Dear C Level:
On the surface, riding the trend towards integrated vendor strategies — moving all functionality under one vendor brand name — seems to make sense. So do the routine justifications: that one vendor allows for a more integrated data environment, a simpler maintenance and support structure, and potentially lower costs. Simpler support means fewer people. A single vendor’s technology means fewer skill sets are required in your IT shop, and your company has more leverage over the vendor for better pricing in return for a better footprint. But you’re ultimately paving the way for poorer business performance — and maybe your own obsolescence, if you’re the CIO.
Your IT department is typically seen as an overhead cost, so you view anything you can do to drive down that line item number as a good thing. However, the one-vendor strategy ultimately yields a Pyrrhic victory. While you do get some potential short-term cost reductions, you’re ultimately setting your company up for diminished competitive advantage. Now the sales and operation professionals are forced to use less-than-class-leading software tools, your company faces huge opportunity costs in revenue growth and customer service capabilities, and there are very real and measurable negative impacts in the areas of production, inventory and working capital. Plus, you’re one step closer to making your whole IT department superfluous. Wow. Hope the free dinners and rounds of golf were worth it.
Let’s be really clear here: no manufacturing or distribution company in any industry has ever gained competitive advantage because it could generate a nice balance sheet or produce a purchase order or an invoice two days more quickly. Now, I am not arguing that — if everything else is absolutely perfect — these are not reasonable areas on which to focus, but with most companies operating with 40% or more forecast error at the execution level, your focus needs to be on driving company cash flow and profitability.
That means that you have to give tools to your company’s professionals that allow them to perform measurably better. Best-in-class, or better yet, best-in-performance software strategies focus on what the people in your company need to outperform the competition. Your big, single-vendor ERP strategy does not allow for this. The integrated ERPs have never been, are not currently, nor will they ever be best in performance for each area of functionality that gets listed in their official footprint. Which means that in a single-vendor strategy, at least one critical group in your company’s business is going to get stuck with sub-par functionality.
You may reason that the advantage in data integration and the other “benefits” listed above more than outweigh the inconvenience that the afflicted group or groups have to face. After all, who really knows if some of those opportunity costs really exist, and even if they do, it’s too hard to measure them, so let’s go with what we can measure. Big mistake, and in my humble opinion, a complete shirking of an officer’s fiduciary responsibility to owners. I’m looking at all of you, C suite.
Data integration is no longer an issue with the advances in database, middleware and interface technology. Data is now basically platform-agnostic; really, the only focus needs to be identifying systems of record, reducing multiple data entry situations, and keeping the data clean through standards. This can be done as easily in a best-in-performance environment as it can in an ERP environment. Don’t believe me; for you business people out there, what exactly do you think Oracle and SAP and Infor are doing behind the scenes when they roll out new functionality on the heels of acquiring yet another software company? They are creating a quasi-best-in-performance environment that would be exactly what your IT shop would create if it managed such an environment consciously.
Is there more to it? You bet. I’ll take it all up in part two of my letter.
Yours in creating your future profits,
CEO, Demand Foresight