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Things to Manage

So you want to DIY an ERP project….

Jan 5th, 2012
by ChuckPapaG.

Assessing the Enterprise Resource Planning (ERP) capabilities of a company being acquired has become a due diligence component of most Merger and Acquisition (M&A) or Private Equity (PE) transactions, and rightfully so.  Having an outdated or poorly deployed ERP system is, and should be, a red flag and a discount factor for any transaction.  A few months ago, a Private Equity client asked me to put together a quick presentation of my experience with ERP systems and the impact they have on companies. A shortened and sanitized version of the presentation is here; but going back through my presentation notes got me thinking;

A pending M&A transaction is not the only time I have seen an ERP project make or break a company or seriously impact its relationship with its customers.  Any operator worth his/her salt needs to be intimately familiar with the ERP infrastructure of the company they run and directly engaged in major decisions around it.

If you do a Google search on “Failed ERP Implementations” you get over thirty five thousand hits and – depending of whose data you choose to believe – only between ten and thirty-five percent of all ERP projects achieve 100% of their objectives.  Color me purple, but it doesn’t take a math genius to deduce that the remaining sixty-five to ninety percent of projects fail in some way to meet their initial expectations or realize the perilous nature of ERP projects.  Statistics like that, and the publicity of lawsuits against major ERP vendors, should make Chief x Officers (CxO – Executive, Financial , Operating, Information) contemplating a large ERP project think twice about their strategy, their plan, their team, their ERP vendor, and their overall assumptions and expectations about the project.  And many of them do (and thank you to those who call me for help, Ideasphere Partners appreciates your business)!

Over the last fifteen years, of all the challenges I had to address as a technology and operations executive as well as in my Corporate Renewal, Merger & Acquisition, or interim-executive consulting work, issues and projects around ERP systems are usually the most challenging.  There is plenty available research that goes into more detail and offers specific strategies, but for those Do-It-Yourself (DIY) executives who don’t hire any outsiders to help, here are two things you have to do before anything else:

  • If your company does not have an ERP system in place already, better make sure the organization will be ready for one, even before implementation planning starts.  The quality of your plan will depend on how ready the organization is, and the quality of your implementation will heavily depend on how good your plan is.

An ERP system is at a very high level the operating system (OS) of a company.  Just like the OS on a computer, it is the interface between the hardware (business operations) and the software (business strategies), the router of the instructions-for-work to processing centers (customer orders, manufacturing requests, work plans, and schedules), the resource allocation manager (Equipment, service capacity, capital, or people), and the reporter of system performance (financial and operational metrics) to the owners.  And just like only simple computers – on-board controllers and special purpose hardware – can function without a complex OS, only small or single purpose companies can function without an ERP system.  And if your company has a home-grown ERP system you’ve outgrown, or uses a collection of modules from various vendors to perform the ERP function that can no longer scale and you are considering upgrading, keep reading.

Deploying an ERP system where none existed before is a traumatic experience to the organization.  For example, if the company has an each-on-their-own culture and poor cooperation between departments and divisions who are not ready to give up a certain amount of autonomy, accept a level of discipline, and acknowledge organizational inter-dependencies, deploying an ERP system is doomed to fail from the start.  To mitigate that risk, before anything else, make sure you have a solid assessment of the organization and its readiness for change and a solid organizational change plan that includes all aspects of the organization, from sales to manufacturing, to senior management.  There is of course the special cases where the deployment of an ERP system is merely the mechanism an executive team is using to actually drive change, but that’s another blog for another day.  There are many resources on how to effect organizational change, but some of my favored books from my library, not in any particular order, are: Managing Transitions, Influencer, Re-engineering Management, Why New Systems Fail, and Real Change Leaders.

  • If your company has an ERP system already deployed, but it is based on antiquated technology, or a collection of loosely connected modules (i.e. an accounting package, a scheduling package, an inventory management custom app, and a shop floor control system) from various vendors and levels of sophistication, in addition to change management, there are technology and integration issues you need to contemplate before pulling a plan together.

