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KEL224

MARK JEFFERY AND JOSEPH F. NORTON

Ariba Implementation at MED-X:
Managing Earned Value

Chris, what do you mean, we can’t deploy the system on time? It’s a month before the
end of the project and now you’re telling me that we may not deploy on time! Do you
know what this means? Don’t you understand what the implications are? I don’t
understand what went wrong. This entire time I have been reviewing the budget variance
and combined earned value reports and everything appeared to be fine. How am I going
to explain this to the steering committee? I want to know what went wrong with the
project and how you are going to fix it!

Terry Baker, CIO of MED-X Inc., a Fortune 500 pharmaceutical company, was furious. The
e-procurement implementation she had been sponsoring was not going according to plan and the
project manager had very few answers for her.

Christopher Martin, a consultant from Implementation Technologies, was the project
manager for the $2 million Ariba e-procurement implementation at MED-X Inc. This was
Martin’s first time managing a full-life-cycle e-procurement implementation and he was having
problems figuring out what was delaying the project. He had been aware of some potentially
troublesome events early in the project, but had not been comfortable reporting them to his client.

Martin was very bright, had a great deal of technical development experience, and knew
Ariba functionality well. He was just completing his MBA in the manager’s program at the
Kellogg School of Management, and was looking forward to a big raise when this project was
over. However, Martin knew very little about earned value and had never seen it used in project
analysis before. His client Terry Baker was demanding answers and Martin had to figure out what
was going wrong.

The Ariba implementation was broken up into several phases. However, the critical path went
through two major components of the project: technical infrastructure setup and software
customization. Looking at the project plan alone, Martin could not figure out which component
was causing the delay.

MED-X Inc.

MED-X Inc. was a global pharmaceutical company headquartered in Houston, Texas, with
fifty-four plants and more than 40,000 employees worldwide. Founded by a genetic engineering

©2006 by the Kellogg School of Management, Northwestern University. This case was prepared by Alex Gershbeyn ’03 and Derek
Yung ’03 in collaboration with Joseph F. Norton, PMP, Senior Fellow, Center for Research on Technology and Innovation, Kellogg
School of Management, and Principal, SOCHIN Consulting Group, under the supervision of Professor Mark Jeffery. Some facts
within the case have been altered for confidentiality reasons. Cases are developed solely as the basis for class discussion. Cases are not
intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or
request permission to reproduce materials, call 800-545-7685 (or 617-783-7600 outside the United States or Canada) or e-mail
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transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of
the Kellogg School of Management.

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ARIBA IMPLEMENTATION AT MED-X KEL224

scientist in 1972, MED-X had been growing rapidly ever since. In 1985 MED-X’s research and
development team developed a blockbuster drug to treat skin cancer. In addition to drug
development, MED-X established alliances with other pharmaceutical companies whose drugs it
licensed and sold through retailers of over-the-counter medication.

One of MED-X’s key strategic objectives was to transform its procurement organization into
a decentralized purchasing model with a self-service philosophy. MED-X was spending $3 billion
annually on indirect goods and services. Of this amount, $2 billion was sourceable and $1 billion
was spent on technology. MED-X estimated that a decentralized procurement model would help
it save $200 million annually. By moving all its preferred suppliers onto the Ariba e-procurement
platform, MED-X would reduce maverick spending, streamline the procurement process, and
expedite user adoption.

In addition, MED-X would realize many other benefits from implementing the Ariba Buyer
solution. The solution would encourage nationwide compliance with negotiated agreements,
maximize the purchasing power of the organization, and reduce processing costs and cycle times.
In addition, it would track purchasing behavior and retrieve historical information, allowing
nonpurchasing employees to focus on mission-related responsibilities. As a result of the
implementation, MED-X would realize a significant return on investment.

Implementation Technologies

Headquartered in Chicago with branch offices in New York, Dallas, Miami, and Seattle,
Implementation Technologies had more than five hundred employees. Founded in 1995 by three
ex-“Big Five” partners, the organization had hired only the best and brightest. The average
consultant had at least five years of experience in information technology consulting, business
analysis, and project management.

Implementation Technologies’s mission was to be the premier provider of global business-to-
business (B2B) e-commerce consulting services. It offered a full range of consulting services,
including Ariba B2B commerce platform implementation, supplier integration, and Ariba training
and support. Revenues for 2001 were expected to reach $80 million.

