If you’ve implemented an ERP system in the last few decades, you have surely seen one of the many representations of the traditional ERP change management curve, with copious advice for avoiding, or reducing the depth of the Valley of Despair. The graph is somewhat misleading, in that it typically ends with a plateau or pinnacle of success, implying that your troubles are over as soon as you go live.
If only that were true.
A more comprehensive graph would look like this:
Notice the descent into what I will refer to as the Desert of Disillusionment, that awful place where every “productivity improvement” line item in your rosy ROI analysis (the one that you used to justify the project) is revealed as a mirage.
Why does this happen, and does it have to be this way? More importantly, what are the warning signs and how should you deal with them? We will deal with specific topics in future posts, but for now, we invite you to take our short survey on diagnosing enterprise system impact on business productivity.
Businesses that start implementing KPIs at a departmental level, without an enterprise wide effort to define a balanced set of key performance indicators, can unwittingly push their businesses into a no-win situation, as in these real-world scenarios:
- Customer Call Centers (often ahead of the curve as far as setting metrics) are tracking and incentivizing their call center agents to keep their call times short. Call center agents, in an effort to shave seconds off of each call, omit the crucial step of searching for a customer before entering a new one while logging interactions. Result: Duplicate customer records, which may even be pushed to other systems, creating pain throughout multiple departments.
- In the push to meet monthly sales quotas, hyper-discounting behavior becomes the norm among the sales team. If the pricebook is complex and no one can get a true read on profitability, inappropriate discounting may be approved when management doesn’t have access to the right information to make an informed approval decision.
- Some businesses steer only by financial performance measures, but these are lagging indicators, and can seldom, in and of themselves, provide the required agility to succeed in rapidly changing situations.
The key, of course, is to strive for balance when implementing KPIs:
- Balance between leading (forward-looking) and lagging (backward-looking) indicators.
- Balance across stakeholder perspectives. The Balanced Scorecard as a starting point works well to achieve balance across core stakeholder viewpoints of financial, customer, process, and learning/growth.
- Balance across levels in your business hierarchy. Kaplan and Norton expanded on the balanced scorecard approach to help businesses drive metrics down through their organizations via strategy maps.
- Balancing speed metrics with quality metrics
Image courtesy of memory-alpha.org
The alternative to a balanced approach at the outset is usually a technology desparation move, such as manually cobbling together some key reports, manually trying to scrub out duplicate data, implementing undesirable or even temporary customizations to packaged programs. There’s usually at least one person in the IT department who’s enough of a Star Trek fan to want to reprogram that no-win scenario, just like the young James Kirk did with the Kobayashi Maru.
For many deals, IT Due Diligence resembles a home inspection. The goals are to identify and mitigate risks prior to closing and to develop cost estimates for addressing risks. The IT Due Diligence Team looks to see if disaster recovery plans are in order, the company is in compliance with software licenses, and whether internal controls exist. With a distressed acquisition, there are larger risks that must be addressed. Acquirers don’t want to be saddled with an IT organization that dooms the corporate turnaround before it starts. Before moving forward, the deal team needs answers to questions such as:
- Where do opportunities exist to streamline, consolidate, and optimize IT operations?
- Which IT expenditures are aligned and which are not aligned with business objectives?
- Which pending projects and expenditures are of questionable value?
- What’s the order of priority of pending projects and expenditures?
- How do IT costs benchmark against industry standards and how can they be driven below benchmarks to spending levels more appropriate for the turnaround period
- Are investors paying too much for IT assets?
- Are non-tangibles (like data repositories) properly valued — can they be monetized?
- Are service level agreements and contracts with vendors adequate and enforced?
After the deal closes, there will be new opportunities to improve the effectiveness and alignment of IT operations — improvements any future buyer will likely view as table stakes in evaluating corporate value. One example is management dashboards for better performance visibility and fact-based decision-making. Just the sheer presence of such tools says much about the quality of the management. But what they enable management to do has an even greater bearing on corporate value — monitoring key performance indicators that show how well management’s turnaround initiatives are actually succeeding day-to-day. Moving forward without such tools puts the turnaround at risk, because there are no tools in place for fact-based decision making within short timeframes.