Uncertainty: The Elephant in the Room

Not long ago I was fortunate enough to have a conversation with two very fine gentlemen in the software business. They were part of an organization well-recognized for its leadership as a reseller and a developer providing an ERP (enterprise resource planning) solution for Tier 2 and upper-crust SMB firms.

As part of the conversation, I mentioned the fact that uncertainty is “the elephant in the room” throughout the IT (information technology) business.

What I meant by that is this: while the sales process is underway, it all too frequently happens that the two parties have differing views of the uncertainty involved in any project that might be undertaken as a result of their conversation. While they hold these differing views, however, they almost never speak openly and explicitly about the uncertainty itself.

My experience shows me that these two parties hold views of the uncertainty that take shape somewhat along these lines:

• The Client or, more correctly, at this stage in the process, “the prospect” may believe that there is very little uncertainty about which to be concerned. After all, he and his organization have tried to be forthcoming with the reseller. They have answered all the questions the resellers’ folks have raised from the first day they met, and they have done so as directly as possible.
  
  Because “the prospect” feels this way, the only “uncertainty” he may feel about any proposed agreement is whether the reseller is capable of delivering on all the promises he has made over the course of the negotiations.
  
  Also, since “the prospect” will hold the checkbook during the project execution, he feels pretty sure that he can force the reseller into assuming whatever uncertainty might remain in the anticipated project.
  
• The Reseller has been through this many, many times. He is well aware that every project is full of uncertainty. A short list of the uncertainties in the reseller’s mind might look like this:
  • Have we asked enough questions?
  • Have we asked the right questions?
  • What don’t we know that we should know about this company and how it works?
  • Can the modifications we anticipate be completed in the time we have estimated?
  • Will the prospect’s company allow this project to proceed in the time we have estimated, or will their inefficiencies, indecision or other operational problems cause us to incur unanticipated time and expenses?
    

Accidentally induced uncertainties

W. Edwards Deming once summed up very succinctly the uncertainty included in all human communications. Following a meeting between two parties, as one party was exiting the room, Deming turned to the manager he was consulting and said, “We know what we told him, but we don’t know what he heard.”

Communications between two human beings are full of such foibles. The fact that the reseller’s salesperson does not believe that he has made any “promises” upon which the reseller cannot readily deliver does not mean that the prospect has not heard “promises” that are very different from what was intended by the salesperson.

Under such circumstances, there is—more likely than not—no intention by the reseller’s sales team to mislead the prospect. Neither, most likely, is there any intent by the prospect (now, client) to somehow misconstrue what was said in order to take undue advantage of the reseller.

Nevertheless, such accidentally induced uncertainties too frequently lead to cost overruns, hard feelings between the reseller and the client, and—sometimes—even to failed projects.

Why don’t we talk about it?

My question is simple: When it comes to IT projects (or any kind of projects, for that matter), and whether it is a relationship between an external IT provider or an internal customer relationship, why do we so often ignore “the elephant in the room”?

Why are both the customer and the supplier both so reluctant to speak explicitly about the uncertainties that almost inevitably affect a project of any significance or size?

Let me know your thoughts. Thanks.

Are IT Vendors Driven by the Business Results of Their Customers?

Writing for CIO UK, David Henderson suggests several reasons “Why IT vendors must raise their game”. The second major point he mentions is that “IT vendors tend to be driven by their portfolios rather than business outcomes” for their customers. Henderson points out that IT vendors “continue to make significant investments in their portfolios but aren’t prepared to make the same investment in understanding how these apply to their customers’ businesses,” which can “lead to huge inefficiencies” once implemented at the customers’ sites.

As a result, Henderson continues, “vendors… tend to give poorly defined generic presentations that bear only passing relevance” to the challenges faced by the customer or prospect at hand. Henderson goes on to berate the ERP vendors for “me, too” solutions and their inability to “connect the dots” between their product offering real value for the firm that buys the technology.
I agree that IT vendors need to change. The economic picture is vastly different in 2010 than it was even three years ago.

Where I disagree with Henderson’s writing, however, is who should know what.

Starting off on the wrong foot

Computer-based technologies really were not available to any significant number of SMBs (small-to-mid-sized businesses) until after the introduction of the personal computer (PC) in 1981. Prior to that, computing power available from mainframe and mini-computers was available only to larger firms with significant capital for investment in such technologies.