Implementation Technologies was the fastest-growing organization in the dynamic
technology services sector and successfully competed with the likes of Accenture and PWC. In
fact, MED-X had chosen Implementation Technologies over Accenture because it had
successfully implemented Ariba for more than thirty clients, five of which were other
pharmaceutical companies.

Implementation Technologies currently had other initiatives underway and wanted to partner
with other enterprise resource planning (ERP) companies, such as PeopleSoft and SAP, to
provide the best implementations for its worldwide organization.

Ariba Inc.

Ariba (www.ariba.com) offered a powerful suite of e-procurement solutions to help
companies manage spending so that expenses fell faster than revenues in down times and grew

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KEL224 ARIBA IMPLEMENTATION AT MED-X

more slowly than revenues in up times. The Ariba spend management solution was designed to
significantly improve bottom-line results.

Since its founding in 1996, Ariba had remained at the forefront of the Internet revolution,
providing easy-to-implement, robust online commerce solutions for proven cost savings and
returns on investment. In 2002 Ariba led the enterprise spend management (ESM) market. ESM
was a new class of solutions that focused on delivering a closed loop of control and leverage over
a company’s spending. This included assessing spending activities, conducting effective sourcing,
and capturing and reconciling spending enterprise-wide. The Ariba spend management solution
delivered results quickly while providing a sustainable spend management capability.

In 2001 a seasoned management team directed Ariba’s fast-paced growth. Together, the team
had significant management experience in high-growth organizations and the combined
experience of seven successful startups. The team members had held senior management
positions at Digital Equipment Corporation, General Motors, IBM, Lotus Corporation, NeXT
Computers, Parametric Technology Corporation, Rasna Corporation, and SAP.

As the leading provider of spend management solutions and services to leading companies
around the world—including forty of the Fortune 100—Ariba brought companies together in
entirely new ways through powerful, easy-to-use Web technologies that transparently overcame
differences in applications and business processes.

In 2002 Ariba products and solutions were enabling global industry leaders, including Cisco
Systems, Chevron, Hewlett-Packard, Canadian Imperial Bank of Commerce, and Phillips NV, to
save money, discover new revenue streams, and increase their competitive advantage.

Case and Technology

E-procurement means obtaining or purchasing commodities and services via the Internet. It
involves the use of an electronic catalog of items, automated requisitioning, and an automated
approval process.

The Ariba network-centric approach to e-procurement and value chain management linked
customers, suppliers, partners, and distribution channels on a common platform for fast return on
investment and rapid cost savings. Value chain management (VCM) enabled companies to
connect seamlessly to trading partners for all their inter-enterprise commerce processes—from
analysis and planning to fulfillment and payment. Ariba provided its customers with powerful
VCM solutions: Web-based applications that ran on a shared technology platform, facilitating
inter-enterprise transactions over the Ariba Commerce Services Network (Ariba CSN, Ariba’s
scalable B2B network).

The Ariba CSN provided a shared flexible infrastructure that connected multiple enterprises
in an interactive community. Companies could use third-party services to transact in real time
with buyers, partners, distribution channels, and more than 20,000 suppliers worldwide through a
single connection. Network-enabling the value chain allowed companies to drive cost savings
through lower negotiated prices, employee and contract compliance, reduced inventories, and
greater process efficiency.

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ARIBA IMPLEMENTATION AT MED-X KEL224

The Ariba CSN provided a secure infrastructure of connectivity, transaction management,
supplier enablement, and commerce services, and the Ariba platform facilitated integration with
back-end systems. The platform and network worked together with Ariba’s VCM applications for
core B2B commerce processes, from sourcing to payment.

See Exhibit 1 and Exhibit 2 for an overview of the Ariba Buyer platform configuration and
the Ariba development environment, respectively.

Proposed Approach and Plan

The partnership between MED-X and Implementation Technologies was designed to leverage
industry, business process, IT, and experience implementing the Ariba Buyer solution. The
implementation methodology was modeled in accordance with the AribaLive Methodology to
formulate a “best-of-breed” approach tailored to meet MED-X’s project requirements.

A phased approach was taken to ensure project delivery by October 1, 2001. This approach
would drive efficient, effective use of resources, promote reuse of solutions across divisions, and
enable transfer of knowledge to MED-X in order to complete the full deployment and supplier
enablement.