 

All ERP vendors will tell you they can handle any integration issues, but an ERP system, antiquated or patch-work as it may be, if it is functioning at any capacity, it is still analogous to the nervous system in the human body.  Just like the nervous system controls organs as well as thoughts and behavior utilizing a synaptic network, so does the ERP system control operations as well as activities and output utilizing a computer network and electronic transactions.  And once an ERP system is in place, it enables new connections and facilitates activities that are not immediately obvious.  Major ERP changes are like major surgery and you would not want someone to remove or operate on a major organ in your body, without understanding what it would do to you.

 

Before under-taking an ERP project, start by creating an enterprise architecture map and a system interaction chart that shows the various systems and sub-systems, their connectivity and the types of information they exchange.  Creating a simple map will show you the SIPOC (Supplier, Input, Process, Output, and Consumer) relationships that will be impacted when you make a change so you can be prepared.  You will be surprised how Julie from accounting is using some report James creates through the inventory system to manually populate a spreadsheet that sales uses to change the forecast, etc. etc. etc.  Or, how a division IT team connected a supplier to the system through a back-door integration corporate IT is not aware of so they can improve their parts delivery process.  A couple of good books on this area from colleagues I personally know and respect are Enterprise Integration, and Enterprise Information Integration.

And if you don’t think these two first steps are important, drop me a note!  I can tell you enough horror stories to change your mind.

Year-end Bonuses – A cautionary tale…

Dec 27th, 2011
by ChuckPapaG.

The Operator’s Blog

As the end of the year draws closer, I‘ve had a number of discussions with clients, and fellow executives and entrepreneurs about year-end performance bonuses. The conversations, for the most part, revolved around the formulas used to calculate the amount, or the benchmarks used to determine the actual performance achieved.  Having been on both sides of the equation multiple times – the recipient of the bonus as well as the determinant of the amount – these “mechanics” conversations are relatively simple and straight forward to have.  What never ceases to amaze me, however, is how often there is relatively little thought invested into understanding what long term behavior the year-end bonus plan encourages, or how the thinking in the design does not extend beyond the current bonus-plan year.  I think that short-sightedness is a failure of executive teams in understanding human nature.  After all, as Upton Sinclair once proclaimed, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it” let alone get the man, or woman, to do something about it that would impact it negatively in such an obvious time frame; twelve months.

Over the years I have seen one-too-many times executives make decisions totally against the long-term interest of their firm, their shareholders, their employees, or their customers, and sometimes downright unethical, just to reach some poorly designed short term objective that impacted their individual year-end bonus.  The sad part, had some forethought been applied to the establishment of the plan by the executive team – instead of assigning the task to some poor HR analyst and hoping he gets it right even though in many cases he doesn’t understand the business – many of the problems could have been averted.

The story below is a cautionary tale and a classic example of what happens when the year-end bonus is not well thought out.  Any language in “brackets” is from company records or interviews and, as usual, comments are welcomed either on the website, or via e-mail.

The new year-end bonus plan for this particular company (not an Ideasphere client at the time) was developed by HR and launched with great fanfare.  Everyone who was on the bonus program took it apart and quickly realized that it assigned almost 90% of the formula to achieving revenue growth.  Both the CEO and the CFO, even though familiar with the Balanced Scorecard framework, signed off on this un-even weighting approach for a “good reason.”  The company planned to file for an IPO within the next couple of years and revenue growth velocity was a critical component of the eventual valuation by the underwriters.  Since the CFO and CEO had a significant equity position in the company, a high valuation was their “retirement ticket”, as one of them put it in an interview.  So starting at the top, the incentives were not tied to profitability, long term customer satisfaction, production quality, or any other associated performance metric.

