The tech bubble and ballooning implementations of supply-chain solutions are not the only things that have burst over the last 18 months. The power base -- and sometimes the careers -- of many information technology executives are also casualties of the technology bust.
"In the past, the IT executive was running the technology selection process and making all the key vendor selection decisions," says Gerald McNerney, senior research analyst for Boston-based AMR Research. "Today, the IT executive has lost a lot of this power, mainly because many companies got burned in the last few years on disappointing technology investments."
A lot of things went wrong under the reign of the IT department, according to McNerney. Companies did not get the return on investment they expected. IT-selected projects didn't give the business units value they needed. To make matters worse, departments and entire operating units have had to change their business processes to the application rather than the other way around.
In fact, nearly all of the blame for poor application choices and failed implementation has been laid at the feet of the chief information officer and the entire IT department. There is little sympathy in the supply-chain world for IT's fall from grace. There is also a welcome shift of power to operating-level business managers, including supply-chain executives.
According to Tony Friscia, president and chief executive officer of AMR, who revealed results of a survey at its fall executive conference in Phoenix, there is a structural change in the way companies purchase enterprise applications.
A serious mistake IT made was to build its business case for tech investments based on productivity improvements that a piece of software would bring. Few of these improvements ever came to fruition.
"While the previous technology boom was driven by spending allocated to IT departments, the next wave of 'must-have' applications will need to deliver demonstrable value to - and thus be driven by - business executives," said Friscia.
The survey shows that more than half of the time, the supply-chain manager or other operating-level executive participates significantly in the technology selection process. Almost 20 percent of the time, this manager is the key player that heads up the selection team. That is very different from how such decisions have been made.
"There absolutely is a shift in who is making the decisions, and it should have happened a long time ago," says Alan Rudolph, managing director for the Miami-based technology consulting firm AnswerThink. Rudolph believes the dominance of IT in technology decision has actually been a recent aberration.
"IT has enjoyed a commanding role in all technology decisions since the Y2K period when fear of a technology meltdown put huge amounts of power in the hands of the CIO," he says. "The power has been there until very recently when we all learned that far too little focus has been placed on the real operating requirements of the organization. We just got side-tracked for a while."
Rise of the CIO
Richard J. Sherman, chief marketing officer for the Austin-based enterprise system service firm, ClearOrbit, agrees that the Y2K era was a foothold of power for CIOs, but he says IT's power goes deeper than one crisis. He looks back to the early '90s when enterprise resource planning systems caught the attention of chief financial officers. The CFOs put the CIO in charge of selecting and implementing one large system that would gather all transaction and data and manage it according to generally accepted accounting rules and practices. The CIO has had the power over nearly all systems decisions ever since.
"This approach works fine in the financial world where common rules apply," says Sherman. "The problem with operating applications is that there are no generally accepted operating rules. Everybody does things a little differently, so a one-size-fits-all approach can't work."
Sherman points to the huge amount of costly shelfware that IT departments have bought as a testament to his conclusion.
"There are countless ERP modules for planning, sourcing, logistics and everything else just sitting on the shelf because they do not comply with the actual business processes of the company," says Sherman, whose company provides technology to extend ERP system capabilities. "Top management is just waking up to the huge waste that this shelfware represents."
John Fontana, principal in the New York City-based consulting and custom software provider, Tigris, says that IT's focus on large enterprise systems has resulted in years of frustration for supply-chain managers, who simply can't get their jobs done with the tools they have to work with.
"The core complaint is that IT's focus has been on transaction automation and error resolution rather than the value and usability of operating information," says Fontana.
Inventory information is a good example, he says. Most ERP systems and many supply-chain management systems provide accurate and timely transactional data on inventory and work in process flows through the operation, which is important for closing out the quarterly accounts. However, these data have only marginal value to operating managers who need to know what is happening throughout the supply chain in real time.
"The finance guys get all the transaction information and the dollar amounts they want, but the operating managers can't get the detailed product information they need to run an efficient supply chain," he says.
Such granular data include what stage of which process the inventory is in, who is handling the inventory, the time remaining to convert to finished goods, when it can be shipped, the status of orders and so on. These metrics are lacking.
"Operating managers end up relying on spreadsheets and white boards to supplement what they are getting from the enterprise systems," says Fontana. He believes that top management is beginning to realize that they need "executional excellence," not better accounting systems.
"The right system can only be selected by understanding the process detail, so supply-chain managers are beginning to take on more authority for these systems they need," he says.
All operating-level managers welcome the impending death of the typical IT approach to technology decisions, where the "user" is told to fill out a form defining functions and requirements, after which little happens.
"Senior operating managers have always resented being defined by some IT functionality matrix that has little relevance to the goals that needed to be accomplished," says Fontana.
Another serious mistake that IT made during the tech boom was to build its business case for technology investments based on productivity improvements that a piece of software would bring to the table. Few of these productivity improvements ever came to fruition.
