Hidden Profits Blog

Finding the Gold in Your Business

Hidden Profits Author:

Lynda J. Roth

As the president and founding partner of Woodland Hills-based LJR Consulting Services, Lynda advises clients on ways to improve profitability and productivity through both technology and business processes. She also works with companies and private equity firms on the role of information technology in mergers and acquisitions.



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Information Technology in M&A - Understanding the Strategic Value

Filed under: IT Strategy, Information Technology Strategy, M&A transaction, Role of CIO, Uncategorized — Lynda Roth at 2:41 pm on Monday, January 10, 2011

M&A transactions were in the news this week with the article in the McKinsey Quarterly entitled ‘Understanding the Strategic Value of IT in M&A’.  I of course was thrilled to see this article as the authors Hugo Sarrazin and Andy West echoed the key issues I have discussed in earlier posts. 

Their opening statement states what I have experienced with several clients, ‘Many mergers don’t live up to expectations, because they stumble on the integration of technology and operations.  But a well planned strategy for IT integration can help mergers succeed’.  Sarrazin and West stated that in their work with post merger management ,they have found that 50 to 60% of the initiatives intended to capture synergies are strongly related to IT, but most IT issues are not fully addressed during due diligence or the early states of postmerger planning.  Simply stated, the more thorough the IT Due Diligence during the evaluation phase the greater the chance to realize expected synergies and cost reductions.

Sarrazin and West highlighted the 3 major tasks that acquiring companies perform that enable them to reap the greatest benefits from the merger.  These are:

1.  The acquiring firm  must get their own IT house in the best possible shape before initiating any deals.  I call this ‘Know Yourself First’.  The authors provide several suggestions on what should be done to get the IT house in order.  What is required to get the acquiring firms IT house in order is dependent on the company, the current status of the IT systems and infrastructure, and the types of acquisitions that are planned.  I strongly suggest an complete IT assessment and development of an IT roadmap based on managements strategic plans.  

2.  As companies begin merger talks, executive management must include IT in the due diligence process to evaluate the target company’s technology, to determine how it complements their own IT strategy and operations.  In my opinion this is an absolutely critical step that should be performed by IT professionals experienced in M&A issues.  This can be internal IT professionals or an external team that specializes in IT due diligence.

3. Prior to completion of the deal the postmerger integration must be carefully planned, including the systems and processes that will be merged, and the IT resources required. 

I will discuss each of these tasks in detail in subsequent posts on this topic.

Per the article, when these tasks are done, the acquirer can rapidly integrate the target company’s platform into a carefully considered architecture, enabling data from the acquired company to be migrated in less than 6 months.  I would also add that more importantly it enables synergies such as

  • Merger of customers and cross selling of products/services,
  • Realization of staff reductions
  • Rapid penetration of new markets
  • Rapid consolidation of products/services
  • Rapid consolidation of vendors and potential favorable pricing due to increased volume

Serrazin and West also stressed the importance of the role of the CIO as a strategic partner in identifying acquisition targets and that the earlier the CIO is involved the more value can be added.  This requires the CIO to be not just technology focused but also business focused.  They also discuss the importance of evaluating the IT talent in both companies and determining who will be retained and implementing strategies to ensure continuity during the transition, maintenance of crucial talent within the organization.  In order for this to be accomplished, IT must be involved early in the merger discussions and due diligence phase.

Their summary states ‘As organizations depend increasingly on the information systems that coordinate transactions, manage operations and aid the pursuit of new market opportunities, the role fo technology in mergers becomes more critical.  Companies with a keen understanding of IT’s essential role in M&A can gain an edge in completing successful mergers.’  I concur wholeheartedly.  I would also add that it is important for executive management to understand the strategic role of IT in successfully meeting all the business goals including cost reduction, productivity improvements, market share growth, customer satisfaction, revenue growth.  In the 21st century, Information Technology is the heart of every successful company.  

Here is the link to the McKinsey Quarterly article.  www.mckinseyquarterly.com/Corporate_Finance/M_A/Understanding_the_strategic_value_of_IT_in_MA_2709

Here is the link to my previous post about IT Due Diligence

www.hiddenprofitsblog.com/it-due-diligence-what-and-why

Thanksgiving Wish

Filed under: Uncategorized — Lynda Roth at 7:00 pm on Sunday, November 28, 2010

On this special Thanksgiving holiday weekend, I want to thank all my readers.  Thanks for sharing your thoughts contributing to the conversation.  I look forward to continued interaction with you.  Thank you for forwarding the posts that you feel are helpful to others.  If you have not yet joined the conversation feel free to comment and provide your insight.  I look forward to hearing from you!

