Merry Christmas - 2018

Merry Christmas

As the Christmas season quickly comes upon us, I would like to wish all my readers and contacts the very best for the season. I do hope you and your family have a happy and safe break. I look forward to seeing you all again next year.

Over the Christmas break I often reflect on the year that has been and the year to come. Below, please find a small selection of my predictions for 2019:

• The momentum to cloud offerings from software vendors will increase.
• The number of companies that consider changing their systems will increase, because so many companies are still on old systems.
• The number of ERP failures will increase over the next few years as; 1) the number of unseasoned executives make old mistakes around ERP selection and implementation; and 2) the number of new challenges being presented by the new cloud offerings are dealt with. There will never be a more important time to get experienced independent advice.
• The ability of a company's IT team to access the back end databases will come to an end as the large software vendors lock down data in their cloud offerings. Some because of the multi-tenant arrangements and some because of revenue generating opportunities.
• The level of service being delivered from cloud software vendors will diminish over time as the volume of service requests they have to deal with increase.
• The movement to the cloud has placed the revenue model software partners relied on for so long, at risk. The subscription model has removed a significant layer of revenue from partners and shifted it back to the original vendor. The impact is partners will be seeking new avenues of revenue. How they respond to this challenge will be highly dependent on the individual company's culture. Some will resort to telling more lies than normal or at least saying less than usual, thereby increasing the risk of failure. (It is my contention it is more important to understand what a software salesperson is NOT saying, than what they say.)

Once again, best wishes for the Christmas/New Year season. I look forward to seeing you next year.

A small reminder, if you or anyone you know is looking:

• To improve the way their business operates 
• To improve the way they leverage their current ERP system or
• Are thinking about replacing their current ERP system

Give me a call for a confidential discussion on the best way to achieve this.

Until next year ...

© David Ogilvie

Recent Life Lessons

This year has been full of project starts for me. Both on a personal and business level. Personally my mum moved into aged care this year and I was thrust into the world of pain and bureaucracy that comes with that industry. I was lucky because one of the staff of my client had just been through the same process and we were discussing the difficulties we experienced in the lunch room one day. She mentioned she had an aged care broker help her. I instantly found myself walking in the shoes of my customers. Here I was trying to wade my way through an industry I did not know, one that contains a million minefields, any one of which could have caused us significant pain. Short story is, the broker provided outstanding service and helped us enormously. 

I immediately appreciated the position executives about to embark on an ERP replacement project feel. It is clear executives get too close to their business sometimes and don't see the forest for the trees. I clearly had fallen into this trap myself. The ERP industry is no different to the aged care industry in that it embraces a product one generally has little deep knowledge about and one that you generally do not work with until you need a change. The value of reliable, independent and experienced help became extraordinarily personal and clear to me.

On a business level I have embarked on a growth path moving from the one man band I have been for 20 plus years to a small niche consultancy with broader capabilities. As a result of this growth, we have started a number of ERP projects this calendar year. By comparing the kick off process for these projects has once again reminded me of some key topics that contribute to the success or otherwise of your projects. My reminders were:

• How important getting good advice is. As I have mentioned in previous newsletters
  
  and in a number of my published articles buying a new ERP is like sending your 16 year old daughter, who has no idea about cars, to a second hand car dealer to buy her first car with no advice or guidance. Fraught with danger. Get an experienced guide. The cost of this will be around 1% or 2% of your overall ERP budget. Cheap insurance and insignificant in the overall long-term view of things.
• How important the selection of your vendor is. Not all vendors are the same. Some perform extraordinarily well while some ... well not so much. I have lost count of the number of times the good fellow well met attitude shown by a software vendor to a prospective buyer in the sales process, can very quickly turn to one of sudden arrogance once the contract is signed. The speed at which this change of attitude can happen is staggering in some cases. 
• How important an understanding of the language that is used in both the sales presentation and sales proposals is. An understanding of not only the linguistics but, more importantly, what the practical meaning of these words or terms are to your project. That is, an understanding of what those words will mean once you sign the contract. For example; I recall on more than one past project, the sales proposals from the vendor clearly stated data migration was the client's responsibility. In my opinion this is as it should be. However what each of these separate vendors did not say in their proposal was:
  • The newly released version of the software had no tool at all available to import data. Of course a tool would have to be developed, at the client's expense. 
  • That the only viable method to get clean, validated data into the system was to use a tool they had developed. This expense was of course omitted from the sales proposal and was an additional cost to the client. Something they had not budgeted for.

