Jul/100
Clean Windshield Leads to Signifcant Horsepower Boost
We are all familiar with the standard tools for measuring the performance of our business; namely the balance sheet and the income statement. And if we are a halfway decent backyard mechanic at working on the business, then we also pay attention to our bank balances and free cash flow. And if we are a journeyman, we might be using any number of balance sheet ratios for analysis. However, all these tools are akin to the rear view mirror in our car. They tell us what is behind us, or in other words, what has already happened. Now don’t get me wrong, the rear view mirror is an indispensable tool, particularly when you put the transmission in reverse.
I am assuming however that all of you want to keep your business moving forward, and therefore have your transmission in drive, or perhaps even overdrive. That being said, the front windshield is a much more valuable tool for navigating the vehicle where you want it to go than is the rear view mirror. And the same can be said for our businesses. The windshield enables you to see where you are headed, judge when you might get there, and make any course corrections that might be necessary. We should be relying on the windshield to guide us at least 90+ percent of the time.
What’s the condition of your business windshield? Is it crystal clear and revealing? Or is it cracked, scratched, and caught in a torrential downpour with worn out wipers? If it’s the latter, then common sense says it’s time for immediate corrective measures.
What are some corrective measures that can be used to improve your windshield’s vision so that you can see where the business is headed? The first place to start might involve identifying the leading indicators for your specific industry and business. Following are a few examples.
What are the key processes and actions in your business that drive profitability and produce the results on the balance sheet and income statement? Perhaps it’s any number of these common activities.
Are there correlations, indexes, trends or statistical measures that impact your business directly or indirectly? If so, how much warning do they provide and what impact do they have? Can your industry associations provide insight to these leading indicators? If not, there are also organizations that specialize in analyzing and forecasting trends in a variety of industries. As an example, check out the Institute for Trend research at http://ecotrends.org/ .
Regardless of where you find your early indicators, identifying and measuring them can frequently enable you to not only take early corrective action if need be, but can also shed light on what the real critical drivers and contingencies are in your business.
The odds are that your ERP or business management system is currently producing some of these metrics. However, the reality is that many of the critical measures for your business are probably not being reported. The good news is that your ERP system is likely tracking many of the core data elements necessary to provide meaningful information. However, it might be necessary to create additional reports or KPIs (Key Performance Indicators) to extract the correct pieces of data and present them in a context that provides clear visibility as to where the business is headed. In order to maximize the power of this information, you will want to ensure that the various key roles in your organization have access to the critical indicators needed for their specific scope of responsibility.
Once you have identified your specific leading indicators for the key roles in your business, give us a call at 425-820-6120 and we can help you find and unlock the critical information in your ERP system to help guide your business down the freeway toward a stronger bottom line.
Nov/090
No Decision – May You Forever R.I.P. (Part 4)
This is the last installment in a series that has been discussing a problem plaguing many businesses today, and that is the situation of ERP or IT projects being aborted midstream before they accomplish their stated objectives. In the last issue, we discussed the means by which the project’s financial impacts would be assessed and projected. In this issue, we will summarize those projections with some commonly accepted evaluation formulas accompanied by the closing arguments for the project.
5. Get Out Your Calculator. We have explored the need for completing a thorough justification process and the strategic business imperatives that are driving the initiative. We have also discussed some of the potential benefits and costs to examine when conducting your justification. What remains is to simply tally up the projected value of your benefits and costs in a worksheet. You should then be able to determine the Net Dollar Value of Benefits with the following formula. With today’s extremely cash conscious business environment, I would focus more on the shorter term horizon measurements. In other words, focus on items that will have an immediate positive impact on the cash position.
Net Dollar Value of Benefits = Total Value of Benefits – Costs of Implementation
As the business climate and available credit improves, a longer term horizon measurement such as a simple Return on Investment may be appropriate.
ROI = (Net Dollar Value of Benefits/Costs of Implementation) x100
Different organizations use different perspectives to evaluate potential investments so I can’t tell you whether ROI is an accepted metric in your organization or not. However here are a few other measures you may find used to evaluate an investment.
A) Internal Rate of Return (IRR). This can be useful in comparing one investment opportunity in an organization vs. another. For example comparing an ERP system investment vs. a new factory investment.
