Tuesday, March 29, 2005

On-Demand Services: Is it hype or do they really work? (Part 1)

In the arena of the global economy there is a lot of talk about outsourcing mission critical business activities to 3rd party providers in the name of better effectiveness and efficiency. The argument that an activity that is mission critical but not a “core competency” should be outsourced to companies that specialize in that specific area is compelling particularly if the internal capabilities don’t exist to manage it.. This is even more attractive if the service providers can provide visibility through on-demand information in support of the activities. From manufacturing to sourcing to logistics to distribution the new hype is about the benefits of outsourcing non-core activities and receiving on-demand information.

Clearly, the internet coupled with new technology makes the outsourcing model more practical than in the past. Service providers are able to provide information resulting from physical world activity, on-demand, 24 x7. The internet has created access and visibility to information that was impossible before the technology became ubiquitous in the late 90s.

In the 70’s we had time-sharing of financial information. In the late 90’s we had the ASP model. Now we have on-demand service providers.

In the prior instances the solutions were touted to be a panacea. For companies that couldn’t afford individual systems, didn’t have the internal capabilities to run their own programs, or saw the economies of outsourcing rather than insourcing the activities, these solutions were seen as a cure for all their woes.

As history relates, these models didn’t survive for a variety of reasons. Technology costs fell for supporting hardware and software and organizations could economically take the process in house. Companies found that by outsourcing critical activities they generally did not get the information or service levels that their internal IT group provided. The business model for the service-provider eventually proved uneconomical and they went our of business.

Certainly, the technology has improved to support the outsourcing model. The internet supports collaboration of ideas and the exchange of technical information in near real time. It allows for information to be accessed on-line on-demand, and in many cases the information can be integrated with full workflow that supports exception-based alerting.

However, do the on-demand suppliers really provide the value being touted or hyped? Is on-demand the next in the cycle of these outsourcing models that seem to have significant value and then deliver less than the promise? Is the on-demand model just another transient phase in the pursuit of that fully integrated enterprise world? If companies can economically insource these activities will the on-demand service provider prove economically sustainable?

The answer is not simple. There is little doubt that on-demand delivers value. However, on-demand will not deliver the exceptional value that is being hyped by those who are in the business of hyping new ideas or providing the hardware and services around those ideas. If on-demand information can’t be integrated into a synchronized data environment companies will receive tangible but marginal competitive benefit. It is this ability to integrate information into a useable and manageable environment that is often over-looked by the analysts, consultants and service providers that are providing on-demand services. However, without the integrated and synchronized global data repository companies will not be able to “slice and dice” and present information the way they need to make the proactive tactical and strategic decisions that drive real competitive advantage.

I believe that outsourcing non-core functionality is very different from outsourcing core information. Being able to access (actively or passively) information on-demand is not the same as having ownership of the information to do with it as you please, when you please. True control comes from the ability to manage your environment. The way companies see their world is through information. The ability to control their business requires managers and owners to have total visibility of mission critical information that presents a fully integrated and synchronized view of their world.

On-demand solutions more often than not do not provide this integrated, synchronized view of the world. In order to get this view organization’s need information that can accept, integrate and synchronize the information from internal systems and on-demand service providers. Then, and only then, will companies truly have an on-demand capability.

Tuesday, March 22, 2005

Global Commerce Management - Why ERP just doesn't cut it!

I was thinking the other day about the massive trade deficit that the United States was running and the potential problems that it can create for the economy. It has been an issue for many years now and it isn’t going away anytime soon.

The dependence of the U.S. on global trade and commerce is growing every year as a percent of the economy and it has changed the way business does business. We are outsourcing both trade and services as never before. China, Indonesia, Pakistan, Honduras and every other country vie for the opportunity of selling into this country. And we are only too happy to accommodate them.

Over the past decade the quality of both foreign wares and services have improved to meet the requirements of the American market. Foreign manufacturers and service providers have invested very heavily in infrastructure and have hung out the shingle “READY FOR BUSINESS”.

So what does this mean for business. For one, it means that prices will initially fall Companies that have not adopted a global business strategy will fall under increased margin pressure and their very existence will be compromised.

Secondly, it means that the ability to control the environment has been reduced. Time, culture, distance and government regulations make managing the entire process many times more difficult. Organizations that can bring the best controls to this environment will have distinct advantages that will translate into huge competitive advantage. Those companies that can’t manage the global process well will be marginalized or put out of business.

Looking back on the business landscape over the past 3 decades one can see the changes that have taken place. The once mighty have fallen to previously non-existent or marginal competition. Walmart, Target, Home Depot, Costco were barely noticed in retail. Dell was a basement computer manufacturer. Toyota and Honda were hardly household names. Southwest Airlines was barely flying. Their competitors, that failed to adjust quickly to the changing business landscape fell into oblivion or are severely hobbled. Kmart, Woolco, Winn-Dixie, IBM, Chrysler, GM, Delta, United don’t exist or are clearly weaker than they used to be.

The changes in the business environment that began 30 years ago continue today with globalization. The changes globalization brings to the competitive landscape is no less dramatic that what the kinds of seismic changes in manufacturing and distribution that have gone before. The art of moving sourcing and moving goods across geographies at the best possible prices is what the new globalization is all about.

I came across the following article by Eric Keller in the January issue of Manufacturing Technology Magazine (http://www.msimag.com/flipmag/0105/mbt0105_opf_files/016.html), that talks to the issue of ERP systems and their ability to provide the supporting infrastructure for global trade. If one is to believe Eric, and I certainly am in that camp, this does not bode well for traditional manufacturerees. Companies have invested so heavily with SAP and Oracle, etc. that they can scarcely consider that their ERP solution is not well-suited for the new business paradigm.

What if they don’t adjust? What if they wait for their ERP vendors to understand the environment and deliver the software necessary? What if their competitors move quickly and aggressively to put into place applications that truly manage global commerce?

History has a way of repeating itself. With globalization comes the need to manage global commerce. Without the right equipment to play the global game companies will be a significant disadvantage. The ERP weren’t designed for this purpose.

The ERP solutions just don’t cut it.