8 ms·

DHL Global Forwarding Failed on Software, and That’s Why It’s Being Sold Cheaply

74 points by howrude 11y ago

treve 11y ago
Seems like a really blatant ad to me. The author's best guess on why DHL failed happens to be exactly what the author's key selling point is.
- thedogeye 11y ago
  All journalism is content marketing.
thedogeye 11y ago
Ryan Petersen here, author of this article. I should clarify one thing: I don't believe the rumored sales price of $4B. It's just too cheap. If any PE guys (or Google/Amazon/Alibaba people) out there is reading this and wants to back me in buying the business and giving it another go, I am game.
- iyn 11y ago
  Thanks for the article, but as a person that knows next to nothing about the logistics, I'd like to read more about the topic. For example, what kind/types of software company such as DHL uses? What are the biggest problems (I guess complexity is high on the list) in improving its software side? What could be some creative solutions to this 'software fail'?
  - throwaway_xx9 11y ago
    Most enterprise projects fail, either in terms of budget, time or functionality. Pretty much any telephone billing system is late or shelved, for example. In this case, you have a shipping conglomerate with divisions that can't talk to each other.
    - contingencies 11y ago
      Have more confidence to comment on your real account, it's good to see people making sweeping generalizations based upon personal experience! People who can present and back opinions are valuable. None of this anonymous cog-in-wheel stuff. Incidentally, if you think they're all late or shelved, and have some experience with them, I'd consider combining forces to develop and market a new one. I have prior multilingual call-center development experience (hardware, SIP, fax, in+outbound, reporting, customer ID from caller ID, etc.) and extensive finance experience.
  - bdz 11y ago
    SAP what else http://www.pcworld.com/article/3010156/sap-dont-blame-us-for-dhls-ailing-logistics-system.html http://www.pcworld.com/article/3010156/sap-dont-blame-us-for... Actually I don't even know how SAP became so popular it's horrible
    - coleca 11y ago
      Oracle ERP is just as bad. At $job-2 they spend $500m and 5 years to get zero modules of Oracle Retail installed and eventually decided to just continue on with the mainframe legacy systems. The latest Software Engineering Radio has an excellent discussion of the topic of large scale IT failure aka black swans: http://www.se-radio.net/2016/02/se-radio-epislode-250-jurgen-laartz-and-alexander-budzier-on-why-large-it-projects-fail/ http://www.se-radio.net/2016/02/se-radio-epislode-250-jurgen...
      - cat-dev-null 11y ago
        LMAO. A similar situation happened at Stanford about 10 years ago ($150-200MM usd frittered away). Projects ran by vampiric consultants whom bill hourly -> "big deliverable never" -> ~ gigabuck$. Smart tech buyers don't get locked into unbounded contracts without milestones and don't let drivers of project management to an external party. Instead, focus on customer need driven, fixed contracts and incremental milestones are generally a better approach. SAP/Oracle/PeopleSoft/BMC/etc. implementations often tend to fall into these traps when they're poorly managed and/or when the buyers are suckers. Business unit owners and IT managers with backbones are needed to hold vendors accountable to deliver on promises, milestones and deadlines, or payment is not disbursed.
    - JBReefer 11y ago
      Support contracts and beautiful sales people, same as Accenture
    - cm2187 11y ago
      My guess is the "no CTO got sacked for choosing SAP" marketing. Business people are rightly scared of large IT projects, and SAP is the safe, german way. The other thing is that SAP does not (or at least did not) offer consulting services / configuring their software, they just sell the software, unlike most of their competitors. What it means is that all of the IT consultants will tend to push clients to choose SAP vs a competitor because it means more business for themselves. That's from my experience 10y ago, I don't know if it's still the case.
- rajacombinator 11y ago
  Pretty mind boggling. How does one spend $1 billion on software and fail? I guess this is a somewhat misleading accounting statement based around maintaining the existing software orgs of the merged companies, not building new software. It makes me wonder though, with an unlimited budget and willingness to pay a lot, what could one achieve in one year? If you offered 200k base, 100k signing, and 1 mil bonus for completion of goals within 1 year, that should give you access to pretty much all the top tier programmers in the world. Hire 50 of those guys and you're only at 65 mil. Maybe you need a really incredible guy running it so you offer him a 30 mil bonus. Now you let those guys attack the problem and it's hard to imagine they couldn't fix things up at DHL within 1 year. Any known examples of orgs trying this approach?
  - HillRat 11y ago
    A better question is, "How do you spend $1 billion on software and succeed?" The fundamental problem isn't the quality of your developers, it's the fact that you have to coordinate multiple environments composed of mutually-irreconcilable workflow and processes, legacy systems never designed to talk to anything, and real-world problems that aren't amenable to solutions at scale. Big Bang projects are almost impossible to get off the launchpad in a single piece, so can we learn from the ones that actually make it to orbit? Or is there an inverse Tolstoy effect here -- every failed project is alike, but every successful project is successful in its own way?
