Vendors of large, integrated IT systems will tell you how well their technology can streamline and rationalise business processes. But an IT cock-up at support services company WS Atkins meant its shiny new billing and accounting system failed to send out £20m-to-£30m-worth of invoices in financial year 2002, contributing to pre-tax profits that declined by a third.
The news must have stunned shareholders. Just hours before the WS Atkins annual general meeting, on 1 October 2002, the company issued a profit warning detailing the impact of the systems failure. “The introduction of the new systems has been more difficult and costly than expected … This has resulted in an increase in net debt to around £120m at 30 September 2002,” the statement read. Atkins’ share price slid 72%.
Then, as had long been planned, the company’s FD, Ric Piper, stood down to join Trinity Mirror as its finance chief – only to be sacked by the media group the day before he was due to join because of the Atkins debacle.
But was Piper to blame? Perhaps not entirely. According to Atkins’ 2002 annual report Piper didn’t assume direct control of the technology until March 2002. The system was first approved in 2000 and went live in January 2002. Piper took over only after the director in charge of the project had resigned to join another company. At this time, the board realised there were significant risks attached to the system. Additional debt facilities were obtained to cover the expected increase in working capital. “The board believes this period of stabilisation will be essentially complete by the end of Autumn 2002,” the annual report reads.
So what went wrong? Atkins’ system was based in its Worcester shared-services centre. It was designed to handle all billing activity for the company’s 170 offices worldwide, and also the outsourced accounts processing of its clients. It was little different from a score of other shared service facilities operated by multinationals.
According to an industry expert, Atkins was too hasty in its efforts to implement new technology to match its rapidly growing business and failed to ensure continuity of process and consistent ownership of the project at board level. Like many support services groups, Atkins grew rapidly in the 1990s from a couple of thousand staff to about 13,000 in 2000. Its core financial systems needed an overhaul to cater for the increased size and scope of the business. By the end of 2000, Atkins concluded a study of which systems to implement.
It decided to use JD Edwards for the financial accounting of the UK businesses, Oracle for HR and payroll and to retain Hyperion for performance analytics.
But it appears the people driving the project did not report directly to the finance department but through a member of the group executive, who reported to the CEO. “It was believed to be better to have the project report to someone who wasn’t a functional leader because it would make the systems more business-useful. Also, it was to be sold out to Atkins’ customer base with Atkins’ finance department as its first ‘customer’,” our source says.
According to him, one of the major problems Atkins faced was not to do with the main IT systems it implemented but in the specialist software used to write cheques for suppliers. The invoices didn’t go out, the money didn’t come in and bang went the share price.
But was Piper brought on board too late? He became the project trouble-shooter in March 2002. Atkins then announced that the IT problems necessitated it delaying publication of its preliminary results to 25 July, by which time Piper’s resignation had been made public.
In the 2002 annual report, Atkins chairman Michael Jeffries thanked Piper for “his huge contribution to the growth and development of the group”.
Trinity Mirror chairman Sir Victor Blank told the Daily Telegraph of 3 October 2002 that “I don’t know if he (Piper) was to blame or not but he was the finance director on watch,” – to which Jeffries replied: “I’m very upset because I’ve worked with Ric for a long time. They have lost the potential to have an excellent finance director.”
There is something to be said for Blank’s stance. But if the industry expert is right – and Atkins’ new FD Stephen Billingham was unavailable for comment – Piper was a victim of an IT strategy that deliberately by-passed finance function control and handed the reins to the FD after the systems had started to detrimentally affect cash-flow. Regrettably though, it takes systems failures such as this to teach lessons to other businesses.