The New ERP – Part 27

Recap

This is Part 27 in our series, so let's take a moment to briefly recap what The New ERP – Extended Readiness for Profit has done for us so far in contrast to traditional ERP – Everything Replacement Project.

Aspect	Traditional ERP	The New ERP
Setting the goal	Lack of focus: Traditional ERP often has several goals (read: lack of focus) or a goal that is entirely generic (read: lack of focus). Therefore, ROI is frequently predicated on little more than hope that throwing new technology at the organization will somehow lead to improvement and better profits.	Laser-like focus: In The New ERP began with uniting executives and managers around a singular goal (in for-profit organizations that is typically making more money both now and in the future). Next, The New ERP applies the Thinking Processes to help management understand what is keeping the organization from achieving more of its goal. This gave management a clear view of: What needs to change What the change should look like How to effect the change
Linking ERP objectives to financial goals (IT alignment)	Loosely bound to financial goals: Far too many traditional ERP projects are bound to financial goals only by a tenuous thread of hope in the hearts of managers and executives. Others may calculate an ROI (return on investment) based on broad estimates of overall "improvement," but these are generally not tied to specific effects and measurable expected outcomes.	Tightly bound to financial goals: The New ERP – Extended Readiness for Profit uses what is learned through the application of the Thinking Processes to tightly aid managers and executives in linking measurable execution metrics to the achievement of financial goals. If "revenue is to increase by 12% in the first year," then the management team knows precisely which actions and improvements are expected to lead to these results.
Invention of the "solution"	Solution is a "package" brought from the outside: Traditional ERP frequently revolves around the organization defining their "needs" or "requirements," and then seeking a "package" brought to them from the outside (by a vendor or value-added reseller) to provide them with the "solution." If the executive team or the vendor cannot achieve enterprise-wide "buy-in" by the end-users, then the implementation of the "solution" may be more costly or less effective than intended, or it may fail entirely.	"Solution" is invented by the executives and managers in charge: By applying the Thinking Processes and determining with precision "what needs to change" and "what the change should look like" in order to achieve more of the organization's goal, the management team employing The New ERP becomes the inventor of their own "solution." By inventing their own solution, and by doing so using a rational toolset, "buy-in" becomes automatic. No one fights against their own invention.
Budget setting	See "Linking ERP objectives to financial goals" above	See "Linking ERP objectives to financial goals" above. The New ERP allows your management team to set rational budgets for specific, highly-targeted and measurable improvements so that the budgets make sense relative to the return on investment calculations. All of this is done with relative simplicity and paralysis by analysis is avoided entirely.
Software selection	Wholesale replacement: Traditional ERP – Everything Replacement Project does just what you would expect. It leads to replacing everything – or almost everything – in the organization. It is not focused on alleviating or eliminating organizational "bottlenecks."	Targeted Extensions: The New ERP – Extended Readiness for Profit is focused on effecting change in specific areas that have been rationally identified as being constraints ("bottlenecks") that are keeping the organization from achieving more of its goal. This focused approach means that the whole organization need not be disrupted to bring about effective improvement. Furthermore, very specific technologies selected to achieve very specific ends is the objective in software selection.
Vendor demonstrations	Unfocused review of functionalities: Vendor demonstrations under traditional ERP approaches often occupy days or weeks, sapping time, energy and money from all of the various departmental silos involved. This process alone may increase operating expenses by driving up overtime costs for "catch-up" work.	Tightly focused "proof of concept": Under the New ERP, vendors or resellers are invited to present proofs of concept around improvements that are very narrowly defined. They are also asked to speak specifically – and convincingly – about how their technologies will allow the "client" organization to achieve its goals within the budget prescribed.

What has been accomplished to date under the New ERP concept for the organization applying it (as in the table above) has likely saved the entire organization no small amount of time, energy and money. In addition, they are in a far better position to see actual results in the near future – results predicated on sound logic and real strategies, not hope and guesswork.

[To be continued]

The New ERP – Part 24

It is all academic

We have covered several aspects in the matter of developing a "requirements list" so far. (See prior posts.) Of course, whether you are developing your requirements list in-house or your firm is retaining as traditional Everything Replacement Project consultant to do it for you, it is entirely academic and suffers from the same bad assumptions and lack of focus.

As I am writing this, I have before me a real-life "Request for Information" (RFI) stemming from a real-life traditional Everything Replacement Project. This particular document presents 286 "requirements." Sadly, it is quite likely that the folks behind this RFI – because they are employing traditional ERP concepts and methods – have absolutely no idea which of these "requirements" reflects the small handful of things that will actually permit their organization to improve by increasing Throughput (T), reducing demand for new Investment (I), or cutting or holding the line on Operating Expenses (OE) as their firm grows. In fact, they probably "hope" – but cannot state with any certainty – that any of these requirements will actually aid the firm in growing beyond its natural trajectory as of today.

