Failed CRM implementation finally costs HP $465 million in damages.

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EDS’s failure to deliver a CRM system originally costed at £47.6 million (US$70 million) has ultimately cost EDS owner, Hewlett Packard, £318 million (US$465 million) in damages!

The long-running legal battle – it started in 2004 – between BSkyB and EDS is finally over. There will be no appeal. Hewlett Packard, which acquired EDS in 2008, has negotiated a settlement of £318 million for a bungled CRM implementation.

Here’s what happened. In 2000, BSkyB, the UK’s largest satellite broadcaster, called for tenders to design, build, manage, implement and integrate processes and technology for a new CRM system for Sky’s Scottish contact centers. EDS won the bid in the face of keen competition from PwC, but then failed to deliver the project. Sky eventually sacked EDS and, in 2002, brought the project in-house.

Instead of the intended CRM project going live in July 2001 and being completed by March 2002, Sky contended in court that the functionality for the CRM system was only completed in March 2006 at about 5 times the budgeted cost – £265 million.

In their claim, Sky alleged that EDS had made fraudulent and negligent misrepresentations as to resources, cost and time that led to EDS being selected in preference to PwC.

Sky initially claimed damages of £709 million (US$1.03 billion). Apart from the extra costs that had been incurred to develop the system, a significant part of the Sky claim was accounted for in lost business benefits, of two major types – churn reduction and call volume reduction.

In his 468-page judgment, the UK’s High Court Judge, Justice Ramsey found against EDS in only one particular – that they has misrepresented the amount of time it would take to deliver the project. Ramsey ruled “EDS are liable to Sky in deceit for that misrepresentation.”

Since then both sides’ legal teams have negotiated an accommodation. It’ll cost HP £318 million, which is significantly less than their initial claim of £709 million, but about 7 times the value of the initial contract. This sum includes interim payments of £270 million that EDS has already made to Sky in February 2010.

Hewlett Packard, unsurprisingly, wants to move on. A spokesperson wrote in a statement: “This matter is now closed, having been settled fully and finally on mutually agreed terms. We will not be commenting further publicly on this legacy issue.”

5 COMMENTS

  1. ….this is just one of the by-products of “best-shoring” IT resources. You get service companies that feel that the low cost center engineers have the same skill sets as the “on-shore” resources because they have the same title and then when the best-shore folks don’t have the on-shore folks available to pull them out of the fire (happening more and more as the ratio of on-shore to off-shore is getting skewed almost entirely towards off-shore) when they can’t perform then things fail. This is something that I, as a senior level engineer have been watching happen more and more over the years as we get closer and closer to deadlines because of less and less people with true engineering skill to pull out “the win” and it results in less and less people not caring in the slightest what happens to these customers. Any companies that outsource their IT functions/projects should be very carefully reviewing how those functions or projects are delivered or they could be very well put into a very compromising position at some point. Sure you can come back and sue later, but what damage happens to your company in the meanwhile?

  2. Francis,

    As we all know, this is such a common problem and it seems to continue. Forrester spoke of this in a 2009 report regarding CRM failures; primarily based on expectations not being met. We recently wrote a paper on CRM fails to create outstanding customer experiences. So, it seems that every one loses, including the customer. You can find it here: http://riverstar.com/documents/crm-failure.

    Thanks for posting this article.

  3. Thanks for the comment, IT person.

    This EDS disaster actually had nothing to do with off-shoring systems development, though I agree that this can be problematic.

    This was simply a matter of deceit. I’ve covered this matter in earlier Customerthink remarks about this case. In short the story as follows.

    The Judge who presided in the BSkyB vs. EDS case, found that Joe Galloway, managing director of CRM for EDS at the time it pitched for Sky’s business, had misled BSkyB about how long it would take to complete the work when it emerged that he had lied in court about his academic qualifications.

    Galloway claimed that he had attended Concordia College in the US Virgin Islands in person to earn his MBA. This was shown in cross examination to be a lie. In fact, Galloway had bought his qualification from an online ‘diploma mill’.

    It emerged that Mark Howard QC, who was acting for BSkyB, had also procured a similar degree for his pet dog, Lulu. The mill had awarded Lulu somewhat better results than it had Galloway. This revelation led the judge to rule that Galloway was not a credible witness.

    I was involved in this case as an out-of-court analyst, trying to make sense of, and identify the strengths and weaknesses of expert witness statements. Here are links to some of my previous stories about this case.

    http://www.customerthink.com/blog/perjury_harms_eds_defence_in_1_13_billion_damages_lawsuit

    http://www.customerthink.com/blog/bskyb_vs_eds_the_claim_the_judgement_and_the_consequences

    http://www.customerthink.com/article/bskyb_v_eds_crm_legal_case

    http://www.customerthink.com/blog/bskyb_vs_eds_identifying_and_valuing_1bn_lost_business_benefits

    Francis Buttle, PhD
    The Customer Champion
    http://www.buttleassociates.com

  4. Kevin

    Thanks for reading my article, commenting and the link to your paper.

    I’ve read your paper and am particularly interested in the assertion that CRM fails because it gives contact centre agents too much flexibility. I have to say that in my experience the opposite is true. Agents struggle with CRM because it restricts them to hard-wired workflow and interaction. If a call is received and there is no relevant screen flow, customer experience is typically a lull in the conversation, whilst the agent seeks help from a section leader or manager.

    I’ve just completed an engagement where the client demanded less workflow for this very reason, but more training of CSR’s so that they felt competent handling any inbound call.

    What do you think?

    Francis Buttle, PhD
    The Customer Champion
    http://www.buttleassociates.com

  5. Hi Francis,

    I like the dialog and debate we have going here.

    It’s very possible that we are saying the same thing. Most CRM’s from what we’ve seen do not have strong workflow capabilities. They are primarily data and contact record driven. There is a lack of BPM built into these tools. So, what you say about agents being hard-wired to the CRM’s functionality is true. The agent is stuck to what is available on the CRM desktop based on record centric information.

    However, the fact that they are hard-wired to what the CRM has to offer gives the agent too much flexibility in how they handle the interaction. Because true workflow (integration, scripting, etc) is typically not the norm, the agent has too many opportunities to navigate their own conversation, which becomes dangerous and inconsistent.

    From our research, CRM has yet to really get to a customer centric, interaction based workflow model. Tools that provide more process based interaction tighten up the flexibility of the agent and how they can handle the call. This would also reduce training to the CSR’s because the dialog and workflow is built into the interaction.

    Are we saying the same thing, but applying ‘flexibility’ to a different concept?

    Kevin O’Brien
    CMO
    http://www.riverstar.com

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