Hidden Profits Blog

There are always a certain amount of corporations that have found themselves in a situation of negative profitability and/or declining sales.  If these cases are prolonged they are in need of a fundamental business change and infusion of cash in order to survive – A Corporate Turnaround.  In the last couple of years the number of companies in this situation has increased significantly.  The common approaches to address these situations are:

1. Assemble a finance team get a cash infusion from a bank, finance company or investor
2. Assemble a team to arrange the sale of all or part of the company
3. Cut expenditures and employees across the board in the company
4. Bring in a consultant to address the revenue side of the business
5. Re-organize under bankruptcy protection

While I agree that some or all of these approaches may be necessary in any given situation, I believe that except for the cases in which the company is liquidated, Information Technology also plays a vital role.  I have been working with several clients in the last couple of years that find themselves in the situation where revenue is down, cash flow is down, cash is hard to find and the company is in serious trouble.  In one situation the client had already attempted to sell the company 3 times and was unable to come to terms with a buyer.  In another, they had already brought in management consultants to address the issues and increase sales.  In another the company was still in good position but the owner knew there were big bumps in the road and wanted to address them before they became serious.  In all cases the biggest hindrance to management was the lack of information, financial, sales and production about what was happening in the business so that productive decisions could be made.

Why was there such a lack of basic information?  In all cases the root of the problem consisted of the following:

• Computer systems which were not integrated – each company utilized a minimum of 2 major systems in the business and sometimes more
• Significant manual processes that prevented timely and accurate information from being processed in the computer systems
• Inadequate and untimely reporting regarding financial and operational results
• Lack of an adequate system to track sales performance

Because of the above Information Technology problems, the companies were unable to answer the following basic business questions:

• How much are sales down over previous years and in what product lines, customers or geographic areas?
• What sales do we have in the pipeline and what are the expected future revenues?
• Where are sales coming from in terms of products, customers and geographic regions?
• What is the productivity of operational staff and how can we increase the productivity?
• Where are the greatest expenses and what are the best cuts to make?
• What is the projected cash flow for the next month, quarter and year?
• What is the status of AR and collections, if collections are down why?

Now I know what most people would say – hire a staff of accountants to come in and generate those reports.  Ok let’s say we do that.  First, these types of reports are not static.  Management needs these reports on a daily or weekly basis.  How many accountants and how much time will be required to compile this information on an ongoing basis?  In most cases it would be unrealistic.  So what can Information Technology do?

First, there are numerous Business Intelligence (BI) systems available today that can be used to gather data from multiple systems and create reports, trend analysis, dashboards for management to have meaningful information as soon as data is entered into the systems.  This is especially important when analyzing sales and production data.  The majority of these systems can access Excel spreadsheets and any ODBC data base.  So even if there is no CRM (Customer Relationship Management) system and sales information is in spreadsheets, important management reports may be obtained from them.  Then the next question is ‘Aren’t BI systems expensive and difficult to implement?’  Traditionally that has been the case but today there are several systems that are very inexpensive and they will build a dynamic data store from the raw data.  These may not be a long term solution but can be implemented rather quickly to start providing management with critical information.

Second, in some situations the BI data can be used to create interfaces between systems that are not integrated. One of the biggest issues I see is operational systems that are not integrated with an accounting system.  Some of the BI systems can be used to capture the operational transactions and generate Excel spreadsheets of the journal entries that can then be integrated to the accounting system.

Third, I.T. is no longer just an internal data gathering operation that is used to create financial statements and tax returns.  Technology and automation are used to follow up on sales leads and prospects, survey customers, create new sales channels, provide customer and vendor self-service, provide for entry of data at the source, streamline operations and improve many other business functions.  By effectively utilizing information technology and business process automation, many time consuming and inaccurate business processes can be streamlined and made more accurate.  Much of this technology is relatively inexpensive.  For example, there are many services offered by banks, financial institutions and vendors that are free or very low cost to implement.  Many systems especially CRM (Customer Relationship Management) and prospect follow-up systems are available as a service at a low monthly cost. 