"IT managers made an incredible number of unrealistic assumptions to justify essentially unachievable productivity improvements," says Keith Hausman, vice president of ICG Commerce, a vendor of e-sourcing solutions and services based in Jenkintown, Pa. "We now work with at least a dozen companies where IT managers were fired or demoted because of technology decisions made around productivity-based ROI that wasn't real."
Kelly Vizzini, vice president of marketing for West Chester, Pa.-based Prescient, which sells supply-chain planning systems to the consumer packaged goods industry, agrees that companies are no longer buying vague promises of productivity gains or the latest technology "bits and bytes."
"We are dealing with a fairly jaded, cynical marketplace," says Prescient's Kelly Vizzini. "Top managements are realizing that the operations people must have a more active role because they are going to be the power users who can deliver the value."
ClearOrbit's Sherman puts it even more emphatically. "Five years ago, you could sell a vision of great possibilities to a room full of technology-hungry IT managers with a PowerPoint presentation," says Sherman. "It didn't matter that it was vaporware. The IT people liked the ideas they heard. That is never going to happen again. The shelfware that resulted from this buying binge has burned a hole in many pockets, and the credibility of the people who bought these systems."
"These CIOs [who come from the business side] have more credibility within the business environment."
Now companies are buying technology by focusing on business processes, risk avoidance, accountability and very fast ROI. Business process focus in particular is the key driver for the operating managers, especially in the supply-chain world, according to AMR's McNerney.
"Once supply-chain managers have identified and analyzed their key business processes, they can then see where the gaps are and bring in technology as a tool to fill those gaps," says McNerney.
Sherman calls this attention to process "finding the fit."
"Clearly we are going to see more scrutiny on how application fits within the business processes and the technical environment of the company," he says.
Fast ROI Demanded
Steve Banker, service director, supply-chain management for the ARC Advisory Group in Dedham, Mass., believes CFOs and CEOs are placing the most emphasis on stricter discipline among all managers to build business cases that will actually provide the expected ROI.
"It's no longer just a matter of going through a rigorous ROI analysis before technology investments are made," says Banker. "The C-level executives are making it very clear that they monitor results and make the decision makers accountable. This is not yet a wide-spread trend, but it is happening."
Sherman says that this focus on ROI is also shrinking the payback period that top management will accept.
"Payback periods of 90 days or less are not uncommon in today's marketplace," he says.
In extreme cases, the payback period that is acceptable has shrunk to zero, says Hausman of ICG Commerce, which provides actual procurement outsourcing services as well as the supporting technology.
"Some companies insist on being cash- flow-neutral on day one," says Hausman. "That means they want hard-dollar value coming in at the exact same time they are paying out expenses. Not only do we have to immediately provide procurement and transaction savings, but we have to amortize the charges for our services over a longer period of time. This is complicated, and it shows how risk averse some companies have become."
Top managements have also become extremely risk-averse when it comes to implementing new software. Stories about how big, new systems have choked production lines and distribution operations have given CEOs new respect for the opinions of operating managers.
"With any new system, there is a risk that the company might not be able to ship against orders, which no CEO wants to hear," says Sherman. "Top management now wants operating managers to validate that the implementation of new software will not disrupt production or shipping. This risk assessment will outweigh any recommendations from an IT person. It's all about experience and credibility."
While IT departments may have lost their dominance in making technology decisions, expertise in systems architecture and infrastructure are still vital elements in selecting new applications and vendors, especially for complex supply-chain systems. Companies are developing many different ways to deal with these issues.
"It's a balancing act," says Sherman. "There must be involvement from the business process owners as well as the system architecture owners in the decision-making process. Decisions must be technically sound, economically feasible and comply with the business processes that the application is supposed to support."
Sherman says that one approach to marrying this business-process credibility with technological expertise is for IT departments to create roles in their organization for business analysts who report directly to IT, but who have a dotted line responsibility to the functional group manager.
Similarly, supply-chain executives are hiring their own IT specialists, according to AnswerThink's Rudolph.
"You can organize many different ways with solid lines, dotted lines between the operating managers and IT," he says. "The objective is to push IT expertise closer to the business units."
An even newer trend, according to Mc-Nerney, is that companies are appointing more CIOs who are not from the technology side, but who are coming out of the business part of the organization.
"These CIOs are put in charge of a team of technologists," says McNerney. "The benefit is that these CIOs have more credibility within the business environment, and they still have the support to make sound technology decisions."
CIO Still Has a Role
This new type of CIO still has a support role, not a decision-making one, stresses McNerney. However, these CIOs have the trust and confidence of business managers to work effectively within the organization.
"Other senior managers will come to them for advice about the most effective way to solve a problem," says McNerney. "This is a very positive trend."
There still are areas where IT remains in control. In fact, McNerney says that having a strong CIO is still important to good technology decisions and implementations. Someone at a senior level must be able to see the big picture of what the company wants to accomplish among all of its departments and with all of its challenges. Without such a strong technology leader, the whole IT structure quickly gets out of control.
"Although most projects being approved right now are very tailored and very modular to meet the needs of a business group, there usually is a CIO looking at other projects down the road to see if that solution will fit into the whole IT architecture," says McNerney. "A good CIO will not allow a wide-open situation where every manager selects what he thinks he needs."