  - newman314 11y ago
    Rumor has it that Halliburton spent almost $100mil ( or was it $900mil I forget) on trying to do an ERP upgrade so I'm not surprised at all. It's not just about the money though, it's also about having the mandate to get shit done (and probably hurting a bunch of feelings/fiefdoms) along the way. Keep in mind, there's not this one magical system that keeps things going that by getting a bunch of really smart guys will right itself. Often times, it's a combination of COTS and custom software that has grown organically over the years. So take for example, one of my previous projects, which was to spin up new IT for a PE spinoff. There were over 70 major applications to account for with tons of associated business processes, functionality etc. It was a massive undertaking but yes, it's doable.
- tyingq 11y ago
  >> I don't believe the rumored sales price of $4B. It's just too cheap Interesting. I have no expertise in this space, but someone that does says $5B is a generous valuation, and $4B is correct. "“It is a rich valuation, but is not prohibitive, particularly given that Japanese companies tend to overpay in mergers and acquisitions. At $5bn, DHL Global Forwarding, which has paltry margins, would be valued at about 0.33x sales and 15x EBIT, assuming sales and EBIT have not changed much year-on-year...A $4bn price tag would make even more sense, based on fundamentals.”[1] [1]http://theloadstar.co.uk/deutsche-post-ponders-sale-dhl-global-forwarding-japan-post-likely-buyer/ http://theloadstar.co.uk/deutsche-post-ponders-sale-dhl-glob...
clumsysmurf 11y ago
"The company then spent another $1 billion in a failed attempt to build a unified IT backbone to tie together the acquisitions. Late last year the company killed the project, known as New Forwarding Environment, deciding to stick with its legacy systems." A similar thing happened when DHL acquired Airborne. http://www.informationweek.com/dhl-airborne-didnt-take-the-easy-road-to-post-merger-it-integration/d/d-id/1044574 http://www.informationweek.com/dhl-airborne-didnt-take-the-e... After the smoke cleared, Infosys had the most understanding of the systems (along with solution support) but domain knowledge and software expertise slipped away. If I had to describe the atmosphere, it could be summed up by Nicholas Carr's article "IT doesn't matter" https://hbr.org/2003/05/it-doesnt-matter https://hbr.org/2003/05/it-doesnt-matter Eventually, DHL terminated US domestic shipping http://www.bloomberg.com/news/articles/2011-04-14/dhl-reboots-in-u-s-after-9-6-billion-bleed-freight-markets http://www.bloomberg.com/news/articles/2011-04-14/dhl-reboot...
_JamesA_ 11y ago
Slightly OT but the history of DHL co-founder Larry Hillblom[1] makes for some interesting reading. [1]: https://en.wikipedia.org/wiki/Larry_Hillblom https://en.wikipedia.org/wiki/Larry_Hillblom
- mikeash 11y ago
  Wow, you're not kidding. It didn't even stop when he died.
- JBReefer 11y ago
  What a crazy life!
- nightbrawler 11y ago
  Thanks for sharing that!
  - tim333 11y ago
    http://www.nytimes.com/2012/03/04/business/king-larry-the-bizarre-road-of-a-billionaire-review.html http://www.nytimes.com/2012/03/04/business/king-larry-the-bi... is also entertaining
vt240 11y ago
I always found DHL Global Forwarding a pleasure to work with, because it was so personal. People answer your calls. I'm sure that's not great for profits or high volume customers.
kyllo 11y ago
The company then spent another $1 billion in a failed attempt to build a unified IT backbone to tie together the acquisitions. Late last year the company killed the project, known as New Forwarding Environment, deciding to stick with its legacy systems. In an object lesson on the risks entailed in roll-up strategies dependent on massive IT integrations, Deutsche Post now appears ready to cut its losses and sell the division at a huge discount. Consider that DHL Global Forwarding generated more than $16.5 billion in revenue in 2014. At a purchase price of $4 billion, that’s a sales multiple of just 0.24X. Expeditors, its strongest rival in the U.S. market, currently trades at 1.3X revenue. If DHL Global Forwarding could be priced at Expeditors’ revenue multiple, its price would exceed $21 billion. Worth noting that Expeditors (my former employer) has the complete opposite strategy compared to DHL, in both business (organic growth with no major acquisitions) and IT (homegrown systems with no major COTS purchases). Basically, in the build vs. buy debate, Expeditors has been on the side of "build" while DHL has been on the side of "buy." This is far from the only difference between the two companies, but I think it's been a major factor in their fates.
kakoni 11y ago
Was Accenture[1] somehow involved in this backbone? [1]: https://www.accenture.com/t20150523T030128__w__/us-en/_acnmedia/Accenture/Conversion-Assets/DotCom/Documents/Global/PDF/Dualpub_4/Accenture-Digital-Future-For-LSPs.pdf https://www.accenture.com/t20150523T030128__w__/us-en/_acnme...
timwaagh 11y ago
integration architecture for old big systems is so difficult people make a very good living if they´re any good at this. Software architects in that field can make up to five times as much as a regular senior developer. I guess this article shows why.