By implementing timely management reporting, integrating systems and automating business processes many companies can find solutions to their business problems, provide better information to investors and lenders and even improve the chances for an acceptable sale of the business.  Times are challenging and information technology is not a silver bullet but it is an arrow that should be in every executive’s quiver. 

For information and an evaluation of your Information Technology contact me at info@ljrconsultingservices.com or 818-709-6583

At some point you have probably heard the quote, ‘If you fail to plan you are planning to fail’.  And with that individuals create goals and plans for their careers, life, vacations and companies create corporate strategies, annual plans and budgets etc.

However, how often does a company create a strategy for Information Technology.  I’m not talking about an IT budget although there are plenty of companies that don’t even have those.  An IT budget just defines how much of the corporate funds that IT department is allowed to spend and on what products/services.  What I am referring to is a strategy on how the company will utilize information technology to create competitive advantage, to open new markets, to brand the company and to support the operations of the business.

What do I mean by an IT Strategy or IT Roadmap?

An IT strategy or IT Roadmap is a detail plan that defines how and where information technology will be utilized in the company.  It identifies areas where management believes IT can be used to:

• Improve productivity and reduce cost
• Create a competitive advantage
• Improve intra-company communication and cooperation
• Improve financial controls
• Increase market share and open new markets
• Provide new opportunities for customers, partners and vendors to interact with the company 

It defines the priorities of the opportunities/initiatives, assigns responsibility/ownership and defines date and timeframe for each initiative. 

Like most plans it should encompass both short term and long term goals.  So it should include a vision of what the company would look like with all the desired functionality implemented over a 5 year time frame.  Then each initiative should be prioritized and placed on a 5 year, 3 year or 1 year schedule.  Finally a detailed 18 month plan should be defined that includes initiatives, projects, timelines and estimate cost and resources.

Why do I need to have an IT strategy or IT roadmap?

IT is no longer just about how to document the business transactions so it can be accurately reported to the IRS, the bank and other outside entities that need a picture of the financial status of the company. 

IT impacts every part of the business.  As a result there are many competing priorities from all areas of the company.  At one time accounting was the primary consumer of IT services, however, today IT touches everyone in the company, customers, vendors and partners.  So needs must be assessed, solutions identified, costs estimated and priorities set for all those competing interests.  In addition a path needs to be defined on how to get from where you are to where the company wants to be.  One of Dr. Stephen Covey’s 7 Habits is ‘First Things First’.  This is critical to define in an IT strategy.  Every IT initiative requires infrastructure, systems, and resources.  If those are not addressed in the correct or most logical order, the result is a failed and/or significantly over budget project.  A good IT strategy will define prerequisites and enable you to put the initiatives in the correct order for success.

To get more information regarding creating an IT Strategy, contact Lynda at 818-709-6583 or email info@ljrconsultingservices.com 

The position of a CIO has traditionally been thought of as only for larger companies.  Indeed when the position first became popular in the 90’s only companies with fairly significant data centers and IT staffs hired a CIO.  In recent years more companies with revenues of less than $1 billion have been hiring CIOs.  However, in many of those situations the position becomes more of a title given to the person at the company that is responsible for IT, regardless of what their actual function.  In many cases the CFO also carries the title of CIO. 

A CIO is no longer just a title to be given as a reward or just to give to another executive as a place holder.  As information technology (IT) has become ubiquitous and ever more important within companies of all sizes, the role of the CIO has become more critical and includes more expanded functionality.  The following are 5 key functions a CIO should perform in all organizations.

1. CIO should be responsible for both the technical components of information technology and business process.  As a company grows the systems it should use include more and more functionality and the company should use more of that functionality to improve the productivity in the company.  Unfortunately, what generally happens is that the company invests in technology that has the capability to significantly improve productivity and controls.  Or the company does not purchase the technology available to them because they do not understand the benefits of the available functionality.  The result is that as the company grows of the ratio of expense to revenue increases and the company becomes less profitable as a percentage of revenue that translates into net income.  A good CIO should understand the technology, the business and lean business processes.  The CIO becomes the key person that guides the company to utilize information technology to the fullest extent and implementing lean business practices to maximize profitability.