So, in the early days of the computerization of the SMB market, almost every new prospect was anticipating moving off a system dominated entirely by paper and the necessary manpower to keep the paper flowing. As the price of PC-based technologies fell, more and more companies made the switch. This movement dramatically increased productivity and return on investment (ROI) for such a move was almost a certainty. As a result, many ERP salespeople came in the door talking about increasing productivity and providing rapid ROI for almost every SMB they approached. And, almost without exception, the implementation of that first round of technologies provided consistently rapid payback for the firms.

Unfortunately, as the market changed (i.e., SMBs’ next round of technology purchases were not taking them off paper-based systems but, more frequently, moving them into a comprehensive suite of application modules or moving some SMBs off the high cost of maintenance associated with mainframe and mini-computer systems), the sales approach of most technology vendors did not change. The technology vendors’ salespeople continued to make the same claims about productivity improvements associated with the first round of ERP implementations and the executives and managers at the customers’ sites continued to drink up the claims like Kool-Aid. In many cases, the SMB management was spurred on by the impending arrival of the year 2000 and the Y2K epidemic of fear. Many executives felt they needed to spend the money to upgrade their systems and took little thought as to the ROI of such an expenditure.

Nobody grew up and nothing changed

By the early 2000’s the ERP market had changed yet again. By 2005 or so, almost every CEO or CFO of every SMB had been through at least one – and usually two or three – implementations of new software (or other technologies) in their business environment. Add to that experience the fact that they now had easy access to the Internet by which to explore and make inquiry regarding almost any ERP software on the market, and the ERP-buyer had changed dramatically over a bit more than two decades.

When ERP was starting to be sold (20-plus years earlier), when the technology salesperson first met a prospect, the prospect was hungry for information about products and capabilities. Furthermore, these green-horn technology buyers were more than willing to make the salespeople their de facto “instructors” in the purchase and application of new technologies in their businesses.

In addition, as previously stated, ROI was pretty easy to achieve. Almost any SMB moving off labor-intensive paper-based processes or coming from costly mainframe or mini-computer technologies was bound to reap savings in operating expenses, and was almost equally likely to achieve increases in Throughput. However, by the middle of the first decade of the 21st century, all the easy ROI from traditional ERP – Everything Replacement Projects – was gone and not likely to return. Sadly, much of the technology salespersons’ product positioning remained unchanged and the sales rhetoric and promises from a good many ERP vendors still harkened back to days gone by – without, of course, actually mentioning that fact.

This unwillingness to face the change in the marketplace was not entirely one-sided. As the traditional ERP sales hype continued to make sweeping “rule-of-thumb” claims about delivering ROI for the ERP-buying executives and managers, these executives and managers proved themselves equally willing to accept the claims without taking the time and effort to discover for themselves what they really needed to know about their particular organization and its potential for reaping ROI from any particular foray into new or upgraded technologies.

What every executive and manager needs to know

As Eliyahu Goldratt has put it so well, there are three – and only three – things that every executive and manager needs to know to make effective decisions in every situation. These are they:

1. What needs to change
2. What the change should look like
3. How to effect the change

If, before making the leap to buy technologies based on “rules of thumb” and sales-speak, executives would just take the time to figure out the answers to these three questions, there would be far fewer stories about traditional ERP implementations failing to deliver expected business results.

IT vendors are not necessarily driven by business results for every client. And, as executives and managers, you should be aware that rules-of-thumb may not apply to you and your enterprise – and the ERP vendor or VAR is not responsible for your business’s not fitting the rule-of-thumb by which other enterprises may have achieved return on investment.

As executives and managers in your organization with your particular circumstances and requirements, you – not the technology vendor or reseller – need to know what needs to change in order for your firm to start making more money tomorrow than you are making today. You – not your vendor or reseller – need to know what the change should look like in your particular organization. (The vendor or VAR may help you understand how new technologies may be part of what that change should look like, but you need to understand the precise need in order to effect your desired ROI. (Read more in many articles found right here at GeeWhiz To R.O.I.)

And lastly, as executives and managers it is your responsibility to understand how to effect the change within your enterprise. (Here again, the technology vendor or reseller may help you understand the technology-related components of the change, but you and your team need to take full responsibility for creating a roadmap for change.)

Need help?

Contact me at rcushing(at)GeeWhiz2ROI(dot)com and I can show you a way to unlock your firm’s “tribal knowledge” to discover what needs to change so you can start making more money tomorrow than you are making today, and you won’t spend money needlessly on technologies that don’t bring almost immediate ROI.

©2010 Richard D. Cushing

ERP Vendors and Customers: The Blind Leading the Blind

Writing in CIO UK magazine online, David Henderson’s article entitled “Why IT vendors must raise their game” makes several salient points. Not least among the points raised is the fact that “too many IT vendor sales personnel don’t really understand my underlying business processes and investment criteria….”