In both these experiences, it wasn't what the sales people said that caused the problem, it was what they omitted to say that was key.

The issues highlighted in these examples can easily be avoided. In one example I was called in to manage the project after someone else had helped the client select the product and the vendor. The other the company did not feel there was value in having someone like me help them select as the vendor seemed to be helping and they felt they had the selection under control. However the additional cost of those traps could have easily been avoided. In these cases the additional cost would have more than covered my costs. While the additional cost of souring the relationship and the mistrust it developed is not directly quantifiable, it is no less real and the implementation suffered because of it.

Steps I feel you need to take to help avoid these situations are:

• Put the relationship with the vendor to the test, before you sign the contact. It is critical you use some form of relationship measurement in your selection criteria and not just your system functional scores. You should have a good feel for how the relationship is going but a key test comes when you negotiate over contract clauses and the provisions aimed at ensuring they are held accountable for the quality of their delivery. This process will provide some insight into how amenable they will be to suggestions that are outside the norm for them. Remember there is an 85% plus failure rate in this industry and doing what has been done before and expecting a different result is ... (Einstein's definition of insanity).
• Avoid the situation of a delivery team and an implementation team completely. I normally do this by outlining early in the selection process that there is an expectation that the people who demonstrate the system to you will be the same people who help you implement the system. Vendor's don't like this for a number of reasons and I fully understand them. However my view is they need to comply otherwise they may be trying to hide something.
• Identify the unspoken meaning behind the language in the sales process before you sign the contract. Remember it is in what the vendors don't say, rather than in what they do say to a prospect that matters. Be specific in what you understand the situation to be and don't be frightened to recheck if you don't feel you have it right. Don't get me wrong, there are a lot of good vendors and wonderful people working in the software vendor community, but there are as many that are not as well.
• Get an experienced advisor to help.

If you or anyone you know is looking;

• To improve the way their business operates 
• To improve the way they leverage their current system
• To replace their current system

give me a call for a confidential discussion on the best way to achieve this.

P.S. Did you know, a growing number of clients are asking me to be on retainer so they can access me on call.

© David Ogilvie

Digital Transformation

I was speaking at a function for business leaders recently when a question regarding what to expect when undertaking a digital transformation project came up. The premise of the question was this individual's company had recently undertaken a project to select and implement a new ERP system, which is often the backbone of a wider digital transformation effort, and this process opened the flood gates to all sorts of issues and problems for them. They were asking how they could have avoided such upheaval. 

My response was essentially that they should have expected some level of upheaval because a successful transformation project should in fact do exactly that, transform the business. A transformation project does not occur in isolation or without change. The old adage of you cannot make scrambled eggs without cracking a few shells applies here. It should engage the whole company and as such will make someone uncomfortable. It will in fact, put many company wide sacred cows under the microscope and force them to be defended. This inspection, of course, is not always welcomed. There are corporate political power plays to protect and existing staff and executive ranks become uncomfortable when decisions they have previously made suddenly are being questioned. As Ray Dalio mentions in his book "Principles", when this level of accountability or investigation occurs:

"people tend to be more defensive than self-critical".

And so it seems as if all manner of problems and issues suddenly appear. But has anything really changed? My premise is no, not much has changed at all. These issues were always

there but they were being hidden by other things. Things like the company culture, corporate politics and the unspoken knowns. It is similar to when you undertake an inventory reduction project or adopt lean principles. When you start work on the improvement it seems like all manner of problems start to occur. This perceived increase in problems is one reason why many of these projects start but don't finish. Executives often say these principles don't work or are not worth the effort. 

Just like the rocks in the river metaphor, when you lower the level of the water (i.e your inventory levels) you expose the rocks (issues and problems). But rather than addressing those issues and making the rocks smaller and turn them into pebbles (attempt to remove the problem) executives will often default to saying this isn't working. When in fact what they are really saying is, we didn't stick with it long enough to reap the real benefits that are possible.

