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.

Around the supply chain and demand planning blogosphere

Combing through my RSS feeds, I found some SCM and demand planning-related blog posts from the last few months that got my wheels turning…

HP Supply Chain Management Blog: “Closing the Loop: Optimizing the Supply Chain”

In his “Closing the Loop” series on an HP Community blog, Christian Verstraete cites a resigned attitude toward forecasting error that drives me crazy and costs companies a lot of money:

Yesterday I was at a conference titled “Achieving Excellence in Capacity Planning”, and pointed out one of my favourites. “Forecasts are always wrong” and that is what we are starting from to manage our Supply Chain with the hope to have neither stock-outs nor excess stock.

He discusses how we can be sensitive to changes in the supply chain, all of which is just purely reactive if you’ve resigned yourself to getting the forecast wrong every time.

In all fairness, Mr. Verstraete penned a subsequent post in the same series that touches on proactive thinking. Yet his example showed that his conference presenter — and a lot of people in the space — begins by assuming that nobody should be on the hook for getting a forecast right. Whence comes this assumption? Why take that capability off the table at the outset? What would happen if you could reduce error by 25%?

Forecasting software has become way too good. Don’t handicap your company — and force you and everybody in your value chain into a reactive position — by not looking at new approaches to your forecast.

21st Century Supply Chain: “Three SCM table stake capabilities for the twenty-tens
Luc Vezina of Kinaxis takes a poke at three big capabilities that will be critical for supply chain performance, and how ERP SCM has missed the mark. I don’t disagree, but this gave me some pause:

1. SPEED.  When a customer calls you with a potential order, how long does it take you to get back to them with a promise date?  Increasingly, customers will want feedback in a matter of minutes – not hours or days. If you’re saying to yourself “That’s impossible.” Well, it is possible.

I would say that it needs to be a matter of seconds, not minutes. I would also offer the perspective that Mr. Vezina’s three capabilities — speed, accountability and view — are not ERP modules. They’re the very definition of the things that drive good demand planning. A company that’s serious about demand planning will have groups that focus on it intensely, and be fanatical about supporting them. We just happen to know of a wonderful solution that supports the discrete and vital functions of demand planning, demand forecasting, and demand management.

CIO: “Can SAP get its supply chain mojo back?
This headline implies that they had some to begin with. I kid, kind of. Thomas Wailgum of CIO writes about how SCM capability has suffered over at SAP. The Tohamy being quoted below is Noha Tohamy, vice president of supply chain research over at AMR:

Yet SAP has long relegated SCM to the status of RHSC (red-haired step-child), and the company has stumbled articulating its SCM and supply chain planning roadmaps, according to Tohamy.

“Overall,” she writes, “the software giant has been sluggish in bringing to market an SCM offering that makes SAP not just the largest SCM vendor in revenue, but an innovator and leader in meeting increasingly complex supply chain needs.”

To me, the true thrust of Mr. Wailgum’s piece is that the software business model is essentially broken: it’s OK to put junk out there; over-promise and under-deliver on functionality and ROI; and tie people to big contracts that make them commit to an under-performing supply chain.

In pursuit of a one-vendor, one-platform world, corporate officers are abrogating the responsibility to make sure that every one of their teams has the best possible tools they need to compete. I covered the competitive dangers of IT standardization in my open letter to the C-suite.

Head in the Cloud? Keep your feet on the ground.

Cloud computing/SaaS ascendancy — used as interchangeable terms in some conversations — picked up lots of media steam last year and continues to be the hot topic of 2010. While this entry is not intended to be an exhaustive dissertation, there are couple of points that resonate with me  – what do you think?

BI in the cloud could be the next killer application. That word — “next” — is important. Because we must look at the cloud not only for its current limitations and capabilities, but through the filter of what technology means to your business strategy, your identity, and those capabilities that make your company different and special and competitive. Because cloud or no, ultimately you need technological solutions that enable your business success. Altering your business model to fit the platform might fundamentally damage your ability to compete.

Can the cloud do heavy lifting?
I have no doubt that magnificent things are possible in the cloud, but many of the current advances seem more suitable to CRM and the like: collaborative applications like Salesforce let companies offload the cost of ownership of hosting the app, and everybody knows who talked to which customer, about what, and when.

But what happens when a company needs to know what a 10% reduction in their product price during Christmas would mean in terms of increased demand, impact on other products, and their industry as a whole? Heavy demand planning  and forecasting/modelling functions like this can’t be easily or reliably done in the cloud right now.

Could all this change in the next few years? Absolutely. But computationally demanding, mission-critical practices that require rapid response on massive amounts of data are on the other side of the wall, as it currently stands. So as we rhapsodize over the cloud, it’s important to remember that the cloud can’t solve everything, at least not yet.