B) Payback period. A simple determination as to how many months it will require to earn your investment back,
C) Net Present Value (NPV), this involves a bit of black magic so you may want to leave this to the finance folks
D) Total Cost of Ownership (TCO), simply looks at costs while ignoring value and benefits
6. Wrap it Up. You have now completed a thorough analysis of the strategic elements that are driving the organization to consider this investment. In addition, you have outlined the chain of events, symptoms and potential problems that are occurring in your existing environment. You have evaluated the various categories of value and benefits to be derived by the organization, along with supporting details. On the flip side, you have calculated all the projected costs over a fixed period of time. Assuming the numbers pencil, you have all the numbers to show that this project has been carefully analyzed for a positive business impact.
What remains now is to present your business impact analysis to the appropriate decision makes and stakeholders. When done properly, this process will not only justify the organization’s decision to move forward, but much more importantly provide a solid footing for the project to launch and sustain critical momentum when you get lost in the woods or the occasional storm surfaces on the horizon.
Nov/090
No Decision – May You Forever R.I.P (Part 3)
In our last issue we discussed the rationale and importance of developing a comprehensive business case for your ERP or IT project to ensure that it presses forward to completion and does not fall victim to the countless threats that swamp many projects. We also discussed the methods for determining why change, and in fact the project, is needed. In this issue, we will discuss how to determine the dollars and cents of the analysis.
3. Assess the Value. You should recognize that there are financial benefits and non-financial benefits, as well as tangible savings and intangible savings. Financial benefits and tangible savings are fairly easy to identify. While the Intangible savings will certainly require more digging to be able to quantify, don’t overlook them as they could be more significant than the tangible savings.
Possible benefit categories might include time savings, increased productivity, improved quality, employee quality of life, improved customer service, and reduced inventory. Each of these categories can be further analyzed for specific projections of financial savings. For example, reduced inventory is a tangible financial benefit that should also result in reduced carrying costs (reduced storage, less time handling inventory, reduced inventory obsolescence, reduced insurance expense), reduced freight expense, and improvement in working capital. There are very real financial benefits associated with each of these and you need to project those values.
Improved customer service would likely be considered an intangible financial benefit. However there are several sub elements, including increase in market share, decrease in customer complaints, decrease in returns or warranty claims, decrease in uncollectable AR and write-offs that could be projected to produce tangible savings.
4. Estimate the Costs. Identifying and quantifying the costs is more straight forward than tracking the benefits, but mistakes can still be made if you are not careful. First recognize that there are costs associated with the initial acquisition of the system (hardware and software), as well as installation costs. In addition, there are onetime costs and recurring costs.
An all too common mistake is to underestimate the costs, resulting in an over budget project. Why does this repeatedly happen? There can be a variety of reasons but the primary ones are indicated below.
- Costs are understated at the outset due to looking at projections through an overly optimistic scenario. Rarely do best case scenarios materialize. And when you consider the odds of best case becoming reality when it involves multiple people, processes, and deliverables from multiple organizations – well let’s just leave it at almost never and call it good.
- Costs are understated due to a lack of understanding of complete project requirements. The firm providing the ERP system may not fully understand the scope of requirements and therefore underestimates the costs. Or perhaps they low balled the estimate in order to win the business. Alternatively, the organization purchasing the ERP system may not have fully evaluated their requirements and capabilities, and thus has incorrectly identified the project scope.
- Costs are understated because the organization purchasing the ERP system is anxious to trim implementation costs and thereby takes on responsibility for self-performing much of the work, or simply eliminates what are deemed to be discretionary services such as training or report writing. It is a rare organization that is able to pull off a significant self-perform effort successfully. Consequently this will generally lead to a severely challenged project that is both late and short on deliverables, and ultimately over budget when the tasks are reassigned outside the organization.
- Costs are purposely underestimated in order to get a project approved with the thought that additional funding will be sought later once the project is off the ground. Thankfully we don’t see this approach often but it does surface in certain types of organizations.
