Of Men and Mice: An ERP Case Study

CFO Lee Wilbur explains how Jackson Laboratory is dealing with the challenges
of installing its new ERP system.
David M. Katz, CFO.com
March 21, 2001

For Lee C. Wilbur, there was the matter of the mice.

To be sure, like other senior financial executives at outfits installing enterprise resource
planning (ERP) systems, Wilbur, CFO of The Jackson Laboratory in Bar Harbor, Maine,
has found that people problems can cause as many mishaps as flawed technology can.

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Inept internal information-technology people as well as untested systems integrators can

cause ERP cost overruns, delay projects, and threaten a company's image and customer
relations, CFOs and risk management consultants say.
Dan Brennan, chief operating officer and cofounder of Gladwyne Software Surety, a
King of Prussia, Pa.-based risk management consulting company focusing on information
technology, says it's common for IT project costs to burgeon beyond limits.

Systems integrators working on an open-ended, time-and-materials basis rather than for a

fixed fee have an interest in quoting low on a project and seeing the work grow as the
project proceeds. They benefit by placing a "veil of complexity" over their work, he says.

Brennan gives the example of a project Gladwyne worked on recently that involved a
leading communications firm he wouldn't name. Originally, the integrator on the project
came in with an estimate of $7.8 million for the work on a time-and-materials basis.

Asked for an estimate of what the job would cost on a fixed-fee basis, however, the
integrator returned in two days with a figure of $19.9 million.

"You can see why they go over budget" on open-ended contracts, says Brennan.

Even in fixed-fee contracts, there's "a natural competitiveness between the system buyer
and the provider," the consultant says. "The buyer wants to get the most work and
customization," he adds, and "the integrator wants to claim victory and get out."

It was different for Jackson Laboratory, a non-profit, genetic research facility that
supplies about two million mice a year to universities, medical schools, and research
laboratories as part of its mission.

Besides the challenges of integrating the mouse-development functions into its Oracle 11i
ERP system, the people problems Jackson has faced in installing the system stem from
internal human resource problems, rather than troubles spawned by software suppliers or
systems integrators, Wilbur says.

"We're very, very lean in terms of staffing," the CFO says of Jackson. "When you take
your best and brightest [to be part of the ERP installation], not many are left to do the
everyday work."

Each of the lab's major functions—including obtaining grants, producing research

resources, and administrative support—has only about two or three people at the top. And
each of those has been toiling at both a day job at the lab and participating in the ERP
installation.

"We've got a very strong level of expertise, but not a lot of depth below those [people],"
laments Wilbur. "Unfortunately, that's part of life in a not-for-profit." Thin staffing has
probably caused two-thirds of the project's cost overruns, Wilbur says, although he's not
sure by how much costs have outstripped expectations. The CFO says Jackson is running
"pretty close" to the $5 million budget it estimated for software, hardware, consulting,
and training.
Launched on December 16, 1999, the ERP project will, however, take about six months
longer to complete than Jackson executives thought it would take.

About planning big IT projects, Wilbur advises his peers to "expect the worst, especially
if you're working with new releases," as the Oracle 11i was in the project's early stages.

Because of the lack of staff experience with ERPs, Jackson placed special emphasis on
training. Wilbur, in fact, was the only one at Jackson experienced in installing an ERP.
Prior to joining Jackson in August 1998, he was managing director for Dessau, Germany-
based AGD Kemgas Gerätebau, which had implemented an SAP ERP when he was there

Training was an especially big cost item. "We provided as much training as we could to
give [Jackson employees] a head start on the process," Wilbur says.

Geography also contributed to the training costs. Jackson had to spend extra to bring
system trainers to Bar Harbor, an island costly to travel from. For instance, it costs more
to take a one-way flight from Bar Harbor to Boston (at least $363) than it does to fly from
Boston to Miami (at least $235).

Thus, instead of flying employees off the island, the lab chose to fly in an instructor for
an in-house course, at $5,000 per day. In contrast, the cost of a three-day, off-island
course for a single employee might cost $1,500, Wilbur says.
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Overall, Jackson has spent close to $450,000 on training, including $300,000 to train 32
IT staff members. (The lab, which had an overall expense budget of $80 million in 2000,
has a total of 1200 employees, according to Wilbur.)

