The Co-operative Group and ICL had much to gain from a successful infrastructure roll-out across the retail giant. Yet the relationship soon soured and the Co-op walked away claiming losses of £11m. Using internal documents, Bill Goodwin tracks how a major IT project failed.
TheCo-operative Group, one of the UK's largest retailers lost a spectacular £11m legal battle with ICL in January, following the failure of a major programme to install a common IT infrastructure across the whole company.
In one of the most controversial rulings to come out of the Technology and Construction Court, the judge threw out the retailer's claim for damages, because the Co-op and ICL, now part of Fujitsu Services, had pressed ahead with the work without agreeing a contract between them.
The failure of the project, which was critical to the future of the business, has left the Co-operative Group millions of pounds out of pocket, and its senior IT staff tarnished with allegations of incompetence, telling lies and attempting to undermine the project.
The fiasco is also an acute embarrassment for ICL as it viewed the Co-op as one of its most important customers, and the Co-op's ill-fated Global Store project as a key milestone in its plans to design and launch a new generation of retail software.
With the help of court documents we have pieced together the story of how a once promising relationship deteriorated into bitter acrimony. This account makes use of internal e-mails and reports that neither company thought would see the light of day. They provide an extraordinary, and sometimes embarrassing, insight into the thought processes of both players.
The origins of the Global Store project date back to the late 1990s when the growth of out-of-town supermarkets was beginning to put pressure on smaller supermarket chains. The Co-operative Wholesale Society (CWS) concluded that it could no longer compete with out-of-town stores, and that it needed to position its 650 outlets as convenience stores that locals could use for late-night and top-up shopping.
The strategy required a significant expansion. CWS began merger talks with Co-operative Retail Services (CRS) to create the Co-operative Group, a single chain of 1,100 supermarkets covering a large slice of the UK.
A successful merger of the two retailers' IT systems would be critical to the project. It would enable CWS to spread its dividend loyalty card across the group, giving it a commercial edge over smaller rival convenience store groups.
The CWS IT systems were by far the most advanced. The hardware was based on open systems, and the stores had the latest ICL ISS300 tills and PCMS advanced Vision retail software. The back-office systems, also using PCMS software, were just as sophisticated and could easily manage the all-important dividend loyalty scheme.
CRS by contrast had been using old-fashioned mainframes and had a patchwork of incompatible technologies in its stores. By the time merger talks began in 1999, CRS had signed a deal with ICL to install its ISS400 tills in every branch. The new equipment would solve the group's year 2000 problems, and give CRS a state-of-the-art point of sale system.
The man given the task of merging the two IT departments was Keith Brydon, general manager for IT at the CWS. His number two was Rob Young, who joined the IT department from the retail side of the business.
From the outset, Brydon was convinced that it would be best for the Co-op if merged IT systems mirror the existing CWS system as closely as possible. The CWS in-store systems were tried and tested. They could offer customers the dividend cards, and a range of financial products, that CWS wanted to roll out across the former CRS stores.
The obvious solution might have been to replace the tills in the CRS stores with the same model of tills already used in the CWS stores. But when CWS invited rival software suppliers PCMS and ICL to give presentations, ICL offered a more attractive alternative.
ICL had begun developing a new generation of back-office software, known as Global Store. The project was still in its early days but ICL saw it as the cornerstone of its retail operations. It told the Co-op that it could modify Global Store to give the old CRS stores exactly the same capabilities as the CWS stores, providing a state-of-the-art solution without having to replace the CRS tills. ICL was confident it could meet the merger timetable.
Brydon and the Co-op's chief executive, Graham Melmoth, had reservations about awarding the contract to ICL, however. Their fingers had been burnt when an earlier contract with ICL to supply IT systems to the Co-op's funeral business ran into problems. And they had issues with the quality of support that ICL was providing to the Co-op stores.
But ICL's proposal had something else in its favour. Without it, the Co-operative Group would have to cancel ICL's existing contract to upgrade the CRS stores. That would mean the Co-op having to pay ICL more than £1m in compensation.
The Co-operative Group gave ICL the go-ahead in March 2000. The tight deadline meant that there was no time to wait for the commercial teams to agree terms. Both sides had to begin work straight away. As ICL's IT programming team swung into action, the Co-op's negotiating team laid down its demands. It was determined to improve on the deal CRS had negotiated with ICL. That meant payment for the supplier based on work actually delivered and penalty clauses if it failed to deliver quality software in time for a roll-out across the former CRS stores within 12 months.
