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

Change comes through people - Part 2

If, as we have shown, people do not willy-nilly resist change, let us take a look at just what might be happening in traditional ERP – Everything Replacement Projects – where management feels the need to bring in emotional management specialists to help smooth the way. We will step through the list provided in the Web presentation.

Only 30% of “change initiatives” succeed

Of course, in the context of the presentation, the presenters made it clear that a major contributor to the failure of “change initiatives” is the changing organization’s failure to properly apply emotional intelligence (EI) management to the reactions to change coming from “middle management” and below in the organization’s hierarchy.

One of the things that surprised me about the attitudes expressed in the whole presentation was the us-against-them sense, where it was executives and top managers pitted against the unruly emotions of the lower classes (e.g., middle management and below). With the help of EI, the ruling elite could, in fact, learn to foist things upon the “lower classes” and make them like it – or least squelch outright rebellion in the ranks.

Sadly, in my limited contact with folks from “Big ERP,” their attitudes frequently have reflected this same elitism. Their snobbery seems to be rooted in a sense that “the ruling class has chosen us, so you – the masses – must listen up and fall in line.” I am certain that they are not all this way, but I have no doubt that some are.

I soundly reject this kind of management. I am confident that no one knows more about running the machine than the one who runs the machine day-in and day-out. The people who know best what needs to change in each part of “the system” – the entire organization – are those in the trenches. Most people really want to do a good job and really want the company they work for to succeed. These people frequently fight an uphill battle against poorly thought-out policies, procedures and assumptions promulgated by executives and managers trying to make things “work.”

Apparently, EI dumps on these people, suggesting that what is needed is for the elite to learn how to “manage” the emotions of the working class rather than learn from the wealth of “tribal knowledge” carried about in the hearts and minds of those who “run the machine.”

Is it any wonder, then, that only 30 percent of change initiatives succeed? It is quite likely, if what we are seeing and hearing is, in fact, the attitude of executive management, that only 30 percent of what they promulgate as change is worthy of success. Perhaps only 30 percent of “change” handed down from on-high will really have any positive effect on the ability of the organization to achieve more of its goal, and “the masses” know it better than the executives do.

It takes about five years to see ROI from a typical ERP implementation

No wonder!

The organization we have just seen depicted in the us-versus-them, the executive elite versus the common man, cannot possible be working as an integrated “system.” Not only it is very likely that there are departmental and functional silos within such an organization, having high and nearly impenetrable walls between them; it seems apparent that there is an even higher and more impenetrable wall between “management” and “the workers.”

In such a situation, there cannot be “integration” and the organization cannot possibly be managed as “a system.” When a business enterprise is not managed as a system, the symptoms are consistent:

·         Lower than expected overall performance

·         Sometimes overwhelming challenges in securing or maintaining a sustainable competitive advantage in their markets

·         Financial difficulties

·         Nearly constant fire-fighting by management

·         Rarely meeting customer service expectations

·         Chronic internal conflicts

Not managing the organization as “a system” is a management and cultural issue that cannot be remedied by installing “integrated” software. Technical integration does neither mandates nor assures functional and interpersonal integration across organizational silos. And it certainly does not create integration vertically in the chart of accounts.

With only 30 percent of change initiatives succeeding and the organization continuing to experience all of the symptoms associated with the failure to manage the organization as “a system,” it remains no mystery that it takes five years or longer to see return-on-investment from a traditional ERP – Everything Replacement Project.

Change fosters significant confusion for middle managers, which can spur anxiety and stress, thus impeding or paralyzing decision-making

The change that “confuses” middle management (and below) is the change for which they are not yet convinced of the true benefit to the organization. Intuitively, most managers understand that “good” decisions in a for-profit organization are those leading to actions that will tend to help the organization make more money tomorrow than it is making today. Such actions, naturally, lead to stability and increasing job security.

