SAP has settled a long-running dispute with the California State Controller's office over a failed payroll system upgrade. Under the terms of the agreement, SAP will pay California $59 million and drop a $29 million breach-of-contract lawsuit, as the Sacramento Bee reports:
The agreement was drafted less than two weeks before the parties were scheduled for trial.
Controller Betty Yee said in a statement that she was pleased “that we have settled this important litigation on beneficial terms” and expected her agency would now move to develop “an accurate, stable, and reliable new payroll and human capital management system.”
SAP spokesman Andy Kendzie said in a statement that the firm “satisfied with the outcome of this matter and is pleased to put this dispute behind us.”
Parts of the contract between the state and the company remain in force, however, prompting Kendzie to add, “We remain optimistic that the State of California in the future will modernize its payroll systems with the use of SAP’s software and look forward to providing support for these efforts.”
Close observers of the ERP market will likely remember the system under its moniker of MyCalPays. It dates to the late 1990s and was supposed to modernize the state's patchwork of payroll systems. California has many different employee unions and a virtual jungle of related laws and regulations over payroll.
MyCalPays never met with great success. In early 2013, then-controller John Chiang called off the system's wider launch and cancelled SAP's constract, after rampant problems beset an initial pilot rollout. California has spent well over $200 million on the project, which was budgeted at $371 million.
Given that SAP payroll software is working well, and at large scale, in many public sector accounts, the final accounting of what went wrong with MyCalPays may take some time to pin down. (It's also worth mentioning that SAP only came onto the project as a consultant after the state fired original contractor BearingPoint.)
For its part, the state contended that SAP didn't do a good enough job of training state staffers, failed to properly test the system, hid problems and overexaggerated the skills and experience of its consulting teams, as the Bee report notes.
ERP Project Best Practices: The Song Remains the Same
SAP's settlement with the state isn't the first of its kind and won't be the last, for as long as companies and organizations install and upgrade ERP systems. The outcome does provide an opportunity to revisit five essential keys to ERP project success.
"There are three players in every project: The client, the software vendor, and the implementation vendor," says Constellation Research founder and CEO R "Ray" Wang. "All three need to be aligned. This means payments as well. So a client has to put x deliverable together or face a penalty, a software vendor doesn't get paid until a module is live or a percentage of users are live, and a system integrator gets paid on outcomes and go-live milestones."
Second, "culture is a big driver in change," Wang says. "You have to get buy-in from the top to drive change top down, but also buy in from the bottom to fix the problems that are often covered up."
Third, "go vanilla first and make changes on an exception basis," he adds. "Make sure you understand your technical limitations and cultural limitations, as well as process limitations. Use the opportunity to learn best practices in the vanilla system."
A fourth consideration: "Make sure you have the right technical executive sponsors. You want the highest development executive in charge of your deal. The top sales executive isn't the issue."
Finally, incentivize your "A-team," Wang says. "You have to have the best folks on the internal team or else you will fail. Make sure you give folks an opportunity post-implementation that reflects the effort during the tour of duty."
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