Even to someone not as sophisticated as these two executives, it was obvious the Ying of Revenue was not harmonized with the Yang of Profitability, and the whole plan could backfire; but that too was rationalized because, after all, this was only a two year approach until the IPO.  After the IPO, the company would have the right environment to “do it right and restore a Balanced Scorecard approach.”  To further “secure alignment up and down the chain,” the plan weighting was applied universally to all managers across the company, regardless if they were in sales or in operations.

Things went great the first year, revenue grew exponentially and year-end bonuses were the highest they have ever been.  It looked like the plan was working as expected, so it was simply re-deployed for the second year without any changes.  Unfortunately, by the time the end of the second year rolled around, the IPO market dried up and, along with it, the potential of a public offering.  Also unfortunate was the fact that because of the focus on the IPO nobody spent any time reviewing the bonus plan, so HR, to meet their deadline of publishing the plan by January 1st,  released it unchanged for the third year.  By the middle of third year profitability had dropped to unsustainable levels, and customer satisfaction, after an initial spike up, went down through the floor into the bowels of hell.  By the end of the third year, finding themselves in a negative cash flow position, the company had to be put up for sale at a “fire-sale price,” as the CFO put it.

So what happened?  During a due diligence performed on the company by yours truly on the behalf of a potential buyer, it became clear that the year-end bonus plan the CEO and CFO hatched a few years prior was the major culprit in the company’s demise.  Because the plan was almost exclusively based on revenue growth:

  • Sales teams focused on selling any deal they could, at any price, to meet the revenue objectives, frequently undercutting, even their lower-priced, competitors by 15-25%.
  • Sales managers frequently approved ridiculously low-priced deals that would normally be rejected, by classifying them as “loss leader deals” justifying the frequent exceptions on imaginary “expected pull-through incremental revenue” from the client.
  • Operating managers, whose bonus was also based on a similarly structured plan, and who were supposed to “pull the cord on potentially unprofitable deals” during the operational risk review process, also ignored the low pricing and approved the deals based on “expected cost savings from operational optimization and economies of scale after on-boarding”.  This basically meant laying off the more senior, and higher paid, customer support folks and the off-shoring of work to the lowest bidder.  To compound the problem,
  • Market Executives, who owned the revenue levels after the deal was sold, approved the deployment of numerous dedicated customer support teams for large clients who threatened to switch because of the bad service, which drove the cost up and wiped out any savings from the layoffs and the off-shoring.

There are a few more details to the story that also contributed to the demise of the company, but if one was to point to the turning-point event that started the death spiral, the launch of the year-end bonus plan is the clear winner.

So, as much as I believe in providing performance-based incentive compensation to as many people in the company, I also believe the year-end bonus plan must be carefully considered and designed with more than twelve months of performance in mind.

Territorial Games People Play…

Aug 23rd, 2011
by ChuckPapaG.

Meetings with three different client organizations over the last couple of months reminded me of this article I wrote in 1998. Funny how some things never change. Here it is; slightly edited from the original version with the definitions for the major games at the bottom of this blog entry. As usual, your comments and thoughts are welcome to c.papageorgiou@ideasphere.com
Your pulse speeds up; your heart starts pounding; and you feel anxious in your stomach. Your primordial “fight or flight” system has been activated and your body shifts into overdrive. No, you are not about to be eaten by a saber-tooth tiger; it’s just Freddie from the accounting department trying to understand your budget, or a consultant asking you to explain your department’s strategy. So you put on your best political smile and start “the kabuki dance.” You are fighting for your territory as if it was fighting for your life.
The desire to protect our territory, whether physical, political, or psychological, is a built-in trait for human beings. Since we no longer forage for our survival, the workplace has become a major environmental component of who we are. Our workplace, place of worship, or political party is now providing the equivalent of the physical territory of our ancestors. As Maslow’s hierarchy of needs goes, psychological and emotional security has replaced physical security. Our natural instinct to protect ourselves is now focused on those aspects as opposed to our physical well-being. After all, how many nasty saber-tooth tigers do you see cruising through the halls of major corporations today – with the exception maybe of Freddie in the accounting department.
Let’s face it; eliminating territorial games is futile and pretending they do not exist is foolish. And, for you idealistic youngsters out there, refusing to deal with them is career suicide. Territorial games exist in every organization and nothing intensifies them more than an impending transaction such as an outsourcing deal, a potential M&A transaction, or just simply the hiring of an outside consultant or a new executive. My many years of experience at Ideasphere Partners in high stake change initiatives and projects have taught me a few lessons about how territorial games can torpedo a deal, a project, or a new initiative.  Despite all the teamwork and kumbaya rhetoric that exists at the corporate level of organizations, territorial games are always going on and they are one of the critical factors that determine the outcome of any project.