74 points by howrude 11y ago

treve 11y ago

Seems like a really blatant ad to me. The author's best guess on why DHL failed happens to be exactly what the author's key selling point is.

thedogeye 11y ago
All journalism is content marketing.

thedogeye 11y ago

Ryan Petersen here, author of this article. I should clarify one thing: I don't believe the rumored sales price of $4B. It's just too cheap. If any PE guys (or Google/Amazon/Alibaba people) out there is reading this and wants to back me in buying the business and giving it another go, I am game.

iyn 11y ago
Thanks for the article, but as a person that knows next to nothing about the logistics, I'd like to read more about the topic. For example, what kind/types of software company such as DHL uses? What are the biggest problems (I guess complexity is high on the list) in improving its software side? What could be some creative solutions to this 'software fail'?
- throwaway_xx9 11y ago
  Most enterprise projects fail, either in terms of budget, time or functionality. Pretty much any telephone billing system is late or shelved, for example. In this case, you have a shipping conglomerate with divisions that can't talk to each other.
  - contingencies 11y ago
    Have more confidence to comment on your real account, it's good to see people making sweeping generalizations based upon personal experience! People who can present and back opinions are valuable. None of this anonymous cog-in-wheel stuff. Incidentally, if you think they're all late or shelved, and have some experience with them, I'd consider combining forces to develop and market a new one. I have prior multilingual call-center development experience (hardware, SIP, fax, in+outbound, reporting, customer ID from caller ID, etc.) and extensive finance experience.
- bdz 11y ago
  SAP what else http://www.pcworld.com/article/3010156/sap-dont-blame-us-for-dhls-ailing-logistics-system.html http://www.pcworld.com/article/3010156/sap-dont-blame-us-for... Actually I don't even know how SAP became so popular it's horrible
  - coleca 11y ago
    Oracle ERP is just as bad. At $job-2 they spend $500m and 5 years to get zero modules of Oracle Retail installed and eventually decided to just continue on with the mainframe legacy systems. The latest Software Engineering Radio has an excellent discussion of the topic of large scale IT failure aka black swans: http://www.se-radio.net/2016/02/se-radio-epislode-250-jurgen-laartz-and-alexander-budzier-on-why-large-it-projects-fail/ http://www.se-radio.net/2016/02/se-radio-epislode-250-jurgen...
    - cat-dev-null 11y ago
      LMAO. A similar situation happened at Stanford about 10 years ago ($150-200MM usd frittered away). Projects ran by vampiric consultants whom bill hourly -> "big deliverable never" -> ~ gigabuck$. Smart tech buyers don't get locked into unbounded contracts without milestones and don't let drivers of project management to an external party. Instead, focus on customer need driven, fixed contracts and incremental milestones are generally a better approach. SAP/Oracle/PeopleSoft/BMC/etc. implementations often tend to fall into these traps when they're poorly managed and/or when the buyers are suckers. Business unit owners and IT managers with backbones are needed to hold vendors accountable to deliver on promises, milestones and deadlines, or payment is not disbursed.
  - JBReefer 11y ago
    Support contracts and beautiful sales people, same as Accenture
  - cm2187 11y ago
