As the economy moved into a recession, last year’s Black Friday was particularly dismal for many retailers who, in anticipation of the usual holiday rush and ignoring any leading economic indicators, had stocked up on inventories. Last year’s lesson was remembered this year, and Black Friday profits – although weak – at least weren’t dragged down by the costs of excessive year-end inventories.
But our collective memories are relatively short. Already new mortgage-backed securities are being sold, this time on the backs of first-time home-buyers even as Dubai World sends jitters through the financial community. Are we able to recognize the weak signals that will eventually turn into tsunamis, but well in advance, so that we have time to react? Or are we still relying on the tried and true lagging indicators, quarterly sales reports and performance reviews?
And even if we recognize the signals and know what we need to do in order to stay competitive, will we be able to adapt quickly and then sustain the ability to respond for the next time when conditions change yet again?
Dealing with Change – Teaching an Old Dog New Tricks
Gartner maintains that companies need to be proactive in reacting to changes and recognizing the early indicators and patterns that can provide visibility into potential future opportunities and threats. These early-warning predictive patterns are increasingly coming from outside the enterprise, driven by an interconnected society and changes that are outside the control of an enterprise. As the investors in Dubai World seek funding, US corporate executives worry about the impact on their already fragile economic recoveries and how deliveries passing through the busy United Arab Emirates ports will affect their just-in-time supply chain. Earlier Sense and Respond systems and Business Intelligence systems did not focus on the transactional data in ERP systems that might reveal indicative patterns of future changes and help executives make fact-based decisions. Further, Yvonne Genovese, Gartner VP and Distinguished Analyst, identifies several factors that inhibit the ability to predict and adapt to change in ERP systems. Genovese maintains that, even when exceptions are recognized in an enterprise, there is “siloed visibility” meaning that the exceptions are not shared across different organizations. Additionally, the lack of transparency and the presence of conflicting data often result in conflicting patterns, and finally, ERP systems by their very nature are not flexible enough for decision makers to change the business processes in order to react to and change the pattern quickly (and not a 3-year reimplementation process).
Gartner identifies three component parts of Pattern Based Strategy: Seeking, Modeling, and Adapting.
Seeking and Modeling
To better prepare for the future, Gartner suggests that organizations should proactively seek out patterns that are relevant to their businesses beyond the ones traditionally monitored such as economic indicators, emerging markets, and channels and customer preferences. Instead companies should expand the scope of their environmental analysis to leading or weak indicators and monitor not just information but people and processes as well, looking for patterns that will let them detect changes early. Gartner identifies several current and technologies that are instrumental in identifying patterns including Predictive Analytics techniques and Business Intelligence systems. After patterns are identified the next phase, according to Gartner, is analyzing the information by developing models that will help organizations to assess risk and decide on courses of action. Again, Gartner identifies supporting technologies to model and interpret discovered patterns. These include forecasting tools, Corporate Performance Management (CPM) systems, and Operation Planning and Modeling tools.
Although seeking patterns and modeling possible outcomes are essential steps in decision making, Genovese cautions that the final phase in a pattern-based approach to strategy building, adapting, is just as important, though supporting technologies are not as readily available. Unless constraints are removed in the adapting phase, organizations that perfect only their seeking and modeling skills will fail. Gartner also cautions that organizations need to remain agile in their ability to adapt to ever new and as yet unknown conditions. Unanticipated events bringing new opportunities won’t wait for business processes that are hard-wired to technologies to slowly evolve over time, nor will an organization’s competitors. Consequently, businesses will need to build an appetite for agility that permeates every corner of the organization, including IT. In spite of identifying the importance of using transaction data to help predict patterns, Genovese doesn’t delineate the methods for making the core of the transaction systems, ERP, more agile, and doesn’t include ERP as an adaptive technology. Using an example of three-way matching, she does identify that the cultural aspect of getting diverse parts of an organization in a room together through functionality of an ERP system has broken some of the communication barriers and has been an enabler of integrating business processes.
Impact on E-Business Users
There are several imperatives to support a model of adapting to change within E-Business Suite. First, there needs to be a single source of enterprise-wide truth to establish transparency and eliminate the presence of conflicting data. Practically speaking, that means that all differences within and among supporting systems must be identified and reconciled. Differences between supplier terms across organization units, differences in how aging buckets are defined, or differences in recording a voided check mean that there are different business processes that contribute to false positives or unverifiable conclusions. Maintaining different instances regionally or by business unit limits the ability to seek emerging enterprise patterns and to determine the factors that impact other parts of the organization and results in the inability to share information – Gartner’s siloed visibility. Finally, a two or three-year reimplementation plan to move to R12 fails to meet the speed criteria needed to turn the ship around and react to newly discovered patterns.
For Oracle E-Business Suite users, the idea of developing an agile ERP system may seem overly optimistic, particularly for those who have lived through EBS implementations, global roll-outs, and upgrades. The ability to change the building blocks (calendars, chart of accounts, business groups, costing methods) within EBS or any ERP system within 30 to 60 days is going to be a competitive differentiator for organizations to thrive in a constantly changing economic, social, and technology climate. When an enterprise reaches the stage of complete, consistent, and correct data and standardized processes, then its systems are in a stable state. When the systems are in a stable state, it is possible to consider changes to the data and changes to the business processes, allowing the systems to be agile enough to support changing business requirements.
New Technologies for Sustainable Agility
Gartner suggests that organizations can now investigate new technologies that overcome these limitations and help them achieve these goals. Whether to improve collaboration internally or with customers, enhance product or service innovations, or improve business planning and transparency, numerous new technologies have successfully entered the pattern-based eco-system. Gartner cites everything from tools aimed at social software and the ‘collective’ to integrated business planning tools and rules-based engines as new and reliable technologies that will change the way organizations approach their ERP systems.
Armed with the technologies that provide sustainable agility, leading organizations will implement their pattern-based wisdom with repeatable accuracy, whereas lagging organizations will undertake one-time analyses that require a brute-force response that consumes both cash and IT resources as part of an unsustainable one-time project.
Across virtually every industry and every organization, seizing the opportunity to improve an organization’s IT agility will result in a financial competitive advantage. Dr. Peter Weill, chairman of the MIT Sloan School of Management and co-author of “IT Savvy: What Top Executives Must Know to Go From Pain to Gain”, seems to concur. By his estimates, as reported in a recent Wall Street Journal interview, he noted that what he calls “IT-savvy” companies can be as much as “21% more profitable than non-IT-savvy companies.”
By adopting Gartner’s pattern-based strategy – seeking patterns, modeling scenarios, and adapting with new and proven technologies – organizations will have a good shot at achieving a 21% lead in profitability.