The New ERP - Part 4

What executives and managers in most organizations lack is a sound "theory" about how their own organization works and responds to its environment as a "system." They know how each department works -- more or less -- but they have never really stopped to think how the "system" works as a whole.

Asked directly, most executives and managers could not tell you -- with specifics -- why three of the initiatives that they have undertaken in the last two years seem to have delivered some improvement (but not all that they expected). Nor could they describe for you precisely why another five of the initiatives they labored over delivered no measurable results -- assuming that they actually did no damage to the organization. (Of course, this whole conversation assumes that you can actually get such executives or managers to admit that things they tried produced no results, in fact. Generally, they have willingly pushed out of their mind those matters over which they have expended precious time and energy to no effect -- only to give up in disgust. Then they tried the next management fad in its place.)

"I am not yet convinced regarding the connection between 'knowledge' and 'theory,'" I hear you saying. Then consider this:

How many people had seen apples falling from trees (or witnessed similar events) for how many hundreds or thousands of years before Sir Isaac Newton postulated a "theory" about a force we call gravity? Everyone had experienced gravity and everyone had information about the effects of gravity, but until Newton, no one had any knowledge about gravity.

Once the "theory" was set forth, cause-and-effect experiments could be developed to measure the effects of gravity. Based on the results of these experiments, one could then postulate if-then correlations: if we do X, then Y should be the result.

If management is anything, it is about being able to propose actions with a predictable -- not random -- effect on the "system" to which the action is being applied.

But, what of the second wrong assumption in the chain of reasoning (in the prior post)?

It should be clear now that it is not more information that will help us manage better. Rather, it is a sound theory or logical framework by which to understand how the "system" functions and interacts with its environment. The second wrong assumption is, then, "More information means we can manage better."

The correct approach would be to say: "If we can develop a sound and effective framework or theory by which to interpret the information coming from our organization (our "system"), then we will be able to manage better."

And, since developing a theoretical framework is likely not a function that will be much enhanced by technologies, then the next step is not to rush out to buy new software or hardware. Clearly, the next step should be to find a way to develop such a sound theoretical framework.

[To be continued]

The New ERP - Part 2

So, what's wrong with traditional approaches to ERP? Why do so many ERP implementations lead to disappointing results? Why do so many companies spend so much money on new technologies and then end up reaping so little return on their investment?

Failure No. 1: Not achieving the planned return on investment (ROI)
It remains today a regrettable fact that many small to mid-sized companies considering new technologies have only the vaguest of notions about the ROI that their new investment should deliver. This is not to say that executives and managers haven't thought out ROI, or even that they may not have already "pinned a number" on the ROI that they'd like to see from the expenditure of their time, energy and money.

What they do not know -- far too frequently -- is precisely how the new technology will deliver results. They have not tied the expected results to specific improvements in Throughput, specific reductions in Investment, or specific savings in Operating Expenses. Rather, there appears to be a general consensus among executives and managers -- despite considerable evidence to the contrary -- that investments in information technologies (IT) sort of auto-magically deliver a return on investment (ROI). That, somehow, IT and automation investments bear an inherent capacity to make the company better and more profitable.

Over the more than 25 years that I have been working with IT from both sides of the desk -- as an executive and as a consultant -- there have been fewer than a handful of companies with which I have worked that actually calculated an ROI for their investment in technology. Fewer still had any measurable objectives for specific IT investments beyond some number clearly picked from the air like "increase revenues by 5%" or "cut manufacturing costs by 7%." Almost none of these firms could tie specific technology functional deployments to the expected ROI.

Given these facts, it is no wonder that traditional ERP (Everything Replacement Project) fails to deliver ROI. The executives and managers deploying the new ERP have not based their ROI expectations on much more than "gut feelings" and some vague sense that having more data will make them better managers.

