The New ERP – Extended Readiness for Profit – Part 39

We are continuing our discussion of Sue Bergamo's article entitled "Is Your Implementation in Trouble?" She listed seven "high level categories [in troubled ERP implementations]…. in the order from the highest to lowest number of responses" from her informal LinkedIn survey. Here is the list:

1. A misconception of business expectations
   
2. The lack of top level leadership involvement in the project
   
3. Business processes were not correctly redefined and continued to be inefficient
   
4. The impact of the organizational change was not addressed properly and caused a major upheaval in the company
   
5. The vendor wasn't managed correctly and over-promised, then under delivered [sic]
   
6. Project management was weak and over-customizations lead to increased scope and time
   
7. The integration of diverse applications was harder than anyone expected
   (Bergamo 2010)
   

In this process we are drilling-down on Bergamo's symptoms list and setting them in the context of the New ERP – Extended Readiness for Profit while contrasting them with traditional ERP – Everything Replacement Projects to see if using the New ERP approach would have mitigated the failures.

2. The lack of top level leadership involvement in the project

This is a no-brainer for the New ERP – Extended Readiness for Profit, and the reason is simple: "Top level leadership" are always interested and involved in those things that are going to lead to increasing profit. They are less likely to be interested and involved in "housekeeping" and "maintenance" matters.

For better or worse, top-level executives frequently consider IT either "a necessary evil" – like paying the janitorial staff; or they see it a "necessity that no longer delivers a business advantage" – like maintenance on well-worn manufacturing equipment on the shop floor. It may have been a competitive advantage when it was purchased (several years ago), but now it is only an "expense."

If top-level leadership had begun their search by looking for improvement leading to a competitive advantage, or improvement leading to significant increases in Throughput they would be "involved" in the project. Not only so, but if they had followed the New ERP – Extended Readiness for Profit approach, their application of the Thinking Processes (see prior posts) would have led executives and managers to uncover the answers to the three critical questions we have so frequently reiterated:

1. What needs to change (Current Reality Tree)
   
2. What should the change look like (Future Reality Tree)
   
3. How to effect the change (Transition Tree)
   

What could be simpler or more effective in gaining top-level leaderships involvement with the project at hand?

3. Business processes were not correctly redefined and continued to be inefficient

This is another problem easily created when traditional ERP – Everything Replacement Project methods are employed and even more easily avoided when taking the New ERP – Extended Readiness for Profit approach. Here is why:

If the executive management team has discovered what needs to change, then they have already automatically "correctly defined" the business processes involved. They know exactly what specific business processes are acting as a constraint or bottleneck to making more money. By using the Thinking Processes' CRT (Current Reality Tree), the firm's leadership has already unlocked and decoded tribal knowledge so as to precisely what business process should be improved.

And, if they are following the New ERP methods, then their next step likely would be (depending on certain factors) the creation of a Future Reality Tree (FRT) or a Transition Tree (TrT). Either of these logical trees would help them understand what the change should look like and how to effect the change. Specifically, the FRT would define for them what their business processes should look like after the proposed change, and the TrT would become the management team's roadmap for change management. [Note: For Theory of Constraints purists, there are other portions of the Thinking Processes that might become a part of this (e.g., Negative branches, Prerequisite Trees) that I have left out of this discussion for the sake of simplicity.]

I think you can see from this that, by employing the New ERP methods, there is simply no way to leave behind "inefficient processes" that remain unchanged. Fundamental to the Thinking Processes and the planning that results from the logic of the trees is the inherent roadmap to changing whatever it is that was defined in "what needs to change" (the CRT).

In the traditional ERP – Everything Replacement Project so much change is happening all across the organization, it is no surprise that all that some processes get overlooked and remain unchanged and, as a result, inefficient as well. 

4. The impact of organizational change was not addressed properly and caused a major upheaval in the company 

This cause sounds sort of redundant, does it not? This is a symptom that has its roots in the whole philosophy of traditional ERP – Everything Replacement Projects. After all, it is really hard to avoid a "major upheaval in the company" when your approach is to "replace everything" in their core IT systems.

That is precisely why the New ERP – Extended Readiness for Profit is not only vastly more likely to provide a sound and significant return on investment (ROI), it is also likely to produce an ROI at lightning speed. Many traditional ERP projects take years to produce a return and, sadly, some never do.

