you know you're within the first 50 with a new product, you're at a certain risk," says Michael Bittner, a supply chain analyst with AMR Research, a Boston-based consultancy. It takes time to shake out bugs in new software, he says.

Yet it's unlikely OneWorld was to blame for Department 56's woes, argues Joshua Greenbaum, president of Enterprise Applications Consulting in Daly City, Calif. "Ninety-nine percent of the time the software is not at fault," he says. "Either Andersen screwed up or the customer had no clue what they wanted."

One way for companies to avoid problems with new software is through extensive volume and quality testing, an area where Department 56 apparently fell short. In a project of this size, testing means taking and placing the order, reporting that the order was shipped and sending an invoice. Then you make sure that 25 users can do those tasks simultaneously while others run inventory reports or conduct other business tasks. In March 1998, Department 56 did preliminary software testing at J.D. Edwards. While there, the company alleges that Poehling didn't participate in the tests and later stopped attending update meetings and cooperating with others on the job.

Apparently, Poehling's disappearing act, if it really happened as Department 56 says over the next nine months, didn't strike Department 56 as cause for concern. In its lawsuit, Department 56 says it came as "a complete surprise" when Poehling admitted that the warehouse component was not ready for testing before the January 1999 "go live" deadline.

Whether Poehling lacked the expertise to complete the software installation or simply didn't do the work required—or whether something else altogether happened—is impossible to determine from the outside. In its lawsuit, Department 56 claimed that although Andersen promised two of its more senior employees would be responsible for "ensuring overall quality and satisfaction," on the project, neither did any work on it.

Poehling, who still works at Arthur Andersen, could not be reached for comment. Arthur Andersen rejected Baseline's requests for an interview. Because January and February are typically slow months when little merchandise is shipped, Department 56 says it heeded Andersen's advice and took the system live in January 1999. If problems occurred, they were assured they could be fixed during that time. By one account, Department 56's Engel pressured Arthur Andersen to get the system up and running. "She said, 'We've got to go online,' " according to one former lawyer for the company. "Then they were at the point of no return. They pushed it through. They were panicked."

This article was originally published on 2002-03-06
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