- Costs are understated due to ignoring internal labor costs and diminished productivity during the implementation. Productivity suffers merely as a result of having to learn new systems. In addition, organizations will generally look at the wages for existing employees as sunk cost and not fully realize that every moment taken away from their primary duties results in incremental operating costs for the organization. This happens when normal productivity suffers due to spending significant time on non-core tasks, such as implementing an ERP system. The problem can be exacerbated by electing to reduce money spent on expert consultants (obvious incremental cost), and instead assign extra tasks to existing employees (less obvious incremental cost) that might be able to complete the task in a given period of time. Aside from the very real incremental cost of having the employee pick up the extra tasks, is the danger that the task won’t be completed on time or at satisfactory levels and now you may start incurring additional costs as other areas are impacted.
In the next issue, we will discuss the means for pulling all this hard work together into a credible and meaningful set of recommendations that demonstrates thorough analysis and provides the means to launch the project, and most importantly, complete the project.
Nov/090
No Decision – May You Forever R.I.P. (Part 2)
In the last issue, we discussed an extremely costly syndrome that plagues many businesses, namely that of projects that get launched with great intentions and then quietly run out of steam without producing tangible results or meeting stated objectives. I see this frequently with regard to ERP or IT projects.
Fortunately, there is plenty that can be done to avoid this wasted effort. However it requires a significant undertaking, careful analysis, clarity and organizational resolve to see it through. It requires lots of short and long term assumptions, as well as countless questions to be answered. When completed and properly documented, it results in a comprehensive business case for the project. This document is a critical tool used to justify the long term investment of organizational assets (people, time, money) to select and successfully implement an ERP system. It also serves as the foundational rock to guide and encourage the organization to continue pressing forward through the murky process.
Several suggested steps for a successful ERP software selection process are outlined below. Notice I said successful ERP software selection as opposed to successful ERP software review. After all we are focusing on ways to complete the project rather than getting halfway through and aborting it.
1. Determine to Justify. The first thing you’re probably asking yourself is whether the formal business case justification exercise is really necessary. After all, isn’t it common knowledge throughout the organization that the existing system is dysfunctional? If so, then why waste time documenting what is already known? Can’t we just get on with it and begin the shopping process? Sure you can, but in all likelihood you will end up regretting it. The reason is that you do not have a clear business imperative to proceed. What I mean by that is that you must understand the short and long term business reasons for embarking on the project. This will likely include the strategic objectives and vision of the company ownership and stakeholders. You should also consider the organization’s track record on difficult projects, and what other competing short and long term priorities might exist. In addition, you will need to identify the goals and benefits to be achieved, the measures to be used, and the problems to be overcome.
Conversely, if you are simply focused on certain functions that need improvement, you are looking at this more as a computer or IT project, as opposed to a critical business project. If it’s cast primarily as an IT project, your bullets will not be nearly potent enough to slay the dragons that lie on the ERP system path. Those dragons frequently come in the form of undesirable trade –offs, higher than anticipated costs, ambiguity and unclear outcomes.
Having a well organized and clearly documented business case will provide strong support from management and employees when the going gets tough. Without it you are merely relying on hope and faith to carry the day. Based on my experience, I can tell you that faith can go out the window when the challenges start mounting. The difficulty and risk involved in an ERP project is significant, and therefore in order to assume that risk, there must be clear and compelling reason to do so, and more importantly organizational resolve from top to bottom to succeed.
2. Quantify the Need for Change. Now that you have determined the value of a thorough business case justification project, the question is how to do it. At its most fundamental level, you are attempting to quantify the value of the benefits to be gained, versus the cost to attain those benefits. You are examining these benefits and costs over the perceived life of the ERP system, bearing in mind the timing of when specific costs and benefits are likely to occur.
It is admittedly difficult to determine concrete value from a new ERP system implementation. But far better to do it now, rather than after the money is spent. Credibility must be a critical overarching objective in the finished document. This requires soliciting feedback from several key people and departments, while frequently erring on the conservative side in your estimates.
