Social Procure-to-Pay (P2P)

I have been involved with business process analysis and design throughout my career, as a logistics and supply chain practitioner and as management consultant assisting clients with business transformation initiatives. More recently I have taken an interest in the adoption of social business collaboration (SBC) tools by businesses and other types of enterprises. In particular I am interested in the potential for changing business processes, practices and organizational structures to take advantage the opportunities created by SBC technologies.

The Procure-to-Pay (P2P) business process is one of the core end-to-end processes of almost every enterprise. As depicted below, the process usually begins with a requirement to procure goods or services and is completed with payment to the supplier. In many organizations this process is enabled by an Enterprise Resource Planning (ERP) system.

In a discrete manufacturing environment, where ERP systems were first deployed, the requirements are driven by a production schedule and determined by a bill of materials (BOM). The process is repetitive and often highly automated. In most cases, with perhaps the exception of approval workflow and exception management processes, there is restricted scope for social collaboration. The opportunities for social collaboration are upstream in the master data management, product lifecycle management and supplier relationship management processes.

However in most organizations the P2P process also supports procurement scenarios that are not repetitive and the requirements are not as clearly defined. In these cases there are real opportunities to change the way that work is done to exploit the capabilities of SBC tools.

For example if I have a need that could be satisfied by a range of different products then it would be useful to publish a description of my need to my social network, soliciting comments on the “best tool for the job”. This approach, often called crowdsourcing, is common practice in personal social networks, but current ERP solutions cannot easily support it. The ERP assumes that the requestor knows exactly what they want when they create the purchase requisition. In addition, if I share my needs with the network there will be situations when my needs can be met from existing unused inventories, much of which is not visible to the ERP system once it has been financially expensed.

These are but two examples of how the existing P2P process can be changed to take advantage of the capabilities of SBC tools. There are many more opportunities in this and other ERP business processes.

Today’s ERP systems carry with them the legacy of their past – their logical model of the business process is based upon the documents that manually flowed from function to function in the days before automation. The purchase requisition form feeds the purchase order, which in turn is acted upon to recognize the goods receipt. The supplier’s invoice is matched with the purchase order and the goods receipt document before payment is made. Each of these electronic documents existed as a paper document prior to ERP systems. In some cases the paper documents are still produced and filed.

In contrast, and in recognition of how knowledge work is done, the emerging SBC tools are people centric, not document centric. It will be interesting to see how the ERP software vendors choose to integrate SBC tools into their offerings. Can they bridge the people and document centric divides successfully?

Let me know what you think about the prospects for “Social Procure-to-Pay”.

Internalizing Positive Externalities

In my last blog post, He just up and did it, I speculated about the potential to use employee education as a means to overcome the resistance of ingrained habits and a fixed mindset that have conspired to prevent potential users of social business collaboration (SBC) tools from investing the time needed to master the new technologies, change the way that they do business and share their valuable content.

A comment about that post from one of my colleagues, Mark Masterson, raised a good point:  

Because one thing you're overlooking here is that there is a cost/benefit analysis implicit in every single worker exposed to the potential change. For some, the cost (amount of effort, degree of education, psychology, whatever) will exceed any imaginable benefit. Every time.

I think that it is worth exploring the economic concept of Externality to see if it can help us to crack the cost/benefit nut.

In standard economic theory an externality occurs when a third-party is affected by a transaction between a buyer and a seller. As a result, the price of exchange does not reflect the full cost of producing or consuming the good or service. The classic example used to illustrate this concept is that the price of goods produced in a factory that emits air pollutants as a by-product of the production process does not reflect the costs to society of the negative effects from that pollution. As a result the prices of the goods are set too low and the goods are over-consumed.

In order to address the problem of the failure of the pricing mechanism there are public policy remedies that can be applied, such as a pollution tax. In theory, the funds collected from the tax could be used to mitigate the effects of the pollution, thus reducing the harm to society. An alternative approach is to establish regulations that require the producer to “internalize” the third-party costs by either paying for remediation or prevention, such as installing pollution control devices. As you can imagine establishing a fair remedy can be very challenging – it is not possible to precisely determine the actual external costs.

Externalities need not always be negative, they can be positive too – the third-party benefits instead of being harmed. However, when positive externalities exist the goods or services will be relatively under-consumed rather than over-consumed.  It has been said that public funding of education is justified by the positive externalities generated by education - the benefit to society of a more productive and innovative workforce.

At this point you may be wondering what all this economic theory has to do with the choices being made by employees and their cost/benefit calculations.

One of the key benefits that can be enabled by deploying SBC tools is access to the Network Effect. As the number of users of the network increases the value to its members, and the enterprise as a whole, increases at an accelerated rate. The network effect is an example of a positive externality scenario.

