agility in disruptive times - milestoneis.com · the value of agility in erp during disruptive...
TRANSCRIPT
November2016
THEVALUEOFAGILITYINERPDURINGDISRUPTIVETIMES
Fitandfunctionalityhasalwaysbeenthelinchpininselectingsoftwarethatrunsyourbusiness.WhencompaniesareaskedtostackrankthepriorityofselectioncriteriaforEnterpriseResourcePlanning(ERP)solutions,thisisclearlyatthetopoftheleaderboard,followedcloselybycompletenessofsolution.Whilefeaturesandfunctionsareindeedimportant,thereisdangerinmakingadecisionsolelyonwhatyouneedtoday,becauseitmightnotbewhatorallthatyouneedinthefuture.
The2016MintJutrasEnterpriseSolutionStudyfound88%ofcompaniesbelievetheyfacesomelevelofriskintheirbusinessesand/orindustriesbeingdisruptedbynewinnovativeproducts,newwaysofsellingorpricingexistingproductsorservices,entirelynewbusinessmodels,orsomecombinationofalloftheabove.Andthenofcoursetherearestillthemoretraditionaldisruptivefactorslikeexpansionandgrowth,organizationalrestructuringandregulatorychanges,justtonameafew.
Allthisdisruptioncanhaveacascadingimpactonbusinessapplicationrequirements,makingagility-theabilitytoeasilyinnovate,evolveandchange-evenmoreimportantthancurrentfunctionality.Howwellpreparedareyoufortheunpredictable,yetinevitabledisruptiveforcesofthedigitaleconomy?Afterall,weliveinverydisruptivetimes.
DISRUPTION?WHATDISRUPTION?
Weaskedsurveyparticipantsinour2016MintJutrasEnterpriseSolutionStudytoestimatethelevelofrisktheyfaceintheirindustry(andthereforetheirbusiness)beingdisrupted(Figure1).
Figure1:Howmuchriskdoyoufaceinyourindustrybeingdisrupted?
Source: Mint Jutras 2016 Enterprise Solution Study
Data Source Inthisreport,MintJutrasreferencesdatacollectedfromits2016EnterpriseSolutionStudy,investigatinggoals,challengesandstatusandalsobenchmarkedperformanceofsoftwareusedtorunabusiness.
Over525responseshavebeencollectedintotal,fromcompaniesacrossabroadrangeofindustries,includingcompaniesofallsizes,rangingfromverysmalltoverylargeenterprises.
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Whileonly10%feltthatriskwashighand/orimminent,most(88%)dounderstandtheriskisreal.Whileaboutoneinthree(34%)feeltheriskislow,wehavetoask:HowdoyouthinkthetaxiindustrymighthaveansweredthisquestionontheeveofthelaunchofUber?DoyouthinkthehotelindustryanticipatedAirbnb?DidBlockBusterforeseethedevastatingimpactNetflixwouldhaveonitsbusiness?Whatkindofdisruptionislurkingoutthereforyou?
DIGITALDISRUPTIONTheInternetandthedigitaleconomymadeallofthesedisruptionspossibleandnoneweredecadesinthemaking.Comparedtoslow,evolutionarychangesofthepast,theyliterallyhappenedalmostovernight.
Thistypeofdisruptionmightcomefromavarietyofsources.Weaskedsurveyparticipantstoselectthesinglemostlikelycauseofpotentialdisruption(Figure2).
Figure2:Whatismostlikelytocausethisdisruption?
Source: Mint Jutras 2016 Enterprise Solution Study
Whilethethreatfromnew,innovativeproductsmayhavethelesserdisruptiveimpactonbusinessprocessesandbusinessmodels,itdoesrequirecompaniestoplacemoreemphasisoninnovation.Windowsofopportunitycanopenandcloseveryquickly.OfcourseanagileERPsolutionisn’tallyouneedtoacceleratenewproductintroductions,butyoualsodon’twantittobethereasonyoucan’trespondtonewmarketdemandsortakeadvantageofnewandunprecedentedopportunities.
Newwaysofselling/pricingexistingproductsmightincludesubscriptionstoservicesoroutcomesthatreplaceoutrightsaleofproducts.Ratherthansellingamachine,youmightinvoiceforuptimeorhoursofproduction.Youmightshipaphysicalproductforfreeandchargeforusageand/orconsumables.Softwarecompaniesthatusedtoofferperpetuallicensesmightnowalso(orinstead)offersubscriptionstosoftwareasaservice(SaaS).Thesetypesofchangescanhaveamajorimpactonhowyouinvoice,recognizerevenueandmanagecash.AndthesechangesmustbereflectedinyourERPsolution.