Having a good strategy, a good contract, a good plan, a strong outsourcing partner, or even substantial financial gains for the outsourced employees can all be undermined. Many outsourcing contracts that were based on seemingly solid foundations between strong industry players have failed to produce the expected results. A closer look at the state of affairs and the reasons for the failure often show that territorial games was an important factor that was ignored.
This is an example from a real client (names altered to protect both the guilty and the innocent). After negotiating for nine months, the senior executives at WidgetsRus reached an agreement with ServExec to outsource their data center and network operations. The plan was to leverage ServExec’s size for better pricing and transfer about a hundred people to their payroll without any layoffs for at least two years. By all accounts it was a great deal for all involved. WidgetsRus would focus on their core competency of building better electronic mousetraps and ServExec would deliver more cost effective network and computing resources, while provide a better career path for the transitioned employees.
With great fanfare, both companies signed the agreement and issued appropriately rosy press releases of the event. Things went along for about three months and all was well; until WidgetsRus begun experiencing problems with network availability. The number of network failures was increasing, as was the mean-time-to-repair, and the network availability was the lowest it had ever been. Network availability was not a small thing because manufacturing facilities depended heavily on timely, almost real-time, information on part inventory for their Just-In-Time processes. When the network was unavailable, production efficiency declined, which had a financial impact on the company. After a couple of months of escalations and tense meetings, the WidgetsRus executives started demanding penalty payments for lost productivity based on the Service Level Agreement (SLA) they put in place with ServExec. Before long, WidgetsRus and ServExec executives found themselves sitting in front of an arbitration panel trying to resolve their issues. Unfortunately the relationship was beyond repair; the agreement was eventually scuttled; and ServExec begun the process of disengagement. By the time the “divorce” was over, both companies had lost significant amounts of money, let alone the reputation damage they both suffered.
So what happened? Why did this fail? After all, the deal was hailed as one of the best structured agreements and a win-win-win for both companies as well as the IT employees of WidgetsRus. Sad but true, this is how it played out…
The ServExec IT organization was a conservative, traditional group who had developed a reputation of service excellence and commitment to customer satisfaction. For those in the know, it was also viewed as a highly political organization. Charlie, the ServExec CIO was characterized by its peers as a “political animal” who did not take kindly to people threatening his territory. He had been able to use his tenure and position himself as an authority with most IT shops his organization absorbed and generally never felt threatened by a new team coming in. The WidgetsRus situation however was different. WidgetsRus IT team had developed from the ground up focusing on leading edge manufacturing and advanced electronics technologies.  For those in the know, it was considered a fast moving innovative group with very little politics.  In just a few weeks, ServExec executives started thinking of Jerry, the CIO at WidgetsRus as a “great manager” and there had been rumors that Jerry could be the heir apparent to Charlie.

Charlie did not take kindly to hearing that information and that’s how the games begun.

Charlie played them all.  First he started the occupation game. Every time Jerry planned a meeting with his former bosses, now clients of ServExec, Charlie showed up and monopolized the meeting. When WidgetsRus executives requested ServExec’s participation in IT strategy sessions, Charlie would attend without inviting Jerry. Then came the camouflage game. During Jerry’s first performance review discussion, Charlie told him he was very unhappy with the way the ServExec applications group managed their change control process and asked him to spend time understanding what the problem was and how to improve it. So for the next several weeks Jerry spent the majority of his time in meetings discussing change control processes and not focusing on the WidgetsRus business he was supposed to oversee. At the same time, Charlie started a shunning game. He publicly ignored Jerry’s suggestions; did not invite him to critical staff meetings; always referred to him as “Jerry from WidgetsRus,” and, in general, positioned him as an outsider who could not be trusted.