Getting your feet off the ground: the leap of trust required to get over the cultural barrier
One of the biggest pros for the cloud is the power of intra-enterprise collaboration — bring enterprises and professionals together to help improve all participants of the value chain. But what we face here is a cultural obstacle rather than a technological one: companies have the technology right now to collaborate across company boundaries. But can we come to grips with security issues and not owning our data? Can we trust our informational lifeblood to other companies, even our customers?

In order for the cloud to reach its potential, these are the cultural questions that every company will have to solve. We have to trust that the information is secure, and that customers or channel partners won’t take advantage of the information. The real power of SaaS is almost beside the point: the real issues are culture, trust and acceptance.

When Marco Polo and the Italians began opening up new trade routes, cultural differences had to be overcome, new relationships built. Now companies and the professionals who give them voice are standing in front of another huge opportunity, with only mistrust and fear of the unknown in between them and the new possibilities. Seems like the world’s repeating itself all over again.

The dangers of fitting your company to a platform
There are subtle but profound dangers in trying to apply the cloud correctly for your company.  Human nature leans towards the comforts of standardization, and it’s no less true in the technology strategy of most companies. Having uniform processes and knowing what to expect every time eases our minds. But there’s an ironic downside to this: the more you standardize, the easier it is for your tech department to be outsourced. And the more you standardize, the less you focus on competitive advantage. Too many companies fit themselves to the tool, and not vice versa.

You want the power of the Cloud for when it’s appropriate, but be sure not to limit your enterprise in how you can compete and build on your strengths. The ones who stand out over time are the ones who agree their vision and ensure that everything in the enterprise, including technology,focuses on achieving that vision. At this particular point in time, with the advent of the Cloud, SaaS 1.0 and the legacy of ERP, what your company needs more than ever is a clear vision of what your competitive advantage is: decide what makes your company better, and find the right mix of technology (and ongoing adaptation/evolution) that’s going to preserve and enhance that advantage.


Why IT projects fail: changing client expectations for technology vendors

Client expectations for their software and technology providers have got to change.

Major technology implementations are significant investments: money, people taken away from their day jobs, and opportunity costs. With all that at stake, why is there such an extreme lack of accountability for specific business results?  It is utterly baffling to me. How often do clients get demonstrable business value — features and functionality that actually make their business better in terms of customer relationships, revenue and profit? Not very often. There is not much good about the current recession, but here’s one potential silver lining: it is forcing more companies to think of IT decisions as business decisions that need to demonstrate an auditable link to driving growth and revenue for mission-critical operations.
Photo by hans.gerwitz
The rate at which business technology implementations are considered failures is north of 70%, according to multiple studies from McKinsey, AMR and Forrester. What would you do with a stamping press, paint line or vendor that failed 70% of the time?

Vendors simply have to stop BSing. And clients have to quit letting them get away with it. Technology, and software in particular, has to work as advertised, or clients should get their money back so they have a chance to work with something better. We can’t afford the old way anymore.

Two pitfalls that doom business technology projects: requirements gathering and the old “over-promise, under-deliver”
When clients change their expectations and clearly define the business outcomes by which the project must be judged, we clear the way to improve formative stages that are a two-step to frequent failure: requirements gathering and promised results.

Requirements gathering
Here’s something that happens at way too many companies: the vendor puts their client’s team in front of a whiteboard and encourages them to dream up software in a vacuum. They really don’t know what they want or the capabilities of the software in context of their actual business processes. They don’t know the capabilities of what’s out there, nor are they, during this critical process, asked to see their company in terms of the software. Their understanding is limited to what they know from their day-to-day experience and whatever chock-full-of-functionality marketing brochure they’ve seen last. In other words, they are limited to what they know, and that limited knowledge drives the outputs from the requirements gathering sessions. But what about what they don’t know? What about the possibilities? If there is a  software tool functionality that would eliminate three steps from a process, wouldn’t you want to explore that impact?

Requirements planning should be done within the context of the technology platform chosen — in this case, the software. Wouldn’t it be more powerful if you could react to the software by visualizing your company within it?  What if you could react to what works and what doesn’t in context of your actual job and responsibilities? Wouldn’t that be more meaningful than a whiteboard?  Wouldn’t you feel more ownership of the end product if you got to provide informed, constructive feedback and really help your team decide which features work and which are a waste of time?

Once we’ve made our choice and undergone implementation, the technology should then do what we all agreed it was going to do. When it doesn’t, this is when the “partnership” to which 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. Only the software industry (and maybe the finance industry over the last couple of years) can look people in the eye, tell outright lies as to what is really going to happen, and then make the customers pay for the result.

Until the people who actually write the checks start refusing to perpetuate this dynamic — you demand more, you demand measurable results, you demand outcomes and refuse to pay if your investment does not deliver — then the majority of these projects will continue to be failures. Ultimately, the customers will lose an opportunity to become more competitive, both domestically and internationally. And that is a large and painful cost that rarely is identified and discussed. Changing our expectations and avoiding these pitfalls sets the stage for IT to truly improve your business.

The first step is simple: decide that you deserve better and act to make it happen.

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