2. IT is no longer just about processing accounting transactions and providing management reports.  It is also no longer just about building and maintaining an internal data center at a single location.  IT encompasses customer interface, product/service delivery, marketing and sales and ultimately can be the key to an important competitive advantage or major cost savings.  A savvy CIO who is involved at the C-level executive ranks can help guide the company through technology decisions, educate management and employees regarding different technology options. 

3. CIO should be part of strategic planning process.  Often executive management plans are hampered and information systems are purchased in a crisis mode because no one with a technology background has been involved in the strategic planning process.  I have worked with companies that are struggling with growth because they do not have the systems and processes needed to remain competitive and profitable as they grow.  Having an experienced CIO involved with executive management at that strategic level will not only improve the chances that the company’s information systems and processes will be able to support their growth; they may also be able to provide solutions to competitive pressures.  In addition, if a company is struggling and needs to reduce cost, an experienced CIO will be able to identify opportunities where information systems coupled with revised business process will enable staff reductions.

4.  Information Technology today is much more complex and specialized than ever before. Also, new technology is coming on the market faster than ever. Traditionally, mid-market companies rely on vendors or non-technology executive’s previous experience to keep them informed on what enhancements they need.  This is dangerous for 2 reasons – 1.  vendors are primarily interested in making sure that their clients purchase products/services that fit in their experience. 2. Vendors are not involved in planning so are often unaware of all the factors that should impact a decision.

5.  CIO should be involved in M&A transactions.  Many companies grow by acquisition and as the economy recovers M&A activity will increase.  The CIO needs to ensure that the parent company has the infrastructure and systems to support the acquisitions, perform due diligence on the acquisition targets and plan the transition of systems, infrastructure and processes.  I have worked with several businesses that have grown by acquisition without addressing these areas and after a few years they have a major issue to address.  They are supporting multiple systems and infrastructures, the companies cannot work together, customers are confused and they have not realized the expected ROI. 

Hiring an experienced CIO is expensive and many mid-market companies do not have a need for a full time CIO.  In these situations I recommend using an experienced CIO on a part-time consulting basis and/or adding an experienced CIO to the Board of Directors.  Also, many CIOs are primarily experienced in managing the IT environment and have limited business knowledge.  Utilizing an experienced CIO as a coach/mentor to the corporate CIO or on the Board will provide the needed support for the company CIO. 

Links to additional articles.

Role of CIO in M&A

New Role of CIO

Role of Strategic CIO

Contact LJR Consulting Services for experienced CIOs 818-227-5025 or info@ljrconsultingservices.com

I have spoken with several prospects in the last couple of weeks all of whom are wrestling with how to select an ERP system. 

I am encouraged that they are wrestling with it and contemplating getting professional support.  Selecting and implementing an ERP system is one of the most important and expensive decisions a company will make. Unfortunately, in many cases, over 70%, the projects will fail.  Why such a high rate of failure for such an important business undertaking?  In my over 30 years of experience implementing systems, the 2 biggest reasons for failure are:

1. Selecting the wrong system
2. Selecting the wrong VAR or implementation partner 

Of course, there are many other reasons for the failure rate but these are the most common. 

So the next question is – if a company does an evaluation how is that they so often pick wrong?

The primary reasons are the following:

1. Select a system based on the prior experience of an executive with a system at another company.  That may or may not be a good test of what will work in the current company.  There are several factors that impact whether a system that works well in company A will do the same for Company B.  What works for one does not necessarily work for another.
2. Buy into advertising, popular theory or executive pressure that the company must have the biggest name in the business to be a ‘real’ system.  When ERP systems first started to be developed, it was true that the larger company systems had better functionality.  That is not true today. 
3. Delegate the selection only to the IT department
4. Do not document requirements at all or document requirements based on how the company currently functions not how it will function in the future.  This is a very limiting view and results in selection of systems that will not support a growing company.
5. Select the system with the best demo instead of based on how the system functionality best supports the company’s requirements.
6. Do not use the services of a professional ERP consultant or use a systems integrator that benefits from the selection of a particular system.