Most organizations can readily identify functions in their existing ERP system that are not working well. However, a deeper inspection will frequently reveal several events occurring in the organization that may be symptoms of a bigger problem. For example, you may discover a chain of events similar to that illustrated below.
profits are down
→ sales are down
→ orders are not being fulfilled
→ excessive stock outs
→ excessive inventory obsolescence
→ poor demand and supply chain visibility
→ wrong inventory items being replenished ↑
You can see from this example that even though there are a variety of problem events taking place, the likely root cause is that the organization has poor insight relative to their demand and supply. So they are essentially operating blind in the replenishment area and ordering too much of what they don’t need and too little of what they do. If they could address that single issue, a number of other issues would disappear or become less of a problem.
Make a list of all your events and then determine which seemingly unrelated events are in fact actions or reactions to another event in your list. Being able to address and manage the root cause event more effectively with a new ERP system should yield a cascade of financial value.
In the next issue we will look at ways to quantify the tangible and intangible financial values and benefits of your project as well as the myriad of costs that will need to be borne.
Oct/090
No Decision – May You Forever R.I.P. (Part 1)
Have you ever worked on a project that started off with boundless exuberance and fan fare, yet failed to deliver the anticipated results? Sometimes it’s a result of a head on crash with completely unforeseen events. More often than not however, it is usually more a matter of the project losing inertia for one reason or another. It might be due to the project running out of money or resources, but frequently it is due to the project not having the foundation of a well documented and well justified business case to fall back upon. Common symptoms that can derail a project are things such as competing corporate goals and objectives, and poorly understood or shifting priorities.
I see evidence of the aborted project all the time in my industry. Predominantly, an organization decides one day to replace their existing business management system (referred to as ERP system) and thus rushes headlong down the path of reviewing various business management software packages and providers only to run out of steam a few months later and ultimately make no decision. This results in much wasted time and money for the organization as well as the ERP system providers. How and why does this happen so often?
First of all, the initial decision to replace their system could be based on any number of factors, but it usually stems from deficiencies in their existing system as it relates to being able to perform certain functions. After some period of awareness and discontent, the decision makers give the go-ahead to someone, usually in the accounting or perhaps IT department, to start looking for a replacement ERP system. You might recognize this as the “let’s just do it” syndrome. The lucky recipient of the edict from above, armed with not much more than a short list of functional capabilities that need to be improved, sets off in search of the perfect solution. It doesn’t take long to discover an array of ERP systems (at last count, approximately 350) and multiple providers of these packages.
If the person leading the ERP software review process is lucky, they will find several offerings that appear to address their functional requirements to a greater or lesser degree. It quickly becomes apparent however that the review and selection of a new ERP system is a daunting task filled with lots of risk and uncertainty. As the review process continues, more questions than answers frequently arise, until at some point the project just stalls out due to lack of clear organizational imperatives and mounting gray areas.
As an organization dedicated to helping companies successfully select and implement ERP systems, when the project is aborted like this, we call it “Losing to No Decision”. The ironic thing is that a conscious decision to abort the project rarely occurs, rather it just flat runs out of gas because there is not enough organizational clarity and determination to grapple with the difficult tasks and overcome the speed bumps. As you can imagine, this is ultra frustrating for everyone involved as it wastes time and resources and results in no progress being made against the initial objective.
Fortunately, there is plenty that can be done to avoid this wasted effort. Stay tuned for the next issue as we lay the ground work including step-by-step instructions for ensuring that your project does not become part of the carnage.
Oct/094
What Is This Thing Called ERP Anyway?
I suspect that most, if not all of you, have heard the term ERP system. And some of you may even know that the acronym stands for Enterprise Resources Planning. That’s a mouthful that on the surface doesn’t seem to mean much. But since an entire industry has been developed around ERP systems, and since just about every legitimate business has one these days, there must be something to it. Let’s take a look and see if we can unravel the mystery.
Tracing ERP’s Ancestors
To understand where ERP got its birth roots, we need to go back to the 1960’s. That is when an approach called MRP (Material Requirements Planning) was born to handle specific processes for certain types of businesses. You will note that both ERP and MRP had the concept of planning in common. But aside from that, one seemed to focus on material requirements, while the other focused on enterprise resources.
Simply stated, the purpose of an MRP system was to assist manufacturers plan and manage inventory (material requirements) so as to meet demand for end finished goods. In order to do this, it was necessary to know current inventory levels of component parts and raw materials, replenishment schedules, and the total demand being placed on all these items.
