This is the third part of an ongoing series on where the application technology market is today, including ERP vendors like SAP, Oracle, and others–, and where the market is headed. The series provides insight on how to get ahead of the current trends and ride the wave that is building rather than getting swept away with it. The current business trends and market forces for technology will reward the swift and adaptable who are able to address the key business areas that have been lacking in the technology space and it will severely punish those who lag behind.
Today’s Technology Landscape and IT’s Alignment (or Misalignment) with Business Priorities
Far too long ERP and technology implementations have only focused on one of the 3 key value propositions, the pillar of “operational excellence” using things like process improvement or quality management. This is a pure operational focus which ignores the critical components of business–, customers, and selling them the products or services they want. From a business metrics perspective (or Operational business metrics and not Key Performance Indicators [FN1]) the focus on operations, automation, quality, and other business process management alignment with technology only deals with lagging indicators to business health and success.
Unless your products, services, or markets are commodity based, in the strictest sense of the word, this is a dangerous approach. In the strictest sense it is like having tactics without a strategy. In the end the consequences are usually disastrous. They tend to be “knee jerk” and reactive rather than planned and proactive.
The entire industry is filled with “consultants” and technology solutions to address current state business health and performance. These only deal with lagging indicators that are “after the fact” and do not help business move forward. Nearly all of today’s technology solutions, as provided by technology vendors and consultants, only address “operational excellence” propositions and do very little to address business value propositions or competitive pressures focused on customers and innovation. With SAP in particular the functionality is available to address all of these business concerns but few consultants and even fewer vendors have any idea how to approach these key business areas. They only work in the area and arena of business tactics, they have little understanding or idea of the business functionality related to competitive pressures, how to set it up, or even more basically, how to extract the key requirements from the business for scoping or blueprinting.
“Tactics without strategy is the noise before defeat.” – Sun Tzu
Technology to Business Alignment Landscape – A Patchwork of Lagging Indicators is the Wrong Direction
Below is a graphic that shows the common CONSULTING DRIVEN application patchwork most CIO, IT Director, or IT decision makers are tasked with implementing and maintaining. Notice that it is both a hodge-podge of systems, and creates a difficult to manage relationship that distorts the technology relationship with the business. Notice that today most systems and technology work focuses on the lagging indicator side of the business, on the financial side, or on the cost control / efficiency side of the equation. Current system integrator and consulting direction does not correctly align technology with where business is actually done–, at the customer facing points of interaction. So, from a genuine business perspective can you see where the misalignment of technology is?
- EC = Enterprise Consolidation – inter-company or multi-company financials.
- APO = Advanced Planning and Optimization – advanced production and service planning, logistics, and supply chain capabilities.
- ERP = Enterprise Resource Planning – integrated back-office systems for managing sales, procurement, inventory, financials, etc.
- SRM = Supplier Relationship Management – vendor, procurement, and supply management including vendor marketplace bidding portals.
- SCM = Supply Chain Management – sometimes another “flavor” or style of APO, or sometimes additional transportation and warehousing functionality.
- BI (or BW) = Business Intelligence or Business Warehouse – data warehousing and reporting.
- HR (HRM, HCM) = Human Resources, Human Resource Management, or Human Capital Management – HR processing.
- CRM = Customer Relationship Management – usually a large contact management system the way most companies use them.
Notice that the current system integrator promoted technology solutions are not focused on correct [business and IT alignment], in other words, current approaches to technology are not “integrating technology and IT spend with business.” The current technology landscape that is promoted by software vendors, supported and implemented by system integrators, and understood by consultants contains only one area focused on leading indicators–, CRM. In some instances, where the business insists, BI / BW reports may help to integrate data for meaningful leading indicator evaluation. This only seems to happen when initiated by the business and not generally by the consultants. And even in the area of CRM there are very few “consultants” who have any idea about customer acquisition or customer retention. As a result most CRM applications are little more than glorified contact management systems.