HowdoyouthinkthetaxiindustrymighthaveassessedthethreatofdisruptionontheeveofthelaunchofUber?DoyouthinkthehotelindustryanticipatedAirbnb?DidBlockBusterforeseethedevastatingimpactNetflixwouldhaveonitsbusiness?Whatkindofdisruptionislurkingoutthereforyou?
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Theimpactofentirelynewbusinessmodelsisevenhardertopredictbecauseoftheinherent“newness.”Youdon’twantyourERPsolutiontobethereasonyoucan’tcapitalizeonthatbrilliantnewideathatcancreateanewrevenuestream.YourERPmustadaptasyourbusinessevolves.
Andifyouarelikeoneinthree(33%)ofoursurveyparticipants,youexpectchangetocomefromacombinationofthesedisruptivefactors,whichisevenhardertopredict.Youmustcontinuetosupportyourcurrentrevenuestreamsinconjunctionwiththesenewopportunities.
DON’TFORGETTHEMORETRADITIONALDISRUPTIONDisruptionisnotentirelyneworexclusivelytheresultofthedigitaleconomy.Growthandregulatorychangesareperhapsthetwomostcommoncauses.Howeverwhilenotexclusivelytheresultthereof,growthisinfactimpactedbythedigitaleconomy.TheInternethasleveledtheplayingfieldforglobalization.Innovationandadvancedtechnology,combinedwiththeInternet,haveopeneddoorstoopportunitiesallaroundtheworld.Newconsumermiddleclasseshavesprungupincountriesthatwerehardlyindustrializedashortdecadeago,creatingunprecedentedgrowthopportunities.Butwindowsofopportunitycancloseasquicklyastheyopen.
Totakeadvantageoftheseopportunities,youmightexpandintonewterritorieseitherorganicallyorthroughmergersandacquisition,bothofwhichcancausedisruptionthroughouttheenterpriseandplacenewrequirementsonfinance,accountingandcompliancereporting.Thismayalsoresultinorganizationalrestructuring.Ifyourorganizationalandreportingstructureisstillhardcodedintoyourchartofaccounts,youareseverelylimitedinhowandhowquicklyyoucanrestructure.
WhetherchangeisinitiatedbygrowthorbythefactorsshowninFigure2,theseinturn(orindependently)cancausechangestoaccountingmethodsandreportingrequirements.Achangeinaccountingmethodmightbemadeatthediscretionofexecutivemanagement,butmoreoftenisimposeduponanenterprisethroughnewlawssuchasthoseintroducedin2002withtheSarbanes-OxleyActandtheconvergenceofstandardsandreportingrequirementsofInternationalFinancialReportingStandards(IFRSs)andUSGeneralAcceptedAccountingPrinciples(GAAP).
Themostrecentandmostsignificantofthesearetheupcomingchangestorevenuerecognitionasaresultofthemergingofaccountingstandards(ASCandIFRS).ThisplacesnewfunctionalrequirementsonERPandrequiredchangestoexistingaccountingsoftwarearenotinsignificant.Thesenewruleshavethepotentialofcreatingthemostsignificantchangesaccountantshavefacedinmany,manyyearsandapplytoanycompanythatentersintocontractswithcustomerstotransfergoodsorservicesorforthetransferofnonfinancialassets.Withthetrendtowardsasubscriptioneconomy,therearefewerandfewercompaniesthatareimmune.
ASC 606 and IFRS 15 InMay2014,FASBissuedAccountingStandardsUpdate(ASU)2014-9,RevenuefromContractswithCustomers(Topic606).AtthesametimetheInternationalAccountingStandardsBoard(IASB)alsoissuedInternationalFinancialReportingStandards(IFRS)15,RevenuefromContractswithCustomers.Indoingso,thesetwogoverningbodieslargelyachievedconvergence.Theseconvergedstandardsforrevenuerecognitiongointoeffectthebeginningof2018forpublicentities,bringingverysignificantchangestofinancialstatementsandreportingforanycompanydoingbusinessundercustomercontracts.