It is reasonable then to consider what policies can be employed to internalize the positive externalities – to make them part of the employee’s cost/benefit calculation. Should an organization create an incentive for individuals to share content with the network, such as rewards or recognition programs? At the very least, shouldn’t the organization incorporate a discussion of externalities and the network effect into their education curriculum? Can we use these or other approaches to bring the employee cost/benefit calculations into alignment? There may not be a perfect solution to the cost/benefit problem but there are things that can be done.

Before you say “not so fast Henry”, I am aware that there are challenges and potential side effects of creating incentives for sharing. Since it is not possible to determine the actual value of sharing content, then how do you determine the correct level of incentive? Additionally, some employees may game the system for their own benefit, sharing more content just to qualify for incentives. This behavior would degrade the average quality of content and effectively impose a tax on their colleagues. 

It is my experience that social networks have evolved cultural responses to the “over-share” problem, with active policing by the members of those that violate the group norms. Failing that there are means to “turn down the volume” on repeat offenders. I have also found that SBC tools, such as content ratings and “likes”, can be used to highlight the valuable content, allowing it to “bubble up” and separate it from the mundane. The usage pattern for SBC tools is different from earlier collaboration tools. While the norm for reviewing your email inbox may require reading each message, this is not true for an SBC activity stream. I rely on keyword tags and “top liked” widgets to keep me informed of valuable content. I certainly don’t review every document, discussion or blog that passes by in my activity stream.

What is your organization doing to address the challenges of motivating employees to share their valuable content with the enterprise? Have you tried any of the approaches mentioned or perhaps something else? 

I would be pleased to hear what you think.

I’ll be there for you

A recent challenging experience with a collaborative workshop has inspired me to think in new ways about the impact that social business collaboration (SBC) technologies can have on productivity and the quality of work.

It was not that long ago that an effort by a small team to collaborate on a task from a distance was difficult and marginally productive.  For example, attempts to use email to collaborate on an analysis of an urgent business problem suffered from a lack of timeliness and were limited in the ability to scale the number of participants effectively. Teleconferencing could be used to overcome the timeliness and scale problems but introduced new constraints on the ability to share all but the simplest content. In addition, these styles of collaboration were fairly impersonal and devoid of non-verbal communication.

The traditional definition of proximity is nearness in space, time, or relationship. In the pre-digital age this definition was probably sufficient. With the advent of SBC technologies I believe that a broader perspective of the concept of proximity, one that includes virtual nearness and sensory inputs, such as visual and audio content, is appropriate.

As a result of the introduction of low cost, high quality personal video conferencing and synchronous document editing tools, a geographically dispersed team of experts can be assembled on-demand that can share rich content and collaborate in real-time. And because the participants can see and hear each other, their interaction is far more personal. Important non-verbal communication is not lost.

The ability of an enterprise to effectively utilize social business tools is dependent upon new ways of thinking about business problems, such as finding cost effective ways to overcome the tyranny of distance. Those that cling to traditional ways of doing business will become increasingly irrelevant and unable to complete.

In addition to traditional tools, I have added some of the more recent SBC tools to the list below. They are presented in descending order of notional proximity. 

• Video conferencing
• Web meetings
• Video casting
• Teleconferencing
• Email messaging
• Blogging and micro-blogging
• Wiki documents
• Discussion forums
• Instant messaging
• Photo sharing
• Audio (pod) casting
• Text messaging

I am interested to know if your organization is investing in SBC technologies, enabling and encouraging your use of any of these tools to solve business problems, reduce costs, improve productivity or improve service delivery. 

Please share your thoughts and experiences.

Sometimes the Answer is Just Staring You in the Face

I have been thinking about the ways in which social business collaboration technologies can be used in the enterprise to facilitate achieving business objectives, such as improved customer service, improved productivity, and reduced costs. At first I thought that the challenge was to simply reengineer business processes to take advantage of these “enabling technologies”, much as has been done in the past. Now I am not so sure.

My point of reference for many years has been Enterprise Resource Planning (ERP) implementation. When I consider how ERP has helped to redefine how work is done, some of the things that come to mind include improved planning processes and tools, improved integration of business processes across functional domains and significant automation of tasks. In many ways the beauty of ERP is that it enables the enterprise to systematically decompose business problems into manageable and executable chunks.  For example, the time buckets for sales and operations planning is months and quarters, the time buckets for master scheduling is days and weeks and the time buckets for production execution is hours and days or shorter. The process allows you to seamlessly move from one level to another. From the perspective of the employee, the interaction with ERP software is fairly straightforward. There are business roles and processes to learn and procedures to follow but any one transaction is impersonal, more or less deterministic and concrete. ERP does not typically engender much of an emotional response.