The Co-op's IT team needed to make some quick decisions, if the project was going to stay on-track. If the functional specifications for the dividend card in the former CRS stores were delayed beyond the end of the month, key project milestones would slip.
The retailer needed to persuade PCMS to hand over key file format data to ICL. But PCMS was in no hurry to comply. It felt bruised at losing the IT merger contract to ICL and, not surprisingly, wanted compensation for handing the file definitions over. Negotiations began late and proceeded slowly. By the beginning of May, Young's weekly progress report, was looking decidedly gloomy: no firm dates for the dividend specification sign-off; the network architecture still not agreed; and key milestones at risk.
Behind the scenes ICL was having problems of its own. Development resources were tight within the company, and it was looking unlikely that its programmers could develop Global Store to run on the ISS400 tills in the former CRS stores in time. ICL put forward an alternative plan: replace the ISS400 tills with ISS300s. It was confident that it could adapt Global Store for the ISS300 tills quickly enough to meet the tight merger timetable. It would add another £1m to the price, but ICL, after much badgering by the Co-op's commercial team agreed to pick up the tab.
The Co-op's commercial team played hardball with ICL. They wanted guarantees that ICL would deliver on time or pay heavy penalties and provide a full refund if the system failed to meet the Co-op's requirements. But the negotiations were going nowhere. ICL was adamant that its financial exposure to the project, at £400,000 for every month's delay, was already high enough. The Co-op, it argued, was getting a world class solution at well-below normal costs.
Brydon, however, was becoming increasingly dissatisfied. "There is complete distrust of ICL at senior levels in CWS," he told his team. Take a "sceptical view" of ICL's promises and report any signs that ICL is not doing its job immediately.
By the end of June, there were signs that ICL was running into difficulties with the first drop of the software. With one week to go before the delivery deadline, three key people on its project team were suddenly "unavailable". ICL's development manager warned colleagues to "please be prepared for the shit to hit the fan".
The ICL team delivered the software a day late without the full documentation. Brydon, who had just secured a personal guarantee from ICL's chief executive that the project would be delivered on time, seemed pleased at the cock-up. "GoodÉ ICL fell at the first hurdle," he told Young.
To save time, ICL had agreed to deliver drop one of the software before it had finished validation testing. This meant that the code would contain more errors, and in fact the Co-op's user acceptance tests had identified 42 bugs in just the first 10% of the code. The Co-op formally rejected the software, warning that any future releases would be given the same treatment if they were not up to standard.
Brydon became increasingly concerned that the project was running behind schedule. The rejection of ICL's first drop had put the project on the back foot. PCMS had supplied the wrong file formats, causing further delays.
ICL offered to review the project plan, but Brydon wanted guarantees. "Yet again I find myself at the mercy of ICL and the late delivery of code that is not fit for purpose. This is clearly unacceptable," he told the supplier.
By September things were looking up. The Co-op had commissioned an independent review of the Global Store project. The consultant's report said both sides had learned lessons from earlier projects and were now communicating and managing the project more effectively. There were no serious show-stoppers, but some issues needed to be resolved quickly. In particular, the consultant warned, both sides needed to agree a contract immediately.
Brydon was not impressed when, in October, ICL delivered the next batch of software a week late. He fired off an angry letter to Richard Christou, ICL's chief executive. "I find myself in the disturbing position of having to put in writing CWS' frustration at yet another missed deadline from ICL," he began. He complained about the quality of ICL's work and the impact the week's delay would have on other key project milestones. Christou was conciliatory. "I would like to stress the level of importance that this project has had within ICL. It is one of our major retail projects. It is very important that we re-establish confidence in Global Store."
The Co-op began acceptance tests on the software but by the end of the year, Brydon began putting contingency plans in place to continue without ICL. He drafted what he called "the go-away letter", a long litany of complaints about ICL, and sent it to the Co-op's lawyers and his colleagues in the IT team for review. They suggested adding further comments about ICL's performance on maintenance services and other projects to "add weight" to the complaints.
Brydon seemed disappointed when he received a progress report a few days later showing that all was well. "I have to say that this progress report doesn't exactly read like a 'throw ICL out or we are doomed' type message," he said in an e-mail to his IT development director. The director's reply was illuminating. "I thought the main reason we were 'throwing ICL out' was the concern about ICL's future and its ability to support/develop Global Store once it had been implemented," he said.
