The Soft Stuff is the Hard Stuff

A colleague of mine correctly points out that Enterprise Resource Planning (ERP) is really about a codified set of principles, policies, processes and practices and not about software. Enterprise software may enable ERP processes, but implementing Enterprise software does not ipso facto deliver the business transformation or disciplines required to truly embrace ERP. There is no software silver bullet. That is not to say that an organization that implements Enterprise software cannot derive benefit from the effort. Many of the ERP processes that are transactional (execution) in nature, such as customer order processing, procurement and production execution, can be enhanced by the integration and best practices delivered by Enterprise software. The planning processes of ERP, such as Sales and Operations Planning (SOP) and Master Scheduling can be enhanced to a degree by Enterprise software, but the real business benefits will only be realized if the enterprise makes the organizational changes and adopts the policies and practices required for ERP.

I have been assisting clients with ERP initiatives for sixteen years. While the scope of the effort has varied from client to client, most have opted for an integrated approach that includes both their logistics planning and execution processes. For example, many of my industrial clients have deployed master scheduling, material requirements planning and capacity planning processes alongside order processing, procurement and production.

It has long troubled me that a minority of my clients has attempted to implement SOP, which is one of the most valuable and powerful ERP processes. I believe that this is largely because the business transformation aspects of the SOP process are more critical to the success of the deployment than the software aspects. SOP is in many ways a "social" process. Many firms lack a cultural framework to enable the cross functional collaboration that is a pre-requisite to SOP. The ability of all the parties involved, including Production, Finance and Sales and Marketing to agree on the "one plan" is predicated upon the active leadership of senior management and willingness to compromise. For all too many organizations, particularly those that see software as a silver bullet, this "soft stuff" really is the "hard stuff."

In recent years I have been following the emergence of social business collaboration (SBC) tools with great interest. I have since refined my point of view. Perhaps the SOP collaboration that has been lacking in the past was partly due to a lack of capabilities. It is possible that this barrier to the effective deployment of SOP can be overcome through the use of SBC tools. I can foresee critical components of the SOP process, such as aggregate demand and supply planning and the pre-SOP meeting being enabled by a collaboration layer that is fed by the underlying Enterprise applications. For example, the demand planning process starts with a forecast and then incorporates the inputs from a variety of stakeholders before a demand plan is generated. A marketing or product manager could subscribe to the demand planning data in his activity stream or dashboard and provide feedback and inputs to the demand planner with a minimum of effort.

The introduction of more technology alone will not solve the problems of an unreformed ERP initiative. However, if the deployment of SBC tools is combined with an effective business transformation initiative then the likelihood of achieving the full extent of the business benefits from an ERP implementation will be greatly enhanced.

From OWS to the Enterprise

The folks engaged in the “Occupy Wall Street” (OWS) movement have used the catch phrase “We are the 99%” to emphasize the income inequality that has arisen in the US in recent decades, as the income of the top 1% households accelerated, while it stagnated or declined for the majority of Americans.  According to a recent Congressional Budget Office report the share of total income that flowed to the top 1% increased to 60% by 2007, up from 50% in 1979.

While the popular movement focuses mostly on the top 1%, there is a broader perspective on the increasing polarization of wages and employment that is relevant for the Enterprise and the path forward as we adjust to new technologies and the new economic realities.

In their recent e-book, Race Against the Machine, authors McAfee and Brynjolfsson describe “How the Digital Revolution is Accelerating Innovation, Driving Productivity and Irreversible Transforming Employment and the Economy”.  It is an excellent book and a must read for anyone involved in information technology or interested in the economy.

In short, the book seeks to “reconcile two important facts. 1) Technology continues to progress rapidly. In fact, the past decade has seen the fastest productivity growth since the 1960s, but 2) median wages and employment have both stagnated, leaving millions of people worse off than before.”

For example, in the following chart we can see that real wage growth in recent decades (1980-2005) is lower than the post-War decades (1950-1980) for each of six occupation groups.  However, in the more recent data we also see that the real returns to the more skilled occupations are increasing while the returns to the less skilled occupations stagnate or decline.

Source: The Growth of Low Skill Service Jobs and the Polarization of the U.S. Labor Market, Autor and Dorn, June 2011.

It is well known that as the nation endured the transformation from an agrarian economy to an industrial economy in the 19^th century, more jobs were created than lost and employment opportunities increased for skilled and semi-skilled labor alike. The authors argue that in our most recent transformation from the industrial to the information age, digital technologies have eliminated jobs faster than enterprises have been able to adapt.  The majority of the resulting impact on wages and employment has been felt in the low to middle range of skills through the automation of routine tasks. 

As we go forward and digital technologies continue to improve we should expect to see even the more abstract work of skilled professionals become subject to automation.  The authors cite Google’s self-driving car and IBM’s Watson computer as examples and harbingers of what is to come.  As was the case with the mighty John Henry, men may win the battle against the machine for a time, but we may not win the war.

But the authors do not end on a sour note.  Instead they restate the problem from “Race Against the Machine” to” Race With the Machine”

“The John Henry legend shows us that, in many contexts, humans will eventually lose the head-to-head race against the machine. But the broader lesson of the first Industrial Revolution is more like the Indy 500 than John Henry: economic progress comes from constant innovation in which people race with the machines. Humans and machines collaborate together in a race to produce more, to capture markets, and to beat other teams of humans and machines.”

All of which brings me to my point.  We must take a very hard look at how we collaborate in the Enterprise.  We are in a race, but not against the machines.  Our race is with our competitors.  The factors driving the polarization of employment and wages will reach our shores before we know it.  We simply can’t stand by as our competitors out-innovate, out-deliver and out-compete us.