What I have failed to appreciate is that the “social” in social business represents not only an opportunity to do things differently but also presents some new and very different challenges. Not everyone places the same value on sharing information or collaborating, nor feels as comfortable doing so. Social interaction is far more personal than interacting with an ERP system, much less deterministic and far more abstract. It is no surprise then that we view it as acceptable if only fifteen percent of users are contributing content in a given month. If you experienced a comparable rate of participation in an ERP setting then the business would grind to a halt.  

It may seem “as obvious as the nose on your face” that social business is very different than what has come before, but I must admit that I wasn’t seeing the extent that this is true. As I continue to develop my understanding I find myself drawing more on the practice of social science than computer science.

Years ago I took the Myers-Briggs Type Indicator (MBTI) assessment, a “questionnaire designed to measure psychological preferences in how people perceive the world and make decisions.” I found that the assessment provides a useful insight into personal preferences. For example, the following is a description from Wikipedia of the preferences of one the sixteen possible combinations of assessment – ENTJ:

·         E – Extraversion preferred to introversion: ENTJs often feel motivated by their interaction with people. They tend to enjoy a wide circle of acquaintances, and they gain energy in social situations (whereas introverts expend energy).

·         N – Intuition preferred to sensing: ENTJs tend to be more abstract than concrete. They focus their attention on the big picture rather than the details, and on future possibilities rather than immediate realities. They tend to focus on the final product rather than the current task.

·         T – Thinking preferred to feeling: ENTJs tend to value objective criteria above personal preference. When making decisions, they generally give more weight to logic than to social considerations.

·         J – Judgment preferred to perception: ENTJs tend to plan their activities and make decisions early. They derive a sense of control through predictability, which to perceptive types may seem limiting. ENTJs often try to predict outcomes and plan accordingly

This model, and others like it, helps to remind me how different each of our needs and preferences can be. I plan to keep this in mind as I think about social business collaboration in the enterprise.

What do you think?

Every part has a story

Early in my career I was a material planner in the field service logistics organization of a large manufacturer and distributor of computers. I was responsible for planning for field returns, demand, supply (purchases and repairs) and inventory balances at the international logistics operations (ILO) facility, which was the central distribution center (DC) in the spare parts supply network. In those days the planning was mostly manual, with the assistance of spreadsheets. We knew the history of demand, but not much else. We didn't know the rate of consumption of the parts by service engineers and we didn't know the inventory levels in the supply locations below the central DC level. As you can imagine, managing the balance between service levels and inventory investment was quite the challenge given the lack of completeness, accuracy and timeliness of information.

In the years since the capabilities of Enterprise Resource Planning (ERP) and Supply Chain Management (SCM) applications have improved dramatically. Today's material planners can see the history of consumption, demand and returns. They can see inventory balances across the supply network and have tools to enable planning distribution and re-distribution as needed. They employ sophisticated forecasting algorithms and incorporate additional information, such as the size of the installed base of equipment being supported, into the development of plans. The planner can even identify non-recurring demands, such as pipeline fill or trade show requirements, so they can be excluded from the demand history.

Even with all this information, material planning is still very much more of an art than a science. As one of my colleagues used to say – "Every part has a story". What has been missing is access to that story. Why is the failure rate of a part increasing - have the usage conditions changed or is it being put to a new and different use? Why are we seeing so many returns for a part – are the stocking level strategies being changed out in the field or is another part being used in its place? The list of questions is endless.

Until very recently the planner had no means to conduct a dialogue with other interested and informed people, such as the branch logisticians or field service engineers, to learn that part's story. The increasing use of social business collaboration (SBC) platforms in the enterprise, and the integration of those SBC tools with existing ERP and SCM applications will enable the planner to fundamentally change how they perform their work. They will start their day reviewing the comments in their activity stream before they open their planning workbooks. Instead of reacting to events after-the-fact, they will be able to anticipate and plan for them in advance. By connecting the planner with their customers in the field the behaviors that stem from uncertainty and exacerbate problems, such as increasing local safety stock level in response to a (temporary) disruption in supply from an external supplier, can be avoided.

The role of the material planner will begin to resemble that of the conductor of an orchestra. They will lead and manage the discussions via the SBC platform and coordinate the adjustment of plans in the ERP / SCM accordingly. They will be able to improve customer service levels while simultaneously reducing inventory investment.

The ability to access previously inaccessible information is fundamentally changing the nature of work. A key resource constraint is being removed. I believe that there is a compelling business case for incorporating social business collaboration tools into enterprise business processes.

What do you think? Is this happening in your enterprise? Your thoughts are very much appreciated.

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.

Is SBC this decade's ERP?