The optimum methodology to use to select an ERP or any system is the following:

1. Create a selection team comprised of employees from all key departments and information technology.
2. Define and document system requirements based on the future processes of the company.  Use best business process practices as a guide. Also, use new technological features to redefine processes.  For example, systems today have executive dashboards and real time information access so traditional reports are not needed as much. Also evaluate how wireless and smartphone technology can be used to replace existing manual processes.
3. Determine the technology platform you expect to support.  For example what data base and operating system can your company best support.  Will you use SaaS, outsource the application hosting or host the system in-house.
4. Research systems that support your industry and compare them to your documented requirements and preferred technology platform.  Select the best 3 or 4 applications for demonstrations.
5. Work with the selected vendors to script the demonstration so they will address your key requirements. 
6. After each vendor demonstration, score the vendor based on how well the system performed and how comfortable the team was with the user interface.
7. Obtain cost estimates for total cost of ownership – purchase price, implementation. and ongoing maintenance costs.
8. Make the selection based on the best balanced system.

I also recommend that if your employees do not have experience in systems selection, you should use the services of an objective, vendor agnostic consultant to guide the organization through the evaluation and selection process.

If you would like to learn about our methodology and/or get support during your ERP selection and implementation contact Lynda Roth at 818-709-6583 or info@ljrconsultingservices.com

I am reading a new book by John C. Maxwell entitled ‘How Successful People Think’.  An intriguing title.  If you are not familiar with John C. Maxwell he is a very dynamic speaker, and an expert on Leadership.

 Available on Amazon tinyurl.com/25pp34c  

One of the chapters in the book is about Creative Thinking.  Maxwell quotes Annette Moser-Wellman the author of ‘The Five Faces of Genius’ who states ‘The most valuable resource you bring to your work and your firm is your creativity’.  Maxwell states ‘Creative thought isn’t necessarily original thinking. Most often creative thinking is a composite of other thoughts discovered along the way.’

When I read the chapter, I thought about how so many companies either do not take on projects like lean process design that require new thought or engage in those projects and don’t see any benefit. There is much written about why projects fail and what is required to be successful and in all of those numerous articles I have not seen ‘Creative Thought’ as one of the requirements for success or lack of creative thought as one of the reasons for failure.  However, after reading and thinking about the chapter, I believe it just might be the key ingredient for success.

Maxwell listed the following as characteristics of creative thinkers.

• Value Ideas – this is a requirement for a lean project and you need many ideas for improvement
• Explore Options – also key so the team can explore multiple ways to perform the process
• Embrace Ambiguity – certainly when a team is initially evaluating how to ‘lean’ a process there is much ambiguity on exactly how things will be done, what technology might be available to lean the process and how it would all be implemented.
• Celebrate the Offbeat – in order to get to a truly different process that saves time and cost, the team must think out of the box and brainstorm.  Some of the ideas will seem way crazy but may have merit.
• Connect the Unconnected – so often in evaluating how to make a process more efficient the team needs to consider process steps that are not normally connect to the process being evaluated.  For ex. When a company looks at Accounts Payable, what really needs to be addressed is the entire Procure to Pay process which may address areas not normally connected in the company.
• Don’t Fear Failure – a team must try multiple options and ask many questions before finding a satisfactory revised process.  Some of the options may not work, also the new process will probably be improved again at a later time. Don’t be afraid to try and revise.

Maxwell’s list on How to Discover Creative Thinking is a primer for companies who want the get the most from employees and provide an environment in which employees feel valued and motivated to improve the business.