Conflict can actually be one of the most healthy things to happen in your business. I wrote on the power of conflict in this article.

How do you make sure your effort or project isn't overloaded with problems and issues? The steps I feel you should take are:

• Expect problems and plan for them
• Realise that good conflict is healthy, facilitate good conflict and remove bad conflict
• Realise that between the "bad now" and the "good in the future" is a period of "we need to work through this"
• Have an experienced guide by your side to help you anticipate the problems and provide guidance through the unknown
• Ask great questions of your digital solutions partner to make sure they are both technically capable and culturally aligned with your vision for the business 
• Make sure you backfill your best people and assign them to the project (See my article on succession planning)

If you or anyone you know is looking;

• To improve the way their business operates 
• To improve the way they leverage their current system
• To replace their current system

Give me a call for a confidential discussion on the best way to achieve this.

© David Ogilvie

Is Your ERP an Asset?

I was having a discussion with a client recently. We were discussing the importance and value of getting a broad range of people, views and experiences involved in the software design sessions we were running at the time. He expressed some reservations about having so many people involved, and subsequently out of the business, at one time. I explained the reasoning and the benefits to him this way...

I understand that when you see the number of people sitting in the boardroom discussing

Image: Security-Net.com

how the business currently operates and where improvements could be found, you do the quick calculation of their salaries multiplied by the number of people and by the number of hours we have them engaged in the discussion. I understand this can be a large number. I also understand that not everyone contributes to the discussion as deeply as some others. After doing the quick maths, you are wondering where is the value in incurring all this expense?

So I suggested the following story. When he purchases a new piece of equipment and deploys it in his business, he can quickly see, touch and feel this shiny new asset he has bought. He can quickly see how this asset is contributing to his revenue because there is a tangible link between something he can feel and see and the revenue he sees on his P&L.

However, unlike buying a new piece of equipment, when implementing a new software system appreciating the value is not quite so easy, particularly in the early stages of a software project. You certainly cannot touch and feel it as you can a piece of equipment. The ability of the people using the software system is not seen as such a benefit as seeing a driver sitting in the cabin of the machine when they are operating it. However, just because you cannot touch it, does not make the value of the asset you are building any less valuable to the business. In fact, done correctly, I would argue the asset can be more valuable than that piece of equipment.

The process of building this asset (your new ERP system) can make it more valuable because:

• the large range of people from different areas of the business all get to see and fully understand the other parts of the business. Something that is often missing from a business operation. When sitting in workshops there is often a realisation of: 
  • what work others actually do.
  • how things actually connect. (You would think the staff of the business actually does know this – however, I am constantly surprised how little some areas of a business understand what other areas do.)
  • the impact of a job half done in one area has one another down the chain.
• People genuinely see the end-to-end of the business and better understand what role they play in the customer experience.
• The software often determines the business process you follow and therefore its use has a direct impact on the customer experience.
• Your individual use of the system and the way in which you have it configured can provide you with a key element of your competitive advantage. Something that often stands the test of time, continues to bring benefits to the business in the long-term and does not depreciate like a piece of machinery does.

The real value of this asset is in a competitive advantage it creates for you through the deep understanding and skill of utilising the asset. Just like a more skilful driver can extract more from the performance of a piece of machinery than another. Essentially it is the same asset but a different skillset using it. So by applying this higher skill level to your software creates the true improvement in the value of your business. As a result of your competitive advantage, you can then often justify higher margins than your competitors.

So the more time you take to allow your staff to learn the working of this new tool, the deeper will be their understanding of the tool and the greater the reward when it is finally deployed and is running your business. Yes it is an investment and yes it can be expensive but when invested wisely, just like any other investment it can generate substantial rewards for your company.

In order to be able to ensure your investment is well placed, the addition of an experienced independent advisor is likewise a well-placed investment. As I noted in a LinkedIn post recently, my best clients are often those who have tried and failed to implement an ERP before or who have been involved in such a project. I have discovered that they fully appreciate the value I bring. Wouldn't it be nice if those doing it for the first time wouldn't make the same mistake first?

