Left Out at the Global Dinner Table

Earth(Posted on hehalf of Dan Hartford.) Have you majorly screwed up a project? Don’t worry, you may be promoted for it! Several years ago I was working in California for a multinational company with head quarters in Europe that we’ll just call “The Firm”. To give you a sense of where this company fits in the scale of things, they have over 36,000 employees worldwide, with sales last year of 6.76 billion euros. In other words we’re not talking start up here.

For several years the Firm (as we’re calling it) had been little by little centralizing all of their decision making back to HQ in Europe. Several projects such as standardizing the chart of accounts, and rationalizing material numbers had been undertaken. Some more successful than others, but I digress. At the time in question I was an IT manager in the San Jose office overseeing the IT system that the Firm used for North American sales, finance, and logistics.

The way the Firm had things arranged, the parent company in Europe (which I’ll just refer to as HQ) took care of all the manufacturing of the finished goods through various plants around the world. Then, based on regional forecasts, they would “sell” those goods to the various regions (wholly owned subsidiaries) and ship the product to those regions. In this case the San Jose office was the NAFTA region subsidiary for the Firm. So, we in San Jose, would buy the FG from HQ in Europe, then our offices would sell the product through various channels and ship the product to the customer. Pretty straight forward and simple.

Except for one thing. During financial closes at HQ, the parent company had to deal with currency fluctuation between the Euro and Dollar that occurred between the time we bought the FG from HQ and the time we sold it. It turns out that it took HQ about 20 to 30 person hours each month to deal with this issue and to put the offsetting transactions into the HQ consolidation system. So, an $8M IT project was undertaken to solve this problem. (hmmm, let’s see, $50/hr for the clerk times 30 hours/month = $1500/month savings or a project payback of just 5,333 months or 444 years — Sounds good to me!).

Anyway, not to be confused with facts, this HQ led project went forward over the protestation of just about everybody. The goal of the project was to eliminate the price variances due to currency fluctuations, not to mention giving more control over inventory to HQ. This was to be accomplished by taking the NAFTA forecast and shipping us the product but retaining ownership of the goods by HQ in Europe. Then when we take a sales order, instead of just processing the order and shipping the goods, the computer system would first send a purchase order from here to Europe to “buy” the goods that were already in our warehouse. The EU system would then send us an electronic invoice that we would instantly pay through inter company transfer. Once this was completed, the inventory would be re-classified to be owned by our division whereupon we could then let the original sales order to the end customer go through. If it sounds complicated it was. The net result was that the inventory would only be owned by our division for a few seconds and thus there was no opportunity for the exchange rate to change between the time we bought the goods from HQ and the time we sold them.

So, what’s the problem? Well seemingly none. All the stake holders in EU signed off on doing the project. The stake holders in the US weren’t asked, but we’d come to expect that. However, that didn’t stop us from pointing out many of the flaws of this entire concept but that’s a different discussion. Needless to say, the project went forward.

Now, fast forward several months and $8M later. All the development and testing is complete. All the conversion programs are ready to run. The production systems (both here and in EU) are loaded with the new code which will automatically turn on with the flip of a bit in the database.

It’s now Friday morning, the flip of the bit is scheduled for midnight tomorrow night (Saturday). “Ring, Ring”, it’s a phone call from HQ. The IT Vice President and CIO is calling (Oh my god, what did we forget?).

CIO: “Uh, I don’t know quite how to say this, but we need to cancel the xxxxx project.”

US: “Come again?”

CIO: “The xxxx project, the one that goes live tomorrow. It’s been cancelled”

US: “You’re kidding me right?”

CIO: “No, we don’t kid about this sort of thing. We will not be implementing the project”

US: “We just spent $8M re writing SAP, what’s this all about?”

CIO: “Well, it seems that someone mentioned this project to the legal department over here (Europe). It seems that if the parent company here in Europe owns inventory physically located in the US, then the parent company has what’s called a ‘business presence’ in the US. This in turn means that litigation in the US can go after assets held by the parent company rather than just assets held by the US subsidiary. That is considered too great a risk, so we’ve cancelled the project.

US: (Silence. It’s pretty hard to talk with your jaw on the floor)

So, it seems that someone sort of forgot to consider legal as one of the stake holders way back at the beginning of the project when all of the signoff’s were taking place in Europe. Oooops.

(PS: Of course this didn’t prevent the PM for this project in EU from being promoted)

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1 thought on “Left Out at the Global Dinner Table”

  1. Leadership in Nature—The Chimpanzee Angle

    Dan—what a great story. I read such stories and wonder “Why don’t heads roll over such incompetence?” and “What’s the road forward?” The best answer I can think of comes from the book “Chimpanzee Politics” (de Waal, 2000).

    Chimpanzees? Let me explain.

    When I first joined corporate America, I thought the end game was good results for the company. But over time I came to see that results are just one piece of the puzzle—power and stability are another.

    The book “Chimpanzee Politics” details a power struggle between the old and new guard in a group of chimpanzees living in an open-air enclosure in the Arnhem Zoo. The central figures in this real life struggle are the aging, long-time leader and two energetic young challengers.

    Through the many changes in power, the key deciding factor was not who was the strongest individually. Rather it was who could inspire more loyalty in a “lieutenant”, because no one individual was strong enough to overpower the rest.

    Now let’s bridge that to corporations.
    Question: “If you want to remain at the top, what does it take to maintain power?”
    Answer: “Key lieutenants who, rather than being brilliant, are loyal, supportive and don’t threaten your power.”

    From my observations, when millions are wasted on a project, the CEO is faced with a dilemma of accoutability versus stability. While disappointed in the lost money, often the CEO doesn’t want to deal with conflict and possibly lose the loyalty of trusted people.

    Furthermore many leaders find conflict to be incredibly uncomfortable, and thus move on as quickly as possible. “Let’s take this as learning that will help us succeed next time,” they quickly say, rather than really examining what happened and how to improve. This focus on comfort comes at the cost of accountability, organizational morale, and real improvement.

    So what to do? I propose that leaders who want to master this dilemma do two things.

    Number one, leaders must deal with their own anxiety over facing conflict. Otherwise, the organization will either ignore what happened, or vastly over react. Intelligent decision making requires calmness.

    Number two, leaders must realize that when loyalty and stability and overemphasized, bottom line results will suffer. Yes, power matters –that’s natural and isn’t going to change. What’s called for is a better balance with end results.

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