Remove Creativity Killers – in most companies today creativity is dead and buried.  The most important role for executive management is to remove creativity killers and create an environment that encourages creativity.

Think Creatively by Asking the Right Questions – This is a key skill to teach employees who are team members on a lean project.  The right questions are those that stretch the mind beyond the obvious.  Too many lean projects fall short because team members only ask the obvious questions. 

Develop a Creative Environment – having an area where the lean teams meet and have tools just for the lean process that enable them to explore ideas, put them on paper and move components around is very conducive to creative thought.

Spend time with other creative people – not only do you need creative thinkers from your team, the project will greatly benefit from outside team members.  These may be consultants, representatives from customers and vendors, representatives from key advisors like banker and accountant. These people bring a totally different perspective and insight on what other companies do to a lean project and business process re-design.

Get Out of Your Box – to me that means not only thinking outside the box but looking at how other more efficient companies perform the same processes, technology that might be available to enable a change that could not happen without the technology.  For example, a company in which employees are not near a computer in the course of their job, may resist performing functions that require entering or manipulating data on a computer.  However, with smartphone, iPads and the internet, applications can be created in which access to a workstation or laptop is not requried to use the technology.  You can also apply generally accepted processes from one area of the company or industry to another process.

So bring Creative Thinking to your Lean Projects. 

If you would like to spend time with other creative people – Call LJR Consulting Services for a free consultation  818-227-5025

This morning I received a white paper about evaluating SaaS – Software as a Service solutions.  This has been a question that many clients have been asking in the last couple of years and one that I addressed for my own business.  There has been so much written lately about SaaS and it has been touted as the perfect solution for everyone.  Is it really?  I am not saying that it does not have its place in the smorgashboard of software options and it certainly provides numerous benefits but as the white paper points out, you must evaluate it objectively against all options and weigh which criteria are most important to your company.

The white paper is entitled ‘Evaluating SaaS Solutions: A Checklist for Small and Mid-sized Enterprises’ you can download it here tinyurl.com/2ua6qtd

The key evaluation criteria listed in the white paper are:

• Solution Functionality which includes
  • Core system functionality
  • Customization and personalization capabilities
  • Integration capabilities
  • Workflow capabilities
  • Access to data for ad-hoc analysis and reporting
• Solution Pricing Terms & Condiditons
• Uptime availability, quality of service and responsivenes of the SaaS provider – in short the Service Level Agreements (SLA)
• SaaS solution’s security and privacy
• SaaS solutions backup and recovery capability
• Saas solutions customization and personalization capabilities
• Saas solution’s integration capabilities
• Saas solutions workflow capabilities
• Saas Solution ability to provide access to data for ad-hoc analysis and reporting
• Existence of a community of SaaS solution users for networking and collaboration

I would add 2 other criteria to their list. 

1.  The ability to convert data from the SaaS system to a different system.  As the business grows or needs change there may come a time when the company decides they want their applications in-house.  What are the options for converting data from the system and loading it to a new system.  Included in this would also be what happens if the SaaS provider is sold, terminates operations and/or no longer supports the system. 

2. The technology platform.  While it is somewhat true that by definition a SaaS system will be on supported data base, programming language and operating system, that cannot be taken for granted.  Some software firms have created their own data base and/or programming language that would require dependence on the software firm or may end up obsolete in the near future.  For example several years ago I hosted my website with a company who at the time had a very state of the art editor so I could change my web content easily.  However, with the advancements today in web editors, my hosting company has fallen behind and I am now looking to move.  While this cannot be completely avoided as technology changes very rapidly, it should be a consideration just as it would be for a purchased application.

Today the selection of core business applications such as ERP, CRM, MRP are very much like selecting a long term partner.  The process should not be taken lightly weather searching for a SaaS, purchased or hosted solution.  Detail requirements need to be defined, potential solution options identified and evaluated against the requirements.  Since this is a critical decision and not something companies address on a regular basis, I strongly suggest bringing in a consultant experienced in system requirements, evaluation and selection to support your team. 

