A letter to the C suite, Part II
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 It has to compete for resources and time; it no longer represents the business value for which it was originally purchased.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.