For me, however, the issue is somewhat stood on its head. Far too many business enterprises with which I have been involved have precisely the same problem internally. CEOs, CFOs and CIOs in many businesses buy new technologies without understanding their own underlying business processes and by what criteria they should invest.

What executives and managers should know

Executives and managers seeking ways to improve their business enterprises (read: make more money tomorrow than they are making today) too often buy new technologies out of “hope” or “desperation,” rather than with a clear and concise understanding of

1. WHAT needs to change in order for the business to begin making more money tomorrow than it is making today;
   
2. What the change should LOOK LIKE; or
   
3. HOW to effect the change (including what role any new or upgraded technologies might play in delivering the improvement).

Since they do not have the tools to concisely analyze what needs to change in order to make more money tomorrow, then they cannot know what the change should look like or how to bring about the change effectively. So, in the absence of clarity, they grope about in their darkness hoping that some change – any change – will bring them their desired end of higher profits.

Blind leading the blind

Like the blind leading the blind, the technology vendors and resellers who do not fully understand their prospects’ underlying business processes or appropriate criteria for investment (in fact, they understand them less clearly than the executives and managers, in many cases), console the yearning executives with platitudes and “rules of thumb” about how their latest and greatest “gee-whiz” technology will “reduce costs by X percent” and “improve sales by Y percent.”

Of course, this is precisely what the executives want to hear. Like the Sirens of old, the vendors and resellers lead many to spend. Even if they don’t fully believe what they are hearing from the vendors and VARs, the executives and managers frequently do not take time to calculate with any precision just how or why the new technology should, could, or would produce a return on investment (ROI) in their particular organization and circumstances. Instead, they close their eyes and ears to any negative thinking and, In the absence of any better ideas, these executives take out their checkbook to purchase the latest and greatest of new technologies. Of course, the correct general ledger account to which this “investment” should be charged is “Hope and Earnest Expectation.”

Serendipity

Sometimes good things come of this method. According to the industry literature, we can say that about one out of three such “investments” lead to noticeable improvement. Many times, however, the measure of improvement cannot be known with certainty. A growing company that shows improvement after some implementation cannot know which results may have occurred even in the absence of the new technology. A far greater share of SMBs (small-to-mid-sized businesses) simply assume they are “better off” if they are not clearly “worse off” following the deployment of some new technology. Some merely breathe a sigh of relief after some trying implementation period and, like a good Calvinist, say, “I’m glad that’s over,” without ever looking back to measure their return on investment.

My argument, however, is that “hope” and “serendipity” are not strategies and, while a few companies come to excel and even to dominate some markets for a short period of time based on little more than serendipity, it is not a sound strategy for long-term growth in any enterprise. For executives and managers return on investment should be seen as a primary responsibility. This responsibility should not be handed over to the technology vendor or VAR (value-added reseller). Neither should it be left to chance.

As W. Edwards Deming said so clearly: “It is management’s job to know.”

It is management’s job to figure out WHAT needs to change in order to start making more money tomorrow than the firm is making today. It is management’s job to come to a clear understanding as what that change should look like when it occurs. And, it is management’s job to define an unambiguous roadmap to effecting the necessary change. Then, it should be management’s job to measure and report on the return on investment yielded by their own keen insight.

Need help with this? Contact me at rcushing(at)GeeWhiz2ROI(dot)com and let’s talk.

©2010 Richard D. Cushing

A New ERA in ERP - Part 3

[Continuation]

I do not, for one minute, doubt that the vast majority of technology vendors actually do offer products and services that can be “solutions” for a good many SMBs. If I did not believe this with vigor, I would not be involved in the industry. But saying that a store offers shoes does not automatically imply that they have the correct “solution” for your particular foot. Your foot may be too wide or too narrow to fit comfortably in the shoes they offer. You may need a shoe for hiking in the woods and they sell only dress shoes. Or, the store may have the color and style you find suitable, but they don’t have the 10-1/2 size you foot requires.

Unfortunately, most – but not all – of the salespersons that I have encountered in this industry over the last quarter century are salespersons first, even though they may be engaged in a process that they refer to as “solution selling” or “consultative sales.” All too frequently they do just enough to “consulting” to find a place to get their foot in the door to “sell.”

The problem – more likely than not – is not the salesperson. The problem is almost certainly to be found in the policies and compensation plans under which the salesperson is engaged with their employer and the training that they have received. Even the bulk of “solution selling” and “consultative selling” training courses are only thinly disguised presentations of ways to get more salespeople in the door at clients’ and prospects’ offices and not, in fact, actually focused on the “solution” or “consulting” part of the equation. This is evident by the fact that those giving the training in “solution selling” or “consultative sales” need to know little or nothing about the actual product being sold or how to actually “consult” a business toward achieving more of its goal (read: making more money).