Have you gone on a corporate crash diet in the last couple of years.  After the binging in the early 2000’s and the financial collapse in 2008, many companies felt it necessary to put themselves on a crash spending diet.  So what do I mean by that.  They did one or more of the following;

• Reduced staff corporate- wide by 10%, 15%, 20%
• Halted all spending on marketing, training etc.
• Halted all capital spending on improvements, acquisitions, product development

So now it is almost 2 years later and the problems from these actions are starting to be felt.  These actions were taken to preserve the company but now the results may very well have put the company on an unsustainable path. Why does this seemingly correct response become unsustainable.  Frequently this creates a downward spiral in which

• Customers become unhappy because service suffers
• Employees become unhappy because of increased workloads and overtime
• Productivity suffers because of increased workloads
• Sales suffer because of lack of marketing and the above results of downsizing

Or the second scenario is that the company weathers the storm and sales come back company starts to grow and now they begin hiring again because they are short handed.  The end of this scenario is that they have brought all the cost back that was shed and now they are vulnerable to the next downturn.

A better approach and one that will lead to sustained improvement is to evaluate all business process and systems.  Determine where there is waste and inefficiency and quantify the impact to profit and cash flow of eliminating or reducing the waste and inefficiency.  Often by identifying and implementing these sorts of targeted cost reducing strategies not only are the costs in the business reduced to be in line with the economic conditions, but the company becomes stronger and more competitive.

We have discussed the Financial Supply Chain and the importance to cash flow and profitiabilty for optimizing it.  Optimizing the Financial Supply Chain is a function of optimized business process and effective information technology.  In my last post, I recommended that business process be addressed before selecting new information technology systems. You want to optimize in this order so you can define requirements for the systems needed and the functionality required in each system.  So how to go about evaluating the effectiveness of the current Financial Supply Chain, selecting and prioritizing the processes to be optimized and creating the new system requirements. I  recommend the first step is an assessment to determine where your problems are and cost to the company of the current Financial Supply Chain processes. 

What is involved in an assessment.  A good assessment will address 4 key areas:

1. Information technology infrastructure
2. Information systems – ERP, Operations, Reporting, Document Management etc.
3. Business Processes
4. Organization – Finance and IT

The first step is to evaluate the business processes in operations, finance, sales and other supporting departments.  Inefficient processes that you are looking to identify are:

• Duplicate data entry
• Extensive use of Excel spreadsheets
• Duplication and multiple filing of paper such as invoices, purchase orders, employment applications etc.
• Manual processes to support lack of system integration
• Non-standardized processes due to multiple systems i.e. multiple ERP or accounting systems
• Lack of integration with customers, vendors & bank
• Processes that employees feel are inefficient
• Departments that do not have access to ERP, CRM systems
• Month- end close process that requires more than 3 days

The second step is to evaluate the information systems and technology infrastructure.

• What ERP or CRM system is being used, is there more than one
• When was the last time ERP system was upgraded & what is the technology platform
• What processes are a result of issues with the ERP, CRM or other key operational systems
• What custom in-house developed systems are being used, how old are they, how are they supported
• What systems are used to create financial reports/information for finance, outside organizations, operational management
• What are the issues the frustrate the IT organization
• Is there a consolidated data center
• Do all employees have access to the core systems and servers
• How are applications integrated
• Are applications outsourced

The third step is to evaluate the Finance and IT departments

• How are the departments organized – are there multiple IT and/or finance departments
• Who heads the IT department and do they address strategic business issues
• What skill sets do each of the members of the IT department possess
• What functions are outsourced and with what organizations

These are the key components of an assessment.  By evaluating these areas you can define functions within the organization that are inefficient.  After you have identified inefficient processes the next steps are to create continuous improvement teams to define solutions to improve efficiency.

