If They Don't Know, You Can't Tell Them: Part 1
"Yes, you have my approval, I'm not reneging on that. It's just that if we could shave expenses a million or two this year, we might keep things in the black and keep my favorite board chairman from doing something unpleasant."
Robert Preston, President of DCC, Inc., was talking with Cathie Carlson, CIO and frequent sounding board for Preston. The subject was the Enterprise Resource Planning (ERP) project recently approved by the board. The project included major business process redesign elements, as well as a commitment to implement SAP as the underlying software platform. At issue was the cost. Originally estimated to require 2 years and nearly $10 million, the current estimate was actually smaller: just over $8 million. The implementation plan had also been tightened to allow the first significant deliverable in just a year. One would think the president would be happy.
If all other things were equal, he probably would be. But they were not. The company revenues had been forecast to be on the order of $250 million this year. It was still the first quarter, but already the forecasts were looking flaky. Costs were going in the other direction.
A new West Coast plant was to have been in full production last October. It was still running at less than 60% of capacity, and quality was a burning issue.
Delivery performance was another sore point. Some within DCC claimed they never missed a commitment. In fact, the sales and customer service folks were constantly juggling customer commitments to fit the outputs of the four plants. More often than anyone would like to think, product was shipped via air or truck that should have been shipped by rail or sea if there was any expectation of a positive margin for the order.
But since there was really no way of doing an analysis by order, the sins were easily buried. Right now the unpoliticized portion of the accounting function was quietly forecasting a loss for the year. The planned profit level was to have been nearly $22 million. No wonder the president was cranky.
The sales VP and CFO were still claiming the budget was doable. Nobody believed them, but nobody challenged them either (see Exhibit 1). The board, made up of senior executives from the three parent corporations, really had not caught on yet. They liked positive cash flow and were only generally aware of the nuances of the ERP project. They were aware of the $8 million capital authorization approved at the last board meeting, however.
Exhibit 1. DCC P&L Estimates
THE PRESIDENT'S HOPE
Preston was beginning to look under all the rocks he could find for ways to salvage the year. One rock was the ERP project. During the final selection process, two vendors made the short list: SAP and QAD. SAP had everything. QAD had enough. A full implementation plan had been developed only for the SAP option. Scuttlebutt within the project team indicated the QAD option might be as much as $2 million less, but since SAP had everything and the project plan was estimated to cost less than the original planning figure of $10 million, why not go the everything route? That was then (4 months ago). This is now. An additional $2 million of expense reduction might keep the year from going red (and the chairman from going ballistic).
THE CIO'S DILEMMA
Background of the Project
Cathie had somehow inherited the ERP project. She viewed the situation as one where either she led it or no one would. And that was all wrong. At least 70% of the work had to do with defining, changing, then standardizing the business processes. Mixed into that were the cultural changes required to move from running DCC upon intuition and sweat to running it on information and customer value (and sweat). Maybe 25% of the effort was actual information systems work. But the information systems leader was also the process redesign leader.
The project had begun 2 years before from a near revolt of seven of the best and brightest midlevel managers. The vigilantes (as they called themselves) determined that working harder was no longer a way to cope with the increasingly complex business. After 50 to 60 hours per week, lots of weekends and missed vacations, their staffs were just not able to keep up and keep positive. Volumes (and revenues) were growing by 20% per year. As one of the vigilantes said, "This company runs on 800 spreadsheets individually kept by 100 people." The vigilantes were loyal, dedicated, highly respected, and (right out of the film Network) "mad as hell and not going to take it any more."
Cathie was one of the vigilantes. She was not the CIO then. Her responsibilities covered forecasting and customer service, and she reported to the marketing VP. The information systems group supported the change, but reported to finance. The CFO was neutral. Two accounting managers, the materials manager, an engineering manager, and a sales manager, along with the MIS manager and Cathie, made up the team of vigilantes.
The vigilantes hired a consultant, met for three days every three weeks, and, over a four-month period, hammered out a plan for dragging DCC into the 2000s. They did not ask permission; they just did it. The vigilantes presented the completed plan to senior management, who immediately accepted it. There were those who believed management did not really understand it, but they endorsed it and committed $5 million per year to fund it for up to 2 years. The vigilantes' forceful presentation had carried the day.
To turn the plan into a project, a temporary team including several of the vigilantes plus an international business manager was named. Cathie was designated team leader and relieved of her other responsibilities. A Business Process Redesign consultant was engaged and within six months project plans were in place, an ERP vendor was selected, and the work of implementation had begun.