Charlie was so good at playing these games, Jerry had no chance, and half the times did not even know he was part of a game. When he finally realized something was up, he was still out-maneuvered by Charlie. When Jerry complained about not being included in the WidgetsRus planning meetings, Charlie would tell him they were routine client relations meetings and would assure him when strategy was discussed he would be included. When Jerry complained about the meaningless change control project assignment, Charlie made him look like he was a whiner and not a team player, who did not want to take on important projects. When Jerry felt Charlie was excluding him from ServExec group activities he was told to stop being a cry-baby and not be so sensitive about minor social issues.
And so it went for several months, until Jerry decided he had enough and left the company.

That made Charlie very happy.  He proceeded to appoint one of his trusted “insiders” to lead the WidgetsRus group and stopped paying attention to that unit. Since the new ServExec manager was a traditional ServExec buraucrat with no expertise in technology, let alone the leading edge technology WidgetsRus used, he focused on administrative aspects and cost cutting projects.  Without a strong leader at the top, the group floundered, some of the best people left, and the service levels fell to the floor.  And that was how Service and WidgetsRus ended up in the arbitrator’s office.
This did have a somewhat of a happy ending however. It was that deal that finally made the ServExec Sr. management team realize that Charlie was more interested about protecting his turf than the interests of the company, so they unceremoniously fired him. And Jerry? Well, as soon as the deal was unwound, WidgetsRus hired him back to be the manager responsible for the performance of the new outsourcing partner and eventually promoted him to group CIO.

Definitions of Territorial Games
The occupational game – “Marking” territory; maintaining an imposing physical presence; acting as the gatekeeper for vital information; monopolizing relationships, resources, or information
The information manipulation game – Withholding; putting a spin on, covering up, or giving false information to prevent or direct action
The intimidation game – Growling, yelling, staring someone down, scaring someone off, or making threats (overt or covert)
The powerful alliances game – Using relationships with powerful people to intimidate, impress, or threaten others; using name dropping; making strategic displays of influence over important decision makers
The invisible wall game – Actively creating counterproductive perceptions so that an agreed upon concept is very difficult, if not impossible to implement
The strategic non-compliance game – Agreeing up front to take action but having on intention of doing it; or agreeing just until you find a reason to avoid taking that action
The discredit game – Using personal attacks or unrelated criticism as a way of creating doubts about another person’s competence or credibility
The shunning game – Subtly, or not so subtly, excluding an individual in a way that punishes them; orchestrating a group’s behavior so another person is treated as an outsider
The camouflage game – Creating a distraction by emphasizing the inconsequential or triggering someone’s anxiety buttons just to distract them
The filibuster game – Using excessively verbiage to prevent action; out talking any objectors at a meeting; talking until time for discussion is exhausted, or simply wearing others out by out-talking them

Profit or Growth – A fools choice

Jun 7th, 2011
by ChuckPapaG.

What’s more important, the pursuit of Profit or the pursuit of Growth?  Well, I have some definite opinions I share with the MBA students at the University of Tampa.  This is a copy of a presentation I am giving this week.

Ethical Behavior Assessment Tools…

Apr 11th, 2011
by ChuckPapaG.

It seems like everywhere I turn these days someone is talking about using one assessment tool or another, from the old stand-by, Meyrs Briggs, to some very sophisticated profiling programs.  Even though it may be new to some, in the work I do for Ideasphere, I have been using many of the same tools for years to quickly assess existing management teams as well as hire new team members. I am personally partial to the Harrison Assessment, because it focuses on behavior that impacts daily work life and performance, rather than identifying underlying reasons for the behavior, but I think I have used every one of them at one point or another.