Often a consultant trained in lean methodology may provide key insights in the business processes and be able to recommend technology solutions.  If you would like assistance with your assessment or process design please contact LJR Consulting Services at 818-227-5025 or email me at lynda.roth@ljrconsultingservices.com

This is an age old question and today the chicken and egg that I am going to discuss is redesign of business process versus selection of an ERP system and which should come first.  If you listen to most ERP vendors and system integrators they will definitely say – Select the ERP system first. They say this because they believe that the ERP system has bulit-in best business processes so then you can redesign your business processes based on how the ERP system is designed.  While I agree that ERP systems do have good process design in them, more goes into business process redesign than just how the ERP system functions.  Also, the company will have much better understanding of what they need from an ERP system if they have thoroughly reviewed their business functions and processes prior to an ERP evaluation.  So while you will not design processes down to the level what screens in the system are used to process a transaction, you will define the following

•  what functionality will be used and the importance of each system function
•  how data will flow in the organization
•  what new policies and controls will be required as a result of the new processes and ERP system
• what departments will perform what functions.

Some say it really doesn’t make any difference you can do this in either order.  Well let’s look at some examples and the situations that can arise from selecting an ERP system before you define business process.

Selecting the wrong ERP system.

I had a client a couple of years ago that is obtained because the owners were concerned about the rapid increase in the need for accounting personnel in their company, how long it took to complete the financial close process and the inadequacy of the financial information they had to manage the business.  I spoke with them and performed a detailed assessment.  The result of the assessment was that they had significant duplication of effort between operations and accounting, poor integration of systems and extremely manual processes.  They were using an old version of one of the Microsoft ERP systems and an upgrade with a complete revision of processes that would move origination of transactions to operations would greatly have increased their efficiency and information.  I also found out that they had purchased a new ERP system a year before I arrived and had done nothing with it.  It was not implemented at all.  This ERP system was a highly rated system that they had purchased because a very good sales rep from the company had convinced them it would solve all their problems.  We implemented the system which was adequate.  However, what solved the majority of their problems was modifying the processes and organizational responsibilities to originate transactions in operations, utilize additional functionality such as Purchase Orders and upgrading other key systems such as ADP payroll.  While the new ERP system was used, it was not necessary.  The company could have saved significant investment by simply upgrading the system they had and making the business process change.  Had they completed the assessment and business process analysis prior to the purchase of the ERP system they would not have made that mistake.

Implementing ERP and receiving little or no benefits.

A client last year requested that I help them with an ERP evaluation.  They desperately needed a new system for multiple reasons including new business process.  I suggested that they redesign the business processes prior to detail evaluation because I knew there would be much contention and resistance to change in this company.  They felt they needed to move forward quickly with the ERP evaluation and assured me they would perform a detailed business process design after the system was selected.  So we did fairly detailed requirements analysis to support the ERP evaluation.  This was critical because it did help them to select the right ERP system.  After a 3 month evaluation process they purchased a quality system that would provide them the platform to make the necessary changes to their business.  However, where the problems arose is that once the system was purchased, all the management just wanted the system implemented.  They were no longer interested in putting in the time and energy to redesign the business process and data flow to obtain the maximum benefit from the very hefty investment in the ERP system.  Instead they configured the system just the way they used the old system, they did not clean up any data and after 8 months of implementation they moved the new system to production.  To their great surprise they had worse problems than with the old system.  Why?  Because now they were using a system that had race car like functionality like it was an old clunker.   Except for solving technical problems they obtained absolutely no benefit.  Now they will spend more money to fix this problem.   

System Selection Done Right

A client I am currently working with has the problems that I see all the time.  The company has grown dramatically in the last 10 years and has completely outgrown their systems and processes.  I performed an assessment for them last year, and they already knew they were going to need a new ERP system.  However, they were unsure as to what was the most important functionality and how they would implement some of that functionality like purchase order in their organization.  So they agreed to embark on a business process design using lean business process techniques.  They continued to prepare their ERP requirements utilizing information from the lean business process project that we coordinated.  As a result they have now worked out policy issues, defined details on the impact to operations of certain new functionality, defined how they will integrate other custom systems with the ERP modules.  Now they are in the process of reviewing the ERP systems on their short list.  The business process project has given the executives a level of understanding of how ERP systems work and what their business will need that they would not have had otherwise.  They will make a much more informed ERP decision and be able to implement it much faster with significant benefit to the organization.

