Hewlett Packard implemented an ERP system in 2004 to consolidate multiple legacy systems, but the project failed due to technical and process issues. This led to delayed orders, lost revenue of $160 million, and loss of market share. HP learned that ERP implementations require careful planning, testing, change management, and contingency plans. In 2005, HP successfully implemented a new ERP system from SAP after addressing the lessons from the prior failure. The new system integrated business processes and helped HP better manage its global supply chain.

1. Enterprise Resource Planning
Project Report
On
ERP Implementation of
Hewlett Packard
Submitted by: Submitted to:
Devanshi Pathak 13DM065 Prof: Eugene Reuben
Gunjan Kalita 13DM075
Jesil T T 13DM085
Krishna R. Agrawal 13DM095
Mihir Kumar Choudhary 13DM105
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2. Introduction
What is ERP?
Enterprise resource planning (ERP) is business management software that allows an
organization to use a system of integrated applications to manage the business. ERP software
integrates all facets of an operation, including product planning, development, manufacturing
processes, sales and marketing.
Hewlett Packard (HP):
HP was founded in 1938 by Bill Hewlett and David Packard in their garage in Palo Alto, as an
electronic instruments company. Its first product was resistance-capacity audio oscillator which
gained heavy acceptance by engineers and scientists. HP’s growth was aided by heavy
purchases by the US government during the WWII.
HP announced that its revenues had gone down by 5% to $3.4bn for the 3rd quarter ended July
2004. The reason proposed was due to the problem faced during the migration to the
centralized ERP system. The total financial impact due to the failure was $160mn.
Questions were raised on failure of HP implementing ERP, as it was a consultant for SAP ERP
implementation. HP’s responsibility as a consultant was to prevent the execution problems
faced by the implementing Co. on which it itself failed.
However, while conducting an internal serve, HP revealed that there has been execution
problem and not the fault of SAP.
Technical glitches were small but contingencies planning weren’t addressed appropriately. Our
project aims at providing a detailed analysis of the ERP failure at HP.
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3. History of HP: A Timeline1
1950- HP developed strong technological capabilities in the electronic business.
1951- HP invented the high speed frequency counter.
1957- HP came out with the 1st public issue.
1961- HP ventured into the medical equipment industry by acquiring Sanborn Company.
1966- Established HP Laboratories and also designed its first computer.
1974- Launched 1st minicomputer on 4K DRAM
1977- John Young was named President, a turn from the founder to a new generation of
professional managers.
1980- HP offered full range of computers from Desktop to powerful
minicomputers.
1980- Developed Inkjet & Laser printers.
1981- Introduced the 1st Personal Computer.
1982- Introduced Electronic Mail System.
1982- Introduced HP9000 with a 32-bit super chip.
1989- Purchased Apollo Computers and became the leader in
Workstations.
1997- Acquired Electronic Transaction Co. VERIFONE for $1.2bn
1997- Growth fell to below 20% HP responded by reorganizing its printer & other operations.
1999- Spun off its test-&-measurement division into a $8bn separate business.
2001- Second largest computer manufacturer
HP’s businesses were structured into 7 business segments.
Financial year ended October 2004, the company had revenues of $80bn, net profit of $4.2bn,
employing 150,000 employees, serving more than 1bn customers in 160 countries.
HP was ranked 11th as per the Fortune 500 ranking in 2004.
1. http://www8.hp.com/us/en/hp-information/about-hp/history/hp-timeline/hp-timeline.html
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4. HP and SAP
HP had close partnership with SAP since 1989 when SAP began developing SAP R/3 product. It
was offering consulting services for implementation of SAP’s “supply chain” & ERP software.
The first SAP R/3 was deployed on an HP 9000 Enterprise server in 1992 at Wuerth.
Why SAP R/3?
There were 3 reasons for this:
1. HP had a highly decentralized org. structure & every business operated independently.
2. HP redesigned its business strategy to venture into high volume low priced electronic market.
3. Therefore HP planned to phase out its numerous legacy systems and replace it with SAP R/3.
In other words, it was adopted with the aim of achieving shorter lead & delivery time, cost
saving and an efficient global Distribution System
In 1993, HP’s BCMO unit began with the implementation with several modules like- MM, PP, FI,
CO. FI & CO modules were implemented on global basis & SD was implemented as part of pilot
project.
By 1998, major migration to SAP R/3 was completed.
The implementation of SAP Sales Configuration Engine enabled E-commerce for direct
consumer selling and HP kept on upgrading the version as the needs changed.
Why MySAP?
By 2000, HP was keen in making the web-based activities simpler to capture the direct to
customer market and had over 20 SAP R/3 implementations representing FI, PP, MM, SD, CO,
BW, WM & APO.
HP used different version of SAP & had multiple SAP GUIs with around 10,000 users.
As HP was using SAP R/3, it considered using MySAP for its Internet Enabled Technology
Businesses to be a better fit.
The following were the benefits of implementing MySAP:
1. Reduce huge cost incurred on IT support
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5. 2. All programs will run on single browser
3. Eliminate need to create custom SAP interface
4. Greater speed in implementation
5. It had the option of query which would make it easier to use.
HP wanted to link its employees, customers & partners. But, HP faced problem in fulfilling
orders when any order involved various items from more than one product line.
HP wanted to ship the products faster as the demand placed on HP’s supply chain data
workflow increased tremendously.
The main aim was to cut cost, increase transparency & equip itself to the changing business
models. Thus, HP decided to implement the APO module, the central element of SCM.
SAP’s APO & SCM software were first implemented in Europe imaging & printing division. It
helped to forecast & enabled integration of data in a single system. It was introduced in just 5
months time.
After its merger with Compaq in May 2002, it started repairing the SC of all businesses to create
5 standard SC supported by standard technology platform.
