Competitive Pressures and Value Propositions, Is Lean the Answer?

Modern technology allows international outsourcing, greater agility, quicker product design to market, and specialized focus on niche markets, lowering the barrier to entry for new competitors and causing more market specialization. On the flip side, customers have a wide variety of information from sellers and the Internet about products, design, services, options, pricing, and availability. Business is more dynamic than ever.

Because of the pace of change, focusing on internal process improvement or even extending processes is no longer enough. Business cannot solely integrate, automate, and streamline to achieve marketplace success– nearly every competitor is already doing this.

Business complexity and the breakneck pace of change turns yesterday’s breakthrough technology into today’s commodity. Vendors are modestly integrated into the extended supply chain, all the way from raw materials to end customer delivery. Customers are more sophisticated and have more options than ever through the Internet. Competitors have incorporated similar technology throughout their entire process chains. As a result, business demand on technology simultaneously creates new opportunities and new struggles.

For years, SAP has been encouraging their customer base to focus on creating value to address some of the changing business dynamics. SAP has developed major toolsets to focus on strategy and value for over a decade and often references this need for a value and strategic focus in its literature:

Investing in technology is only half the game. Investing in IT without analogous improvements in the management practices around IT will lead only to a slight increase in productivity. Leading companies that invest in IT while enhancing management practices and governance have experienced sustainable results in increased value and improved productivity, in some instances as much as a 20% boost (reported in Stephen J. Dorgan and John J. Dowdy, “When IT Lifts Productivity,” The McKinsey Quarterly, November 2004)… [A]n IT project needs to be not only on time and on budget but also on value. Similar to any other capital investment, the project is not done when it goes live.

SAP Executive Insight Series. Accelerate Value Creation: The Virtuous Cycle of Using Technology to Maximize Business Value, pg. 3, September 7, 2009.

SAP built a multi-billion dollar business based on helping business succeed in strategy and value as critical components of their software implementation. So why isn’t it happening?

What about “Lean”?

If you are embarking on “Lean” initiatives, your market space likely has or is heading towards commoditization. The reason is that “Lean” processes primarily address only one of the three key areas of the “value proposition.” Lean focuses on the value proposition area of operational excellence but does very little in the other key arenas of customer focus or innovation. In turn, operational excellence addresses cost reduction through automation, cycle-time reduction, and operational efficiency.

Excess capacities, combined with the frequent layoffs that occur during economic downturns, indicate that many enterprises are operating at or near optimal levels. Whatever backlog exists before any market downturn or disruption is low enough that those backlogs quickly dissolve. When market downturns occur, resources are adjusted relatively quickly in response. As market downturns point out, integration, automation, and streamlining are not the problem. The excess capacity, whether in products or services, demonstrates that processes are effective and efficient.

Do you need “Lean” or Six Sigma? Maybe, maybe not. Your business or organization should consider this operational excellence proposition for one of these reasons: 1) your competitors are beating you on price, or your market is already a commodity or is quickly becoming commoditized, or 2) your product or service requires a significant amount of precision. Otherwise, why would your pour your company’s limited resources, time, and energy into these methodologies where the last mile of change has the highest cost but yields the smallest gains?

If your competitors have a significant price point advantage, then “Lean” or Six Sigma may make sense. Otherwise, your efforts and resources might be better spent focusing on competitive pressures, market dynamics, business strategy, IT strategy, and value propositions. With Lean, you may be running a dangerous race to the lowest price in the marketplace, which will squeeze your profit margins, press your cash flows, and commoditize your products or services. Additionally, you may risk stagnating or even declining stock prices unless you are able to capture significant market share.

Using “Lean” methodologies to squeeze out the “last mile” of very small efficiency gains is no longer enough to gain real competitive advantage in the marketplace. It might eliminate or streamline some of the bureaucracy, and it will help to minimally improve margins and improve cycle times, but it will not create the breakthroughs that companies need to survive and thrive in today’s business environment. In a nutshell, process integration, automation, and streamlining are not the only issues to be addressed.

Is There an Answer to Competitive Pressures and Value Propositions?

If your organization approaches your SAP or IT investment from a business and IT strategy perspective, you are far more likely to achieve the benefits and results you are looking for. Unfortunately, by the time you get to the RFP, you are asking vendors to bid on a project with a built-in emphasis on the system. Integrators are bidding on the IT work– not on business transformation, not on business benefit, not on business goals, and not on its response to competitive pressures. Before your company issues the vendor RFP, you should have key internal discussions about why you are doing the project. What are your business drivers? During this discussion, you should consider the direction of the company and the key goals and initiatives defined. Your RFP should insist on vendors demonstrating their direct competence on delivering solutions that enable your key business drivers.

If you do not determine the business drivers, IT Directors, CIOs, CFOs, and other key decision makers who influence technology decisions find it difficult for their vendors to provide the innovation and guidance for this type of implementation. Some of the things that influence the RFP focus on delivering a technology solution rather than business solutions include the following:

1. ERP systems are generally costly to implement.

2. The marketplace has dictated lower implementation costs, which has in turn led to
a. Implementation success being defined down to “on time and on budget,” and
b. Software vendors hiring the least expensive but still acceptable application consultants to meet some cost and margin goals.

3. Few or no real entrance requirements to SAP consulting has led to a wholesale cottage industry of inexperienced consultants who are not well-vetted.

4. Of the actual SAP consultants with verifiable experience, few have real business background outside of an SAP implementation. As a result, they do not understand value propositions, business strategies, competitive markets, etc.

5. Still fewer consultants have real process integration experience to be able to cover an entire process from start to finish. For example, few genuine “Order to Cash,” “Requisition to Pay,” or “Plan to Produce” consultants exist.

6. While they have an incentive for project success, implementation vendors have no incentive or requirement to participate in or drive organization success.

If you don’t see the spark of innovation, creativity, strategy, or marketplace understanding in an implementation vendor during the selection process, the consultants will not change once you sign the contract with them. If business expertise and strategy development appears lacking in the proposed consultants, you will not see expertise in your project– and even less so in the SAP solution that is rolled out to the user community. If they don’t have it when they come to the table, they won’t have it when you start paying them. Fortunately, the following methods will change this frequent disappointment:

First, the business must drive the project right from the beginning– and that beginning is before an RFP is created.
Second, you need an educational process that includes critical tools, resources, methods, and techniques to ensure you finally realize ROI and business benefit from your SAP implementation. This process should not only focus on cost benefits, but also real business transformation benefits. This process should allow you to evaluate your competitive pressures, address your value proposition, and integrate your employees through collaboration.
Third, that new knowledge from the educational process must be incorporated into the entire implementation process, and ultimately throughout the entire organization–- from before the RFP is issued, to the vendor selection, through the Blueprint, into the Implementation, and once your SAP system is operational.

Today’s organizations need more than the old vendor implementation model; today’s organizations need consultants to deliver results. Previous consulting methods have produced consultants who are little more than expensive commodities, focusing exclusively on the “better, faster, cheaper” method of project delivery. But they only deliver technology solutions, rarely, if ever, delivering business solutions. That same commodity is available to every organization everywhere. Such consultants do nothing to tailor the organization for today’s global competitive pressures or their value propositions.

The client who implements, upgrades, and adds on to their SAP landscape can no longer afford the commodity consultant. Because such consultants lack genuine business knowledge and experience, C-level executives who want to see technology transform their business will face disappointment. These “technicians” cannot help transform the enterprise, or business, or organization to compete in today’s marketplace. Your company must insist on more from consulting vendors and from placement firms, or you will continue to be disappointed by the lack of results.