Sara Lee software recipe is heavy on SAP

Just two weeks after taking over as chief executive at Sara Lee, Brenda Barnes was trying to sell Wall Street on the company when her pitch was at least partly undone by a software glitch.

At a late-February presentation at the Consumer Analyst Group of New York annual conference, Barnes laid out the company's plan to essentially cut itself in half through a series of spinoffs and sales over the next year and a half. Although mature consumer-products companies routinely tinker with their portfolios, the overhaul unveiled by Chicago-based Sara Lee--which amounts to completely cleaning out its closet and significantly thinning its pantry--is nearly unprecedented.

So Barnes had a tough sell. Nonetheless, she was plugging away. She told the assembled investors, who oversaw tens of billions of dollars in funds, that the new "lean enterprise" would be more efficient and innovative than the dowdy old Sara Lee, whose stock has flattened over the past four years.

"ConAgra just gagged on SAP, and Sara Lee is loading its plate with it."

--a money manager at the CAGNY conference

Given the myopia on Wall Street, however, it was perhaps too much to ask for the assembled money managers and sell-side analysts to buy into a restructuring plan that is expected to take place over the next half-decade. But if the five-year reorganization strained credibility, Barnes' next announcement positively snapped it.

While undertaking this massive restructuring, Barnes said, Sara Lee also would roll out a systemwide implementation of SAP's enterprise resource planning software, costing tens of millions of dollars over the next few years. The awkward silence following the announcement gave way to a few snickers and snide comments from some of the more cynical Wall Streeters in the audience.

After all, just 24 hours earlier on the same stage, an executive from another company, ConAgra Foods, had told the audience that snafus with an SAP system were a main reason the company would miss earnings. In the words of one money manager at the CAGNY confab, "ConAgra just gagged on SAP, and Sara Lee is loading its plate with it."

A "patchwork quilt" of software
With a mix of five major software systems, it's certainly a rational business decision for Sara Lee to look to standardize on a single technology. Currently, software from Manugistics Group, J.D. Edwards (now owned by Oracle), Lawson Software, Movex and another tech provider lace throughout the company's operations in some 58 countries around the world.

All that one-off software means that Sara Lee typically spends "the majority of our IT budget on just maintaining our patchwork quilt," Barnes acknowledged during her CAGNY presentation.

Centralizing the technology, along with procurement and other operations, could save the company $210 million annually within five years, she projects. Already in its next fiscal year, which starts in July, costs should drop by $30 million.

Additionally, Sara Lee hopes that the single technology platform will lend consistency and visibility to the company's operations.

That is, of course, if all the software runs as seamlessly as planned. But could that be a case of pie-in-the-sky thinking at the cheesecake company?

"We're early on in the process ... so there really isn't much we can say about the SAP implementation at this point," says Sara Lee spokeswoman Julie Ketay. She declined to discuss the specifics beyond saying it will be "companywide, throughout a wide variety of functions."

"Because it's the global leader in (enterprise resource planning) systems, SAP gets a bad rap."

--Mike Dominy, Yankee Group

Sara Lee does point out that it already has some of its European operations running SAP, an installation spearheaded by its current chief financial officer, Theo de Kool, who will also take a role in the rollout.

Still, that goes only a little way to ease concerns about Sara Lee's plans.

"It's clearly a risk, as we've seen so many other companies stumble and come undone while doing it," says D.A. Davidson analyst Tim Ramey.

There certainly isn't a shortage of botched software installations that have bugged all sorts of consumer products companies.

ConAgra noted the messy software installation cost it about $25 million, about half its earnings shortfall in the most recent quarter. Hershey Foods lost business around Halloween in 1999, when some of its SAP order-management software conked out, meaning bags of its candy weren't on hand for trick-or-treaters. And just earlier this year, the software that publisher Penguin Group uses to ship and track its books left some orders AWOL, costing parent company Pearson some $17 million in charges.

"Because it's the global leader in (enterprise resource planning) systems, SAP gets a bad rap," says Mike Dominy, director of the enterprise services unit at