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DREADEDBUTINEVITABLECUSTOMIZATION
Companiescannolongeraffordtorespondtothesetypesofchallengesliketheyusedto.Indaysgoneby,companieswereforcedtohandlethiskindofchangeinthesamewaytheyhadalwayshandledgapsinfunctionality:throughcustomizationofthesoftware.Inthepastcustomizationwasinvasive;itmeantmuckingaroundinsourcecode.Notonlywasthisacostly,lengthyandtime-consumingprocess,italsocreatedbarrierstoupgrades.Butinnovationisfarmoreimportanttodaythanithaseverbeen.Businessconditions,processesandevenentirebusinessmodelsaremuchmorefluidthaneverbefore.Nocompanycanaffordtostagnate,norcantheyaffordlongleadstimestoimplementchange.
Thisisexactlywhymodern-dayERPsolutionshavebecomemuchmoreconfigurable,allowingyoutopersonalizeandtailorthesolutiontoyourindividualneedswithoutcostlyandinvasivecustomization.Weaskedour2016EnterpriseSolutionStudyparticipantstocheckoffallthedifferenttypesof“customization”theybelievetheyneed(Figure3).Keepinmindthatmostanychangetothesoftwareortheuserexperienceistypicallyreferredtoas“customization.”
Figure3:Whattypeofcustomizationdoyoubelieveyouneed?
Source: Mint Jutras 2016 Enterprise Solution Study
Therearetendifferenttypesof“customization”listedinFigure3.Theyaresortedbythelikelihoodofthembeingrequired.AnymodernERPworthitssaltshoulddeliverthefirstsevenofthesewithoutrequiringanyinvasivecodechangesandwithoutbuildingbarrierstoconsuminginnovation.Thenexttwomayormaynotrequirecodechanges.
“Customization” Manymodern,technology-enabledERPsolutionstodaydeliverahighlevelofpersonalizationandconfigurationwithoutcustomizationasdefinedintheclassicsenseofinvasivecodechanges.
Nocompanycanaffordtostagnate,norcantheyaffordlongleadstimestoimplementchange.
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Ifyourcurrentsolutiondoesnotallowyouto“customize”throughthistypeofconfigurationandtailoring,if“customizing”preventsyoufromconsuminginnovation,adaptingtobusinesschangeorrespondingtonewbusinessornewbusinessmodels,youneedanewone.It’sassimpleasthat.
Respondingtothelastrequirement-developingentirelynewfeaturesandfunctionsthatareunlikelytobeavailableincommercialsoftware-isadifferentstory.Ifyoudoindeed(really)requirethis,itislikelybecauseyouseektoclearlydifferentiateyourselfinyourmarket.Andthat’sagoodthing.Buthowyougoaboutaddingthatfunctionalitycanleadyoudownapathofstagnation,orapathtogrowthandprosperity.
INNOVATIONTHATISEASYTOCONSUME
AddingnewfunctionalitytoERPinawaythatmakesiteasytoconsumehaslongbeenachallenge.TheverydefinitionofERP(atleastthedefinitionaccordingtoMintJutras)contributestothischallenge.MintJutrasdefinesERPasanintegratedsuiteofmodulesthatformstheoperationalandtransactionalsystemofrecordofabusiness.ThisisarudimentarydefinitionbecausetodayERPislikelytodomuchmorethanthis.
NotonlydoallmodulesofanERPsolutionshareacommondatabase,butalsoallaredevelopedusingthesametoolsandtechnologyandtraditionallytheyallmoveforwardinlockstep.Thiseliminatesdataredundancyandanyneedforseparateintegrationefforts.Andacommonplatformfordevelopmentisbeneficialtoboththecustomerandthevendor.
WhennewfeaturesandfunctionsareaddedtoERP,eitherasgenerallyavailableinnovationorasacustomization,thistightintegrationimpliesthatallmodules,allfunctions,andthereforealldepartmentswithinanorganizationmustmoveforwardtogether.Thiscanslowdowntheupgradecycle(orinthecaseofcustomization,preventit),butevenmoretroublesome:Ittakesmassiveeffortsofcoordinationforalldepartmentswithinacustomer’sorganizationtotakethosenextstepsalltogether.Andallmightnothavethesamelevelofmotivation.
Sowhat’sthealternativetothistightintegration?Thealternativeisoftenreferredtothesedaysas“looselycoupled,”butthatterminologyfrequentlyconjuresthe“bestofbreed”approachofyesterday,whereyouhadindependentpointsolutionsthatneededtobeinterfacedorintegratedbackintoERP.We’renotadvocatingtakingastepbackwards.Perhapsabetterwayofdescribingtheneweralternativewouldbe“component-based”or“service-based.”
