Burst bubble

High hopes for Covisint couldn’t override the lack of strong stakeholder analysis and a feasible risk management plan

 

LAUNCH

CASE ANALYSIS:

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In 2000, the world's three largest automakers, General Motors Corp., Ford Motor Co., and DaimlerChrysler AG, joined forces to create what became Covisint, a South-field, Mich., USA-based joint venture charged with developing a platform for procuring automotive components online.

Representing a procurement volume of $250 billion, the joint venture was projected to save Covisint manufacturing members up to 10 percent—or $500 to $1,000 per car. The project required developing and implementing a service line and procurement-related software solutions, including a portal, a messaging system and a problem-solving software tool to ease production issues between manufacturers and suppliers. Stakeholders also sought an online parts catalog and an auction service. By 2001, Renault, Nissan Motor Co., and equipment-maker Delphi had joined the highly-touted project.

Covisint is an example of a company driven by technology and high hopes.

Investors put $350 million into the venture. But after its optimistic initiation, the venture failed to execute. It never gathered real momentum, and employee turnover was high. Between April 2001 and June 2003, Covisint employed four chief executive officers.

The online auction component eventually was sold to competitor FreeMarkets Inc. Leaders abandoned the online parts catalog, and the company and its remaining products and services were sold to Compuware Corp., Detroit, Mich., USA.

Covisint is an example of a company driven by technology and high hopes, according to Oliver F. Lehmann, PMP, vice president of professional development for PMI's Troubled Projects Specific Interest Group. The business blueprint developed when Internet ventures were highly profitable. At first, Covisint's project managers didn't worry about budgets, concentrating solely on developing and implementing software. They relied on shareholding companies' wish to secure their investments by restricting purchasing processes on Covisint's systems. This overly optimistic outlook meant the team failed to conduct repeated stakeholder analyses, and risk management seemed unnecessary.

When the economic climate changed at the beginning of the new millennium, Covisint's customers changed their strategies too. By using the online platform, the car makers already had recovered a significant part of their investment and looked for further savings. While the relevance of Covisint was downgraded to that of a connectivity hub, the original equipment manufacturers lost their confidence too. Covisint became just one system of many and could no longer demand such a high price for its service.

Additionally, the complexity of interfaces may have been underestimated. As of February 2004, more than 25,000 companies joined the online marketplace with 135,000 active users, according to Covisint's Web site. While the company concentrated on the development of its software, it couldn't set a standard for end-to-end integration, reducing the benefit of its centralized solution. As a result, Covisint today is more a hub between corporate solutions, not an integrator. The customer value is much lower, and the return generated is far from original expectations.

Project Breakdown

Covisint: A Southfield, Mich., USA-based joint venture to develop a platform for procuring automotive components online

Major Project Players: General Motors Co., Ford Motor Co., Daimler-Chrysler AG and others

Potential ROI: System was expected to save members up to 10 percent—or $500-$1,000 per car

Scope of Work: Develop a service line and software solutions including a messaging system, problem-solving software tool, online parts catalog and auction service

Initial Investment: $350 million

Project's Fate: The online parts catalog was dropped. Competitor FreeMarkets Inc. purchased the auction service. The company was sold to Compuware Corp., Detroit, Mich., USA.

If you know of a troubled project in which a project manager could have (or did) save the day, share your lessons learned. Contact us at [email protected].

JUNE 2004 | PM NETWORK

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