It said it had discussed these issues at a meeting on Friday and it would be “working to understand if there are systematic underlying issues”.
So what does a good IT implementation look like? Also, what are the secrets to avoiding problems?
There is no better person to answer these questions than Alberto Calderon, the chief executive of global explosives maker Orica. He has just completed his fourth implementation in 25 years of the corporate operating system supplied by German software company SAP.
He spoke to Chanticleer on Friday after the announcement of Orica’s net profit of $168 million for the year to September 30, down 31 per cent because of the pandemic.
Calderon predicts a sharp pick-up in profitability from March next year mainly because of an upturn in the global economy and partly because of the efficiency gains from the SAP operating system installed at a cost of $350 million over three years.
He says Orica will achieve a 20 per cent annualised cash return of $60 million on the SAP project by September 2023. This works out to cost savings of $20 million each year, mostly from headcount reductions.
Calderon says Orica now has a cloud-based, standardised and integrated single enterprise system supporting its supply chain, commercial hub, human resources and finance.
One of the advantages of a cloud-based operating system is the enormous savings from not having in-house computer servers. For example, the SAP system Calderon implemented at BHP Group included $500 million in costs for in-house computer servers.
“If you look at resources companies and companies like ours, 95 per cent go for SAP for a reason because there’s no alternative,” he says.
‘We have nothing customised’
But he says the first rule for implementing an SAP project of the scale undertaken at Orica is to avoid customising the software to accommodate the bespoke demands of the business.
“We have nothing customised,” Calderon says.
“That means the business needs to change its processes to adapt to the SAP systems. Now, for that, you need the top of the company to support the technology team that is doing SAP.
“What happens is that if that support is not at the top level, then the technology gets overrun by the businesses. They say: ‘we’re special, we’re different and you need to customise’.
“If you do that, you are destroying SAP. There’s a reason why about 70 per cent of SAP projects end up costing double what they were budgeted to be, because the more you customise the system, the more costs skyrocket and the system never works.”
He says it is not surprising certain big Australian listed companies that had not invested in their technology systems have had operational and compliance problems. He declined to name the companies.
It is rare for CEOs to bite the bullet and rebuild their entire technology platform, mainly because the costs and risks are so high. One notable exception is former Commonwealth Bank of Australia CEO Ralph Norris, who implemented a new tech platform and gave CBA a technology advantage that has endured until today.
Calderon says Orica had a mish-mash of technology systems spread across 120 countries before the SAP implementation.
It had 29 different payroll systems, 4000 general ledger accounts, 650 bank accounts with 140 different banks, a supply chain planning and transportation management system on thousands of Microsoft Excel spreadsheets and commercial bids that were stored across multiple databases.
Installing an integrated platform meant Orica had to write off old software worth about $100 million that was made redundant. Also, the new system caused short-term cash flow and working capital issues as a new invoice system was installed.
Calderon says Orica now has “real-time data-driven insights based on a single source of truth”. Within six months, Orica will be able to close its financial accounts each month within a day whereas it now takes 10 to 12 days.