If vendor/VARs are interested in becoming real and practical “solution” sellers, they must also become real and practical “consultants” that understand how to guide management teams in the process of discovering:

1.       What needs to change in order for the system (i.e., the entire enterprise) to improve and make more money

2.       What the change should look like (read: Does the vendor/VAR actually have a product that “looks” like what your management team believes the “solution” should “look” in its working and effectiveness?)

3.       How to effect the change (read: Can the vendor/VAR help in deploying their technology in order to make it effective in the end result?)

On vendors providing low-cost or no-cost solutions

I, personally, find it hard to believe how many vendors today are supplying valuable applications at no-cost or low-cost to huge numbers of users. Everyone knows about Google, which alone provides search-engine capabilities, a blogging site, Google Apps – used for document sharing and collaboration, email services and more. EverNote provides a service that I find absolutely invaluable and allows me to store up to 40MB per month on their servers at no cost to me. EverNote also allows me to use their site for sharing and collaboration. Then there are low-cost applications like CEOexpress.com and eFax that also furnish me with huge benefits for pennies per day.

Jan Hichert is right! People are expecting more and more for less and less out-of-pocket expense. This is a trend that is not likely to end in the near future. The question is: what should vendor/VARs be doing about it?

My recommendation to the industry is that they convert all of their salespeople into genuine whole-hearted consultants – at least insofar as that is possible. (Some, I fear, cannot be converted. They will, perhaps, never be anything but a salesperson through and through.)

Note: Those that cannot be thus converted should remain salespersons, but they should be making three or four face-to-face sales calls per day making “incremental sales” being fed by a sound program of relationship marketing. It is beyond the scope of this article to go into more detail, but if you are interested, see Justin Roff-Marsh’s book entitled Reengineering the Sales Process for more information.

The vendor/VAR’s new staff of through-and-through consultants should be turned loose in a program of incremental transactions. Unlike today’s one-big-gulp approach to sales, allowing a relationship to build over time while gradually increasing the size of the transaction simultaneously builds a solid relationship between the prospect/customer and the vendor, while allowing the vendor/VAR to prove to your management team that a) the vendor/VAR really does have your enterprise’s best interests at heart; b) the vendor/VAR really does know how to help your business improve – i.e., make more money; and c) the vendor/VAR really can be trusted with delivering on its promises.

Allow me to give an example of what such a program might look like:

Step 1: A no-cost one-day “proof of concept” engagement about how the vendor/VAR’s approach can help you unlock valuable knowledge already present in your organization in a way the leads to improvements which, in turn, help you make more money.

Step 2: A $795 one-day engagement to plan the execution steps on just one of the ideas resulting from the “proof of concept” engagement (Step 1).

Step 3: A engagement called the “Next Steps” program to help formulate step-by-step plans to leverage additional concepts stemming from Steps 1 and 2.

Step 4: A one-year engagement to help the client develop and execute on a POOGI (Process Of On-Going Improvement) program.

Step 5: Sale of an updated or upgraded ERP system or tactical extensible technologies that support the POOGI or “Next Steps” initiatives

Note: The reference to “Insert Value Price” has to do with value-price, not by-the-hour consulting. This means that, if you, as a client, are going to benefit to the tune of say $100,000 in Throughput from a particular initiative, you might be willing to pay on a plan such as: $30,000 up front, plus n% of the increase in Throughput over the next 12 months.

Arrangements and sales approaches such as these are a win-win for the parties involved. You and your management team are more likely to reap benefits from real – not hyped or hypothetical “solutions” – and the vendor/VAR can make more money because you are making more money.  That sounds fair, does it not?

Summary

We are not entering a new ERA in ERP. We are – for better or worse – already into the new era. The question is how will vendors/VARs and you, as the buyer, respond in this new age. By keeping the roles of each party clear and by you and your management team taking full responsibility for sound and rationally calculated ROI for each new IT investment, everyone wins.

Plus, if vendor/VARs become really and truly solution-oriented, this team of people that work day after day with SMBs and have considerable experience can learn to bring no-cost and low-cost solutions to your doorstep by helping you unlock what you already know – but frequently do not know that you know. This, too, is a win-win for all involved.

(c)2010 Richard D. Cushing

A New ERA in ERP - Part 2

[continuation]

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.

Example:

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

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

Constrained by your ERP?