Changes at the Top
Cathie tried to convince Robert that someone else on his staff should be the project executive. He would listen, nod his head as though he agreed, then end the discussions with "but who else do we have?" Robert was an astute, well-educated, and highly effective manager. He had been on a fast track, had experience in engineering and marketing, and had been president of a small subsidiary of one of the parent companies. None of which prepared him for the situation he faced at DCC.
His education and experience had not included anything about how to run a company based upon information instead of intuition. Neither had it included an understanding of the enormity of the task of changing an organizational culture. One of the advantages of being with one of the parents of DCC, a large (and old) company, was that the parent had both the time and the staff to deal with culture and infrastructure issues and not interfere with those making and selling product. DCC was neither large nor old, and the total staff numbered fewer than 750. Everyone shared responsibility for the "hard" issues of making and selling product and the "soft" issues of keeping the organizational "gears" well oiled.
RESKILLING THE PRESIDENT: WHAT ROBERT NEEDED TO KNOWBesides where to find several million in savings (or more sales with positive margins), Robert needed to develop new knowledge and skills in several areas. Cathie generally understood what these were, but was less sure about how to go about helping her boss "discover" his needs.
Robert's knowledge and skills needs included:
As a senior executive, Cathie shared with her colleagues a deep-seated belief about how CEOs learn-and do not learn: "If they don't know, you can't tell them." Unlike people at the operational levels who can be directed to attend seminars and development programs, CEOs and other senior staff are not nearly as directable. What they do respond to, however, are the experiences of their peers in other companies and especially in other industries. "I wonder who…?" she pondered.
WHAT CATHIE KNEW
Cathie realized that the cost of changing the project to save the million or two could very likely cost more than the potential savings. She knew that DCC had only anecdotal data regarding the million or two savings. She also knew that Robert needed to understand that changing a business process redesign, culture, and information system project after it is begun would be akin to changing the fundamental specifications of the new plant that had just been completed on the West Coast.
First, work on the current plan would have to essentially stop. (What does DCC do with the contractor, consultant, and internal staff working on the current project while the new project is being defined?) Next, the planning team would have to reconvene and revise the implementation plan. Negotiations with new vendors would have to begin (such as QAD and an implementation vendor). Negotiations with existing vendors would have to be initiated in order to limit liability, redefine scope, and limit costs of contract termination (if necessary).
And those would likely be the smallest costs associated with change (and delay). Based upon the experience of those who work with companies going through such changes, savings are often estimated to be on the order of ten times the implementation cost over 5 years. If DCC were to believe these estimates, it would conclude that it is wasting at least $1 million per month for every month it delays implementation. Could the project be redirected in 2 months? Highly unlikely. If not, then changing is a sure way to put DCC farther into "red" territory.
How about the other learning needs of the president?
The risks of having the CIO lead such a project are high. Although Cathie is a veteran of DCC and its predecessors, her experience has been in support functions. In manufacturing-based industries there are two functions that have respect: making product and selling product. Finance and administration are tolerated, but if you want to change the company, the leader had better have made his or her reputation in one of these two activities. Cathie had not.
Delivering the right data to the right place at the right time does not guarantee anyone will use it. Delivery is really all that good information systems can do. Use requires that the people pay attention and know how to use the information. The CIO and her organization have a major role to play here, but leadership must come from those in charge of the business functions and processes. So far, such leadership had been spotty. One possible leader was a project zealot, another ignored it, and a third straddled the fence wondering which way the wind would blow.
Presidents (and, for that matter, most senior managers) have one major tool to get things done: their attention. If a project or outcome has the senior executive's attention, there is a high probability it will also receive other staff members' attention. If the president's attention is on achieving the benefits of the project, then the likelihood of the project being successful is increased immensely. If the attention, on the other hand, is on finding fault or locating alternatives, fault and alternatives will be found (and the intended outcome of the project will be lost). "If they don't know.…" Cathie as CIO and ERP project executive has her hands full.
WHAT WOULD YOU DO?
If you were Cathie, what would you do-and not do? How would you analyze your situation? What approaches might you try, and why? And, how would you deal with Robert, your boss? Next month, we'll look at the situation through his eyes, and then we'll ask you for your recommendations. In the meantime, be thinking:
If I were Cathie, I would ________________________________________________________________________________ because ______________________________________________________________________________________________
If I were Cathie, I wouldn't ______________________________________________________________________________ because ______________________________________________________________________________________________
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