Agility in Disruptive Times - milestoneis.com · The Value of Agility in ERP During Disruptive...
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November 2016 THE VALUE OF AGILITY IN ERP DURING DISRUPTIVE TIMES Fit and functionality has always been the linchpin in selecting software that runs your business. When companies are asked to stack rank the priority of selection criteria for Enterprise Resource Planning (ERP) solutions, this is clearly at the top of the leader board, followed closely by completeness of solution. While features and functions are indeed important, there is danger in making a decision solely on what you need today, because it might not be what or all that you need in the future. The 2016 Mint Jutras Enterprise Solution Study found 88% of companies believe they face some level of risk in their businesses and/or industries being disrupted by new innovative products, new ways of selling or pricing existing products or services, entirely new business models, or some combination of all of the above. And then of course there are still the more traditional disruptive factors like expansion and growth, organizational restructuring and regulatory changes, just to name a few. All this disruption can have a cascading impact on business application requirements, making agility - the ability to easily innovate, evolve and change - even more important than current functionality. How well prepared are you for the unpredictable, yet inevitable disruptive forces of the digital economy? After all, we live in very disruptive times. DISRUPTION? WHAT DISRUPTION? We asked survey participants in our 2016 Mint Jutras Enterprise Solution Study to estimate the level of risk they face in their industry (and therefore their business) being disrupted (Figure 1). Figure 1: How much risk do you face in your industry being disrupted? Source: Mint Jutras 2016 Enterprise Solution Study Data Source In this report, Mint Jutras references data collected from its 2016 Enterprise Solution Study, investigating goals, challenges and status and also benchmarked performance of software used to run a business. Over 525 responses have been collected in total, from companies across a broad range of industries, including companies of all sizes, ranging from very small to very large enterprises.
Transcript of Agility in Disruptive Times - milestoneis.com · The Value of Agility in ERP During Disruptive...
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.