I value some the tools more than others, and take all of them with a grain of salt, but I do use them; They can give me a quick perspective on individuals and teams that can save me weeks of observation, which translates to a smoother, and more rapid implementation of any project, or turn-around I work on.
But here is the challenge; none of these tools tell you anything about the character of an individual, and I have yet to see a meaningfull test that can predict the ethical nature of one’s behavior. Regardless of people’s socio-economic backgrounds, education, credentials, or jobs they held at the time or prior, unfortunately, I have been surprised enough times by unethical, or illegal, behavior that almost nothing shocks me anymore. I have seen people flat out lie under oath, sabbotage coworkers by feeding them wrong information, mis-represent their own qualifications on their resume, cook the books to look good for investors, go back on verbal agreements, and use insider information to make illegal trades, that I would be justified to be somewhat cynical. But, and call me a softie on this one, I personally start by believing every person is decent, and give them the chance to prove otherwise. I always hope people will surprise me to the better and may times they do.
But I do believe there is one personality trait that is a good predictor of the potential of behavior that may go out of ethical or legal bounds.

It is an ingrained sense of entitlement, usually un-justified.

It has been my observation that, when someone deeply believes they are entitled to something, they will go to any length to attain it. This was also the conclusion of a friend of mine who is industrial psychologists and leads the assessment practice of a large recruiting firm. Through research conducted during a period of a couple of years, he also discovered that one common element for unethical behavior was a sense of entitlement about something around that behavior.

So be carefull about what you believe you are entitled to, because that may be the one thing that can cause you to display behavior unworthy of an operator, a manager, or even a decent human beeing. These are just some questions from experiences with people who displayed unethical behavior, even though, at their core, they thought of themselves as decent and ethical human beings.

Do you believe you are entitled to your discoveries, even though you developed them while employed by a company that makes it clear they own anything you develop while in their pay? If you do, be careful; this sense of entitlement may lead you to commit the crime of “Theft of Intellectual Property.” This is not something minor. This is a serious crime that, should it be pursued, can carry a jail sentence.
Do you believe you are entitled to a portion of the profits a company makes because of your contributions, even though you are not a commissioned sales person and the company does not have a profit sharing plan? If you work in accounting and have access to company bank accounts, this may lead you to steal directly from the company.

Do you believe you are entitled to a promotion because of the years you have been with the company, or in the industry, or your superior education, regardless of the opinions of your managers and co-workers? This may lead you to actively pursue making your peers look bad by pointing out imaginary short-comings, in the mistaken belief it will make you look better than them. Even though this is not illegal, it eventually catches up with you.

And finally, do you believe you are entitled to a job, regardless of your contributions? This sense of entitlement, may lead you to do less than expected of your job and try to cover it up with busywork, or excuses. Now this may not be illegal, but I would consider it highly unethical.
Me personally, I solved the business ethics problem. I believe I am entitled to nothing and have to earn everything. Problem solved! ;-)

Why hire external consultants

Mar 15th, 2007
by ChuckPapaG.

It’s a funny thing trying to explain to my mom, who never finished elementary school, what I do for a living.  “When are you going to get a normal job?” is a frequent question.  After trying to explain what I do unsuccesfully for many years, I decided the best thing to do was to tell her the five reasons people hire me and my partners to do work for them. 

(more…)

Operator or Operations Person – Where does time go?

Mar 10th, 2007
by ChuckPapaG.

The 30/30/30/10 Observation 

Most people in operating positions tend to spend most of their time putting out fires.  That does not make them "Operators."  It just makes them operations people.  A good operator spends his or her time "walking around" the operation.  I always found that good operators spend 30% of their time doing "the job", 30% of their time "leading and managing their people", 30% of their time with "the customers" whether they are internal or external, and 10% of their time "sharpening the saw" either by reading or taking classes.

Things to manage

Jan 18th, 2007
by ChuckPapaG.