Competitive Pressures and Value Propositions, Is Lean the Answer?
Modern technology has lowered the barrier to entry for new competitors by allowing international outsourcing, greater agility, quicker product design to market, and specialized focus on niche markets causing more market fragmentation and specialization. Customers have a wide variety of information from sellers and the Internet about products, design, services, options, pricing, and availability. Things are more dynamic than ever.
Because of the pace of change, focusing on “best practices” and internal process improvement, or even extending processes is no longer enough. Business can rarely (if ever today) integrate, automate, and streamline to achieve marketplace success –, to one degree or another nearly every competitor is doing this or is quickly headed in that direction.
Business complexity and the breakneck pace of change turns yesterday’s breakthrough technology into today’s commodity; vendors are modestly integrated into the extended supply chain, all the way from raw materials to end customer delivery; customers are more sophisticated and have more options than ever through the Internet; competitors have worked to incorporate similar technology throughout their entire process chains by integrating, automating, and accelerating their processes. As a result, business demand on technology simultaneously creates new opportunities and new struggles.
For years SAP has been trying to encourage their customer base to focus on creating value as one way to address some of the changing business dynamics. SAP has developed major toolsets to focus on strategy and value for over a decade and often reference this need for a value and strategic focus in their literature:
Investing in technology is only half the game. Investing in IT without analogous improvements in the management practices around IT will lead only to a slight increase in productivity. Leading companies that invest in IT while enhancing management practices and governance have experienced sustainable results in increased value and improved productivity, in some instances as much as a 20% boost (reported in Stephen J. Dorgan and John J. Dowdy, “When IT Lifts Productivity,” The McKinsey Quarterly, November 2004)… [A]n IT project needs to be not only on time and on budget but also on value. Similar to any other capital investment, the project is not done when it goes live.
SAP Executive Insight Series. Accelerate Value Creation: The Virtuous Cycle of Using Technology to Maximize Business Value, pg. 3, September 7, 2009.
SAP built a multi-billion dollar business based on helping business succeed in strategy and value as critical components of their software implementation. So why isn’t it happening?
What about “Lean” can it make the difference?
If you are embarking on “Lean” initiatives it indicates that your market space already is, or is rapidly headed for commoditization. The reason is that “Lean” processes are primarily another type of process improvement initiative that only addresses one of the three key areas of the “value proposition.” Lean focuses on the value proposition area of operational excellence but does very little in the other key arenas of customer focus or innovation. In turn, operational excellence addresses cost reduction through automation, cycle-time reduction, and operational efficiency. But is that what you need?
Excess capacities, combined with the frequent layoffs that occur during economic downturns indicate that many enterprises are operating at or near optimal levels, maybe not perfect, but certainly efficient. Whatever backlog exists before any market downturn or disruption is low enough that those backlogs quickly dissolve. When market downturns occur, resources are adjusted relatively quickly in response. As market downturns point out, integration, automation, and streamlining are not the problem. The excess capacity, whether in products or services, demonstrates that processes are effective and efficient.
Do you need “Lean” or Six Sigma? Maybe, maybe not. There are two reasons your business or organization should consider this operational excellence proposition over the others–, 1) your competitors are beating you on price, or your market is already a commodity or is quickly becoming commoditized, or 2) if your product or service requires a significant amount of precision, Lean makes sense. Otherwise why would your pour your company’s limited resources, time, and energy into these methodologies where the “last mile” of change has the highest cost but yields the smallest gains?
If your competitors have a significant price point advantage then it may make sense. Otherwise your efforts and resources might be better spent focusing on competitive pressures, market dynamics, business strategy, IT strategy, and value propositions. With Lean you may be running a dangerous race to the lowest price in the marketplace that will squeeze your profit margins, press your cash flows, and commoditize your products or services. On top of all of this you may risk of stagnating or even declining stock prices unless you are able to capture significant market share.
Using “Lean” methodologies to squeeze out the “last mile” of very small efficiency gains is no longer enough to gain real competitive advantage in the marketplace. It might eliminate or streamline some of the bureaucracy, and it will help to minimally improve margins and improve cycle times, but it will not create breakthroughs that companies need to survive and thrive in today’s business environment. In a nutshell, process integration, automation, and streamlining is not the only issue to be addressed.