The original project timeline was as follows:

Approximate project start date: May 1, 2001
Conference room pilot (CRP): June 25, 2001
Live date: October 1, 2001
User groups: Home office (about 250 users)
Possible Suppliers: Boise Cascade, Corporate Express, Grainger,

Fisher Scientific
Technical integration: ERP system—JDE

The original project timeline is shown schematically in Exhibit 3. The CRP had gone as
planned, but by September 1 it was clear the system was not going to go live on October 1.

Project Management

Successful projects require a set of project management processes in conjunction with project
development activities. These processes and activities should be organized to provide a complete
set of tasks for starting the project, employing an iterative set of tasks for managing the ongoing
work effort, and closing the project. The activities and associated tasks within the management
processes are both linear and iterative in nature. They can be performed on an as-needed basis
(daily, weekly, monthly), or they can be triggered by events and run continually for a specific
period of time.

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KEL224 ARIBA IMPLEMENTATION AT MED-X

An ideal project management approach for an Ariba implementation promoted tight
integration of the business transformation and organizational change. In addition, the
organizational issues had to be coordinated with the Ariba configuration and IT infrastructure
aspects of the project and the associated parties conducting these activities.

For a successful project, the project management team had to foster effective communication
among project team members and between project teams, and manage and track multiple projects
from an executive perspective. The team also had to manage “scope creep” to meet stated project
goals and objectives and provide for faster and more effective project decisions.

The project management team also needed to provide enhanced focus on project issues/risks
and recommended actions, establish documentation standards regarding quality and consistency,
manage workflow regarding review and approval of project deliverables and work products, and
provide for better utilization of scarce project resources. Finally, it had to provide for effective
knowledge transfer between consulting and client project teams, provide a basis for an end-user
help desk, and ensure that the client was completely satisfied.

Project Plan

Implementation Technologies designed the plan, outlined below, to roll out Ariba Buyer 7.0
to 250 users in MED-X’s home office. A thorough gap analysis was conducted prior to the start
of the project that compared delivered Ariba functionality with the “to be” process and identified
the differences for review. This analysis enabled Implementation Technologies to understand the
gaps between MED-X’s current procurement system and an ideal e-procurement solution.

The gap analysis team uncovered and documented the detailed steps necessary to implement
the appropriate change management initiatives and effectively roll out Ariba Buyer. The first
project phase culminated in a CRP in which MED-X was able to see and test Ariba functionality
for the first time. Baker and other MED-X senior managers were enthusiastic about the successful
pilot test.

Project Objectives

One of the early objectives was to design and configure the initial Ariba solution that would
serve as both a “proof of concept” and learning tool to aid in the establishment of an enterprise-
wide e-procurement solution and support structure. The CRP was an integral component of the
production project as a first test of the solution.

Another objective was to provide MED-X with a low-risk and controlled entrée into
leveraging Ariba e-procurement technology and evolving best practices and to allow personnel to
start developing functional and technical expertise in the Ariba Buyer application set.

In addition, Information Technologies aimed to further define the requirements for elements
of scope not met by Ariba “out-of-the-box” functionality and develop a strategy for developing
the associated solution. This required defining a holistic and long-term integration strategy for
Ariba and MED-X’s enterprise systems. The ultimate goal targeted for after October 1 was to roll
out the common baseline solution across the home office for approximately 250 people.

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ARIBA IMPLEMENTATION AT MED-X KEL224

Project Organization

Exhibit 4 details the resources and roles required from MED-X and Implementation
Technologies to successfully staff the project. Implementation Technologies estimated a six-
month timeline to successfully deliver the customized MED-X Ariba system.

MED-X provided eight individuals to staff the project. Some of them assisted on an as-
needed basis. A MED-X project manager worked with Christopher Martin to help manage issues
for the MED-X team. Most of the individuals provided by MED-X were procurement specialists
who were responsible for working with the Implementation Technologies team to ensure Ariba
worked as intended and to deploy the system to other business users.

Implementation Technologies provided seven individuals to staff the project. A project
quality advisor was staffed part-time to provide quality management guidance throughout the
project. Martin was responsible for overall project management and leadership. He was supported
by the technical, functional, and supplier leads.