If you or anyone you know is looking -

• to improve the way their business operates 
• to improve the way they leverage their current ERP system
• to replace their current ERP system

then give me a call for a confidential discussion on the best way to achieve this.

© David Ogilvie

What Waste Exists in Your Supply Chain

The UK luxury brand Burberry was reported to have burned up to $50 million of unsold products in FY 2017/18 and up to $150 million over the past five years. It is doing this to protect their premium brand status rather than selling the products at discounted prices.

They believe by doing so maintains their reputation as a high-end brand because it reduces the number of their products being sold at discounted prices. Business Insider had an article the other day indicating that Under Armour beat second quarter expectations but, "is still sitting on a mountain of unsold inventory, which grew 11% to US$ 1.3 Billion in the most recent quarter". Yes, you read that right, with a B. Business Insider goes on to report that fashion houses, in general, have a troubling issue with unsold inventory naming companies such as; Gap, Ralph Lauren and of course they named Burberry. H&M reported it has UD$ 4.3 Billion worth of unsold inventory.

In responding to the criticism in the press recently, Burberry has responded by saying they have some great environmental initiatives within their supply chain. What I find of greater concern is if they have managed to instil environmental initiatives within the supply chain, why haven’t they inculcated better “Lean” initiatives?

It is clear that Burberry and these other fashion houses are manufacturing more goods than there is actual demand. Otherwise, they wouldn’t be in this position of having to destroy or sit on so many unsold products. In a press statement, a spokesperson for Burberry said the disposal was due to a one-off agreement with Coty for beauty products. However, the five-year write off numbers puts this statement in serious question.

Unfortunately, this practice of destroying products is common in the fashion industry. Cartier, for example, is quoted as having recently destroyed products worth €481 million.

So it surprises me that these companies do not have better systems in place. In this day and age when manufacturing systems and technologies are available to help overcome, or more importantly prevent, this exact problem of overproduction. Systems that will trigger manufacturing activities when a real demand signal is identified rather than generating overproduction as is clearly the case at the moment.

I am also surprised that the boards and company executives have allowed this situation to exist. Perhaps because their margins are at the premium end there has been less pressure to adopt lean practices than in other businesses. More likely, however, is the fact that many companies consider inventory to be cheap. Rarely do you see an organisation report a cost for holding inventory in the P&L. It is not until they have to make a financial write-off, then the real cost of holding this inventory actually surfaces. In my day to day work as a trusted advisor, I am consistently surprised how often I am having the debate with executives over the benefits of instilling good inventory practices into their business.

So many companies either rarely conduct stocktakes or when they do, it is because the auditor or end of year financials require one. The benefits of high inventory turns and accuracy in your inventory numbers is enormous. By simply using real-time data capture systems connected to your system of record, your ERP system, and performing well-structured cycle counting regimes you are 80% of the way to solving this issue.

If I was a shareholder in these companies I would be extremely annoyed to see such waste of resources and capital. These organisations clearly do not have a continual improvement culture. (I have used continual rather than continuous deliberately. If you are not sure why I have done this, call me and I will explain).

It is a common misconception, in my opinion, that lean principles and ERP do not work well together. I believe this to be false, they can work well together. In addition to benefiting from adopting lean manufacturing practices, organisations like these will reap significant benefits from leveraging the power of machine learning capabilities that are becoming available today to help improve their forecasting capabilities.

So with all this in mind, what are the potential lessons in this for you? My thoughts are not groundbreaking, but it is clear they are not widely adopted. The actions I feel you should take are: 

• Don’t wait for market pressures to force you to review processes. By adopting a continual improvement culture in your company you are constantly looking for and adopting better ways. If this is not pervasive within your company, take steps to make it so. 
• Fully understand the difference between value adding and non-value adding activities and then apply this understanding to your business processes. 
• Take an honest review of your business and the process you have adopted and identify the non-value adding activities. Then take proactive action to remove them. 
• Take steps now, because as the US interest rates position shows, money seems to be getting more expensive every day and will most likely continue to do so. Therefore your inventory won't be as cheap as it has been. 

© David Ogilvie