Sincerely

Lynda Roth

AN ERP Success Story

Filed under: ERP Selection, ERP systems, Information Technology, business process — Lynda Roth at 7:45 pm on Monday, November 15, 2010

 

  I have posted before about some of the issues involved when selecting an ERP system and the importance of implementing the correct ERP system.  Friday, I was having coffee with my friend, Steve Ragow, who was the CFO of an automotive parts company during a period of significant growth. He related to me their experiences with ERP systems. It is such an excellent example that I thought I would share it as an example of the cost in not selecting the correct ERP system and the benefits when you do get the correct system and the process to select the appropriate system.
Before Steve arrived the company had grown from $5 million in revenue to almost $40 million and had gone through 3 ERP systems and the owner was preparing to purchase the 4th ERP system. On each of the previous purchases and on the purchase the owner was preparing to make, he was only looking at where the company was currently positioned and at what he had been emotionally convinced was the best system for the company. As we discussed here before, that is a very short sighted process to use for making such a large investment. As we all know changing ERP systems is not easy, it is very disruptive to a company.  And when done without much forethought  results in minimal increased value at best and utter failure at worst. 
Steve worked with the owner to identify the key problems the company was facing and define how the new ERP system was going to correct those specific problems. As Steve expected, the system they were planning to purchase did not address the problems they were experiencing which were:
  •  Excessive warranty returns
  • Shipping problems and late customer deliveries
  • Less than 100% customer order fulfillment
  • Over 50% of receivables that was over 120 days.
These issues resulted in an annual loss of between $4 and $4.5 million.
Based on this, Steve guided the owner of the company through an evaluation methodology which focused on business process, policy, procedures and organization first and the ERP system as a tool second. The company spent several months performing a complete review and redesign of business processes, procedures and policy to address the key problems that were eating into profit and stunting the company’s growth.
Next, Steve focused on the ERP system. Based on the requirements defined, he drafted an RFP to ERP vendors that focused solely on the key requirements. All responding vendors were mandated to follow a scripted demo that showed how their product would address the key business requirements of the company. After addressing the requirements, the vendors could also highlight functionality that their product possessed that might be relevant to the company and represent a competitive advantage for the vendor.  After each vendor demo, the selection team completed a detailed evaluation of the presentation and the ERP system they had just seen. This evaluation methodology eliminates much of the emotion and personal reaction from the product review, thus enabling the company to purchase the system that fit their needs the best.
The company implemented a new system with add-on functionality such as integration with shipping systems and warehouse scanning devices that was not even considered in the original plan. The implementation was completed in 7 months and was flawless. Since the implementation of the new business processes, procedure, policies and system the company has grown to more than $90 million in revenue.
This is a success story that many CEO and CFOs wish they had. Every CEO and CFO can have this kind of success and ROI when they follow this type of methodology. 
By resisting the urge to purchase the first system that comes along and following a methodology that addresses the business first and the technology as a tool - you too can experience this type of success! 
If you are thinking about a new ERP or any other system and like to have the success this company had, contact Lynda Roth at 818-709-6583 or info@ljrconsultingservices.com

 

To Outsource or Not To Outsource

Filed under: Information Technology, Lean Business, Offshoring, Outsourcing, Uncategorized, business process, lean accounting — Lynda Roth at 10:51 pm on Monday, November 8, 2010

Outsourcing is seen as one of the best and quickest ways to reduce cost.  The popular thought is that you outsource non-core business functions to companies and locations that can do it cheaper than your team can if it is kept in-house.  While I agree that outsourcing is an option to be evaluated, it is not necessarily the panacea that has been suggested.

First, what is meant by outsourcing?

Many think it means using a company that is not in the US to perform a back office or non-core corporate function.  While a lot of outsourcing is done offshore, that is not the only definition of outsourcing.  You can outsource the function to a company in the US. The broad definition of outsourcing is to hire another company to perform internal corporate functions. The term for outsourcing to a company outside of the US is termed Offshoring.

 Next, how much of the function is to be outsourced? 

Outsourcing is generally when an entire department/function like Accounts Payable, Accounts Receivable or Information Technology is transferred to another company,  However, outsourcing can be done on selected functions within a larger functional department.  Some examples of partial outsourcing are:

  • Instead of completely outsourcing all IT functions, you can outsource selected development to development firms, or outsource infrastructure maintainence to an infrastructure firm, or outsource data base administration. 
  • In Accounts Payable you can outsource just the payment process to a bank 
  • In Accounts Receivable you can outsource payment receipt to a bank and customer collections to a collection firm.

I have worked with numerous clients in which outsourcing looked like a possible alternative, however, upon assessing the company several key items came to light.

  1. In the majority of cases a large part of the reason the cost of back office business functions was high was due to extremely inefficient and ineffective business processes. This was the result of numerous manual functions sometimes in spite of adequate computer business systems and sometimes because of inadequate computer business systems.
  2. Another major  reason was multiple business systems resulting from corporate acquisitions that were not consolidated onto one system and standard business process
  3. Organization and people are also one of the reasons why companies struggle with many operations that they consider outsourcing,

By addressing these issues, many companies can be competitive with outsourcing options.  By not outsourcing you also don’t have to worry about the disadvantages and loss of control that comes with outsourcing. Finally, if there is still a decision to outsource, it can be done in a more effective manner and thus better ensure success.