Are you feeling that your ERP "solution" is more constraining than liberating?  Maybe it's your approach?  Maybe its the way your ERP reseller or vendor treats you?  Maybe your "systems integrator" has no vision -- no ability to "think outside the box."  Click on the link or the title of this post and watch a very funny video on this subject.

Whatever it is, you'll get a kick out this (click the link), and you'll find answers by reading more posts right here at GeeWhiz To R.O.I.

Thanks.

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The New ERP – Part 36

In December 2009, Eric Kimberling, founder and president of Panorama Consulting Group (Denver, CO), offered his "ERP Software Predictions for 2010". They are as follows (with my comments added:

1. Diligent focus on ERP software benefits realization and ROI. Long gone are the days of spending like it's 1999 and hoping for the best. CIOs and COOs will continue to face pressure to prove that every dime of investment in ERP systems is justified and generates a solid return on investment. Look for more deliberate spending, more phased rollouts, buying licenses only as they're needed, and hesitancy to invest in more expensive advanced enterprise software modules.
   
   Isn't this what The New ERP – Extended Readiness for Profit is all about? We have emphasized the ROI should be a deliberate forethought for you and your management team over and over. We have repeatedly pointed out that spending money on technology – or anything else – based on some "hope" that your organization will improve is pure folly. "Hope" is not a strategy; it's a small town in Pennsylvania, I believe.
   
   
2. SMBs to get back into the ERP software market. The bright spot in any recovering economy is usually small business (SMBs). As the economy emerges from the recession, SMBs will look for small business software to automate their operations and scale for growth. In addition, large software vendors such as SAP and Oracle will continue to focus on the SMB market to reinvigorate their revenue growth in software license sales. [Emphasis added.]
   
   "Growth" ought to be the focus of every business organization. This is also the focus of The New ERP. While cost-cutting is the knee-jerk reaction to trying economic times, there is a limit to the gains that can be made through cost-cutting. I have frequently put this challenge before individuals and groups of businesspeople and have yet to receive a correct response: "Name for me one business enterprise that has become a market leader where its primary business strategy was 'cost-cutting.'" Growth is the only strategy that has no limitations to improvement.
   
   
3. Increased adoption of Software as a Service (SaaS) at SMBs. While SMBs may lead the charge in their small business software investments, it may be difficult for them to make the necessary investments. Given that tight credit markets will likely continue into the new decade, many SMBs will look to SaaS ERP software to help them minimize up front capital IT costs. [Emphasis added.]
   
   Here again we see that this approach falls directly in line with The New ERP – Extended Readiness for Profit. Minimizing up-front capital IT costs means nothing less that holding what we have called delta-I (the change in Investment) as low as possible while driving to maximize delta-T (the change in Throughput). Once again, the strategy we are suggesting is right on the money – literally.
   
   
4. Lots of ERP SaaS talk, but not as much action at large organizations. Larger companies, on the other hand, are likely to consider SaaS options, but are much less likely than their SMB counterparts to commit to these deployment models. As software vendors expand hybrid solutions combining the benefits of SaaS with the flexibility of traditional ERP (e.g. Oracle's On Demand and SAP's Business By Design offerings), larger organizations will continue opting for non-SaaS options that more commonly reduce cost and risk while maximizing business benefits in the long-term. They will, however, be more inclined to leverage SaaS for some niche functions, such as Document Management Systems (DMS), Human Resource Management Software (HRM/HCM), Product Lifecycle Management (PLM), and Customer Relationship Management (CRM). [Emphasis added.]
   
   In this case, I think Mr. Kimberling misses the mark. While his analysis is likely correct as to the reactions of "large organizations" versus "SMB" firms to SaaS offerings, Kimberling is off-base when he makes reference to "the flexibility of traditional ERP." In fact, if "traditional ERP" has fallen into disfavor for any reason in the last decade, it is the sheer weight of evidence that "traditional ERP" is far too rigid that has led to it.
   
   On the other hand, The New ERP's approach to solution design and decision-making is all about taking "traditional ERP," with its inherent rigidity, and finding economically sensible ways to extend its capabilities at low-cost and without (or minimizing) changes to source code.
   
   
5. Increasing focus on organizational change management and ERP benefits realization. As demonstrated by the exponential growth in Panorama's organizational change management practice, companies are directing much of their ERP software investments to areas that ensure they implement effectively and get more out of their existing enterprise investments. The need to more effectively manage organizational and business risk will likely result in a continuation of this trend in 2010. [Emphasis added.]
   