    My guess is the "no CTO got sacked for choosing SAP" marketing. Business people are rightly scared of large IT projects, and SAP is the safe, german way. The other thing is that SAP does not (or at least did not) offer consulting services / configuring their software, they just sell the software, unlike most of their competitors. What it means is that all of the IT consultants will tend to push clients to choose SAP vs a competitor because it means more business for themselves. That's from my experience 10y ago, I don't know if it's still the case.
rajacombinator 11y ago
Pretty mind boggling. How does one spend $1 billion on software and fail? I guess this is a somewhat misleading accounting statement based around maintaining the existing software orgs of the merged companies, not building new software. It makes me wonder though, with an unlimited budget and willingness to pay a lot, what could one achieve in one year? If you offered 200k base, 100k signing, and 1 mil bonus for completion of goals within 1 year, that should give you access to pretty much all the top tier programmers in the world. Hire 50 of those guys and you're only at 65 mil. Maybe you need a really incredible guy running it so you offer him a 30 mil bonus. Now you let those guys attack the problem and it's hard to imagine they couldn't fix things up at DHL within 1 year. Any known examples of orgs trying this approach?
- HillRat 11y ago
  A better question is, "How do you spend $1 billion on software and succeed?" The fundamental problem isn't the quality of your developers, it's the fact that you have to coordinate multiple environments composed of mutually-irreconcilable workflow and processes, legacy systems never designed to talk to anything, and real-world problems that aren't amenable to solutions at scale. Big Bang projects are almost impossible to get off the launchpad in a single piece, so can we learn from the ones that actually make it to orbit? Or is there an inverse Tolstoy effect here -- every failed project is alike, but every successful project is successful in its own way?
- newman314 11y ago
  Rumor has it that Halliburton spent almost $100mil ( or was it $900mil I forget) on trying to do an ERP upgrade so I'm not surprised at all. It's not just about the money though, it's also about having the mandate to get shit done (and probably hurting a bunch of feelings/fiefdoms) along the way. Keep in mind, there's not this one magical system that keeps things going that by getting a bunch of really smart guys will right itself. Often times, it's a combination of COTS and custom software that has grown organically over the years. So take for example, one of my previous projects, which was to spin up new IT for a PE spinoff. There were over 70 major applications to account for with tons of associated business processes, functionality etc. It was a massive undertaking but yes, it's doable.
tyingq 11y ago
>> I don't believe the rumored sales price of $4B. It's just too cheap Interesting. I have no expertise in this space, but someone that does says $5B is a generous valuation, and $4B is correct. "“It is a rich valuation, but is not prohibitive, particularly given that Japanese companies tend to overpay in mergers and acquisitions. At $5bn, DHL Global Forwarding, which has paltry margins, would be valued at about 0.33x sales and 15x EBIT, assuming sales and EBIT have not changed much year-on-year...A $4bn price tag would make even more sense, based on fundamentals.”[1] [1]http://theloadstar.co.uk/deutsche-post-ponders-sale-dhl-global-forwarding-japan-post-likely-buyer/ http://theloadstar.co.uk/deutsche-post-ponders-sale-dhl-glob...