Rudolph calls this oversight role technology infrastructure governance.
"Clearly, business group executives need to own the process of selecting, implementing and driving the change in the organization," says Rudolph. "You just need a governance structure in place that will allow you to maintain standards, consistency, keep down the cost of on-going maintenance and support, and allow you to upgrade."
With more decision-making power in the hands of the business managers, he says that every IT manager has the same worst nightmare.
"They are all very afraid that five years down the line there will be so many function-specific applications that the whole IT infrastructure will be a bowl of spaghetti that is impossible to manage as an interoperable system."
From the point of view of technology vendors - even those who want to sell directly to the supply-chain executive - the IT department still plays an important role in their success.
"We want the IT person involved in a strong support role," says Ken Pikulik, director of marketing for the Cary, N.C.-based supply-chain visibility vendor, BridgePoint. "Our global logistics and supply-chain visibility product requires frequent message exchanges and information flows between the corporate enterprise system and our application and their external partners. The IT manager needs to be involved, but probably not as deeply as they once thought they had to be. They need to know here's the information we currently have and we need to get it populated from another system to this system. That is the main extent of their involvement."
For Prescient's Vizzini, IT still plays an important role in the sale of their planning solutions because of the collaborative business processes that their products support.
"Vendor-managed inventory is gaining momentum in the CPG space," says Vizzini. "Because there is such a high reliance on electronic data interface to make VMI work, there is often strong influence from the IT staff for such applications."
"We have suffered through a decade when IT and other support groups made decisions they had no right to make."
As collaborative business processes become more intertwined with supply-chain planning applications, Vizzini sees an ongoing and important decision-making role for IT.
"IT is still integral to these decisions because of system interoperability," she says. "Technology experts are the ones who can determine how easy is it to get data in and out of my system and share it with my trading partners."
Probably the most common decision-making structure that is emerging for selecting new technology and vendors is the team approach. According to Vizzini, they are now seeing a prevalence of buying committees among their customers. She says that IT is represented on these committees, but it no longer leads the product evaluation process. Three years ago they were the driver. Now, the supply-chain managers and other hands-on users are the key decision makers.
"People on these teams tend to have lots of software buying experience," says Vizzini. "They have learned how to do this right. They really are looking for synchronicity between IT and operations."
Sherman agrees that teams are a good approach if the right people participate. He recommends including someone from finance. Not only can this person help with the business case, but also he can verify that the proposed solution will interface properly with the financial systems. As a caveat, he adds that the more team members there are from functional groups, such as manufacturing, sales and logistics, the more corporate politics come into play.
"Ultimately, the success of the team depends on how well top management resolves contentious issues and commits to the final selection," says Sherman.
According to McNerney, such teams working on supply-chain solutions often include mid-level managers representing demand planning and forecasting, production scheduling, materials, sales and even plant-floor managers.
"Managing these teams can be challenging because its always gets back to what is best for each business unit and what is best for the company as a whole," says McNerney. "The CIO wants to find solutions that will solve multiple problems to get the biggest bang for the buck. Every other team member will have his own priorities."
For companies that have adopted the buying team approach, McNerney says, vendors have to change their selling strategies.
"Vendors have to speak to many different types of managers on these buying teams, so they need teams of their own," he says.
Perhaps the key sales team member will be a person with expertise in supply-chain or other business process, so the value needed becomes the focus. The team will still have a technology specialist who can talk effectively with the IT part of the organization. There may be a third member who can speak to the financial side of the organization, because ultimately the business case must be made. Such teams are needed because McNerney says sales meetings are like a multinational summit where many languages are spoken.
"Each group of managers has a very different language," says McNerney. "The vendor sales organization has to speak effectively to each of these groups in terms they can understand."
While this sales team approach is new to many vendors, especially among broad applications that go across functions and industry, vertically focused vendors says that this team approach works well with how they sell their product. Prescient, for example, sells only vertically -- focused on planning applications to the consumer products goods (CPG) space.
"We've always sold our product based on our domain expertise about the issues CPG companies are facing," says Vizzini. "We use teams to carry this experience through to all aspects of our organization, from sales reps to application consultants, to pre-sales reps, to business consultants and through to the people who deliver the application. It is the only way to sell our type of product effectively."
So while the supply-chain manager is gradually gaining power in the technology selection process, says Tigris's Fontana, many are still in a no-win situation.
"I work with a supply-chain manager client who can't possibly achieve his business plan with the IT tools he has been given," says Fontana. "If he brings in a solution that he thinks will allow him to achieve his plan, and it fails, he is dead. If he tries to achieve his plan with what IT has handed him, he will fail and he will be dead. He is in a squeeze."
Fontana advises such managers to follow their own instincts and use whatever tactics are necessary to get the tools needed. Ultimately, all managers are held responsible for results, and no amount of whining about lack of IT support will help.
"The person with his guts on the line has to be the one to make the key decisions," says Fontana. "We have suffered through a decade when IT and other support groups made decisions they had no right to make. Finally, the process is changing to put the operating managers back in charge of their own destiny."
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