My experience with these and numerous other clients over the years indicates that a company that performs a fairly detailed business process review and design based on lean business practices and standard ERP functionality will make a much more informed ERP decision and experience a much higher ROI and level of satisfaction from their ERP implementation.

For help with your business processes or ERP systems contact LJR Consulting Services at 818-709-6583 for a free consultation.

In the competitive economic environment on the 21st century, finance is expected to be strategic and focus on providing accurate and very timely information for operation decision making and optimizing profits and shareholder value.  In addition the finance team in today’s businesses is responsible for developing appropriate controls and reducing risk to the operation. That puts big demands of the CFO and finance function.

In my last post I discussed the Financial Supply Chain and the importance of its optimization on working capital and sustained profitability.  This week I found an article from 2006 which again reinforces the importance of an optimized Financial Supply Chain in enabling the Finance Function to be more strategic.  The title of the article is ‘Best Practices in Creating a Strategic Finance Function’ by Katharina Muellers-Patel.

http://whitepapers.zdnet.com/abstract.aspx?docid=28204

In 2006, the author showed the breakdown of Finance function and the time devoted to them as follows:

Transaction Processing – 44%

Controls   –  21%

Management – 18%

Decision Support – 17%

So 65% of the finance function in companies is consumed by transaction processing and the controls of the transaction processing function.  Most of that time can be eliminated through efficient use of information technology and organizational and process efficiency.  The article sites that at that time top performing companies allocate only 30% to transaction processing and 45% to decision support and management activities. While that is a significant improvement I believe it can be better. The article sited that the main source of differences between the top performing vs. lower performing companies are the organizational structure for finance and the type of Information Technology (IT). 

The organizational structure generally focused on shared services finance organizations and outsourcing.  The primary benefit from outsourcing is the use of lower cost labor.  In my experience the problems associated with outsourcing of financial transaction processing is that the information transfer between the company systems and the outsource company’s system makes the organization cumbersome.  Also, since the primary  benefit is lower cost labor, eventually the cost of that labor will begin to increase thus lessening the benefit.  Also, there is no additional benefit to profitability.

In general companies tend to opt for a shared services organization.  The key to the success of this structure is not just creating the organization, but also creating optimized process and efficient utilization of technology.  For example, creating a shared services organization in which each of the combined organizations utilize different financial systems or different instances of the same system does not provide any benefit to the company.  Instead it places greater strain on the employees in the shared services organization as they must learn the different systems and continuously log on and off of systems in order to process all the transactions.  I have seen this situation at multiple clients and they are always a mess.  The article sites 3 different examples of companies that created shared services organizations especially one that continued to obtain improvement by changing technology platforms.  The shared service function was AP.  The initial structure the shared group used the multiple systems from each of the original companies.  Then they made significant improvement by just moving to a single ERP  platform and at the time of the writing they were changing the platform again to create a completely automated and integrated procure to pay function.

The study in the article showed that in general companies that had automated more than 66% of their finance processes had average finance costs of 1.2%  of revenues while companies with less automation had average finance costs of 3.0% of revenue.  Companies that relied on manual process and spreadsheets had process costs of $2.21 per $1000 of revenue while those with efficient automated processes had costs of $0.72 per $1000 of revenue.  The study also showed a correlation between the significance of the cost reduction and the simplicity of the information technology systems.  IT simplicity refers to standardized applications, integration of systems, and use of ubiquitous user interfaces such as web and smart phones and integration with partners (banks, vendors, and customers).

Today automation is much more that simply implementing ERP systems.  For an assessment of your companies finance processes and technology call LJR Consulting Services at 818-709-6583.