18 February 2010

A New ERA in ERP - Part 2


How can we make it right?

First of all, we should begin by clarifying the proper roles and boundaries in the arrangements between vendor/VARs and you, the buyer. W. Edwards Deming once said, “It’s management’s job to know.” That is a sweeping statement, but I am absolutely convinced that it is true. If you are an executive manager (meaning you have authority to “execute” – to take action), then it is your job to know the impact (or potential impact) of every action you undertake. It is not the vendor’s or VAR’s job to tell you with certainty impact of your actions regarding his or her product or service in your particular circumstances.
So, what is the role of the vendor/VAR?
The vendor/VAR should be fully equipped to understand what the product or service under consideration for purchase is capable of doing – including being fully aware of its limitations. Furthermore, the vendor/VAR should be equipped to help guide your management team into a rational evaluation of the benefits your organization might receive through the proper application of the product or service under consideration. In my opinion, the evaluation assistance should not be predicated on sweeping generalizations. Rather, the vendor/VAR should be willing and able to provide proof of concept based on what your knowing management team has concluded is the change required to be regarded as “improvement” or “sufficient improvement” in some measurable way.


If your management team has determined that your warehouse operations can presently process (i.e., pick, pack and ship) an average of 68.7 shipment lines per hour, but with significant growth on the horizon, your team has decided that you will need to ship an average of about 100 lines per hour (a 45.6% improvement) without a change in personnel or the number of persons staffing this function, then the vendor/VAR should be able to demonstrate to you – in a proof of concept environment – that their technologies will, in fact, help your current staff achieve an average of 100 lines per hour.
By the way, the buyer’s management team should also know, by this point in the process, the estimated value of these three critical factors:
·         delta-T: The change in Throughput [T], where T = Revenue less Truly Variable Costs
·         delta-OE: The change in Operating Expenses [OE], which may be implied to be zero in the scenario stated above
·         delta-I: The change in Inventory or demand for other Investment, which would be the “capital budget” the management team has established for the purchase and implementation of the new technology in order to achieve a predetermined ROI
These three important financial metrics come together in the following formula:
 By assuming these appropriate roles and division of labor, the vendor/VAR avoids the risk of making claims about ROI that the product might be able to deliver, but may fail to deliver due to circumstances beyond his control in the customer’s environment. Similarly, you and your management team avoid making rash and risky assumptions about ROI predicated on “averages” and other “promises” insinuated by the vendor/VAR. Both parties know precisely where they stand in the arrangement and, yet, an ROI has been effectively calculated.

On the need for technology vendors to shift from selling “products” to selling “solutions”

A lot of salespeople who presently work for technology companies are going to throw stones at me for this, so let me get some clarifying statements on the table right away:
·         I know that there are technology firms, and even individual salespeople, that are 100% genuine in the desire to sell “solutions” rather than “products,” and this is to be applauded.
·         I know that, in general, salespeople at technology firms get compensated for selling their technologies and not for selling “solutions” – which “solution sale” cannot be measured.
·         I know that technology salespeople can and do walk away from prospects where it is abundantly clear that the sale of their firm’s technology would not be a “solution” for the particular prospect in question.

“Solution selling” – so-called

Now I know that so-called “solution selling” is all the rage in the technology industry. Every firm in the industry certainly wants to be known for selling “solutions” and not just their particular brand of technology. Nevertheless, the process described as “solution selling” has its limitations, even when properly and diligently applied by conscientious practitioners.
Consider the fact that no matter how long a salesperson is engaged with you as a client or a prospect, there will always be things that the salesperson does not know about your firm and how it works, about your industry, and about your particular environment, people, and intentions with the product under consideration. On the other side of the same coin, there will always be things that you and your management team do not know about the product you are considering – its capabilities, its capacities, its limitations, and more.
This is not to suggest malice or subtlety on the part of either party. The salesperson may be as honest as the day is long and full of good intentions. Nevertheless, lacking clairvoyance or omniscience, there will be questions that are not asked on both sides of the pending transaction that do not get asked. And, these questions do not get asked simply because neither party ever thought to ask them because neither party – at the time – felt that the question had any relevance given their understandings of the circumstances at the time.
The problem with “solution selling” is that it confuses the roles and boundaries once again. The process implies that the vendor/VAR knows and understands more about the client or prospect’s business and environment than he or she does. It implies, in fact, that the vendor/VAR knows and understands the actual matters of what needs to change in order for the organization (as a whole) to improve – where “improvement” is defined as making more money tomorrow than they are making today (in a for-profit scenario). I say this because, only then – only if and when the vendor/VAR actually understood what needs to change – would the salesperson be in a position to offer an actual and effective “solution.”
However, knowing what needs to change to make the enterprise – as a whole and integrated system – improve is the purview of you and your executive management team and not that of the vendor/VAR. Once these roles are re-clarified and each party in the engagement takes proper responsibility for their part of the “knowing,” then real and effective “solutions” may be the result.

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

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