While MRP was somewhat effective in meeting its stated objectives, it was also quite limited in reach. In fact, it was a closed loop that dealt with a very finite set of factors. When you consider that a typical manufacturing organization has many functional needs and departments apart from the manufacturing process itself, such as A/P, A/R, G/L, customer service, order entry, forecasting, purchasing etc., there were lots of planning and processing needs not being met by MRP. Consequently, the late 1970’s and early 1980’s saw the birth of Manufacturing Resource Planning (MRP II).
You can see with the transition to MRP II, we were no longer focusing on simply material requirements planning, but now had broadened the focus to include all of the manufacturing resources planning utilized in a manufacturing organization. MRP II systems did a reasonably good job of performing the necessary functions associated with buying materials, producing goods, selling the goods, and following the movement of money associated with all of those transactions.
ERP is Born
As time passed in the latter 1980’s and early 1990’s, it was discovered that MRP II was all fine and well if you were a manufacturer. But what if like the majority of businesses in North America today, you were not a manufacturer? In that case another approach was required, and thus ERP (Enterprise Resources Planning) was born. The ERP system set out to expand beyond just manufacturers and encompass the needs of all enterprises regardless of their industry, and the resources required to plan and operate those enterprises.
As ERP systems have evolved over the last couple decades, these systems have embraced and added functional areas such as those shown below.
| Financial Planning | Quality Management |
| Product Engineering | Human Resources |
| R & D | Manufacturing Execution Systems |
| Customer Relationship Management (CRM) | Field Service |
| Supply Chain Management | Logistics and Distribution |
| Marketing | Advanced Planning and Scheduling |
| Sales and Operations Planning | Lean and Full JIT Support |
As you can see from the table above, lots of potential complexity has been heaped upon the ERP system stack. In a highly functional ERP system deployment, the ERP system represents a set of sophisticated tools whose reach is deep and wide, yet tightly integrated across all departments and functions so that there is a single set of high integrity cohesive data available for all users.
The People
Unfortunately, all too often, ERP systems are viewed purely in the context of software functionality. But the real measure of success in terms of an ERP system is the user’s usage experience with the ERP system. Given that, the notion of people is the other very critical element required in the ERP system discussion. To what degree does an ERP system recognize and embrace the importance of people and their roles in an organization? To what degree does it adapt or facilitate varying roles? To what degree does the ERP system empower the people with the right information at the right time in the right place to make and support informed decisions affecting the organizations tactical and strategic needs? It’s only when we have successfully incorporated the all important people component of the equation with the software functionality, that a successful process is identified. The combination of many successful processes constitutes a real ERP system.
ERP Maturity Model
We have just covered the last forty years of ERP product evolution at hyper speed, and even though we have barely skimmed the surface, it is probably plenty deep enough for this discussion. There is one other important concept however that should be considered in an ERP system discussion and that is what is referred to in some circles as the ERP Maturity Model. The ERP Maturity Model is a means of identifying the various levels of sophistication of an ERP system along with the level of value that it brings to an organization. While the number of levels can vary from one model to the next, the typical scenario goes something like this.
| Level | Sophistication and Value |
| 1. Data Management System | Data is collected and organized, but may not be valuable enough to be classified as information. There may be many sets of data at play at any given time. |
| 2. Shared Database & Multiple Software Modules | Data is shared from a single source across multiple functions and/or departments. While all users have access to the same data, they may not have control over the data, and therefore may not place significant value on it. |
| 3. Operational Perspective | There are common rules and procedures used for planning, executing, controlling and reporting actions in the system. Two-way feedback loops exist between the execution elements and the planning elements of the organization. Tactical and operational components are in harmony. |
| 4. Business System | Incorporates all of the elements of the previous level, and in addition includes exceptions for all to see, as well as more strategic planning elements. The organization relies on the system information to guide and direct it toward its goals. |
| 5. Continuous Learning & Knowledge Management | The ERP system contains a significant historical knowledge base of information, trends and requests. The organization embraces the knowledgebase as a catalyst for continuous learning and improvement. Executive level decisions and daily employee level decisions are made and supported based upon the information in the system. |
The purpose of the model is to determine where your organization is on the scale. You may want to ask yourself one or more of the following questions.
