As the chief executive of cosmetics giant Avon steps down amid slowing sales and profit growth, IT Decisions looks at one of the key factors linked to the company’s poor performance in Brazil – a marred implementation of an enterprise resource planning (ERP) platform.
Last week, the door-to-door cosmetics seller said Andrea Jung was to quit as chief executive after disappointing sales in core markets including Russia and Brazil. The company generates the vast majority of its revenue outside the US.
The roll-out of an Oracle ERP suite underpinning core supply chain and finance operations has posed huge challenges for the company’s operations in Brazil. IT Decisions spoke to a senior source close to the entire process and found that the implementation had been postponed five to six times during a three-year period before its completion in July.
According to the source, the introduction of the platform – which replaced bespoke software that had been in use for at least two decades – demanded a significant effort in terms of the myriad of processes that had to be consequently changed.
“The technical project itself was very well structured and you would expect that cultural change is necessary for it to work, but for a project of that magnitude you need a sponsor right at the top. So even if there is resistance to change, things get done with support from above,” the source told IT Decisions.
“There are people within Avon who are working towards making it a truly global business with global processes, but there also people who are keen to keep it as it is – a gigantic company that has grown organically over the years where regions have total autonomy to do things however they like,” the source added.
The troubles around the implementation have resulted in large numbers of IT staff leaving the company in the last 18 months, according to the source.
The insider suggested that there seems to be a disconnect in terms of IT strategy too: a separate large-scale ERP project was launched recently with a view of transforming other customer service areas. SAP was chosen to supply products for that body of work.
“The [SAP] project will be significantly more complex. And if we work on the assumption that the same difficulties around change will remain, it would be fair to say that this project will take six to seven years to complete,” the source said.
Without citing exact numbers, the source said that the cost of the Oracle roll-out was “quite high” and that the upcoming SAP project will also represent a considerable expense to the company.
When it comes to advice to other companies undergoing similar challenges, the executive insisted that, without senior backing, initiatives around changing systems supporting the core of a large operation are doomed to failure.
“The Avon experience presents a series of lessons to managers and companies from any industry sector. If an organization is ready to lead an ERP roll-out that touches on its key processes, it needs to have a senior sponsor that will protect the project and avoid more serious consequences,” the insider said.
Sanford Bernstein & Co analyst Ali Dibadj told the San Francisco Chronicle that Avon’s management needs someone “to shake them out of their entrenched ways of doing things.” The company is currently looking for a replacement for Jung.
Avon did not respond to requests for comment.
Image by Elena Pérez Melgarejo licensed under Creative Commons.