Whenitcomestimetoofferupnewfeaturesandfunctions,insteadofinsertinglinesofcodedirectlyintoERP,youmightinsteadcalluponastandard“service.”Whenitcomestimetoupgradeoraddnewfunctionality,simply
Definition of ERP MintJutrasdefinesERPasanintegratedsuiteofmodulesthatformstheoperationalandtransactionalsystemofrecordofthebusiness.Thisdefinitionallowsforsomeflexibilityintermsofmodulesrequiredsincedifferenttypesofbusinesshavedifferentneedsandtypicallymanufacturerswillrequireamorecomprehensivesetofmodules.Inaddition,thefootprintofmostestablishedERPsolutionshasgrownsignificantlyandprovidesmorefunctionalitythanneededforthiscoresystemofrecord,oftenmakingupgradesharderandmorecomplex.
Ifyourcurrentsolutiondoesnotallowyoutorespondtonewbusinessornewbusinessmodels,youneedanewone.
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swapouttheold“service”forthenew.Youmightalsoviewtheseservicesasexternalcomponents.Whilethisisanoversimplification,itconceptuallydescribeshownextgenerationERPcaneffectivelydelivernew,targetedinnovationwithoutforcingalldepartmentsservedbyERPtomarchforwardtogether.
Whilecomponentsandservicesarebecomingmoreprevalent,solutionprovidershavetakenawidevarietyofdifferentapproachestodeliveringinnovationtoday.Manyarestillpackagingupreleasesthatrequireanall-inclusiveupgrade.Butthatdoesn’tmeanyouhavetotakethisapproachinaddingonnewfunctionalitythatyoueitherdevelopyourself,commissiontohavebuilt,orbuyfromathirdparty(typicallyapartnerofyourERPsolutionprovider).Anythingyoucandotomoveawayfrommanagingasingle,massivemonolithicstructureisastepintherightdirection.
CLOUDANDSAASOPTIONS
Nodiscussionofinnovationandcustomizationwouldbecompletetodaywithoutaddressingtheshiftinmovementtocloudcomputingingeneralandsoftwareasaservice(SaaS)inparticular.WhileMintJutrasbelievesthetransitiontotheSaaSERPwilltakeyears,thisislargelybecauseofthesheerdominanceofon-premisesolutionsand(historically)thereluctancetoripandreplacesystems.
Wehavebeenaskingthefollowinghypotheticalquestionforyearsnow:Ifyouweretoselectasolutiontoday,whichdeploymentoptionswouldyouconsider?WehavewatchedthepercentagethatwouldevenconsideraSaaSsolutiongrowfromsingledigits(10yearsago)to59%in2016.Figure4alsoshowsSaaSasthedeploymentoptionmostlikelytobeconsideredforthepasttwoyears.
Figure4:Whichdeploymentoptionswouldyouconsider?
Source: Mint Jutras 2016 Enterprise Solution Study
* Option was added in 2015
Therearetwopointstoconsiderhere.Firstofall,youcan’tbeagileifyouarestuckonoutdatedreleasesandnotabletoinnovatetomeetthenew
Sample Notethatover90%ofrespondentswerefromtheUnitedStates,whichhasledthewayinsentimentfavoringSaaS.
Cloud versus SaaS
Cloudreferstoaccesstocomputing,software,storageofdataoveranetwork(generallytheInternet.)Youmaypurchasealicenseforthesoftwareandinstallitonyourowncomputersorthoseownedandmanagedbyanothercompany,butyouraccessisthroughtheInternetandthereforethroughthe“cloud,”whetherprivateorpublic.
SaaSisexactlywhatisimpliedbywhattheacronymstandsfor:SoftwareasaService.Softwareisdeliveredonlyasaservice.ItisnotdeliveredonaCDorothermediatobeloadedonyourown(oranother’s)computer.ItisaccessedovertheInternetandisgenerallypaidforonasubscriptionbasis.
Usingthesedefinitions,wecanconfidentlysayallSaaSiscloudcomputing,butnotallcloudcomputingisSaaS.
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demandsplacedonyourbusinesseitherbecauseofdigitaltransformationormoretraditionalbusinesschange.InaSaaSenvironmentyouarenotallowedtostagnate,butyouwillalsoberelievedofmuchoftheburdenoftheupgradeprocess.Ofcourseyouneedtoreviewnewfeaturesandfunctionsand“optin”tousingthem,buttheSaaSsolutionproviderdoesalltheheavylifting.Youcanspendyourtimeandenergymakingthosedecisions,respondingtochangeandrunningyourbusiness.
