An open letter to the C suite about your integrated IT shop (Pt. 2)

Dear C Suite:

Hi, it’s Gene Tanski again. In my last missive I talked to you about how IT is really about driving better business performance, creating cash flow, and giving your teams the tools they need to compete — and how going across the board with an integrated IT suite means at least some of these teams are going to be stuck with sub-par functionality. And that is going to cost you.

The Oracles and SAPs of the world buy other companies because they know their current offerings are not competitive. And in the process of acquisition and all the resultant difficulties, the purchased technology gets watered down and ultimately the functionality loses its relevance because it is no longer the one and only focus of the company that made it. It has to compete for resources and time; it no longer represents the business value for which it was originally purchased.

In the integrated ERP strategy, the sales and operations planning groups usually get stuck with the sub-par functionality. This is in part due to the nature of salespeople: anything they can do to stay focused on selling and not having to do any “administrative” work will be supported. So if they get stuck with something that doesn’t work all that well, isn’t easy to use and doesn’t add measurable value, then they can say it doesn’t work and it’s wasting their time.

But there’s a bigger problem here: a vital group of professionals are not actively participating in the S&OP process and focusing on forecast accuracy — potentially costing the company huge amounts in reduced revenue growth and increased production costs.  If there is any area where your professionals need the best tools and support, it’s in sales and operations planning. Their activity drives the forecast, and forecast error negatively impacts the operations side, the customer service side and the finance side (how many times have you seen a stock get hammered because of a missed forecast?).  It is a bit like flying: even being a degree or two off (your forecast) leads to a big miss in your final destination (customer service levels, inventory amounts, etc).

Again, this is usually countered with the “line item cost” response.  However, even this doesn’t hold up when you consider the total cost of ownership (TCO).  Maybe purchasing officers are able to claim huge value add because the ERP vendor bundles together the functionality, and because Oracle threw in the Demantra licenses for free. Free? Really?

What happens when it is time to upgrade?  See all those attractive, bright kids wandering around with the consulting logos on their shirts? Are they free?  While the initial license might have been thrown in, do you really think they are not included in the maintenance cost? When something is not working and you need support and fixes, are those free? If your business changes and you need to rearrange some of the process flow within the software and change the configuration? Free?  Do you really believe that?  Didn’t think so, but these issues are tragically not brought up often enough when your ERP rep is dangling free shirts and big “value adds.”

And where are the professionals who question why the licenses were thrown in free in the first place?  Could it be that these companies know the stuff is sub-par, doesn’t add value, and basically has to be given away?

Lastly — and this is the cruel irony of the thing — in the fevered pursuit of a single vendor and the associated wardrobe enhancement opportunities, IT shops are setting up their own demise. By using a single ERP vendor, companies are forced to simplify and homogenize their processes, becoming more and more similar to competitors who use the same system.  The work within the department is also homogenized — there is very little difference between one Oracle support person and another. This is not a knock on the people themselves, but rather an acknowledgment that the skill sets required are standard and easily replicable. And since the whole justification of the single-ERP strategy is cost savings, the IT department has allowed their value to be defined solely in terms of cost rather than the ability to help their team compete better.  Do you really think Q branch would have been tolerated had it continued to equip 007 with the same equipment that enemy spies were using?

Don’t think for a second that the aforementioned consultants don’t know this. They are vested partners in pushing this strategy. Why? Outsourcing. The more homogenized that IT departments become, and the more they define themselves on cost, the easier it is to make the case for outsourcing.  “Hey, it’s just an Oracle/SAP/Infor/JDA environment, just like all these other guys. We can take it over, consolidate support and deliver to defined service levels for a lot less than your in-house department.”  Ironic, don’t you think?

When focused on the correct areas of the business, best-in-performance environments are easy to support and maintain, result in a lower total cost of ownership, and allow IT and business to work together and create competitive advantage and profits.

I know it was a long letter. But I felt like you had to hear it.

Yours in creating your future profits,
Gene Tanski, CEO
Demand Foresight
Golden, CO

Youthful inspiration + experienced implementation = competitive advantage

One recent morning as I was dropping off my kids at
their regular 4:45 a.m. swim practice, I was really  struck by it: here
were a bunch of kids, none older than 16, who were choosing to
physically abuse themselves and were actually looking forward to it.
By the time they were done with practice, they were joking with each
other, playing around, talking about the weekend, what was going on at
school  — real energy and optimism and “Hey, what are we going to
achieve today?”

It reminded me of how a 25-year-old teammate issued us a challenge that led to a transformational moment for the company. This is kind of a left turn from my usual post, but the topic has been rattling insistently around in my head like so many anchovy-stuffed olives (my favorite in a martini).

It’s a prevalent theme in our discussions with potential customers: the corporate leaders with whom I regularly speak are tired of the uncertainty in the current regulatory environment, are concerned about growing their business, and want to nurture enterprises that are win/win for employees, shareholders and their communities. But how?  And how to do it better, faster, more efficiently than other well-run competitors, where smart people are asking the exact same questions that you are?

Given that my blog is about demand forecasting software and value chain management, maybe you were expecting an answer pertaining to improved forecast accuracy and everything that entails — closer relationship with customers, expanded uses of external information to more clearly delineate demand signals, better inter-company collaboration — and you would be partly right.

But it is not the only answer.  In fact, true to the very basic tenets of capitalism, it struck me this morning that there is no one right answer. The key is finding creative, individual answers and then executing properly and with conviction. I realize this seems obvious, but I talk with a lot of companies for whom the reality of “getting it right” remains elusive. How do you generate a constant stream of creative, fantastic, bizarre, untethered ideas and distill those ideas into actionable, executable building blocks for competitive advantage?