   Bang! The New ERP hits the target again. Imagine the novel idea that companies should "direct much of their… investments to areas that ensure they implement effectively and get more out of their existing enterprise investments." That sounds very much like what we have been trying to hammer home with The New ERP – Extended Readiness for Profit.
   
   
6. With ERP software, it's still a buyers' market. Even in the most optimistic scenario, overall 2010 enterprise software spending will not return to pre-recession levels. This means ERP software buyers will remain in the driver's seat, which will be reflected in aggressive software pricing and shared benefits implementation models, such as that introduced by Epicor late this year. [Emphasis added.]
   
   Mr. Kimberling's statements here suggest – and rightly so – that, in some prior years, the "ERP software buyers" were not "in the driver's seat." If you have read the prior posts in The New ERP – Extended Readiness for Profit, then you will understand when I ask this question: "Why, for goodness sake, has the ERP software buyer not always held his ground and stood fast 'in the driver's seat'?" The New ERP is all about assuring that you and your management team are, and remain firmly ensconced, in the driver's seat.
   
   
7. Enterprise software risk management. As CIOs and executive teams remain on the hot seat to prove the value of their investments, risk management will be the name of the game. Look for more ERP implementations to leverage organizational change management and independent oversight of software vendors to help mitigate business risk. [Emphasis added.]
   
   A survey of the literature surrounding the ERP software industry makes it all too plain that, heretofore, most CIOs and executive teams were not held to metrics that would clearly "prove the value of their investments." In fact, far too many CIOs today still make excuses about how the "benefits" of investments in IT cannot be measured.
   
   However, as The New ERP boldly asserts, if the organization cannot figure out how – and approximate how much – a recommended change in information technologies will lead to increasing Throughput, reducing Inventories or demand for new Investment, and/or cutting or holding the line on Operating Expenses, then maybe – just maybe – the IT change just isn't worth making.
   
   
8. ERP software vendor consolidation. Vendor competition was fierce before the recession and is even more so now. Dozens of smaller vendors are starved for cash and unable to fuel R&D and other product innovations without infusions of capital. Add the fact that larger vendors have cash and some have grown successfully via acquisition to date (e.g. Oracle and Infor), and continued vendor consolidation looks inevitable.
   
   In my opinion, vendor consolidation is neither good nor bad from the perspective you and your management team. If you are applying the concepts set forth in The New ERP – Extended Readiness for Profit you come out a winner no matter who supplies the desired technologies.
   
   
9. Focus on integration rather than major ERP package enhancements. Given corporate aversion to risk, companies are going to be less likely to bet on entirely new products or risky upgrades. As a result, vendors are more likely to invest in incremental product enhancements and tighter integration between modules rather than revolutionary changes to their software. [Emphasis added.]
   
   Once again The New ERP falls right in line with Mr. Kimberling's analysis. Why should an organization undertake a "risky upgrade" or "bet on entirely new [software] products" – traditional ERP (Everything Replacement Project) – when following the guidelines in The New ERP will bring them near-immediate benefits through increased Throughput and/or reductions in Investment demands and Operating Expenses?
   
   
10. Niches, low-hanging fruit, and business value.
    Look for companies to be very deliberate about how they invest in enterprise software, the risk they're willing to take, and how they manage implementations. If executives aren't convinced that their enterprise software investments will deliver measurable business value, they won't invest in it. Areas that deliver immediate value are priorities for the coming year." (Kimberling 2009) [Emphasis added.]
    
    Now this one sounds so good, I almost could have written it myself! What a strange thing it is that it took nearly 30 years from the coining of the term "ERP" to reach the point where companies have become "very deliberate about how they invest in enterprise software" and business executives "won't invest" unless they're "convinced that their… investments will deliver measurable business value." That is far too much wasted time, energy and money. Don't you think so, too?
    

Works Cited

Kimberling, Eric. Top Ten ERP Software Predictions for 2010. December 7, 2009. http://panorama-consulting.com/top-ten-erp-software-predictions-for-2010/ (accessed December 21, 2009).



©2009, 2010 Richard D. Cushing

The New ERP – Part 31

Cost-world thinking

It is clear that in the traditional ERP – Everything Replacement Project world virtually everyone is deeply mired in cost-world thinking. Lip-service is paid to terms like "investment" and "return on investment," but is all too evident that executives and managers consider information technologies (IT) an "expense" or a "cost" and, sadly, not an investment. What is worse, however, is that technology vendors and value-added resellers (VARs) have willingly opted into this same cost-world thinking.

Vendors and VARs would simply love to talk to their prospects and clients about ROI (return on investment). However, even if they tried in the recesses of the dark past, they soon gave up, and the reason they gave up is because their prospects simply never believed the ROI numbers that these vendors and VARs presented.