But(secondly)whataboutthepossibilitythatyouwillneedtofillsomegapsinthesoftwareordifferentiateyourself?Inotherwords,whataboutarealneedforcustomization,ratherthanconfigurability?Ifyouarerunninginaprivatecloudorjustahostedenvironment,thesituationisnotverydifferentfromanon-premiseenvironment,exceptperhapsthatyoupayathirdpartyforthecareandfeedingofyoursolution.Butthenyoudon’tgetallthebenefitsofaSaaSsolutioneither,includingthepotentialformoreandmorefrequentupdates.
WhiledifferentSaaSsolutionprovidershandlecustomizationsindifferentways,invasivecustomizationofcodeisdiscouraged,ifallowedatall.Hereiswheretheabilitytoexternalizethecustomizationandplugitinasaserviceissoimportant.YoucanleaveyourSaaSsolutionessentiallyuntouchedandsimplyplugyourcustomizationin.Again,weareoversimplifying,butyougetthepicture.
KEYTAKEAWAYSANDRECOMMENDATIONS
WhilemostconsumersofERPwillinitiallyselectasolutionthatisthe“bestfit,”alltoooftentheylosesightofthatastheirrequirementschangeovertime.ManyoftheERPsolutionsinstalledtodayremainrigidandrequireextensivemodificationstomeetthechangingneedsofenterprisestoday.Andthepaceofchangedoesnotappeartoslowingdown.Eventraditionaltypesofbusinesschangeresultingfromgrowth,expansion,organizationalrestructuring,and/orregulatorychangesareacceleratingalongwiththepaceofbusinessitself.Addtothatthethreatofdisruptionmadepossiblebythedigitaleconomyandastagnantsolutionmayjustputyouaheadintheracetothebottom.
RECOMMENDATION:Don’tletchangebeyourenemy.Makeyourabilitytomanagechangeacompetitivedifferentiator.Considerthefollowing:
• Ifyourcurrentsolutionisrigidandmonolithic,movingforwardatasnail’space…youneedanewone.
• Ifyourcurrentsolutionisnotsupportedbyaplatformorarchitecturethatallowsyoutoeasilyconnectnewservicesorcomponents…youneedanewone.
InaSaaSenvironmentyouarenotallowedtostagnate,butyouwillalsoberelievedofmuchoftheburdenoftheupgradeprocess.
ManyoftheERPsolutionsinstalledtodayremainrigidandrequireextensivemodificationstomeetthechangingneedsofenterprisestoday.Isyoursoneofthem?
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• Ifyourcurrentsolutiondoesnotallowyouto“customize”throughconfigurationandtailoring,if“customizing”preventsyoufromconsuminginnovation,adaptingtobusinesschangeorrespondingtonewbusinessornewbusinessmodels…youneedanewone.
Ifyoudoindeedfindyourselfinneedofanewsolution,youstillneedtoconsiderfeaturesandfunctionsthatgiveyouthebestfittoday.Butdon’tstopthereinyourevaluation.Acknowledgethefactthatweliveindisruptivetimesandseriouslytakeintoconsiderationtheagilityofanynewsolution.Agilityprovidesyouwiththeabilitytoinnovate,evolveandchangeinordertotakefulladvantageofnewbusinessopportunities.Youmaynotbeabletoaccuratelypredictwhatthefutureholds,butwithanagilesolution,youcanbereadyforanything.
Abouttheauthor:CindyJutrasisawidelyrecognizedexpertinanalyzingtheimpactofenterpriseapplicationsonbusinessperformance.Utilizingover40yearsofcorporateexperienceandspecificexpertiseinmanufacturing,supplychain,customerserviceandbusinessperformancemanagement,Cindyhasspentthepast10+yearsbenchmarkingtheperformanceofsoftwaresolutionsinthecontextofthebusinessbenefitsoftechnology.In2011CindyfoundedMintJutrasLLC(www.mintjutras.com),specializinginanalyzingandcommunicatingthebusinessvalueenterpriseapplicationsbringtotheenterprise.
Agilityprovidesyouwiththeabilitytoinnovate,evolveandchangeinordertotakefulladvantageofnewbusinessopportunities.