Failed SAP implementation costs LeasePlan €100 million
International automotive hire and fleet management company LeasePlan has been stung by a massive bill for a failed SAP implementation. LeasePlan has since dropped SAP to pursue an alternative IT infrastructure, citing the “monolithic nature” of the ERP system as being incompatible with its more agile needs – but not before sinking almost €100 million into its SAP efforts.
Many businesses purchase enterprise resource planning (ERP) systems to manage various business processes within the organisation – including accounting, human resources and purchasing – in one integrated system. SAP is a computer programme that many businesses select as their ERP system, and includes features for nearly all business operations.
If implemented well, the system has various analytical features, such as performance evaluation, reporting and decision making, which allow for business flexibility and efficiency gains. If implemented poorly, however, companies can soon find themselves trapped in a seemingly endless ERP hell. Companies such as Revlon, National Grid, Hertz, Haribo and Lidl have all found to their chagrin that, when done wrong, SAP projects can be nightmarishly complex and extremely expensive.
Lidl alone sunk some €500 million into a new SAP project, before spectacularly shelving it last year. Now, Dutch car-as-service firm LeasePlan has become the latest high-profile victim of a failed SAP project, to the tune of €100 million.
LeasePlan first started using SAP in 2006. In the intervening years, it completed a number of new projects without incident, but when LeasePlan was acquired in 2016 by a consortium of investors led by private equity group TDR Capital, the company opted to accelerate its SAP ambitions. This kicked off a large programme aimed at designing and building a Core Leasing System (CLS) based on SAP’s enterprise resource planning technology. It was here the trouble began.
As the company’s new owners sought to drum up interest in shares ahead of a stock market launch, LeasePlan announced plans to use SAP to streamline and smooth internal operations across all of LeasePlan’s country organisations, making the group more efficient and lowering total costs of ownership. When LeasePlan subsequently launched its initial public offering last year, the company repeatedly stated that it had high expectations of the benefits its new SAP system would bring.
This was supposed to be a chief reason for investors to factor in a considerable IT-driven efficiency in their valuation of the lease company. Not all investors however fell for the charm offensive, however. It was then when the first questions popped up on the need for and the progress of the ERP system. Because LeasePlan found investors were unwilling to pay what its shareholders had set as a target, in October the public listing was called off.
Car-crash
In the 12 months since, the worst possible scenario has unfolded for LeasePlan. In September, the company finally pulled the plug on the major SAP project. A total investment of €98 million has been deemed unrecoverable and subsequently impaired from the firm’s books.
“The monolithic nature of the [SAP] system is not fit for purpose in the digital world.”
CEO Tex Gunning in a recent meeting with shareholders said, “The system is not fit for purpose in the emerging digital world. The monolithic nature of [the SAP system] hinders its ability to make incremental product and service improvements at a time of accelerated technological change. As a consequence, the system is being restructured.”
Instead, LeasePlan will now press forward with work on an alternative IT solution, which it has called a ‘Next Generation Digital Architecture’ (NGDA). Rather than placing its faith in one supplier from now on, the car leasing company is opting for a combination of best-of-breed third-party solutions combined with a deeper in-house involvement. The company will now leverage leading off-the-shelf solutions for various modules (e.g. contract management, insurance claims, predictive maintenance) and combine them with existing LeasePlan best practices to form its new infrastructure.
This approach is, according to Gunning, better suited to the “digital revolution” taking place in the global lease industry. It will allow for a more scalable and flexible IT infrastructure, smoother product deployments and updates, and will enhance integration with third-party systems to speed up innovation.