Why didn't these executives and managers believe the ROI numbers provided by the VARs?

The answer is simple and complex at the same time.

It's the sales guy

I think, clearly, the first reason that VAR-developed ROI calculations are generally not believed is simply because they come from "the sales guy." Every executive and manager in the prospect's office knows that "the sales guy" is here to sell us something. What that implies is that the prospect clearly believes that the VAR – and "the sales guy" – is in their office for one, and only one, reason: to line their own pockets with cash taken directly from the prospect company's bank accounts. The prospect company's management team is likely to conclude that the calculations provided by the VAR's "sales guy" – usually predicated on averages and formulas – have little bearing on reality in their own company.

This is compounded by the fact that, up to this point in the relationship between the VAR and the prospect, nothing of substance has really been discussed about specific changes in the prospect's operations – supported by the new technologies – that would induce the prospect to believe that the calculations done by the VAR constitute anything more than a "guess" for their specific situation.

It is nothing more than "mystical mojo" to suggest to a management team that the following transaction will lead to ROI for the buyer:

1. Buyer gives Seller $250,000
   
2. Seller provides and implements new technologies
   
3. Buyer gives Seller an extra $75,000 for budget overruns
   
4. Buyer "mystically" improves and makes more money because they have new technologies
   

This is nothing less than a witch-doctor approach – in the absence of solid discussions about

• What need to change to make the company more profitable
  
• What should the change look like in order to make the company more profitable
  
• How can we effect the proper change in the company in order to make the company more profitable
  

Up to this point, the VAR has delivered nothing more than promises to the management team in the prospective company. The prospect has no reason – literally – to believe that the VAR can deliver anything of value, and the horror stories abound of traditional ERP failures and cost-overruns. On what rational basis should the executives at the prospect company believe the ROI calculations provided by "the sales guy"?

Too many ROI discussions are disingenuous

Since (like good old Ivory soap) VARs are 99.44% purely mired in cost-world thinking – just like their counterparts on the management team at the typical prospect firm – when they talk about ROI they are almost always talking about "cost savings." However, at the root of it, these discussions are disingenuous.

Sad, but true, usually neither the VAR nor the prospect's executives will bring up the fact that calculated "cost-savings" based on reducing labor are almost entirely fictitious in the absence of the VARs ability to convince the prospect firm that they will also see substantial growth in Throughput as a result of the new technology deployment. It is relatively easy to throw that labor "savings" number into the calculations, but very, very few firms are actually going to lay people off or reduce their working hours following a traditional ERP – Everything Replacement Project deployment. Therefore, in the absence of significant and sustainable growth in Throughput, wherein additional personnel need not be hired, there are no real "cost savings" to the organization from the "labor" portion of the VAR's ROI estimates.

"The sales guys" frequently ignore this fact in their discussions with the prospect's team – because they do not have an answer for increasing Throughput. Meanwhile, some or all on the prospect's management team know and understand the fiction underlying the VAR's ROI calculations and, because of this recognized but unacknowledged fiction in the numbers, they are wary about accepting any portion of the VAR's ROI numbers.

Even if the ROI estimates are correct…

There is another major factor that plays into the executives and managers of prospective buyers of traditional ERP failing to place much value on VAR-provided ROI estimates. That is simply the lousy (I would like to use another word here, but this is probably the most appropriate word without collapsing into vulgarity) performance of traditional ERP in terms of actually delivering promised business benefits. Consider the following. Despite spending an average of $2.6 million (Microsoft) to $16.8 million (SAP) and taking about 18 months to implement (average), traditional ERP projects:

• Take longer than expected to implement 93% of the time – thus delaying business benefits and reducing ROI
  
• Exceed original budget expectations 59% of the time – thus reducing ROI
  
• Only about 21% of traditional ERP efforts effectively realize at least 50% of the anticipated business benefits – thus dramatically reducing the likelihood of achieving any ROI at all
  
• The average achievement of business value for traditional ERP deployments is only 68.6% –thus, ROI, if any, should be estimated using about two-thirds of earlier calculations
  

Is it any wonder that most prospects for traditional ERP – Everything Replacement Projects are a bit jaundiced about ROI figures coming from the vendor or VAR?

There is an answer. Stay tuned.