I think this is one of the forgotten lessons of the dot-com boom and bust. Against a backdrop of new technologies, a large majority of new business were founded on completely new thinking by young professionals. They were founded on great ideas that were unencumbered by fear or reality or personal perspectives of what is or is not possible.  Pundits labeled the era the new Industrial Revolution, and the superlatives didn’t stop there.

However, given the end result at least of the first wave, the potential was never realized because the youthful visionaries had no fear, no sense of reality, nor a grounding in the necessary disciplines that would sustain their vision over time. I’m convinced that the companies that succeed are the ones who find a
way to fuse the experience of the “old hands” with the starry-eyed,
“anything is possible” optimism of younger employees and business
partners.

At Demand Foresight, we got this lightning-in-a-bottle process right in what became a watershed moment for the company.

We offer a guarantee — both for overall performance of the software and a specific reduction of execution level forecast error by 25% both over what a client currently produces and against anything the competition can offer.  No other software company offers anything even remotely similar.  Why?  Well, one reason is that they probably can’t back it up, but more importantly, no one every really considers it a possibility. I know for a fact that we didn’t until a 25-year-old Xbox fanatic, snowboarder, and dating Lothario named Coleman Hutchins looked up at me during a fairly heated sales meeting and said, “Dude, if we’re that bitchin’, why don’t we guarantee it?”

“What?” I asked him.  “Are you nuts?  Do you have any idea how software works?”

“No, not really, but I hear you guys constantly complaining about how everyone else over-promises and under-delivers. Why not do something about it?”

It was a little bit like learning how to fly, as characterized by Douglas Adams in his Hitchhiker’s Guide to the Galaxy books: the key to flying was to throw yourself at the ground really hard and miss. It was exhilarating. I felt like we had just missed the ground.

Once we got our minds around the concept, the experienced guys on the team were able to adjust some long-held assumptions and work through how to handle the risk, build the pricing and generally operationalize a concept that has become our competitive differentiator.

I was forced to face the power of this unvarnished, un-cynical, everything-is-possible type of thinking  again when our company got the opportunity to work with Charlie Besecker from Summit Outsourcing.  We had been working with lead generation, cold calling groups for a number of years with limited success and a lot of frustration — with groups led by experienced salespeople.

Charlie and his team had no real sales experience — heck, no real experience running a company. But they had a couple of really intriguing ideas about how to improve the effectiveness of cold calling and an idea on how to prove them.  Combined with the necessary experience from the Demand Foresight side (and a bit of cash), we gave it a go.  I cannot give away Summit’s secret sauce, but the effectiveness of our lead generation programs increased by over 500%. Once again, we had thrown ourselves at the ground and missed. Feel free to call Charlie at 720.874.9757, and tell him Gene sent you. Just be prepared for something different.

You shouldn’t be afraid to take advantage of the multi-generational strengths under your company’s roof — youthful exuberance side by side with experienced implementation. Bring all of them together. If managed and lead correctly, it could be something special — something that didn’t quite see fruition during the dot-com era or subsequently, but did generate enough signs of success to prove that this needs approach should be considered by all leaders within established businesses (constant force of rejuventation) and those starting new enterprises (competitive differentiation).

Demand planning vs. forecasting vs. management: an agreement on terms (Pt. 2)

There are a number of terms that are used when discussing demand forecasting, demand planning and demand management — all of which appear to be used interchangeably. Just what are we talking about here? I thought it would make sense to share the terms I use on this blog and at Demand Foresight,  and  articulate the difference between each.

In my last post, I talked about demand planning. Next up is demand forecasting.  Based on the demand plans, how do we quantify demand?  And at what level?  The key is defining the execution level required for the forecast.  What is the correct level of detail in order to create efficiencies throughout the supply chain?  Is it at the SKU level?  At customer by SKU?   Once greater accuracy is obtained at the execution level, the same forecast can be aggregated to higher levels for use by multiple groups, including the CFO.  Demand forecasting can sit anywhere in the organization depending on cultural and organizational design fit.

75% of ERP implementations deliver more pain, less gain

Over the years that I helped clients install brand name Enterprise Resource Planning (ERP) software, a common complaint was that vendors “over promised and under delivered.”

Have you ever been part of an implementation? It’s like suffering through a root canal for 12 months: once it’s over, you’re still in pain. Typically, this is how it works: a business case is made that promises improvements in some component of ongoing operations. Requirements are gathered, configuration happens, piloting will usually occur and then the big rollout (or, in some cases, the “Big Bang”).

How often does the reality live up to the promise? According to Gartner and McKinsey, less than 26 percent of the time. Can you imagine if three out of four root canal procedures were unsuccessful? Do you think the FDA would allow dentists to continue performing the procedure? The reasons the implementations often don’t live up to their promises are many, but, what do you do when you’re halfway through an ERP implementation and it’s proving more disruptive than productive?

This is typically where the “partnership” that both sides professed early on starts to fall apart. Rather than focusing on addressing the problems or the misunderstanding, usually there is an investigation, fingers are pointed and then the negotiations begin as to the solution. Not surprisingly, the new solution requires yet more money, and somehow, despite the best corporate negotiators, the customer ends up footing the bill.

Since the facts show that this happens more often than not, is there a benefit to a guarantee from the software partner? If a vendor’s entire compensation were tied to the same performance requirements as the customer’s, would that help raise the average for successful technology-based projects?

I want Foresight to be the painless dentist of ERP — delivering a demand forecasting solution that lives up to the promises. I want to challenge all the software vendors — whether they provide value chain management or not — out there to match Foresight and guarantee they will refund their customers’ money if the ERP implementation doesn’t go as promised.