[To be continued]

©2010 Richard D. Cushing

Works Cited

Bergamo, Sue. CIO Update: Is Your ERP Implementation in Trouble? Feb 01, 2010. http://www.cioupdate.com/features/article.php/3862056/Is-Your-ERP-Implementation-in-Trouble.htm (accessed Feb 02, 2010).


 

The New ERP – Part 38

Yet another "Why ERP implementations fail"

Sue Bergamo, former CIO at Aramark's WearGuard & Galls companies, recently posted an article entitled "Is Your Implementation in Trouble?" (Bergamo 2010) In her writing, she listed seven "high level categories…. in the order from the highest to lowest number of responses" from her informal LinkedIn survey. Here is how the list shaped up:

1. A misconception of business expectations
   
2. The lack of top level leadership involvement in the project
   
3. Business processes were not correctly redefined and continued to be inefficient
   
4. The impact of the organizational change was not addressed properly and caused a major upheaval in the company
   
5. The vendor wasn't managed correctly and over-promised, then under delivered [sic]
   
6. Project management was weak and over-customizations lead to increased scope and time
   
7. The integration of diverse applications was harder than anyone expected
   (Bergamo 2010)
   

We are going to drill-down on these and put them into the context of the New ERP – Extended Readiness for Profit, contrasting them with traditional ERP – Everything Replacement Projects to see if using the New ERP approach would have mitigated the failures.

1. Misconceptions of business expectations 

Ms. Bergamo does not explain in her short article precisely who had the misconceptions of business expectations. We do not know whether, in the Bergamo survey, the misconceptions were held by all or part of the management team involved in the ERP acquisition, by the vendors and resellers involved, and/or by third-party consultants that may also have been a part of the ERP project. My experience tells me, however, that if persons were involved in a traditional ERP – Everything Replacement Project the likelihood is very high they had and held "misconceptions of business expectations."

Why do I say this so boldly?

Because, unfortunately, most organizations do not begin their search for traditional ERP with clarity on the three critical factors we have discussed earlier in this series:

Management Factor Number 1: What needs to change

If executives and managers applied rational tools to determine precisely – not vaguely – what needs to change so that the business could make more money tomorrow than it is making today, the "business expectations" would be clear.

Sadly, many organizations today still pour in traditional ERP like some kind of "miracle-working additive" that is supposed to make their whole enterprise run smoother, cleaner, faster and, as a result, produce more profit. It seems that 20 or 30 years of experience with ERP not delivering its supposed miracle-working power in so many implementations is not yet enough to convince some. Such executives continue to drink the proverbial Kool-Aid offered by ERP software vendors and VARs just as if the hundreds of bad experiences being reported are only mirages and the same could not and would not happen to their firm.

I have walked into dozens of traditional ERP projects where, if asked, no one in executive management could tell me what measurable improvements were expected when the implementation was complete. If they were able to reply at all, their answers sounded more like they were drawn from a séance than from a the mouth of an executive. They might sound something like these:

"We expect that this new ERP system will enable us to grow while holding down our operating expenses."

"We are counting on this new system to help us ship more efficiently."

"Our ERP vendor told us that this new system should help us reduce our inventories without sacrificing customer service. Plus, it will help us build 'best practices' into our back-office."

Now, I have no problem with "We expect that this new ERP system will enable us to grow…" provided that statement is followed by specifics like:

• How much is it likely to "help us to grow"?
  
• What specific changes will the new ERP system bring about that will lead to the expected growth?
  

In the absence of specifics, how can those who complained in Ms. Bergamo's study even complain that they had a "misconception of business expectations"? Was their expectation that they would mystically grow, but they did not, in fact, achieve their concept of mystical growth? Did they expect that profits would mystically improve, but the mystical improvement in profits never appeared?

Just what were their "business expectations"?

If "business expectations" were not defined in clear cause-and-effect terms up front: if the executives and managers could not – in advance – link specific anticipated changes in the "system" (i.e., how the organization itself functions) to the anticipated and measurable improvement, then they have no one to blame for "misconceptions of business expectations" other than themselves. If they drank the vendor's or reseller's Kool-Aid about ROI (return on investment) and did not establish for themselves the metrics for specific and measurable change, they cannot blame the vendor or reseller. It is management's job to know these things and not to simply take a salesperson's (or even a consultant's) word on such matters.

