I just joined a twitterfeed called bigdata. There is discussion afoot about IBM's new initiative to field a 4000 consultant army in Analytics. I think it's going to be a force to be reckoned with. In fact, it's something I've always hoped happened with Hyperion technology. But aside from that, a commenter named Hugo made the following point.
How many of the businesses who import into America use all these
'smart' systems? Very few. They have good management. Any American
business that looks like they may need ERP (Enterprise Resource
Planning) software, could ask them selves some questions: Have you
tried splitting business units into units no bigger than 300 people?
have you allowed those business units to make their own software
choices, i.e a simple industry specific system price $100-$150 k,
instead of $ millions? Have you checked the CEO is someone who
understand the product, and is not a financial person? When the
training budget is spent, is it mainly on the 5-10% in management, or
are all employees included in some kind of training, including problem
solving, idea generating? When these questions are answered, you
probably won't need to waste money on expensive systems, and can invest
the money in R&D, maintenance, training - and also renewable energy
systems, so lowering break even.
I've seen what happens in big businesses that have decentralized systems in the pre-ERP era, and those who have avoided a centrally planned and disciplined systems approach. They are invariably hamstrung during economic times like these when the company needs to trim costs across the board.
In other words, it doesn't help at all to have highly capable execs at the top of the company if they do not exert fiscal control down to the departments, and that is impossible without centralized, coordinated financial planning and reporting.
I'll give you a concrete example.
One of the largest RFPs I've ever seen in this business called for the replacement of a system to manage 17,000 independent project budgets. Imagine a company so large that it ran that many independently funded projects every year. The opportunities for economies of scale may not exist at all on the systems delivery side. Surely as license agreements are concerned, vendors like IBM are going to be interested in premium pricing for their biggest offerings. Clearly there's a lot of consulting to pay for as well. But it has always been the advantages of economies of scale on the business side that have made these matters attractive to the buyers. Only a company can know how much savings they can realize through centralized planning and control. In the case of this RFP, we identified the potential for quickly making connections through that population of financial managers. Why? Because the corporation could always deploy an analytical group that could find opportunities throughout the system. In this case, buyers of titanium in 400 decentralized projects would never think to or be enabled to make a single coordinated buy, or do something as simple as multi-supplier comparison shopping with stovepiped specialty systems.
Such efficiencies became immediately obvious as we put together the design for the system - it was a home run built into the prospect of a single-vendor enterprise class solution. But such things are not always so obvious.
Here's a second example, one that I've told many times. I worked, back in 95, for a manufacturer that had a nationwide product and its own distribution network. I worked very closely with the CFO and his top analyst. He grew up in the business, she was an ice-sharp Ivy League MBA. In an afternoon they started to look at the books and try to squeeze costs out of the system. The analyst found a contradiction in the matter of the way discounts were booked in the ERP system. I confirmed it by looking at transaction types that were my feed to the dashboard. The CFO immediately got on the phone to several warehouse managers.
It turned out that there was a discount business rule tied to a customer attribute. If you were a good customer, good defined by total tons shipped per year, you got an automatic 10% discount on freight. But we discovered by looking at the aggregate numbers that something was amiss. In one afternoon of phone calls by the CFO, it was discovered that warehouse managers marked their discounts different ways. In particular, the most predominant way was that they took 10% off the fuel costs per delivery.
So here's where a smart manager who knows the business makes the right call. He named a customer and asked the warehouse manager if a shipment was going out that day to one of the big customers. Yes. How many pallets onthat truck? 1 and a half, was the answer. The truck could handle 10 pallets, but was taking these small shipments on demand and discounting the gas for every trip.
The CFO turned to me and said, I want you to build a system that shows the difference in our profitability when we send half-empty trucks out to customers and change the incentive to warehouse managers so they can see it come out of their bonus. Because today they all think that if they send a truck out every day or every other day it improves customer satisfaction. Yes it does, but it's killing us on fuel costs.
I had to shrug, because it was 1995 and nobody put EIS capable PCs in the hands of warehouse managers. Warehouses were not networked and doing so would require Citrix, very expensive in those days.
These days it is not very often that the lethal combination of line managers who grow up in the business work in coordination with hotshot analysts and soup to nuts developers that can deploy systems into nationwide networks. I think those times are going to come back when cloud-resident systems become a reality. At that end of this evolution companies like IBM who field large consulting forces are going to be at a distinct disadvantage. In the short term, they will have the advantage.