- Are you where you thought you were?
- More importantly, are you where you want to be?
- Is there value to be derived for your organization by going to the next level?
- Could major problems be solved or strategic goals achieved by getting to the next level?
Perhaps you liked what you saw after looking in the mirror, and then again maybe you didn’t. If not, then you should know that there are plenty of options avaiable for addressing the concerns. The real question is what action are you going to take to make it happen? As they say, a journey begins with the first step.
Sep/090
Making the days easier with Sage Payment Solutions
ICS Support recently switched from a computer software-based credit card acceptance program to the online Sage Payment Solutions because it promised lower rates for credit card transactions. I was pleasantly surprised to find a few more advantages than just the cost-saving rates.
Send email Receipts
Sending a receipt to a customer for any sale is very easy with Sage Payment Solutions. To send a receipt via email with the old system, I would have to print a receipt to a pdf file or scan and save a printed receipt and then attach it to an email. With Sage Payment Solutions, all I have to do is include an email address in the proper field on the “Bankcard Transaction” screen before the sale is submitted. An email is automatically generated and transmitted for the sale transaction.
Retrieve receipt for past transaction
After ICS switched to Sage Payment Solutions, one of our clients changed their mind after a week or more, and wanted a receipt of a credit card transaction. I had not printed a customer receipt (save a tree!) because it was not requested at the time.
With the old system, after entering the sales information on the computer (same as swiping a card for those of you with a card reader) I would submit the sale and print the needed documentation. After the end of that day and the batch was settled, the only way to retrieve information about a sale was to pull the printed information from the files. If a receipt was not printed at the time of the sale, I could not retrieve the information to reprint a customer receipt.
With the Sage Payment Solutions, I also enter the sales information on a computer screen then step through similar actions as with the software-based system. But here is where the two systems are very different. With Sage Payment Solutions I can retrieve a sales receipt from a past transaction by simply logging into the Sage Payment Solutions virtual terminal and clicking on the “Reporting” tab. Under “Settled Batches” I can select any past batch and drill down to the requested record and reprint a receipt.
Save money
And did I mention the rates were lower than the traditional merchant services accounts? Of course rates depend on a merchant account agreement and can be affected by the number of sales, average sales price and dollar volume per month. In checking the first several months on the overall monthly cost per volume of sales, I confirmed that we were saving money with Sage Payment Solutions.
Do more stuff
Sage Payment Solutions goes beyond my simple need for occasional manual credit card transactions. The ability to reprint a receipt is just a simple feature of the online reporting capabilities. The online service can be used in e-commerce applications and it integrates with a number of software packages. Call Gary Jefferson at ICS Support at 425-284-5425 for more information on how Sage Payment Solutions can make your days easier.
Diane Essington
Office Manager
ICS Support, Inc.
Sep/090
An Easy Way to Distribute Invoices and Statements Electronically
Even though you are not ready to go completely paperless, you would like an easy way to create and distribute electronic (pdf) copies of statements and invoices.
In Sage MAS 90 and MAS 200 version 4.3, Electronic Form Delivery creates a pdf version of all invoices and statements, and either prints a hard copy or delivers the document to specified email addresses (or both) according to how you set up the customer’s delivery preferences. (Previous versions of Sage MAS 90 and MAS 200 may be able to add a Paperless Office Extended Solution for this functionality.)
Statements: With Electronic Form Delivery, you set up each customer for printed and/or emailed versions of the Statement of Account. You can configure it to send the statement to multiple email addresses, and you can configure it to create a printed version plus sending it out via email.
Invoices: Invoices are configured separately from Statements so that you can target the right people in your customer list to receive the appropriate documents.
Example: With just the traditional printed hard copy delivery option, the customer requests that printed invoices are mailed to a Department Head. The invoice goes through a payment approval process before it goes to Accounts Payable. Invoices seem to occasionally go missing on this route. Printed statements go to the same addressee and Accounts Payable may not see it either, so they do not know what is missing. With Electronic Form Delivery, invoices now can go to the Department Head with a copy emailed to the AP Department plus the Statement of Account can be emailed to the Department Head, AP Department, and the CFO. Now everyone stays up-to-date on your account.
