Getting Value out of Business Systems

Following only nuclear storage, preparing a city for the Olympics and nuclear power projects, business system implementations are the riskiest projects to undertake and manage.??

According to Bent Flyvberg, IT projects have the highest risk of significant cost overruns of all project types, after those scary three. ?

For something as common in the corporate world as implementing a piece of software, you would be forgiven for thinking it couldn't be that bad. According to Flyvberg's work, the two main causes for this are the high level of interdependence among components and the lack of modularity in project design.?

Flyverg’s insight on the causes, and his beliefs in putting more time into planning before pulling the trigger align with our own experience and advice. Anticipate what could go wrong. Mitigate against problems. Break things down into Lego blocks. But his insight that resonates the most is that too often the organization does not have a clear answer to the simple question: "Why?"?

I've been involved in dozens of major system implementations, and the first question I find myself asking is why. Why now? Why this system? Why this plan???

Another way to ask the question: “What do we plan to get out of this system?”?

Too often I hear some mix of the following:?

• Our current system is driving us nuts!?

• We're growing and we need a new system to support us.?

• We need more efficient processes.?

• We do too much manual work and our [fill in the blank] team needs to keep up with our business just to support us.?

Sometimes I even hear something along the lines of "our ownership group told us we have to" (which we refer to as the ‘Great and Powerful Oz’ argument on our team?).

What I don't hear in any of those answers is the "So what?" What is it that this exact combination of product, timing, and approach going to improve that is worth the significant time, money and emotional effort a project like this takes??

Eliyahu Goldratt, a master of the operations world and someone who had a front-row seat to the MRP and ERP evolution of the 80's and 90's, summarized the failures by breaking down technology into four critical questions:?

1. What's the power of the technology??
2. What limitations does it overcome??
3. What are the current workarounds for those limitations??
4. What should the new rules be??

What he found was that almost everybody answers question #1. But for each successive question fewer people take the time to understand and answer it.??

The example he used is net requirements planning, where based on orders, inventory and lead times a production team needs to anticipate what materials need to be purchased to ensure all orders can be produced by their shipment dates.??

Prior to MRP systems, this was an intensely manual process that in many companies meant it was only calculated once per month. While the early adopters of MRP tended to get good results, the significantly larger group of companies that came on board next failed to realize the benefits.??

1. They recognized that the MRP software could calculate net requirements in hours (or less).?
2. They realized that this meant that people didn't have to manually calculate the net requirements. So they saved some time.?
3. They forgot about the workaround. The workaround in this case was that since the manual process took so long, they would only do it once per month. Even after system implementation they kept running the plans once per month, despite the machine power to do it more regularly.?
4. Because they forgot the workaround and left it in place, they didn't design the new rule(s) which should have been something along the lines of running the plan weekly or even daily.??

In the end, because they only focused on the time savings, they only got the time savings for the people calculating the net requirements. It wasn't worth the investment.??

What they missed was the decision-making power that comes with knowing your net requirements more frequently. How can we use this to buy better? How can we shorten lead times? Where are our bottlenecks? How can we increase throughput? This decision power can create many times the investment in value and it's perpetual.?

When I get involved in a project, I want to understand where exactly the value is for an organization. Not just in time saved, but in intelligence and decision-making value created. Here are a few simple examples that we've seen in recent years:?

• Project Cost and Change Order Improvement: In some Deltek and Acumatica projects for engineering and construction management firms, through more timely visibility into project budget to actual tracking. Faster insights lead to better project management and increased success in issuing change orders when required. It also leads to better data for quoting future projects leading to better odds of winning the right deals and lower odds of "winner's curse".?

• Smarter Inventory Management and Increased Throughput: In MS Dynamics 365 and Epicor projects for manufacturing and distribution firms, decreased inventory and increased order fulfillment with shorter lead times through improved demand and requirements planning. While many people focus on the measurable cost savings impact of reduced inventory, firms tend to have both too much of some items and too little of others, leading to too many lost sales and opportunity costs. Better inventory planning can increase sales through better insight into availability and inventory levels.?

• Sales Funnel and Demand Forecasting to Increase Revenue and Responsiveness: Across all organizations, better visibility into future sales through funnel and demand forecast metrics. Whether in retail, hospitality, professional services or production, having a good probability estimate of the future is valuable for preparing how to handle it. The caveat here is that if your data requires sales people to use the CRM, it needs to be built to make their sales job easier first, and generate the data as a result. CRMs have a high failure rate due to poor adoption, primarily because sales teams want to sell - not become data entry people.?

• Housekeeping Items: Every organization should streamline the basics of bank integration, electronic payments, digital payroll and AP automation. There are scale-specific solutions from simple QBO/Xero plugins to large scale ERP-integrated or native solutions. But in 2024, it's a terrible use of resources (and consequent hit on productivity) for most organizations to be shuffling that kind of paper.?

This isn't an exhaustive list, but I want to emphasize that most of the value of a business system is realized in a few small areas. Those should be the critical focus areas of the project. I can think of dozens of cases for different industries, but you have to think through how your organization creates value and what would allow it to create more. Start there and be relentless in pursuing that value.?