The functional lead was primarily responsible for gathering business requirements. The
technical lead was responsible for transforming MED-X business requirements into Ariba Buyer
customizations. The supplier integration expert was responsible for working with the Ariba Buyer
team and the suppliers that MED-X enabled. Finally, additional technical staff were to assist with
specific customizations, such as writing business rules and interface modifications.

Project Scope

From the following high-level scope activities, project tasks were developed to support the
delivery and execution of the final Ariba e-procurement system for MED-X.

Ariba Buyer 7.0 Configuration/Installation. Install and configure server hardware, install third-
party software (e.g., Web server), and install four initial instances of Ariba 7.0 (demo, test, CRP,
and development).

Process Design/Redesign. Validate “as is” and develop “to be” requisition-to-check and
sourcing processes. Develop gap analysis to flag functional requirements not addressed by Ariba.
Document end-to-end receiving requirements and commodity code strategy and mapping.

Integration of Ariba Buyer 7.0 via TIBCO to MQ Series. Implement needed push-and-pull
adapters.

Catalog Content On-Boarding. Implement four supplier catalogs, configure catalog hierarchy to
support catalogs implemented, and adapt UN/Standard Products and Services Code (UNSPSC).

Supplier Enablement. Work with Ariba-enabled and non-Ariba-enabled suppliers. Plan and
coordinate the supplier summit.

Rules. Implement Ariba approval rules as stated in the request for proposal and analyze
business rule requirements for the project.

Object Model and User Interface Modifications. Limit user interface (UI) modifications for the
project to those essential for capturing additional data elements not part of the standard Ariba

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KEL224 ARIBA IMPLEMENTATION AT MED-X

object model and presenting a standard format on the HTML-based requisition screens, printouts,
and vendor direct orders.

Source Data and Adapters. Manually load control data (e.g., unit of measure (UOM), currency,
user hierarchy, vendor information, purchase transactions) and assist in the designing, building,
and testing of custom interfaces to the MQ Series.

Change Management. Includes end-user communication planning, development and execution of
custom training curriculum for pilot end-user roll-out, assistance with developing training
materials based upon knowledge repository, and a change management toolkit for Ariba Buyer.

Reports. Use standard reporting functionality and begin capturing requirements for custom
reports.

Custom Functionality. Capture custom requirements in a functional gap analysis and research
offline with Ariba to identify potential solution approaches (e.g., workarounds, customizations, or
inclusion in upcoming versions of Ariba software) for future implementation.

PCards, Invoices, Matching, Receiving, Payments, and Accounting. Implement Ariba Buyer with
PCard functionality and ensure that all interfaces and process design enable efficient requisition
to payment processing.

System Testing

System testing plans were developed to validate that the system architecture and software
associated with Ariba Buyer met MED-X’s requirements. The system had to meet or exceed the
performance, reliability, maintainability, and availability expectations of MED-X. The specific
scope of system testing was as follows:

• Database server processes

• Web server processes

• Server connection processes

• Client connection processes

• Middleware client module

• Middleware server module

• Workstation processes

• Client data entry modules

• Client printing services

• Interface processes

• Accounting data load

• Human resources data load

• General ledger (GL) data load

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ARIBA IMPLEMENTATION AT MED-X KEL224

Technical Infrastructure

A schematic of the development environment for the Ariba solution is shown in Exhibit 2. To
facilitate rapid development, no other production applications could be running or were intended
to run on the Ariba servers.

Frequent Ariba server reboots were required during installation, so no other access to these
servers could be active during the installation process. Consultants needed full access
(console/physical) to the Ariba servers during installation. Full administrative rights were given
to the consultants during the installation process and were ongoing for development and test
environments (but not production).

System administrators were available for on-call support during the installation of all
instances. Prerequisite database software, personal computer hardware and software, server
hardware and software, and intranet proxy and e-mail infrastructure had been installed,
configured, and tested prior to installation of all Ariba modules. All necessary hardware and
software for the Ariba Buyer e-procurement solution were installed prior to the project kickoff,
and the workspace was prepared and designated for the team.

Data Cleansing

For the completed project, Information Technologies required MED-X to cleanse all source
data required to support the Ariba system. In addition, the generation of all associated data
conversion files had to be completed by MED-X.

