17 February 2010

A New ERA in ERP - Part 1

Jan Hichert, CEO of Astaro Corporation recently wrote, “[A]s a slow recovery begins it is becoming clear the emerging economy will not be the same as we became accustomed to before the recession and businesses will not be run as they were prior to the economic collapse in late 2008. Budgets will remain small and despite growth, businesses will continue to be wary of investing in new solutions causing them to scrutinize the cost and benefit of new products. Because of this change, business to business vendors, especially technology vendors will need to shift the business model from providing products to providing solutions and focusing on customer needs rather than product capabilities. Vendors that are able to provide low cost or even free business solutions like Vistaprint, will be better positioned to survive and thrive in this new economy.”
Mr. Hichert’s words set forth three salient factors surrounding SMBs (small-to-mid-sized businesses) in the new economic era in which we find ourselves operating today:
1.       Smaller budgets and increased return-on-investment (ROI) vigilance on the part of the technology buyers
2.       Increased need for technology vendors to shift dramatically from selling “products” to selling “solutions”
3.       Vendors that are able to provide low-cost or no-cost solutions will be better positioned to survive and thrive

On smaller budgets and increased attention to ROI

Some history

Since the emergence of PC-based accounting and ERP (enterprise resource planning) applications for SMBs beginning in the 1980s, software vendors and resellers (VARs) have gone through some schizophrenia over the whole matter of talking about ROI with their prospects and customers. In the early days, there software vendors and VARs offered considerable “hype” about the ROI available to those who adopted computer-based accounting solutions. Unfortunately, it was the vendors or the VARs doing the calculations and, when some firms did not reap the benefits anticipated from the so-called “promises” made by the vendors, law suits ensued. Of course, the legal wrangling, and the fallout thereof, squelched much of real and legitimate discussion regarding the benefits that should accrue to the organization that buys and implements new technology.
Soon, technology vendors were making only the vaguest of references to ROI with benefits being stated in the roundest of numbers using remarks that include many qualifications and limitations. Frequently there were expressions of “results obtained by others” without reference to who these “others” might be, nor an opportunity – in most cases – for the prospective buyer to discuss the specifics surrounding these published “results” with a living reference. Gradually, even that dissipated into merely discussions around “the ways” in which an organization “might” reap benefits from the purchase of this technology or that one, but even the language of assurance slipped away.
Of course, this diminishing willingness on the part of technology vendors to discuss solid ROI calculations with their prospects was accompanied by an increasing number of troubling stories appearing in trade – and even mainstream – publications about ERP implementations going vastly over budget, not producing business benefits that had been anticipated, or both. Some ERP deployments even failed entirely – usually after the expenditure of some millions of dollars – and the proverbial “plug was pulled” on some of these projects. Even more devastatingly (though rare), there was the occasional firm that, itself, failed to survive after its ERP implementation went awry.

Where this went wrong

There any number of directions one might point a finger of blame for this whole matter of technology and return-on-investment going wrong. However, allow me to suggest a few that might be worthy of consideration:
·         Technology vendors/VARs – For better or for worse, many folks that became involved in the explosion of PC-based technologies over the last 30 years or so did so because they simply enjoyed technology. This makes sense, and I have nothing against one enjoying the work they do. In fact, I believe it should be so. However, some of these vendors and VARs were convinced that the technologies they offered were the answer to every question. Some of them sincerely believed that if a process could be automated, then it should be automated.

Since moving companies off paper-based accounting processes, or even off very costly mini- or mainframe computing systems, was easy to sell and typically allowed companies to grow several times over without dramatically increasing back-office overhead, ROI was a “no-brainer” and most companies that purchased were virtually assured to benefit – at least enough to make it worth the buyer’s investment, even if not as much as buyers had hoped before closing the deal.

This ease-of-selling and ease-of-ROI caused many technology vendors to get rich. It also caused far too many of them to get lazy. “ROI? Absolutely! No problem. You’ll probably get between x% and y% increase in revenues and your operating expenses will probably decrease by between n% and m%. You’ll be sittin’ pretty. Trust me.” Thus was the standard sales chatter, and many first- or second-time buyers of PC-based accounting and ERP technologies bought it – hook, line and sinker.

·         The SMB executives – Just like the vendors sold it, the SMB executives bought it. Both sides of the transaction were pretty certain that new technology worked just like “new and improved” additives for your car’s engine. Just pour it in and the engine would run smoother, quieter, longer and with less friction. So, these vendors and executives poured in new technologies from time to time expecting the companies to run smoother, more efficiently, and make more money – it was as simple as that.

·         The SMB IT departments – Unfortunately, just like folks getting into PC-based technologies as a vendor or VAR, many of the people who got into corporate IT got into the field for exactly the same reason as the vendors/VARs. They simply liked working with the latest and greatest technologies – and, for the most part, they were good at it.

Nevertheless, this led many corporate IT staffers and managers to take on the same sense that engulfed the vendor/VAR community: namely, if it can be automated, then it should be automated. In fact, many corporate IT staff and managers actually moved pretty fluidly back and forth between working for vendors/VARs and working on IT departments. Some of the relationships even bordered on incestuous and provided little cause for rethinking the ROI value of technologies available or proffered by the vendors.

[To be continued]
(c)2010 Richard D. Cushing

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