Worried outsourcers and systems integrators will have to wait a little longer for judgement to be passed in a landmark legal case which has massive implications for the CRM industry and beyond.
BSkyB vs. EDS is a case which industry insiders are watching very carefully. There are massive amounts of money at stake.
BSkyB, the UK’s largest satellite broadcaster, is claiming £709 million (about US$1.6 billion) in damages from EDS. It alleges that in 2000 the EDS bid team dishonestly and fraudulently misrepresented its expertise and resources in order to win the contract to develop and implement a new CRM system for BSkyB’s contact centres. In the end, BSkyB says they had to sack EDS for failure to deliver, and to develop the system in-house.
The hearing in the Technology and Construction Court of the Queens Bench Division of the English and Welsh High Court ended in July 2008, after more than 9 months of evidence, but the complexity of the case and sheer quantity of argument presented by both sides has meant that the judge, Mr. Justice Ramsey, has yet to hand down his judgment.
The original CRM system was to have cost BSkyB £48 million, but the alleged failure to deliver meant that customer service performance was suboptimal and that customer churn levels were consequently unacceptably high. Lost business benefits are the primary basis for the huge damages claim, which defendants EDS have called “absurd and extravagant”. Ultimately the system cost EDS £265 million and took six years to develop and implement.
EDS has counterclaimed that BSkyB did not know what it wanted from the CRM system, and that BSkyB’s requirements “kept on emerging like handkerchiefs from a magician’s sleeve” during development, and that 3 years into the project, in 2003, EDS eventually had to set up a project team to clarify system requirements.
Legal experts are mulling over the possibilities.
One possibility is that Justice Ramsey will judge that EDS did, indeed, misrepresent their expertise and resources dishonestly and fraudulently, rather than simply negligently. If BSkyB is successful with this argument, there is no chance that EDS can rely on the liability cap specified in the contract, thought to be about £50 million. The maximum of EDS’s liability then becomes the full damages claim of £709 million.
The second possibility is that Justice Ramsey judges that there was no dishonest or fraudulent behaviours by the EDS bid team. In this case, EDS could still be held liable for damages due to failure to deliver, but the judge would have to assess the relative merits of the expert arguments presented by both sides in determining the amount.
A third possible outcome is that the parties in dispute settle out-of-court before judgement is handed down. Given that legal costs in excess of £70 million have already been incurred the parties might just swallow their pride, accept their losses and move on.
However, I think that’s unlikely. BSkyB is substantially owned by News Corporation which is chaired by the renowned scrapper Rupert Murdoch. He’s not one to shy away from a battle. If BSkyB’s case is not substantially supported by the judgement an appeal is possible. EDS was acquired by HP in 2008 for $13.9 billion, a price which will already have factored in the risk of losing this case. HP, too, might be ready to appeal.
Cynics might suggest that there is a long and disreputable tradition of outsourcers overpromising and an equally well established convention of clients not knowing what they want.
One thing is certain whatever the outcome of this case. Outsourcers and clients will be much more vigilant about what they say and do, as they prepare and respond to bid documentation. This costly case has been rolling on for years and may roll on for a few more, consuming massive amounts of time, manpower and money, and exhausting any number of people in the process.
Outsourcers and their clients await this judgement with keen anticipation. It should be soon.
Having served as an expert witness in cases like this, I’d say there’s usually plenty of blame to go around. However, for EDS to apparantly fail to start with customers and what they need and expect and then work back through process design to enabling technology at very least would appear to demonstrate lack of knowledge regarding what makes CRM tick.
A landmark ruling in the making indeed.
I know nothing about the BSkxB/EDS case. However, having worked on numerous large CRM system developments and on recovering runaway CRM projects, it is not uncommon for clients to not know what they want (over and above the high-level requirements in the RFP) and for outsourcers to fail to put in place a robust process to collect all the client’s requirements (over and above the stated requirements in the RFP), to prioritise them and then to manage the project accordingly.
Who is to blame?
Although both sides are usually partly to blame, I err on the side of blaming the outsourcer for overselling (the CRM dream), for under-pricing (on the understanding that profits will be achieved by playing the ‘change request game’) and to be blunt, for having poor quality project managers who are unable to manage the complexity of such large projects. Above a certain size, history suggests that CRM projects are almost bound to come in late, to be incomplete and to be significantly over budget.
What to do about it?
A few simple steps would help avoid these problems:
Taking a step-by-step capabilities development approach like this not only focuses CRM system development on enabling the capabilities, but also highlights all the other complementary component parts that need to be developed at the same time. Not building the complementary component parts at the same time is the No1 cause of CRM systems failure.
As Einstein said, “No problem can be solved from the same level of consciousness that created it.” It is time to think differently abut how we develop CRM systems. To think about what users are trying to do and how we align cost-creating CRM systems deveopment into value-creating CRM capabilty development. It sure beats spending GBP 70 million on lawyers fees. Now that is a pure waste of money if ever I saw one!
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Please read breaking news from Francis:
BSkyB wins! EDS act fraudulently in $1.6 billion case. Appeal expected.