Over the past year, Hewlett-Packard Co. Chairman and CEO Carly Fiorina has held up her companys successful merger with Compaq Computer Corp. as a model for the companys Adaptive Enterprise concept.
But behind the scenes, multiple breakdowns in the massive HP/Compaq IT integration effort were causing serious delays in order processing and delivery, resulting in a major revenue shortfall that the company is still scrambling to fix, HP officials said.
In fact, problems with the IT overhaul, which began in earnest immediately following the May 2002 merger, ultimately resulted in a $120 million backlog of orders in its Enterprise Storage and Server Group last quarter, according to Gilles Bouchard, HP CIO and executive vice president of global operations, in an interview last week.
HP, of Palo Alto, Calif., discovered the problems and effects after conducting an internal retrospective that was completed early this month.
HP ran into trouble in the 35th migration of more than 70 supply chain systems and the migration from separate HP and Compaq legacy SAP AG R/3 order management systems to a new, broad-based SAP ERP (enterprise resource planning) system.
That migration was bungled in large part because of ineffective program management across historical silos of business teams, Bouchard said.
In addition to the project management issues, Bouchard said the creation of the backlog in particular was due to problems with data integrity and a simultaneous spike in server demand.
“We are very aware of [the difficulty of integrating systems and business processes] and are taking steps to fix it, but we werent aware of this in time,” Bouchard said.
After giving the ESSG six weeks to catch up on the backlog that started building this July when the failed migration forced HP to record orders manually, Bouchard said the issue should be resolved.
But HP customer Ulf Zimmermann, IT manager at AutoTradeCenter.com Inc., “absolutely” does not agree that HPs order management issues are close to being solved.
“Any order we have placed with HP in the last eight-plus weeks has been delayed, and not a single Customer Quoted Delivery Date was correct,” said Zimmermann in Menlo Park, Calif., in an e-mail message. “Right now, I got orders put in the beginning of August, which were supposed to ship by end of August, with a new delivery date of mid-October. This at the same time they quote ship dates [that are two weeks sooner] for the same products if ordered today.”
As part of what it calls its Business Process Architecture project, HP is winnowing its 35 ERP systems to four and its 3,500 applications to about 1,500, and it is taking a business-process-based approach to running the company that combines IT with business objectives. The four ERP code bases span three divisions—Consumer, SMB and Enterprise—and are driven on fulfillment modes and are region-based. Three of the four code bases will run on SAPs Fusion platform, while a platform for the fourth has not been determined.
Still, the moves are not meeting deadlines HP executives established more than two years ago. At the time, officials said integration of key HP and Compaq systems, such as ERP and the supply chain, would be completed within a year.
Crawford DelPrete, an analyst with IDC, in Framingham, Mass., said the message from customers is that HP has been inconsistent with executions. While issues came to light from the system migration troubles, they are rooted in the changes taking place, he said.
“If they cant find process and scale across the system by putting this [IT infrastructure] in place, they are going to be lost for years,” said DelPrete. “They dont have the advantage of growing from a single company, organically. If you cant get a unified structure, youre not going to get scale.”
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