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

IT’s fiduciary responsibility for business performance: Best-of-breed versus the failed ERP approach

A few months ago, I wrote about IT and the competitive disadvantages inherent in an ERP approach. The short version: one-vendor suites are not a competitive differentiator and they’re not a business strategy. With the market requiring CIOs to be more business- and customer-driven than ever, I’m frankly surprised that salvos like Rick Veague’s (CTO, IFS North America) still get any serious credence. In the back-and-forth about best-of-breed and ERP, I appreciate the multiplicity of perspectives. But I say without equivocation that the assertions in this article are just plain wrong, top to bottom. Unfortunately, this seems to be the default perspective for too many CIOs.

In recent years though, there has been a growth in the number of stand-alone software solutions — “best of breed” applications as they are called — that threaten to roll back the progress experienced by manufacturers  these many years. These software products deal with only a segment of the enterprise, inhibiting the free flow of communication and reducing efficiencies. The more these software products proliferate, the more expensive and confusing enterprise technology becomes, and he [sic] more difficult it is to coalesce data for reporting and manage enterprise-wide security.

First of all, the big ERP suites are fundamentally a collection of best-of-breed functionality that was acquired piece by piece from competitors who outperformed them in a particular process or function. ERP vendors are essentially marshaling functions and integrating them in the background in the same way a best-of-breed, or bolt-on, strategy would. You’re just paying a hefty premium for the brand name.

ERP cannot provide the best in all things, all the time. Instead of empowering critical teams to seek the best way to do business, everybody is yoked to lowest-common-denominator performance. My thinking is uncomfortable and inconvenient for many CIOs who know that big suites make their life easier and provide a dependable supply of embroidered shirts and free rounds of golf. But it ultimately comes down to this: once a company is strategically clear about how they’re going to compete, they should then go find the technology to execute, giving their people the absolute best tools they can to beat the competition. ERP vendors routinely blur three critical areas of focus: best of talent, process and platform. This is old-school, reflexive protection of IT empire. It’s locked-in thinking that is killing companies’ ability to compete.

Selected facepalm moments from this article

Late in the article, Veague highlights a number of disadvantages of best-of-breed. On the whole, I found these objections were shallow, ticky-tacky or low-level. What they collectively miss, and it’s a big miss, is the imperative that all technology should directly support your strategic initiatives. One vanilla system cannot possibly help your company do this. If you have an ERP that’s sub-optimizing critical functions that your team needs to better compete, I can guarantee you that it’s costing you a lot more than the growing pains of integrating a best-of-breed ever would. I’m talking about revenue, cost-efficiencies and EBITDA. If you can’t point directly to how IT is driving all those factors, your IT isn’t doing its job.

That’s the standard we hold ourselves to, and the linchpin of our company’s value proposition: we guarantee that our software will deliver outstanding performance (like reducing forecast error by 25%) and a bottom-line impact (minimum 5% increase in EDITDA) that would offset any issue listed below 100 times over. It is this type of performance that underlies the strength in best-of-breed. Companies need to understand it, utilize it, and let their IT help them be more competitive rather than dummied down and made to be like everyone else. But on to Veague’s points…

Integrating best of breed solutions requires the work of systems integrators, adding cost and substantially extending implementation time. These efforts are typically unnecessary with a Suite application.

Ain’t necessarily so. Today, integrating can actually be faster and cost less.

Reporting and access to information can be more expensive using a best of breed solutions because corporate information is spread across multiple applications and platforms.

Technologically, this is completely wrong. This has been proven time and time again. For example, having a data warehouse that supports best in breed/performance architecture bears a cost that is certainly no more, and possibly less expensive than an ERP.

A best of breed solution can increase costs for supporting technology acquisition and maintenance costs.

Only if mismanaged. The amount you pay for installs, maintenance and upgrades of an integrated suite are going to more than erase any savings you get here.

Different best of breed solutions tend to have distinct or unique security models, and that means it is harder to maintain security and privacy across an integrated collection of products.

Sorry, but this sounds like garbage to me. There are many applications that will exactly mirror the security model from your ERP and/or financial systems.

Usability and the ability to collaborate are often diminished with a collection of best of breed solutions because users that must work cross-functionally must learn different user interfaces and systems. This is in contrast with a Suite product that offers a consistent, well-thought-out user experience.

I think that this is fundamentally wrong. If you have a big ERP suite with a forecasting module that is there because, well, it just comes with the rest of the bundle, your people aren’t going to use it to the degree they they should. Your best performers aren’t going to adopt some perfunctory, clunky what-not just because it’s integrated. However,if you give them a tool that is tailored to the way that they work and they see how it will make them better, then they’ll see the value and usability will go up accordingly. If you go down to the lowest common denominator, people don’t get deeply involved and they won’t collaborate anyway.

There are a lot of companies out there that are less competitive than they could be because thinking like Veague’s is taken for granted. I’ll be blunt about it: any officers at any company who swallow this stuff wholesale are abrogating their fiduciary responsibilities to their teams, their bosses and their shareholders.

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