Put up or shut up: The corporate guarantee

By Gene Tanski, CEO, Demand Foresight

Things were getting heated at the sales meeting. The cause of my anger was an old theme: Industry-wide, client expectations for business software were so low that stories about the failure of big enterprise projects had practically become wallpaper.

Where were the repercussions for the business performance that never materialized? The big systems failed to deliver what they were supposed to over 70 percent of the time and the big checks just kept getting cut with no accountability. The whole dynamic needed to be nuked.

In the heat of our discussion about the institutionalized negligence of our gigantic competitors and how we could exploit it, a 25-year-old, Xbox-playing member of our team, 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?”

That simple dare became our biggest differentiator – and, more surprisingly, revolutionized the way we run our company.

During the dot-com boom, new businesses were founded on completely new thinking by young professionals, unencumbered by any notion of what was or wasn’t possible. Most of that potential was never realized, though – at least not in the first wave, since the young visionaries had no grounding in the disciplines that would sustain their visions over time.

However, we wondered, could our team fuse the experience of the old hands with the “anything is possible” optimism of our young teammate?

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 the concept.

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 by a huge margin, and instead were flying straight to a business model that embodied the exact opposite of everything we hated about the IT and consulting world.

The guarantee was an explicit one – with no wiggle room. Clients would measurably improve their business performance — in our instance, a 25 percent minimum reduction in absolute forecast error — or we wouldn’t get paid. Not a dime.

It could have been a disaster, but taking this leap of faith actually did incredible things for our organizational focus – and ultimately helped cement our culture and internally align all divisions of the company.

The developers know that the software has to work and be relevant to specific job responsibilities or they don’t get paid. Implementation and technical support? They better get it right or they don’t get paid. Sales people? They had better understand the client problem and know exactly how to solve it, or … well, you know…

Another benefit of this ‘put up or shut up’ philosophy was the elimination of the need to micromanage. Once everybody understood that the promise would not bend, I found I could trust everyone to solve problems the way they thought best.

Vacation policy? Didn’t need it. Our team was entrusted to take the time off that they knew they could afford to take. Office? Wherever they could open a laptop and do their best work. This culture tells us a lot about the kind of people we should hire — can they stay motivated and productive in our unique environment?

So an energetic, passionate clash of skilled professionals turned out to be lightning in a bottle. It let us fuse the brashness of youth with organizational know-how.

We still argue in meetings, of course. But these days I enjoy it. You never know what sorts of benefits it can produce.

This post first appeared on Venture Beat: Entrepreneur Corner on October 26, 2010

Industry Trends – Beer Distribution and Improving Profit Performance

Beer Distribution is an interesting business: High margin, protected by regulation that has traditionally limited most forms of competition, which leads to an overall lack of incentive to innovate technologically.

Nevertheless, despite the lack of innovation incentives there are some activities occurring that signal the status quo may be changing a little bit; for example, the recent foray of Berkshire tossed into the mix through the purchase of a couple of distributors.

If the current dynamic were to change, for whatever reason, forecasting would be one area that would allow distributors to rapidly improve – even advance – their bottom line performance outcomes.  Currently, on average, there is not a lot of focus on forecasting. Basic practices involve sales people “working” their on- and off-premise customers, while the inventory people make sure they keep enough stock on hand to ensure customer order fulfillment is met. Inventory managers look for opportunities to take advantage of strategically ordering from suppliers that game prices increases, etc.

A heightened focus on improving forecasting and ordering would allow distributors to lower working capital invested in inventory, while maintaining and/or improving customer service.

Customer service could improve in a number of ways; better order fulfillment being the most basic upgrade. On the more advanced side of the equation; distributors could work together with bars and liquor stores to make sure the products stocked, or on offer, respond and adapt to seasonal changes, trends, pricing, promotions, and holidays – making the distributor a value-added supplier.

In turn, the end merchant will become an even more valued customer by providing a more accurate forecast to their suppliers. This helps distributors and their supply chains become more efficient. Ultimately, this virtuous cycle helps set the distributor apart as a better supply partner – making it one that beer manufacturers will want to work with and which has the capacity to make a product successful in a new market.  This allows the distributor to negotiate more favorable terms with suppliers, thereby increasing margin performance. Everyone benefits.

Improving the forecast model will require improvements in technology and process systems – something that owners will have to support. Since distribution sales people are singularly focused on driving volume and taking care of their customers, they do not take kindly to activities such as supply chain forecasting. But their input is critical in order to achieve a “big picture” point of view that will help the entire company. When forecasting is tied directly to how it will help sales people earn more money (working for a higher margin distributor), a critical component of improving forecasting will be realized.

An open letter to the C suite about your integrated IT shop (Pt. 1)

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,

Gene Tanski
CEO, Demand Foresight
Golden, Colorado