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 time to raise the bar for forecasting and demand planning outcomes

 Raising the Bar for Demand Planning Outcomes

I recently happened across this post on

Few days back I was interviewing candidates for Demand Planning position. I asked one of the candidates to share his greatest frustration as a demand planner. What he shared was quite shocking. He had been given a target on forecast accuracy that he missed completely due to uncertainty of tender business, which contributed about 15-20% of the total business. Though the company could book the sales and sales team earned handsome incentives, the poor guy lost his annual bonus.

A missing component here? The salespeople had no incentive for forecast accuracy. A customer behavior-related miss is something that can be avoided with the proper input from sales — and it should be expected that salespeople have detailed knowledge of transactions such as tender, and that they input that information into the forecast by whatever mechanism provided by your process. Any company that’s serious about forecasting should have sales contributing to the forecast. It was fair to hold the demand planner to the numbers, but not fair in that nobody had incentive to help — and that management failed to build and support a holistic process. However, the demand planner should have also built the case that sales is equally responsible for the forecast, and at the very least, should have actively engaged the sales team for the necessary information — with the help of his manager, if necessary.

Many companies have a utopian belief that by having a dedicated demand planner and / or a sophisticated tool, any demand could be forecasted with an accuracy that should touch 90% or more. Such obsession leads to frustration and demoralizes the entire supply chain staff. The fact of the matter is that one should forecast what is forecast-able and not forecast what is not forecast-able.

There is no such thing as “non-forecast-able.” The minute you label something as such, you’ve just issued an organization-wide “Get Out of Responsibility Free” card. Ultimately, your supply chain people will have to deal with all the “non-forecast-able” variables that nobody wants to think about. So there will be a comprehensive forecast, just not one that leadership wants control of or responsibility for — which is basically unprofessional.

While I agree that there is no utopia around 90% — it’s just a number, after all — the indisputable fact is that more accurate forecasts equal more effective supply chains and a higher EBITDA in turn. This is backed by all the research, including AMR/Gartner.  So anything that can be done to increase forecast accuracy at the execution level (detailed level) is well worth it.  It is an issue of getting the forecast as accurate as possible with a continuous improvement cycle. There is nothing more important to bottom line performance over time for your supply chain than forecast accuracy.

Mendiratta goes on later in the post to work through a hypothetical demand management problem that I would not characterize as difficult. In fact, our customers manage problems like this and far worse all the time. Your company’s forecast system should allow multiple aggregations of forecast detail — SKU, SKU by customer, by location, by business (B2B vs. B2C, e.g.) — so that the detail variations (differences in ordering patters) can be quickly identified. This is not difficult and I would argue that the entire last half of the article is the type of work that should be going on 24/7 as part of the demand planning and forecasting process.  Otherwise, as suggested before, you are just throwing the problem over the wall and telling the supply chain to deal with it. That isn’t right. It means your company is underserved and therefore missing out on profitability and competitive advantage because of the approach expressed in this article.

Here’s a question that any supply chain pro should be asking themselves right now: “What if I could reduce my forecast error by a minimum of 25% at the execution level? What would that mean to my supply chain performance? My EBITDA?”

Want to find out? You know where to find me.

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