Management Factor Number 2: What the change should look like

If executives and managers have proactively worked out rational cause-and-effect relationships, and have determined clearly and specifically what needs to change, the next step become relatively easy. That step is for the management team to establish what the change should look like.

If applying new technology in the organization (i.e., the system) will "increase Throughput by an estimated 12.5% over 12 months by providing improved market segmentation for Product Line C," then what the change should look like will be described in terms of the changes required to "improve market segmentation for Product Line C." That change might take the form of new market data collection techniques, new automated surveys, or some other form. Nevertheless, there should be no confusion in the management team members' minds as to what the change should look like when it has been implemented.

Similarly, the management team should understand the changes necessary to leverage "improved market segmentation" into "an estimated 12.5%" increase in Throughput over 12 months. The executives and managers should have a clear understanding of how the new market segmentation data will lead to new "offers" in the marketplace that will, in turn, lead to the anticipated growth.

Management Factor Number 3: How to effect the change

What we have described above are real and concrete "business expectations." There is no easy way to misconceive "business expectations" that are so clearly articulated. This kind of "expectation" can be the basis of concrete action. These kinds of "expectations" can become a guide for how to effect the change.

The meaningless séance-induced "business expectations" so frequently articulated by executives and managers surrounding traditional ERP hold little hope of functioning as a guiding light for concrete action on the part of anyone in the organization. It is no wonder that "expectations" are only met in so few traditional ERP implementations.

[To be continued]

©2010 Richard D. Cushing


 

Works Cited

Bergamo, Sue. CIO Update: Is Your ERP Implementation in Trouble? Feb 01, 2010. http://www.cioupdate.com/features/article.php/3862056/Is-Your-ERP-Implementation-in-Trouble.htm (accessed Feb 02, 2010).


 

The New ERP – Part 32

IDC author Michael Faucette published a report in December 2009 entitled "Modifying and Maintaining ERP Systems: The High Cost of Business Disruption". (Faucette 2009)

Interestingly, the "Five Key Drivers of System Change" at the more than 200 companies surveyed by IDC were these:

1. Regulatory requirements
   
2. Organizational change or restructuring
   
3. Mergers and acquisitions
   
4. Financial management-driven changes
   
5. New or changed business processes
   

Now, while I suppose it could be argued that "new or changed business processes," "financial management-driven changes," or even "mergers and acquisitions" were actually the actions of these businesses to increase Throughput (T), reduce Inventories or demands for new Investment (I), or to cut or hold the line on Operating Expenses (OE) while sustaining significant growth, I find it quite amazing that the first and foremost response by the firms being interviewed was not: "We change out ERP system when we find it necessary to do so in order to achieve more of our goal, which is to make more money tomorrow than we are making today."

Meeting changing regulatory requirements

I am not disputing that some "regulatory changes" may force upon an enterprise the need to make changes to their ERP systems. This is an inevitable part of government interventions in our economy. Organizations should have the goal to accommodate these, of course, with a focus on the smallest possible values of DT and DOE, as they certainly will have a zero-value (or even a negative value) for DT. These should be evaluated using the same basic formula that we have previously introduced:

In the case of changes for regulatory purposes, your ROI will almost always be negative. Therefore, the goal would be to keep that negative as small as possible, thus producing the smallest possible negative impact on the bottom-line.

For all other changes

For changes driven by any of the other four reasons listed above, precisely the same formula for ROI should be applied, with the goal of maximizing the value of ROI. After all, consider the following:

• Reorganization or restructuring that produces a negative ROI should simply not be done
  
• Mergers and acquisitions that produce a negative ROI should simply not be done
  
• Financial management-driven changes that produce a negative ROI should never have been considered by "financial management" in the first place
  
• New or changed business practices that result in a negative ROI should simply not be undertaken
  

While these simple rules are nothing more than common sense, it is amazing to me how many organizations undertake reorganization, mergers, acquisitions, or business practice changes without ever considering the impact on T, I, or OE. To do so is not "management," at all. It is simply "acting" without consideration of the basic goals of the organization. It is action in the absence of a theoretical framework by which to understand how "the system" – the enterprise – really works in achieving the goal of making more money.