Yet all that training wasn't enough to overcome the lack of experience, the CFO says. In
attempting to modify the ERP system to accommodate Jackson's mice-raising functions,
he says, "we had to use Oracle to do it because our people couldn't" within the allotted
time frame.

The Matter of the Mice

In fact, Jackson has faced a unique technological challenge in attuning the new system to
accommodate the processes of raising and supplying mice to researchers both inside the
facility and out.
Jackson's IT processes in raising the mice must fit very precise genetic-research needs.
By a specified date, a researcher would typically require, say, a seven-week-old mouse
and have no use for an eight-week-old one. In fact, researchers would regard the two
mice as "different products," according to Wilbur.

That situation "doesn't fit neatly" into the discrete Oracle Process Manufacturing (OPM)
modules that are part of the Oracle 11i product suite the lab uses for its ERP, Wilbur
explains.

OPM was designed for companies that mix ingredients together to produce products like
bread or beer, the CFO notes. "But our batch doesn't end. It's constantly evolving," he
adds, concluding that OPM "wasn't written for mice."

Jackson's team joined up with Oracle's for some "out-of-the-box thinking" to solve the
problem. "The worst case was that we wouldn't be able to use OPM with the mouse
situations," Wilbur says.

In the end, that didn't happen. Jackson ended up modifying certain fields in the OPM
product not originally intended for such a purpose to accommodate the information about
the processes of raising and distributing the mice.

Seeking Fixed Fees

Besides managing the internal human and technological risks, Jackson has also sought to
minimize the risk that the action—or inaction—of the software provider would hinder the
project.

Wilbur tried, for instance, to negotiate a fixed-fee contract with Oracle rather than the
more commonly used time-and materials contracts.

Jackson had sought the contract in connection with exploring the idea of buying a surety
bond from Gladwyne, the risk management consulting firm.

Gladwyne, which is performing a risk assessment of the Jackson project and providing
ongoing audit services, is pushing the idea of protecting IT projects with surety bonds.
(While the firm hasn't yet completed a surety-bond deal, it has 10 currently in the
pipeline.) For more on IT project surety bonds, Gladwyne, and Jackson, see an earlier
story. In the case of Jackson Laboratory, the contract it ultimately signed was one that
covered time, materials, and other expenses. "We didn't get a satisfactory fixed-price
contract out of Oracle," says Wilbur. The CFO noted that the lack of a fixed-price
contract made the purchase of a surety bond untenable. A fixed-price agreement provides
benchmarks needed to frame a fixed price, he explains.

"It was just a mess to negotiate a fixed price," he says, noting that Oracle had produced
one by "throwing on 25 percent of everything" to its estimate.
Tim Meehan, a group vice president for Oracle Consulting in Boston, responds that "the
25 percent contingency is standard in the industry, depending on the nature of the work."

Negotiations involving fixed-price contracts, he says, "tend to be very complex because

there has to be a much clearer definition of roles and responsibilities between client and
services provider."

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Not that Jackson has complaints about its software supplier. "In all fairness, Oracle's done
a great job," Wilbur says.

Despite the challenges Jackson has faced, the project is moving briskly ahead now. To
date, the first part of the first of two phases of the ERP went live at the start of February.
That part includes the management of production capacity, accounts receivable, some
general- ledger functions, and the purchasing of manufacturing material.
Slated for an April launch, the second part of the first phase will include accounting for
research grants, the rest of the general-ledger functions, accounts payable, and fixed
assets.

The second phase is expected to go live on June 1. That phase will include human
resources, payroll, the distribution of labor, and the information involved in filing a grant,
the CFO says.

Jackson will use "a brand-new module" created by Oracle for the latter function, which
includes information on budgeting and the backgrounds of researchers. Jackson will also
trot out a newly created module for order management as part of its second-phase launch.

Asked what overall lesson he's learned from the endeavor of Jackson's ERP installation,
Wilbur says: "You need to build in a lot of buffer in your time for a project like this."