Failure No. 2: "Go-live" delayed inordinately
Substantial delays to "go-live" in Everything Replacement Projects (traditional ERP) are generally attributable to one or more of the following factors:

• Poor decisions related to customizations or modifications -- when they are selected; how the program code is designed, developed and managed; and the methods chosen for testing and deployment
  
  
• Executive management's improper view of the goals and objectives of a valid ERP project -- thus leading to out-of-control scope creep, usually with absolutely no correlation to project ROI
  
  
• The organization being overwhelmed by an Everything Replacement Project -- rather than being focused on leveraging specific technologies for the benefit of the "system" (i.e., the organization) as a whole

[To be continued]

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Getting IT right!

Writing in InfoWorld magazine (6 Jan 2003), Ephraim Schwartz said:

"The goal of IT, since its inception, has been the timely (a relative term) delivery of information to those who need it. Behind this goal is an unspoken belief in technology: If IT could deliver to its internal enterprise customers all of the information all of the time, it would be impossible for them to make a mistake."

Understanding the difference between data and information

More likely than not, many of the folks working in your organization's IT department don't actually know the difference between data and information. To be fair, they are not alone: Many people working as supervisors, managers, and executives probably don't recognize the difference between data and information either.

• Data are the bits of information your various systems store. The system may be any kind of system -- not necessarily and IT-related system. Those old metal filing cabinets still found around many offices store data, just like that 160 gigabyte hard-drive on your desktop computer stores data.

• Information is data transformed (e.g., gathered, analyzed, collated, sorted, coded) to allow the user to rapidly digest and comprehend the implications of the underlying data for timely, accurate, and effective decision-making.

For example, a 300-page report printed on green-bar paper, like an old mainframe computer used to spit out for us at a firm I worked at years ago, is data. Make no mistake, the data -- in the 300-page report -- contained everything we needed to know to make an effective decision. However, it its form as a report, it was not readily digested and comprehended for effective decision-making.

At another firm for which I consulted a few years ago, one of the firm's key production managers would take home several reports from their existing system almost every night. Working at home in the evenings, he would comb through these various reports and, using an assortment of colored highlighters, would mark up the reports with various colors to guide his production decisions the following day.

What was he doing? He was transforming data into information.

The data contained in the aforementioned 300-page report could have been more easily digested and decision-making could have been faster and more effective if the data had been presented, perhaps, in a chart, a graph, or even reduced to some form of exception list.

Placing the information in its context

Data content may typically be broken down into three general classes for most organizations:

• Operational data such as orders, purchases, inventory, and so forth;
• Process data such as schedules, routings, bills of material, logistics, and similar; and
• Administrative data including accounting, customer lists, vendor lists, employee lists and more.

The data context, however, must be understood before effective decision-making may be done for any particular organization. The context of the data give the data meaning within the framework where it is to be applied. The context includes such elements as:

• The organization's purpose,
• The organization's strategy,
• The organization's vision and mission,
• The organization's execution model,
• The organization's capabilities and competencies,
• The organization's structure,
• The organization's policies and procedures, and
• The organization's values and culture.

Clearly, depending on an organization's purpose or strategy or production model (for example), essentially the same data may drive two different organizations to make equally effective but totally different decisions.
It should be part of every organization's IT strategy to mandate the transformation of the huge volumes of data being collected into information by their IT systems. This transformation, in itself, should be flexible, timely, and subject to ad hoc transformation, as well.

That's what business intelligence is all about. In today's world, this is all about survival, not just improvement or excellence.

"Business, we know, is now so complex and difficult, the survival of firms so hazardous in an environment increasingly unpredictable, competitive, and fraught with danger, that their continued existence depends on the day-to-day mobilization of every ounce of intelligence."
-- Konosuke Matsushita, founder of Matsushita Electric (Panasonic) as quoted in Managing on the Edge: How Successful Companies Use Conflict for Competitive Advantage by Richard Pascale (New York: Simon and Schuster, 1990), p. 51.