The original contract specifically stated:

Managing and performing all data extracts required from host systems and the
modifications to host systems required to accept data from Ariba will be completed by
MED-X. It is MED-X’s responsibility to work with Ariba for any and all issues, should
they arise, relating to the integrity of Ariba software and patches. MED-X will provide
project personnel with knowledge of company labs’ environment to fulfill the functional
roles and responsibilities. MED-X will provide the project team with all documentation
relating to any process reengineering and strategic sourcing initiatives.

So far in the project, MED-X had lived up to the contract and had delivered on schedule.

Critical Success Factors

Critical success factors for this project included a plan for organizational change
effectiveness, quick resolution for business decisions affecting policy, and establishment of
clearly defined project objectives, since exact definitions of project scope were key to keeping the
project on time and within budget. It was also important to establish concise measures of success
and support with strong executive sponsorship so that interdepartmental issues were addressed in
an efficient manner.

Other critical success factors included understanding MED-X’s B2B strategy, understanding
current B2B projects underway, and determining methods of leveraging the results (collaborate
rather than duplicate). Another important issue was to identify and assign key individuals to assist

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KEL224 ARIBA IMPLEMENTATION AT MED-X

in understanding current legacy systems and review and challenge complex business processes to
reduce development and maintenance efforts. In addition, it was important to identify and allocate
key resources that kept the project on schedule, since key personnel losses could significantly
affect the delivery schedule.

It was also important to identify current ERP system and process weaknesses, since staged
multiple development environments were crucial to support the ability to implement changes
without disrupting other aspects of the project. For project success, it was critical to use software
version control; this is essential in a distributed development environment. Finally, the
management team had to build early consensus across the user base and establish points of
escalation or parameters to keep the team on track and working together.

Project Status to Date

After the meeting with Baker, Martin returned to his office. “Wow, Terry was really upset,”
he thought. He knew he was on shaky ground, although his gut told him the project was not
totally out of control.

The MED-X implementation had been running rather smoothly to date, but some events had
impacted it. For instance, very early in the project, a part-time MED-X staffer had been
repeatedly pulled off the project for other duties. At the end of June, immediately after the
successful CRP, there was a slight delay as the Sun server equipment showed up late. In July,
system testing of the development of legacy data interfaces was scheduled late. In the testing,
Martin’s team uncovered several things that were not working as designed. These events all
contributed to delaying unit testing and holding up the Ariba integration with the PeopleSoft
purchasing module.

Martin studied the Microsoft Project Gantt chart on his computer screen, but could not tell
exactly which component of the project was responsible for the delay. Maybe Baker had a good
idea: check the earned value. Martin sent an e-mail to the project staff to obtain the necessary
information.

The data Martin’s staff provided is given in Exhibit 5–Exhibit 7, and Exhibit 8 is the

standard Implementation Technologies earned value analysis template. Martin was not exactly
sure what to do with the data now that he had it, but he figured this was a good start.

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ARIBA IMPLEMENTATION AT MED-X KEL224

Exhibit 1: Ariba Buyer Configuration

ERP 1

HRMS

ERP 2 Ariba Buyer

Commerce Services Network

Internet

End-User Buyers

The diagram above illustrates the Ariba Buyer configuration. The Ariba B2B platform did the
following:

• Provided an infrastructure for e-commerce

• Provided an open, standards-based Internet service that allowed Ariba Buyer to connect
buyers and sellers worldwide

• Simplified and streamlined order routing and catalog management

• Promoted rapid supplier integration

• Enabled e-commerce technology such as Punchout and cXML

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KEL224 ARIBA IMPLEMENTATION AT MED-X

Exhibit 2: Ariba Buyer Development Environment

De

velopment Instance

De lopment Instanceve

De lopment Instanceve

Test Instance
Ariba Buyer

Production System

Ongoing Development
C nges, Unit Test, and

Debug

Integration Test and
Debug

Final Test and
Debug

Final
Promotion

ha

This diagram illustrates a high-level approach to development. Ariba recommended creating
three types of instances: development, test, and production (the production instance was the Ariba
Buyer production system). Changes could be made first in development instances and then
merged into a test instance, and finally moved into the Ariba Buyer production system, although
these activities often took place concurrently.

Exhibit 3: Project Timeline
This chart outlines the project timeline for MED-X’s Ariba implementation. The project

began in May and the go-live date was October 1, 2001. The CRP was scheduled for June 25.
This was the first time that the Ariba e-procurement system, customized for MED-X, was
functionally demonstrated.

May June July Aug Sep
October
Go-Live

Plan …