How easy is it to configure? There is an Electronic Form Delivery button on the “Customer Maintenance” data entry screen just to the right of the address lines. For each client, click on the Electronic Form Delivery button and a configuration screen will appear.
• Use the “Form Name” drop-down box and select “Statement”.
• Select or deselect the “Printed” or “Emailed” check boxes as needed.
• For email delivery select the contact email address from contacts in your client’s record
• You can also add email addresses that are not associated with a contact in your client’s record.
• When finished entering data, click on “Accept” at the bottom of the screen
• Use the “Form Name” drop-down box to select “S/O Invoice” and repeat the steps above.
• When finished entering data, “Accept” and close the configuration screen
Diane Essington
Office Manager
ICS Support, Inc.
Sep/091
Do ERP Best Practices Equate to Improved Company Performance? Part 5
Where’s the Elephant?
I concluded the previous post with the notion that there was a large elephant in the room and that we best find it soon before we startle one another. The obvious elephant in the room for me is the question of which came first? The ERP system best practices or the best-in-class companies? In other words, does fanatical discipline and commitment relative to ERP system best practices lead an organization to achieve best-in-class status? Or does a best-in-class company simply exhibit similar champion-like execution and management relative to their ERP system, just as they would in any other element of their business?
This Aberdeen report does not attempt to answer the chicken or the egg question. However based upon my 20+ years of working with ERP systems, and what the report does reveal, there are some reasonable conclusions that can be drawn. In my belief, best-in-class companies exhibit the following characteristics with regard to their businesses, their ERP systems, and their other investment assets.
- They plan well in advance
- They take the long term view.
- They systematize and integrate practices, processes, and procedures wherever possible.
- They establish objectives in advance and constantly measure against those objectives.
- They set the bar high, keep raising it whenever possible, and hold people accountable.
- They adapt to change rapidly and avoid getting boxed in a corner.
- They face touch challenges head on and make tough decisions quickly.
- They reinvest continuously in their systems and their people.
- They recognize the value technology can bring to their business and they aggressively use it to their maximum advantage.
In other words, they avoid the duct tape patch jobs and do things right the first time whenever possible.
Looking in the Mirror
We have examined several of the critical factors relative to the way best-in-class companies manage and utilize their ERP systems. But as you might expect, we have just scratched the surface in terms of the ERP system best practices exhibited by best-in-class companies. My hope is that some of the data provided herein may enable you to assess your particular situation and the correlation that your ERP decisions are having on your overall business performance so that you can move the needle in the desired direction. I would love to know whether you agree with the preponderance of the Aberdeen data or do you think it misses the mark in some way?
Jeff Mack
President & CEO
ICS Support, Inc.
Sep/090
Do ERP Best Practices Equate to Award Winning Company Performance? Part 4
ROI – What’s Possible?
Speaking of ROI and measurement of same, Aberdeen reports that best-in-class companies are way ahead of the game in this regard as well. They are 57% more likely to utilize ROI estimates to cost justify an ERP project. And here’s the big one, they are 163% more likely to continue measuring ROI even after it has been achieved. Do you get the impression that there’s a strong commitment to continuous improvement?
Typically when initial ROI is analyzed, the total acquisition costs are measured over the time required to recoup the investment. You can see below 5 unique measures that can be used to calculate the ROI. These sources for ROI are equally viable for best-in-class companies as all others; it just takes the others about twice as long to recoup their investment.
Why do you suppose it takes the average and laggard companies twice as long to recoup their ERP system investments as the best-in-class companies? The chart below reveals that the best-in-class companies are much more aggressive than the rest of the companies in setting the ROI bar high.
As you can see in the chart below, the act of setting the ROI bar higher than the rest pays off handsomely when it comes to realized ROI.
We have examined enough data to get a clear picture indicating that best-in-class companies demonstrate best practices relative to their ERP systems, and that they derive more functionality, performance, and ROI from their systems. However, from my perspective, there is still a big elephant in the room and I think we need to find it.
Jeff Mack
President & CEO
ICS Support, Inc.