Avon halts work on global SAP implementation

A pilot program in Canada 'caused significant business disruption'

Avon Products has halted the rollout of a global SAP implementation, with the cosmetics maker saying in a regulatory filing that a pilot program in Canada caused "significant business disruption in that market, and did not show a clear return on investment."

"This decision to halt the further roll-out of SMT was made in light of the potential risk of further disruption," Avon said in its filing Wednesday with the U.S. Securities and Exchange Commission. "The Company's current focus is on stabilizing and growing the business and improving operating capability, which includes updating IT infrastructure in a way that delivers clear return on investment."

SMT, which stands for Service Model Transformation, began in 2009 with the goal of improving Avon's order management processes and the way it interacts with the representatives that sell its products. While Avon plans to continue using the SAP system in Canada, it will take a pretax, noncash charge of US$100 million to $125 million, "reflecting the write-down of capitalized software in the fourth quarter of 2013," according to the filing.

SAP spokesman Andy Kendzie declined comment Thursday. But late Wednesday, Kendzie told the Wall Street Journal that Avon and SAP's relationship remains solid and that the system "is working as designed, despite any issues with the implementation."

This position seems to jibe with past statements from Avon's CEO, Sherilyn McCoy.

"While the SMT pilot technology platform worked well, the degree of impact of change in the daily processes to the representative was significant," McCoy said during the company's earnings call in October. "This resulted in a steep drop in the active representatives account. This includes giving additional support to our existing representatives, those making some adjustments to the system and helping them with the transition."

In hindsight, other remarks McCoy made on the call foreshadowed the project shutdown announced this week.

"When I look at our experience in Canada with SMT ... it's clear to me that our business model has difficulty adjusting to these big-bang field initiatives," she said. "The nature of direct selling where our 6 million representatives are independent entrepreneurs is one of personal relationships and connections. It requires spacing change and thoughtfully and strategically not mandating abrupt changes."

This isn't the first time an SAP project had a significant impact on a company's financial performance. Lumber Liquidators and Ingram Micro have also cited SAP implementation woes for dinged profits.

ERP (enterprise resource planning) software from SAP and rivals such as Oracle and Infor is difficult to implement without a hitch.

For one thing, there's the task of mapping over business processes and data to the new system while keeping the project's scope manageable. A customer's users, who might be accustomed to working a certain way, have to be on board with the switch as well.

Successful projects also depend on competent consultants and technical staffers, along with an initial software selection process that results in the right choice for a company's needs.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com

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Chris Kanaracus

IDG News Service

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