Just when the project seemed to be back on track, managers at the Co-op realised they had another major problem. The training department was being restructured, and training staff were being laid off, yet cashiers needed to learn how to operate the new tills. It was, in the words of one of the Co-op's managers "a complete shambles". There were other problems too. The Co-op had forgotten to test whether Global Store could communicate with its central IT systems.
When January came and the pilots were still not up and running, Brydon became increasingly belligerent. He sent an e-mail to ICL. "You are very well aware of the pressures me and my team are under to deliver a working system to the business. By lunch time tomorrow, you will confirm that a pilot date of 29 January 2001 is achievable." Before ICL could come back with a reply, news came that that latest software release may be delayed and Brydon piled on further pressure. "I cannot be confident that the software will work. My belief is that we are living in hope, rather than knowing that fixes will fix the issues. I consider this totally unacceptable."
The next day he sent the "go-away letter" he had drafted a month earlier to Christou. The letter listed a catalogue of complaints about ICL missing deadlines and delivering poor quality code. And it complained about the poor quality of ICL's maintenance work in the Co-op stores. A few days later, Brydon raised the stakes. Unless ICL agreed to guaranteed deadlines and penalty clauses, the Co-op would pull out of the Global Store project and take legal action.
ICL and the Co-op met in mid-January in an attempt to sort out the problems. The ICL team thought they were there to iron out a list of 100 bugs discovered in Global Store, but Brydon ambushed them with a litany of complaints about ICL's poor maintenance record. When the project team asked if they could discuss the bugs, Brydon refused. He told them he had no confidence in ICL and had heard all the excuses a thousand times before. He wanted cast-iron guarantees, backed by hard cash. Go back and tell Christou, he told them, that the Co-op wants penalties, and if ICL can't accept this, it will walk away.
Brydon and Christou met to discuss penalty clauses, but the meeting went nowhere. Shortly afterwards the Co-op wrote to ICL cancelling the project. It was just weeks before ICL was due to deliver the final version of Global Store. But for the Co-op, which had planned to trial the system in stores in September for a March roll-out, it was too late.
ICL began a post mortem exercise to discover what had gone wrong. The confidential internal report made electrifying reading when it was made public in court. It suggested that far from being a viable product, Global Store was more of a concept than a working piece of code when ICL pitched it to the Co-op. The report also revealed that ICL had designed Global Store using Microsoft technology that was not up to job, despite warnings from Microsoft. This led to serious delays, which were exacerbated by serious skills shortages in ICL.
For the Co-op this document was the smoking gun that would prove that ICL had misrepresented the project. But courts are unpredictable and when it came to the crunch the judge decided that ICL's own document did not accurately reflect the supplier's behaviour.
Two years on and both sides are still deeply involved in legal action. The court has thrown out the Co-op's claim because it had no contract with ICL and the Co-op is now appealing. It claims it is £11m out of pocket and has accused ICL of making misleading claims about its capabilities and delivering poor quality code. ICL, has lost the goodwill of an important British retail customer, and suffered a severe blow to the development of its flagship Global Store product. As usual, when IT cases go to court, the lawyers are the only real winners.
Chronology of a project fiasco
10 March 2000 The Co-operative Group gives the go-ahead to ICL for the Global Store project. ICL will develop software that will give the former Co-op Retail Services stores the same capabilities as the Co-op Wholesale stores and be ready for trials in September 2000 and roll-out in March 2001
20 March 2000 A status report shows the Co-operative Group has failed to obtain critical file formats to run the dividend loyalty card. Supplier PCMS is reluctant to supply them, putting the timetable for an August pilot at risk
10 May 2000 Keith Brydon, Co-op general manager for IT, sends an e-mail to his staff, pinning the blame for the delays on ICL
11 May 2000 ICL is having major problems finding enough resources to develop Global Store with ISS400 tills
15 May 2000 ICL proposes a radical change in the project to get it back on track. The CRS stores will be fitted with ISS300 tills rather than the ISS400 ones which will now be removed at an extra cost of £1m
24 May 2000 Brydon sends his IT staff a blistering e-mail about ICL
31 May 2000 Brydon tells colleagues he is taking the issue of penalty clauses to the very top of ICL. The Co-op's chief executive is "intent on getting his pound of flesh from ICL, so watch this space", he says. There is also confusion in the Co-op camp. Marketing executives had thought that the Global Store project would allow them to trial a new version of the dividend loyalty card in February. But Global Store was only ever designed to work with the existing loyalty card. Brydon e-mails colleagues to tell them that it is "unacceptable" for Global Store not to allow the trial to go ahead