Far too often today I see and hear technology consultants advocate for process improvements. As if somehow that last mile of automation, or that last small amount of incremental improvement is going to somehow make a breakthrough in your company’s market position. If you believe that, I’ve got LOTS of swampland in Florida for sale in an area where home prices were never touched and are still rising at double-digit interest rates every day! Keep in mind that this statement and criticism of the focus on constant “process improvement” comes from an insider, a “process expert” in the supply chain area around Sales and Distribution as well as Materials Management. So this criticism is not from an outsider and it even affects the entire range of solutions I generally consult in. However one key difference is that I try to bring a dimension of those business concerns to every project I do.
“[B]usiness executives said the top IT priority and most important business driver (cited by 53 percent of those surveyed) was acquiring and retaining customers. Yet how well did IT actually support that mission during the past year? Nearly 50 percent of the business execs judged IT’s performance as ‘fair’ or ‘poor.’ Another 5 percent said IT did not support acquiring or retaining customers at all. Business execs’ ratings of IT’s impact on managing customer relationships were equally bad.” Thomas Wailgum, “Enterprise Software Unplugged,” February 20, 2009, CIO Magazine online. http://advice.cio.com/thomas_wailgum/why_the_recession_is_marginalizing_cios
If the operational value proposition is not what the future holds, and if there are higher and higher costs but smaller and smaller returns on investment, where is the next big technology opportunity? Think of it like this, if lagging indicators are like “supply” and leading indicators represent “demand” and you focus on improving the supply side but do nothing for demand you end up with a collapsing business model.
In other words, the process improvement or “operational excellence” model leads to lots of capacity and a need for more and more customers to fill that capacity. As competitors across the board all have focused on these process improvements, and as they have all gained capacity, you must lower your prices to continue to fill the capacity pipeline. This is the “supply side” of business when what is actually needed is the “demand side” where customer retention, customer acquisition, and innovative products or services are found.
The entire technology sector must focus on customers and on innovation, without customers there is no business and without innovation products and services are converted to commodities competing on price. IT has an opportunity for innovation and leading edge business solutions using technology, not technology solutions that use business.
In the first part of this series we looked at the changing business landscape and what it means to the CIO, IT Director, IT Manager, or other key technology decision makers. From a high level the current global business competition, as well as economic issues are directly affecting the C-level executive requirements and the CIO – CFO – CEO dynamic. This article reviewed how and where the CIO role is coming under tremendous pressure and how to change the current dynamic by more appropriately partnering with the CFO and the CEO. This partnership is a critical business bridge between lagging business indicators of business financial and process health on the CFO – COO side of the business house and the leading indicators of sales and product or service pipelines on the CEO side of the business house.
The second part was an overview of the current system landscape and its focus on business processes and the emerging trend of trying to focus on the customer. This piece also looked at the future business landscape and how the technology focus and direction will be permanently changed no matter what happens with the economy and global competition. Because the technology marketplace (business consumer) is becoming more sophisticated and more attuned to business / technology alignment, the IT dynamic is going through a structural change. The whole technology sector is slowly moving away from the “operational excellence” value proposition to the “customer focus” and “innovation” areas of the business. Very few of the consulting companies and few of the application vendors see this sea change and are doing little to address it. This is the area of technology market winners and losers of the next 20 years.
Part 3: Changing the Direction of SAP, ERP, and IT Applications to Focus on the Customer and Innovation
The third part in the series looked at current technology landscapes and how they are aligned and then looked at future technology landscapes. A brief review of the supply side and the demand side of business shows that unless you have lots of customers (demand) to fill a bigger and bigger pipeline (supply) then your business model collapses. While it is hidden during good economic climates, any disruption in those economic conditions which fails to fill the capacity pipeline points out the glaring insufficiency of the “operational focus” to technology. During any economic disruption, or any reduction in demand from customers for your products or services the current technology model falls apart.
The final part of the series looks at the emerging technology landscape and what the future holds. It lays out an emerging technology landscape model which has some re-alignment and some components already in use by some of the world’s most successful companies. A new alignment of technology with the customer facing processes, and the use of social or collaboration tools across the enterprise with a clear business objective is explored. The driver for the future change will be because the business does not see the revenue generation prospects of technology–, they fail to see the possibilities of promoting customer retention, customer acquisition, innovation, and marketplace analytics. The new technology model looks to change that dynamic.
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- the new direction of sap consulting