Is there an Answer?
If your organization approaches your SAP or IT investment from a business and IT strategy perspective you are far more likely to achieve the kind of benefits and results you are looking for. Unfortunately by the time you get to the RFP you are asking vendors to bid on a project where there is a built in emphasis on putting the system in. Integrators are bidding on the IT work, not on business transformation, not on business benefit, not on business goals, not on addressing competitive pressures–, the RFP only addresses IT work. Before the vendor RFP is issued by your company you should be having key internal discussions about why you are doing the project. What are your business drivers? The direction of the company must be considered, the key goals and initiatives defined, and then your RFP should insist on vendors demonstrating their direct competence on delivering solutions that enable your key business drivers.
IT Directors, CIOs, CFOs, and other key decision makers who influence technology decisions find it difficult, if not impossible for their vendors to provide the innovation and guidance for this type of implementation. It is a creature of the business climate and the traditional RFP approach that these typical implementations occur in. Some of the things that influence the RFP focus on delivering a technology solution rather than business solutions are:
1. ERP systems generally can be very costly to implement.
2. The marketplace has dictated lower implementation costs, which has in turn led to;
a. Implementation “success” being defined down to “on time and on budget.”
b. Many software vendors hire the least cost but acceptable application consultants to meet some cost and margin goals.
3. Few or no real entrance requirements to SAP consulting has led to a wholesale consultant cottage industry of frauds and fakes that are not well-vetted.
4. Of the actual SAP consultants with verifiable experience few have real business background outside of an SAP implementation (as a result they do not understand value propositions, business strategies, competitive markets, etc.).
5. Fewer consultants have real process integration experience to be able to cover an entire process from start to finish. For example, there are few genuine “Order to Cash” or “Requisition to Pay” or “Plan to Produce” consultants.
6. Implementation vendors have no incentive and no requirement to participate in or drive organization success. They have an incentive for project success, as defined by “on time and on budget” but no incentive or guidance on your organization’s success.
If you don’t see the spark of innovation, creativity, strategy, or marketplace understanding in an implementation vendor during the selection process it is unlikely to change once you sign the contract with them. If business expertise and strategy development appears lacking in the consultants being proposed for your project you won’t see it in your project; and it is even less likely you will see it in the SAP solution that is rolled out to the user community. If they don’t have it when they come to the table, they won’t have it when you start paying them! There are ways to change this frequent disappointment:
First, the business must drive the project right from the beginning–, and that beginning is before an RFP is created.
Second, an educational process is required which includes critical tools, resources, methods, and techniques to ensure you finally realize ROI and business benefit from your SAP implementation. And not just cost-focused benefit either, but real business transformation benefits and business focus on the IT investment. This process must include some repeatable process for evaluating your competitive pressures, addressing your value proposition, and integrating your employees through collaboration.
Third, that new knowledge from the educational process must be incorporated into the entire implementation process, and ultimately in the entire organization–, from before the RFP is issued, to the vendor selection, through the Blueprint, into the Implementation, and throughout the organization once your SAP system is operational.
Today’s organizations need more than the old vendor implementation model, today’s organizations need consultants to deliver results. Previous consulting methods have produced consultants that are little more than expensive commodities that focus exclusively on the “better, faster, cheaper” method of project delivery. But they only deliver technology solutions, they rarely, if ever, deliver business solutions. That same commodity is available to every organization everywhere. It does nothing to tailor the organization for today’s global competitive pressures or for enhancing their value propositions.
The client or customer who implements, upgrades, and adds on to their SAP landscape can no longer afford the commodity consultant. Because of the lack of genuine business knowledge and experience from application “technicians” there is consistent disappointment from C-level executives who want to see the promise of technology transform their business. These “technicians” are not able to assist in transforming the enterprise, or business, or an organization to compete in today’s marketplace. Your company must insist on more from consulting vendors and from placement firms or you will continue to be disappointed by the lack of results.
ADDITIONAL READING AND RESOURCES:
The Real Reason Executive Participation Creates IT Project Success
CRM, ERP, BI, and IT Investment — Where Do You Find the Business Benefit?
Why SAP Projects Fail to Deliver ROI (and How to Change IT)