8 June 2000 ICL rejects the Co-operative Group's demands for penalty clauses as unnecessary. Each month's delay is already costing the supplier £400,000 and ICL has no intention of risking future business by missing deadlines
12 June 2000 An ICL project progress report reveals that the Co-op's lack of certainty over the requirements for the Global Store project risked delaying the project
22 June 2000 An internal ICL memo shows that the first drop of the software was in trouble. The deadline was looming and key people were away
28 June 2000 ICL is one day late with the first drop of the Global Store code. Brydon e-mailed his project manager Rob Young about the delay 3 July 2000 ICL's senior client director sends a rallying e-mail to his staff
5 July 2000 The Co-op's IT development director sends a blistering e-mail to ICL after finding a large number of bugs in the first drop of Global Store software
27 July 2000 The Co-op is working with ICL to review the impact the delays in PCMS supplying correct file formats and the rejection of the first drop of the software will have on the project plan. But Brydon is unimpressed
28 July 2000 ICL makes suggestions to speed up the project: nContinue with the software drop approach with a new timetable nMake a single delivery of validated software. The Co-op rejects ICL's advice and chooses the second option
September 2000 Co-op commissions an independent report on Global Store project
- No potential show-stoppers
- Co-op and ICL had learned lessons
- Pilot on 8 January should be achieved even if major issues arise
- Co-op needs to sign off the functional requirement specs to prevent delays to the project
- Co-op and ICL have no trading agreement. This needs to be resolved immediately
7 September 2000 The Co-op signs off the specification for the dividend, five months after it was originally due following a series of delays caused by PCMS sending the wrong file definitions and the Co-op making changes to its requirements
17 October 2000 ICL delivers the next drop of the software a week late 20 October 2000 Testing by the Co-op identifies bugs but no show-stopping problems in the software
30 October 2000 Brydon writes an angry letter to ICL's CEO Richard Christou
8 November 2000 Christou replies to Brydon's letter. He highlights the importance of the Global Store project to ICL and gives reassurances that problems will be solved
8 December 2000 Brydon puts together what he calls "the go-away letter" to ICL and sends it out to colleagues who suggest adding other complaints about ICL's support to add weight to the letter. By this point he is convinced that ICL cannot deliver quality code
11 December 2000 Brydon appears surprised after receiving an upbeat progress report from the ITteam. He tells his IT development director,
I have to say that this prgress report doesn't exactly read like a 'throw ICL out or we're doomed' message.
The IT development director replies,
I thought the main reasons we were 'throwing ICL out' was the concern about ICL's future and their ability to support/develop Global Store once it has been implemented.
14 December 2000 The Co-op presses ICL to deliver the next release of software a week early to ensure that the pilot schemes are not delayed
18 December 2000 ICL delivers the next software release, but the Co-op team discovers a new problem - the training department is being restructured just when it should be training staff how to work the new till system. An internal e-mail reveals the situation
2 January 2001 Co-op Wholesale IT staff realise they have not thought about the need to test Global Store to make sure it can communicate with the central IT systems. one philosophical contractor says,
You are absolutely right; this should have all been done a long time ago; but as they say, we are where we are.
3 January 2001 Brydon steps up the pressure on ICL
5 January 2001 Brydon sends an angry letter to Christou in an apparent attempt to provoke a showdown
8 January 2001 Testing reveals hundreds of bugs in the ICL software. ICL and the Co-op agreed a series of "hot fixes" and version releases to address them
12 January 2001 Brydon e-mails ICL
19 January 2001 In a showdown between Co-op Wholesale and ICL, Brydon and his staff "ambush" the ICL Global Store team with a long list of complaints about ICL service contracts but refuse to discuss the details of the Global Store project. Brydon says he has no confidence in ICL and he has heard it all a thousand times before. He wants cast-iron guarantees backed by hard cash and a refund of the money already spent. The project has been delayed a year and the Co-op is losing money daily. The Co-operative Group wants penalties and if ICL cannot accept this then it will walk away
22 January 2001 Brydon phones his opposite number at ICL. He claims to colleagues that:
[ICL] openly admits that there are massive problems - from senior managers not managing to an inability to get programmes, analysts and engineers.
ICL later denies this
29 January 2001 The Co-operative Group writes to ICL's chief executive Christou terminating its contact
20 March 2001 An ICL post mortem, later dismissed by the judge, suggested that ICL had sold the Co-op a non-existent product
October 2001 The Co-op files a claim against ICL for £11m damages
January 2001 The Co-op case is thrown out by the Technology and Construction Court. The Co-op applies for an appeal.
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