It introduced the “ADAPTIVE SUPPLY CHAIN”. It also implemented PLM (Product Life cycle
Management) module to integrate the product lines of the 2 merged Companies.
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6. ERP Failure
The ERP migration failure
In Dec 2003 Gilles Bouchard, the CIO & EVP created a model to merge
the Business and IT group of HP at regional & country level.
This operation along with the ISS (Industry Standard server) was
completed by on May 2004 & that led to increased interdependencies
between groups in the company.
This was 35th Migration and was a part of the Business Process
Architecture. HP wanted to reduce the 35 ERP systems implemented worldwide to four along
with reduction in application from 3500 to 1500.
HP wanted to implement a single Order Management System & successfully reduced the no. to
7 but still wanted further efficiency & flexibility with the implementation of SAP FOM platform.
With the FOM, HP wanted to unite the SAP of Compaq with itself. It involved migration from
separate HP & Compaq legacy SAP R/3 to a new Broad-Based SAP ERP system & this involved
more than 70 supply chain & up gradation to SAP R/3 Version-4.6C.
The symptoms
1. HP took over an empty factory at Omaha to frame the contingency plan to include
both the technical and business aspects so as to provide buffer stock for customized
order. But as soon as the project went live in June 204, Migration problems began
surfacing.
2. About 20% of the orders failed to move from the legacy system to the new one due
to programming errors.
3. HP was able to fix this within a month but orders began to backlog.
4. Dwindling manual processes were not able to meet the demand.
Causes of the failure:
1. Project Team Constitution
2. Data Integration Problem
3. Demand Forecasting Problems
Gilles Bouchard
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7. 4. Poor Planning & Improper Testing
5. Inadequate Implementation Support/Training
6. Project execution problems and not problems with the SAP software.
Note that:
Analysts commented that the Company’s culture did not support the much active involvement
of employees. Also the Company ignored valuable suggestion from employees.
Company staff had warned HP but it was not possible for it to continue with the tradition
system and also suggested for a back-up system but it turned deaf ears over that.
Many Vice-Presidents had joined the rival Companies and also many employees had a fear of
being laid off.
HP had traditionally been a very systematic, risk averse & slow as compared to Compaq’s
culture of being very aggressive & risk loving
HP once again failed in 2005 while implementing “GENESIS” while competing against “DELL”.
There was an expert group who had the entire know-how to implement ERP but it was
dominated by the IT management.
Managers’ ego problems were also a reason.
Impact of the ERP failure:
1. Dissatisfied employees -Employees had to hand label shipments of products
2. Dissatisfied customers due to: delayed delivering, bad configuration, duplicate orders
3. Bad reputation
4. Unstable order system of ISS (Industry Standard Server): problems with data integrity
and simultaneous increase in demands for HP’s standard Servers.
5. HP was unable to fulfill all orders
6. Losses according to HP were $400m in revenue and $160m during the implementation.
7. Lost market share to IBM, Dell.
8. Doubtful future for next SAP implementations
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8. Learning:
1. Implementation failure can impact overall business performance.
2. There is no standard approach to implement ERP, many times it involves a business
change in many departments. Therefore a detailed mapping is essential otherwise it
might miss out the objectives.
3. The success of implementation depends upon the planning, which considers the
business process along with the technical aspects.
4. To implement ERP, the business processes must be improved & corrected but HP failed
in this.
5. “The potential benefits to the supply chain are much bigger than the IT costs but the
potential risk to the supply chain is also much bigger”.
6. The success of ERP implementation depends upon the ability to align IT along with the
business management objectives, Program Management Skills and a well defined
process.
7. Impossible for HP to envision all the configuration for Customized orders.
8. There should be a manual back-up as a contingency plan.
9. There should be no cross-functional barriers and should create effective processes and
teams to integrate the entire business at all levels.
10. Encourage employees.
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9. Present Scenario
Learning from its previous mistakes HP has tried to overcome its failure in previous
implementation and thus have improved on the following in the present date2:
 HP is certified global SAP Partner
 HP is a worldwide leader in SAP operations - over 1.7M
users worldwide
 HP has thousands of SAP experts supporting users
worldwide
 HP Support Services manage selected portions of SAP IT
infrastructure
 HP Support Services provide mission-critical services to SAP
 Nearly one in every two SAP installations runs on an HP server platform
 When HP and SAP join together, the result is a wider world of possibility based on a
firmer grasp of what's happening, real-time. This means a clear view of what is to come
and what is possible, creating an opportunity to thrive like never before.
The present ERP System Package is provided by SAP and was implemented in 2005. The major
modules in the package used by the company are SD (Sales and Distribution), FI (Finance), MM
(Materials Management). It took the company 2 years for the implementation and another 2
years for the stabilization and deployment.
The reason for adopting the SAP ERP system has been cited as the following by an ERP
Consultant in the company,
“Hewlett Packard’s global parts supply chain is a 20 billion dollar organization. The business
function involves multiple suppliers and partners and huge amount of transactions on a daily
basis. To manage such a huge business, it needs a robust IT solution. The solution should be
capable of managing the complete business functionality such as integrating different partner
systems, do order management, perform financial accounting functions, manage inventory etc.
Rather than building solutions from scratch in silos, the best approach is to implement an
already established packaged application. “
2. http://h22168.www2.hp.com/us/en/partners/sap/index.aspx
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10. Summary
The project report highlighted the key points which resulted in the failure of the first ERP
System in Hewlett Packard.
We started off by presenting a brief introduction and the timeline of the company.
The report covered extensively about the causes that led to the failure, the impact it had on the
market and the lessons that the company learnt along the way.
Finally we discussed the present ERP System scenario in the company.
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