©2009 Richard D. Cushing

The New ERP – Part 25

Choosing a vendor or reseller

In the traditional Everything Replacement Project, there are several different paths that a firm may take to decide which reseller they wish to employ in the project. (Here I will use the term "vendor" or "reseller" interchangeably to some extent. There is real distinction, and I do not mean to minimize that difference. If your firm is choosing from among value-added resellers – "resellers" – then they have a greater opportunity to select the actual personalities that will be involved in the deployment. On the other hand, if you are dealing with a national or international vendor directly, it is quite likely that you will be "stuck" with whomever is assigned to your account by the vendor barring, of course, what could be a contest of wills over the personnel.)

The simplest and most straightforward approach is the one most often followed by small- to mid-sized firms. This one-step process may be flatly stated as: Decide which software you are going to buy, and then take whatever reseller happens to come along with that software. This simple, single-step process makes decision-making very easy, but it may not necessarily garner for your organization the best-qualified persons for achieving success in your Everything Replacement Project.

Other organizations recognize the risks inherent in not placing some kind of hurdle between themselves and a potential traditional ERP reseller. Therefore, either their management team or their hired consultant will create a vendor screening process. While the process itself takes various forms, it usually includes gathering seemingly important data about the potential field of resellers like:

• How long the reseller has been in business
  
• How many clients the reseller has
  
• How many times the reseller has implemented the software under consideration
  
• How financially stable the reseller is
  
• How many references the reseller can supply
  

Now, as important at these various aspects might be in selecting any vendor with which your firm wishes to do business, only one of these elements even approaches what might be important in helping you and your team achieve more of your goal of making more money today and in the future. Specifically, that would be the last point – client references.

Unfortunately, when most organizations get their hands on client references from a vendor or reseller, they squander the opportunity asking questions like these:

• "Was your project completed according to schedule?"
  
• "Was your project completed within budget?"
  
• "How were you treated by the reseller?"
  
• "How long did your project take to complete?"
  

Now, never mind that the differences between the project being considered by your company and the project undertaken by the reference company may be as different as night from day, what do these questions really tell you about the things you should actually be considering? Why are not there questions like the following included in the mix? Are not these the really important questions to be answered?

• "Before selling you the software, did the reseller really help you come to clear understanding of the very specific areas where improvement would lead to your firm's ability to make more money tomorrow than you are making today?"
  
• "Have you seen real and measurable improvements in your organization's ability to make more money since the reseller sold and implemented the technology in your business – over and above your preexisting growth trajectory?"
  
• "What is your calculated return on investment for the money you paid to this reseller?"
  

I am compelled to reiterate (see prior posts): Any traditional ERP effort – or any other kind of improvement project on which a firm spends its precious and irrecoverable time, energy and money – for which there is no measurable improvement in Throughput, Investment or Operating Expenses is a failure whether or not it was completed on-time, within the budget, or with huge self-congratulations.

The Toyota measure of quality

Toyota, a company that emerged from the rubble of post-World War II Japan to become the world's leading supplier of cars and light trucks, developed a very interesting concept regarding "quality." For Toyota, quality is not about defect rates or meeting specifications. Toyota's management agrees that there is only one measure of quality that counts, and that is the customer's measure.

Toyota's management principle is that the customer measures quality in two ways: the first metric is the customer's experience. Note that all of the questions in the traditional ERP's reference checking were related to the customer's experience. Toyota's second customer-centric measure of quality is the customer's results. Now, with a car or light truck for personal use, the results sought may be nothing more than ego-satisfaction (like the guy that goes out to buy a Titan pickup, or the ecology-centric individual that buys a new Prius. But, in business – in your enterprise – real results are not so ethereal.

Note that none of the questions in the traditional ERP's reference checking list of questions dealt with the vital results that drive business improvement. In my opinion, limiting reference-checking to such vain questions is only a waste of time for executives and their teams. Consider instead additional questions along these lines:

• Did the reseller demonstrate keen insight into the core business issues that are keeping you from making more money, causing inventories or demand for new investment too high, or creating undue upward pressure on operating expenses while your business is growing?
  
• Was the reseller able to work competently with your management team to unlock "tribal knowledge" so that both you and the reseller's team were able to easily comprehend what was working and not working in your organization?
  
• Did the reseller help you create a set of rational metrics by which to measure the success of your ongoing improvement efforts?
  
• Were the reseller's consultants able to help you focus your efforts and investment on the critical areas that could and would lead to making your firm more profitable in the near term, or did they replace everything and hope for the best?
  
• In short, do you feel like your organization is more profitable today – having engaged the reseller's team – than you were before?
  
• Did the reseller leave you with something truly valuable to your organization other than hardware and software?
  

Asking questions like these would surely bring to light differences between those resellers and consultants engaged in traditional Everything Replacement Projects from those delivering value-based approaches like the New ERP – Extended Readiness for Profit.

[To be continued]