If you are interested in having an assessment of your systems and processes contact me at 818-709-6583 or info@ljrconsultingservices.com

Role of Information Technology (I.T.) in Corporate Turnaround

Filed under: Corporate Turnaround, Information Technology, Uncategorized, business process — Lynda Roth at 8:11 pm on Saturday, October 16, 2010

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

Why Create a lean business

Filed under: Lean Business, business process, finance department, lean accounting — Lynda Roth at 3:22 pm on Friday, August 20, 2010

I attended an APICS event last night and the presentation by Robert Fox focused on lean & Six Sigma and why we would want to implement them. Most of us associate ‘lean’ with manufacturing as the concepts which originated at Toyota were focused on the manufacturing process to reduce cost in manufacturing, reduce lead times and improve quality. 

These concepts also apply to non-manufacturing businesses and to the non-manufacturing processes in all business, which I have referred to as the Financial Supply Chain (see my blog posts How to Evaluate the Financial Supply Chain http://www.hiddenprofitsblog.com/how-to-evaluate-the-financial-supply-chain and The Financial Supply Chain http://www.hiddenprofitsblog.com/the-financial-supply-chain).

While in last night’s presentation the concepts were not new, the approach and the reasons were certainly very thought provoking.  Lean processes and going lean are almost always associated with reducing cost.  That of course is a very laudable goal.  Last night the focus was on the goal of increasing throughput or capacity.  Which of course once you reduce waste and time of the process you automatically increase throughput.  We normally do not look at that side of the coin.  In manufacturing, Mr. Fox talked about how increased capacity provided the opportunity to make and sell more products without increasing the costs of production.  We usually think of increasing a capacity with the need to add plant space and/or additional locations machinery and people.  However, if we have reduced waste, thus freeing up capacity we can in fact increase the quantity produced and sold without increasing cost.  This makes the additional products produced very profitable. 

The same is true when we look at non-manufacturing processes or the Financial Supply Chain.  Even though the focus for the last couple of years has been on the slowing economy, layoffs etc., the reality is that many companies are growing.  As companies grow they rarely are evaluating their processes to be efficient.  The workload grows with the company, often faster, and they simply keep hiring staff and increasing office space to manage the workload.  Often as part of this lead times increase.  So what does this look like in the financial supply chain?

The number of AP invoices increases and often the number of late payments increases.  So the AP department grows and everyone scrambles to find ways to make sure that invoices are paid on time. The assumption being that the more people in AP the more invoices can be processed in a timely manner.  This often results in chaos.

As the number of customers increases, the number of AR billings and cash receipts increases.  Often the time to get invoices out to customers increases.  AR personnel are busy with billing and applying payments and they don’t pay attention to collections.  So, often cash inflow slows down.  And of course the number of AR personnel increase to handle the billing and cash receipts.

Slowed billing and payments start to create an imbalance in cash flow so now there becomes an increased reliance on working capital lines of credit, which of course increases interest expense.

Month end close processes become more cumbersome and more accountants are hired in accounting to address all the needs of the close process and management’s increasing need for information. 

Of course you also have the ancillary costs of more office space, additional locations, increase personnel in HR and Payroll and increased management levels.

What would happen if at this point the company embarked upon implementing lean business processes to optimize the financial supply chain? We could increase capacity and throughput in the non-manufacturing processes! The business would be able to grow at the same pace or maybe even faster, without the explosive growth in personnel and cost.  Management would have better information for making decisions which could further enhance growth.  Customers would probably have less complaints which would also further enhance growth.

This has in fact been my experience with many clients.  In my most recent project, the client was planning to double in size, which would have made them almost a billion dollars in revenue with locations all over the US and Mexico. By designing lean processes for AR/Cash Application, Purchasing/AP, HR/Payroll, Budgeting, Capital Assets and Financial Close, they project they will be able to absorb that growth with the current staff levels.  An accomplishment most CFOs would consider impossible. 

If you would like an assessment of how your company could benefit from lean business processes contact us at 818-709-6583 or info@ljrconsultingservices.com

What is an IT an IT Strategy or IT Roadmap and Why Do I Need One?

Filed under: IT Roadmap, IT Strategy, Information Technology, Information Technology Strategy, finance department — Lynda Roth at 10:24 am on Friday, August 6, 2010

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 

5 Reasons Why Every Mid-Market Company Should Utilize a CIO

Filed under: Information Technology, Role of CIO, Uncategorized — Lynda Roth at 7:17 pm on Sunday, July 25, 2010

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

Common Mistakes When Selecting an ERP system

Filed under: ERP Selection, ERP systems, Information Technology, Uncategorized, system requirements definition — Lynda Roth at 6:11 pm on Thursday, July 8, 2010

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

Creative Thinking and the Lean Company

Filed under: Creative Thinking, Information Technology, Uncategorized, business process, lean accounting — Lynda Roth at 1:18 am on Friday, June 25, 2010

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

 

 

 

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