clumsysmurf 11y ago

"The company then spent another $1 billion in a failed attempt to build a unified IT backbone to tie together the acquisitions. Late last year the company killed the project, known as New Forwarding Environment, deciding to stick with its legacy systems." A similar thing happened when DHL acquired Airborne. http://www.informationweek.com/dhl-airborne-didnt-take-the-easy-road-to-post-merger-it-integration/d/d-id/1044574 http://www.informationweek.com/dhl-airborne-didnt-take-the-e... After the smoke cleared, Infosys had the most understanding of the systems (along with solution support) but domain knowledge and software expertise slipped away. If I had to describe the atmosphere, it could be summed up by Nicholas Carr's article "IT doesn't matter" https://hbr.org/2003/05/it-doesnt-matter https://hbr.org/2003/05/it-doesnt-matter Eventually, DHL terminated US domestic shipping http://www.bloomberg.com/news/articles/2011-04-14/dhl-reboots-in-u-s-after-9-6-billion-bleed-freight-markets http://www.bloomberg.com/news/articles/2011-04-14/dhl-reboot...

_JamesA_ 11y ago

Slightly OT but the history of DHL co-founder Larry Hillblom[1] makes for some interesting reading. [1]: https://en.wikipedia.org/wiki/Larry_Hillblom https://en.wikipedia.org/wiki/Larry_Hillblom

mikeash 11y ago
Wow, you're not kidding. It didn't even stop when he died.
JBReefer 11y ago
What a crazy life!
nightbrawler 11y ago
Thanks for sharing that!
- tim333 11y ago
  http://www.nytimes.com/2012/03/04/business/king-larry-the-bizarre-road-of-a-billionaire-review.html http://www.nytimes.com/2012/03/04/business/king-larry-the-bi... is also entertaining

vt240 11y ago

I always found DHL Global Forwarding a pleasure to work with, because it was so personal. People answer your calls. I'm sure that's not great for profits or high volume customers.

kyllo 11y ago

The company then spent another $1 billion in a failed attempt to build a unified IT backbone to tie together the acquisitions. Late last year the company killed the project, known as New Forwarding Environment, deciding to stick with its legacy systems. In an object lesson on the risks entailed in roll-up strategies dependent on massive IT integrations, Deutsche Post now appears ready to cut its losses and sell the division at a huge discount. Consider that DHL Global Forwarding generated more than $16.5 billion in revenue in 2014. At a purchase price of $4 billion, that’s a sales multiple of just 0.24X. Expeditors, its strongest rival in the U.S. market, currently trades at 1.3X revenue. If DHL Global Forwarding could be priced at Expeditors’ revenue multiple, its price would exceed $21 billion. Worth noting that Expeditors (my former employer) has the complete opposite strategy compared to DHL, in both business (organic growth with no major acquisitions) and IT (homegrown systems with no major COTS purchases). Basically, in the build vs. buy debate, Expeditors has been on the side of "build" while DHL has been on the side of "buy." This is far from the only difference between the two companies, but I think it's been a major factor in their fates.

kakoni 11y ago

Was Accenture[1] somehow involved in this backbone? [1]: https://www.accenture.com/t20150523T030128__w__/us-en/_acnmedia/Accenture/Conversion-Assets/DotCom/Documents/Global/PDF/Dualpub_4/Accenture-Digital-Future-For-LSPs.pdf https://www.accenture.com/t20150523T030128__w__/us-en/_acnme...

timwaagh 11y ago

integration architecture for old big systems is so difficult people make a very good living if they´re any good at this. Software architects in that field can make up to five times as much as a regular senior developer. I guess this article shows why.