It is the deterministic nature of transformational work, such as manufacturing fabrication or assembly, which allows a logical business process model to closely approximate the work performed in the real world.  The work to be done, the methods to be employed, the resources to be consumed all can be determined and modeled.  The development first of Materials Requirements Planning (MRP) and then later Manufacturing Resource Planning (MRP II) and Enterprise Resource Planning (ERP) processes reflect this tight relationship between the real world and the logical world.  At the same time information technology capabilities increased dramatically and costs were reduced by several orders of magnitude.  It is no surprise then that software applications emerged to enable and automate MRP, MRP II and ERP planning and execution processes.

During the period of evolution from MRP to ERP the scope of the business processes incorporated into the model expanded and with it the type of work and class of users expanded.  Transactional (clerical) work, such as order processing, was also codified and enabled by software.  In fact, much of the real world work of transactional workers, such as generating orders forms, stuffing envelopes, sending and receiving mail and filing forms has been automated or eliminated.

Over time many organizations took advantage of the efficiencies gained by refining the roles and the nature of the work performed.  For example, the role of a buyer in the purchasing department has shifted from order placing to source selection and negotiation.  The nature of the new work is less transactional and more intersocial and knowledge oriented.  Knowledge work, however, is much less deterministic than either transformational or transactional work.  There are methodologies, best practices and software applications that can be used to guide and enable the knowledge worker, but the tight correlation between how the real work is done and how the business processes model reflects that work has been lost.  Knowledge work is more abstract and less tangible than either transformational or transactional work.

With the more recent advent of specialized applications, such as Customer Relationship Management (CRM) and Supply Chain Management (SCM) that go beyond the scope of traditional ERP processes, many in industry have adopted more general terms like Enterprise Applications or Enterprise Systems in place of ERP software.  While these applications are exceeding useful to the knowledge worker, enabling the manipulation of large amounts of data in service of improving performance, they fail to capture the social component of knowledge work.  To me they represent an extension of the capabilities beyond ERP, but not a new paradigm that addresses the challenges of enabling knowledge work.

This begs my question to the reader – Are the emerging social business collaboration (SBC) tools, such as Jive’s SBS, Salesforce.com’s Chatter and SAP's StreamWork, this decade’s Enterprise equivalent of ERP?

The Happy Path

I have been involved with Enterprise Resource Planning (ERP) and its predecessors (MRP and MRP II) throughout my professional career, first as a practitioner and later as an solution architect and implementer. In recent years I have also developed an interest in the emergence and adoption of Enterprise 2.0 (E2.0) technologies such as the Jive social business software platform. Lately I have been thinking about how E2.0 technologies will change enterprise business processes, with a particular focus on the integration of E2.0 and ERP.

One of the key ERP business processes is Purchasing, a variation of which I have depicted below. If the master data is accurate and complete, and the employees are well trained and equipped and the suppliers cooperate then all should go well. The goods should be requested, ordered, received, inspected, putaway and available for use, without delay. 

In the language of software and ERP we have just described The Happy Path

The challenge is that for even the best run organizations things are not always so happy. There are non-trivial exceptions and problems that arise that need to be dealt with quickly and cost effectively. In some cases the problem scenarios can be anticipated and policies and procedures can be put in place to deal with them. Unfortunately, not all types of problems can be anticipated nor is it cost effective to invest in positioning expert resources throughout the enterprise just-in-case.

In the scenario presented below a problem is found during the inspection process. The inspector would have collected some information, such as a physical measurement, from a sample of the goods received and compared the values with the product specifications. If the difference was greater than the tolerances allowed then the goods would be rejected. In this case two things would happen. A quality notification message or workflow would be generated and sent to the appropriate (pre-determined) expert and the goods would be set aside pending analysis and final disposition.

No matter how much skill and knowledge the particular local expert possesses there will be cases when they will be stumped. Ultimately the goods could be accepted (perhaps under a quality waiver), returned to the vendor, reworked or simply scrapped. Regardless of the disposition there would be delays and higher costs.

So how does E2.0 fit into this scenario?

Imagine an organization with a range of experts scattered around the world. In a typical manufacturing enterprise there would be people in a variety of roles, such as component engineers, buyers, quality inspectors, manufacturing engineers, and production artisans that have knowledge and expertise that is relevant to assessing and resolving non-conformance's. Perhaps the problem has been previously encountered in a sister manufacturing plant and they have a quick rework procedure that they can share. Maybe the specifications and tolerances are too tight for this particular application and the product can be used "as-is" without risk. 

Whatever the outcome social enabled processes can help to resolve exceptions and issues quicker and at a lower cost through enhanced enterprise collaboration. There are real opportunities to integrate social business software solutions and practices with existing enterprise processes and solutions, delivering real business value to the enterprise.