Why Novartis Backed off from Enterprise Software

Brief summary

Novartis is a swiss pharmaceutical group, based in Switzerland, operating in more than 140 countries around the world.

This specific case is referring to the implementation of SAP ERP software, which the management believed it would help the company to cut down system integration costs, as well standardization and administrative processes, as many others.

Since SAP is the biggest and consider by the majority as the best ERP in the market, Novartis management decided to complement other modules along with the existent ones (ERP and financial modules).

The frustration started when the requisition-to-pay process was not working properly and therefore, had to be redesigned due to SAP. In addition to that, Novartis’ information systems staff thought that the unpaid invoices were not entirely caused by SAP software, pointing to the inefficient and manual approval system from the current process.

The company believed that if SAP handled as many business processes as possible, the problem would be solved but due to tight deadlines and limit budgets, new system’s impact on business processes were not taken in consideration.

Vice-president for information and CIO, Ray Pawlicki, invited accounts payable and IS groups for workshops. Communication was the main problem. One main conclusion was that centralizing purchases would be a source of saves around US$4 to US$5 millions.

The problem wasn’t on the ERP system itself but on the non-existing agreements between departments.

In May 2003, Novartis updated to Ariba (who was acquired in 2012 by SAP).^[1] 

Why was Novartis having trouble with its requisition-to-pay process?

SAP software was adopted in an attempt to standardize processes, reduce integration costs, workflow management and reporting.

The problem was, according to managers, the existing incompatibilities between SAP software and the company’s own business processes. That lead to some groups starting to design their own processes.
On the other hand, the company’s Information Systems Staff blamed the existing process for being too bureaucratic, since they require too many manual approvals.
Along both this problems, a third one is undercover in our opinion: a lack of communication between all interested people in the process.

What management, organization, and technology factors were involved?

If we look at Novartis case study is easy to see that is not that simple to implement an application software that meant to integrate different departments in a company.

So, along that implementation process, it would be expected that some problems may arise, whether of a managerial, organizational or technological nature.

Regarding those three different factors, we can highlight some examples:

• Management factors: Managers must learn how the system can change key processes, organizational structure, and the information they use.

o   BIM (Business information managers) scrimped on training and did not pay sufficient attention to the new system’s impact on business processes - employees need to learn exactly how the system works and performs

o   Accounts payable and strategic sourcing departments frustration

o   Coordination problems between Novartis’s vice president for information and chief information officer to arrange a six months program to foster joint leadership, should had been done earlier

o   Lack of communication either internal or external

• Organizational Factors: “Making effective use of ERP generally means solving problems with business processes and organizational design’ (Frank Scavo, 2004) https://www.computereconomics.com/article.cfm?id=964

o   It would be better if there was assigned some kind of a representative, in order to follow up the process closely and coordinate amongst all related parties avoiding conflicts or misunderstandings