If executives and managers have really thought through their traditional ERP – Everything Replacement Project – and are well aware of just how (in measurable terms) ripping the guts out of the organization’s infrastructure and replacing it with something that is promoted as being “newer,” “faster,” or “better” will really help the firm make more money tomorrow than it is making today, then let them come forward and explain those details to “middle management” (and below), and the confusion, anxiety and stress will largely be assuaged.

The fact that executives and managers are not forthright with middle management (and below) when a traditional ERP project is undertaken is, for the most part, the executives and managers do not, themselves, know (in measurable terms) just how ripping the guts out of their organization and replacing it with “newer,” “faster,” or “better” will – in reality – help the firm make more money in the future than they are making today. Instead, their decision is likely predicated largely on hope and generalizations supplied by promises from the vendor or reseller of the new technology.

It is, then, no wonder that middle management remains confused, anxious, and full of stress.

[To be continued]

Stay tuned.

©2010 Richard D. Cushing

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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 22

What else might change the value proposition of a technology initiative?

We have already pointed out the foibles of the traditional "aim-and-shoot" approach to IT initiatives and their proclivity toward considering every matter in terms of "cost," rather than "value." (See prior post in this series.) We even pointed out some of the factors that may change the value proposition for an IT initiative well after the project launch. But, what else might have an effect on the value proposition of an IT project aimed at "improving" a company like yours?

Earlier we mentioned things like the introduction of new products, changes in the economy, or even public policy changes that might change the value proposition for a technology deployment. Now, however, we need to turn our eye to technology-specific elements that might also affect the value proposition of a project already underway.

I am not sure why, but my more than 25 years in dealing with business technologies has clearly proven to me that firms reaching out to make technology purchases assume (far too frequently) some measure of clairvoyance on the part of their technology vendors. It is clear, and the purchasing companies' management teams seem to recognize, that they cannot know everything there is to know about the technology they are buying. However, that same management team will somehow come to the tacit conclusion that the technology vendor must know and understand all there is to know about the company that wishes to buy and deploy their technology.

Okay! Maybe I'm exaggerating; but just a tiny bit.

The managers on the buying side may not actually assume that the vendor's team understands or knows everything about the buying company's firm and operations, but they generally do assume that the vendor's team knows and understands enough about the prospective purchaser's company and operations to ask every possible question in order to assure that every facet of the product or services provided will fit precisely the customer's expectations. Never mind that "expectations" are never plainly visible to either party in the transaction. Expectations far transcend anything placed in any agreement or "requirements" document. Expectations may be reduced to the number of mouse-clicks it takes to navigate a certain transaction, or the "look-and-feel" of screens, or where data is placed in the user interface. The list of expectations is, literally, without end. In fact, the purchasers themselves may not know or be able to articulate their expectations. They only know when their expectations have not been met.

The point is this: As a buyer, you and your management team need to recognize that, when first engaging a technology vendor, the vendor knows proportionately as little about every facet and detail of your enterprise as you know about every facet and detail of their technology and services. In essence, you have witnessed "a demo" of their technology and they have experienced "a demo" of what your company is like. Therefore, it is incumbent upon you, as the buyer, to beware – caveat emptor. You and your team must thoroughly and precisely know what you want and need the technology vendor to do in order to effect the change you have in mind – the change derived from your Current Reality Tree that will help your company reach more of its goal of making more money.

At this point, an "on the other hand" would be nice to hear. Am I right?

On the other hand, there actually is an upside to this mutual blindness between technology seller and technology buyer. Frequently I have experienced situations where, as the vendor and the buyer learned more about each other's technologies (on the one side) and operational requirements (on the other), fresh new insights emerged about how the buying firm could leverage to great advantage previously undisclosed features or functions in the technology. A management team employing the value-based New ERP approach can readily see that the presence of some unanticipated feature, function or capability might radically increase the value proposition to the organization. Unfortunately, this kind of value serendipity is sometimes missed entirely by tradition-bound managers and vendors totally enmeshed in "meeting documented requirements," deadlines and budgets.

[To be continued]

©2008, 2009 Richard D. Cushing