Failure to manage the enterprise as "a system"

Faucette's IDC report goes on to list nine categories of disruption costs associated with actions taken based on the "drivers" listed above. Here are the nine categories:

1. Decreased operational efficiency (increased OE)
   
2. Decreased decision-making efficiency (lost T? increased I?)
   
3. Delayed cost-reduction plans (increased TVC – Truly Variable Costs; reduced T)
   
4. Reduced levels of customer satisfaction (reduced T)
   
5. Delayed product launch or increased product time-to-market (reduced T; increased OE?)
   
6. Lost market share (reduced T; increased OE)
   
7. Payment of fines for non-compliance (increased OE)
   
8. Missed opportunities for or delayed acquisitions (reduced T)
9. Decline in stock price (reduced NPV)

Note: If you are not familiar with any of these terms, go back to Parts 1 and 2 in this series and get your bearings.
 
Executives and managers are not stupid. However, if they fail to manage the entire enterprise as "a system" and, instead, take their various management actions (see "drivers" above) with the goal of optimizing departmental silos, the list above (and worse) are the results they are likely to see. In the absence of a clear "system view" of the enterprise, actions taken for "improvement" may actually lead to achieving less of your goal or achieve your goals only after much painstaking recovery.

I cannot emphasize strongly enough how applying this simple formula to any planned "change" in the enterprise can help executives and managers stop making decisions that do not consider the business as an integral system.

This simple formula enforces a "system view." Essentially, this formula asks executives and managers to consider three factors: If we make the change under consideration…

• How much will Throughput change (+/-)
  
• How much will Operating Expenses change (+/-)
  
• How much will Investment/Inventory change (+/-)
  

Almost any rational ballpark estimates of changes in T, OE, and I are better than forging ahead with changes without giving due consideration to the effects of the impending changes on the enterprise's movement toward the goal of making more money.

Let us now take a brief look at how much money was given up by the 214 enterprises in the IDC survey as changes to their ERP systems were undertaken based on the "drivers" listed earlier. Here is the summary:

Reason for Losses	Percent of Respondents	Losses per Respondent
Financial management-driven changes	51.4%	From $12 to $296 million
Delays in product launches	72.2%	From $10 to $255 million
Delayed cost-reduction plans	76.2%	From $10 to $255 million

Restoring focus

These shocking losses are, to a great degree, attributable to – and testimony of – the unfortunate rigidity to be found in most ERP software today. This rigidity clearly exists – and may cost your company millions of dollars – despite the vendors' and VARs' near constant sales chatter about "flexibility" and "agility" to meet "your company's growing needs" or "changing requirements."

Nevertheless, as W. Edwards Deming put it so succinctly, "It is management's job to know." It is management's job to know what will make a business improve – and what will not. Certainly for improvement to occur, some change must be implemented. But it does not follow that all change will bring about improvement, even if it is management's good intention that improvement be derived from the change.

In the system view, "the system" must have a singular goal. In for-profit organizations, that singular goal is generally to make more money tomorrow than it is making today. The goal is not to make people's jobs easier, faster or more efficient department by department. The goal is to make more money. With that goal in mind, management can go back to restoring focus by employing the Theory of Constraints focusing steps.

When applying these focusing steps, your organization's executives and managers must see the system – the entire organization – as a chain of interrelated functions and not as departmental silos. Once your management team understand the concept of the chain, they can begin to see that the only change that makes sense today is the change that will strengthen the weakest link in the chain. Spending precious resources of time, energy or money on any other factor will not produced improvement for the system. The "weakest link" is the system's constraint to achieving more of its goal.

So, as in the accompanying illustration, here are the Five Focusing Steps:

1. Identify the weakest link – the system's constraint
   
2. Decide how to exploit the system's constraint – to strengthen the weakest link in the chain
   
3. Subordinate all other decisions to the constraint and your methods to exploit it
   
4. Elevate the system's constraint
   
5. Check to see if your system's constraint has changed, then go back to Step 1 and do not let inertia set in (that is POOGI – a process of ongoing improvement)

Contact Me!

(c)2009, 2010 Richard D. Cushing

Works Cited

Faucette, Michael. Modifying and Maintaining ERP Systems: The High Cost of Business Disruption. White paper, Framingham, MA: IDC, 2009.