The danger of lack of focus

It is precisely this lack of focus as reflected in a 286-item "Requirements List" that drives firms to undertake an Everything Replacement Project rather than identifying and changing that very small number of things that will actually deliver results by permitting the firm to elevate or even break a constraint and, thus, to increase Throughput – or to make significant improvements in I or OE, for that matter.

The firm that unwisely elects to spend half-a-million dollars on an Everything Replacement Project when a more focused investment of some (likely, significantly) smaller amount would deliver effective and valuable improvement has wasted capital that it will never be able to reclaim.

The Everything Replacement Project approach is supported by the false underlying assumption that, if we just throw enough money and technology at our organization, our organization will somehow improve. As evidence, I quote a gentleman who once said to me the following regarding a time-consuming and costly implementation of SAP that he had ongoing in his organization: "We've spent so much money already, it's got to work." (Emphasis is his.)

This unfortunate lack of focus in a traditional Everything Replacement Project, is to be contrasted with the New ERP – Extended Readiness for Profit approach that we are introducing here. The New ERP encourages you and your management team to focus on "what needs to change" (by looking at the roots of your Current Reality Tree [CRT]) – that relatively small handful of things that will actually lead to measurable improvement. Then, and only then, should you take your precious cash and other resources to apply them in a focused way, knowing in advance the measurable outcomes you expect from each critical investment.

What does all this have to do with "software selection"?

While traditional Everything Replacement Project methods will have you and your organization searching for software (and, potentially, other technologies) to replace – well – "everything" based on the all too traditional "Requirements List," the focusing steps of the Extended Readiness for Profit method will direct your team to consider only those particular technologies that will actually lead to real and rapid improvement (read: return on investment). Rather than a shotgun approach – throwing time, energy, money and technology – at everything – the New ERP gives your management team the option to become sharpshooters for improvement and new profits.

The New ERP approach will

• Conserve cash
  
• Provide more targeted uses for capital
  
• Avoid the waste of spending on IT projects that result in little or no real value-add to the "system" – the organization, as a whole
  

Going back to the example company (see early prior posts in this series), since the management team understands precisely "what needs to change" in order to improve the "system" – the organization – as a whole (namely, integrated bar code printing, integrated and automated ASN generation and transmission, and reducing or eliminating paper-based pick-pack-ship operations), they do not need to look at replacing everything. Rather, this wise team is prepared to turn to vendors and do "software selection" based on a very small domain of critical functions.

Rather than spending several hundreds of thousands of dollars on an Everything Replacement Project, our example team can set – as we previously described – a reasonable budget for the accomplishment of just the critical changes they have identified and for which they have already created measurable objectives.
[To be continued]

(c)2008, 2009 Richard D. Cushing

The danger of "We know!" - Part 1

As a consultant, I meet folks in business very frequently that are pretty much convinced along one or more of the following lines:

1. "We already know about our business." By this owners and managers mean to express the sense that they already understand how their business works and what it will take to make the business better.
   
   
2. "There might be some room for improvement, but the returns on any improvement we could make would be so small, it's not worth the effort." This statement or mind-set by owners and managers is a restatement of the so-called "law of diminishing returns."
   
   
3. "Our business (or industry) is unique, so we have to work this way." This is an argument suggesting that a consultant, being an outsider to the business or the industry, can't possibly bring any valuable insight. Furthermore, even if he or she does, we probably couldn't make the recommended changes anyway.

On far too many occasions, when I meet such owners and managers, I am simultaneously witnessing an organization that started off great, grew rapidly, and still has the entrepreneurs that started the firm in the driver's seat. They are also, quite often, over-the-hill.

I'm not talking about the owners or managers being over 40 (or over 50) years of age. I'm talking about the fact that their once booming organization is now in a state of coasting on its earlier success or even in the early stages of decline. Sometimes management hasn't even recognized that fact yet. They may be thinking that they are just in a temporary slump, that things will inevitably pick up again, and their firm will regain its earlier vigor.

Sadly, the chances of such a revitalization are usually slim.

While it is unequivocally true that a consultant can never learn everything about an enterprise that the owners and management know from all their years in their industry and in their own business, it is equally true that there are more things that are similar about human organizations than there are things that are different between human organizations.

Among the key things that are TRUE about all human organizations is that they all rely upon the same three scarce resources:

1. Time
2. Energy
3. Money

Furthermore, contrary to popular opinion, managing the first two -- time and energy -- is more important than managing the third (money). This is true simply because if you had unlimited time and unlimited energy, you could have all the money you wanted or needed.

For this simple reason, focus is everything. As organizations grow and expand, the entrepreneurs who manage them start to lose focus, and they do not have within their knowledge or skills a set of tools to help them focus again on those few simple things that will revitalize their over-the-hill firms.

Having gained, perhaps, many years of experience in their industry and with their own firm, they frequently find that their experience really does not contribute that much toward discovering effective responses to the new challenges their firm now faces. What is missing is a method for discovering a new theory or framework that clarifies how their grown and expanded organization now works -- or doesn't work -- at making more money.

[Next time: Why is it so difficult for owners, executives and managers to discover how to effectively change their companies for ongoing, vital growth?]

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