What Can Go WrongBy CIOinsight | Posted 11-13-2002
Putting Brakes on Real-Time Enterprise
Barton Goldenberg is founder and president of ISM, Inc., a customer relationship management consultancy headquartered in Bethesda, Md. He is the author of CRM Automation and the forthcoming Creating the Real-Time Enterprise.
CIO Insight: How do you define a real-time enterprise?
It's the process of connecting a company's entire operations through both internal and Internet applications, enabling all information to be shared in real time. This allows the company to function like a 24-hour nerve center, instantly alerting individualsand I'm talking particularly about managers and executives, people who make decisionsto changes in customer demand, inventory, availability of supply, competitive analysis, profitability.
When a change happens in demand, one can automatically relate it to supply. Say there's a huge increase in demand. That will work its way through the front office to the back office and out to the supply chain in such a way that all of a sudden a company can increase the amount of raw materials that are being purchased to address the demand. In theory, that's what real time is all about.
Presumably all this happened before, but on paper. What does speed bring to the equation?
Let me give you a couple of examples. If you're in the electricity generation business, real time is already, at many companies, optimizing how much electricity you generate at any one point in time.
So you have a certain capacity and you have certain buyers, and by being in real time, knowing the demand and the supply, you can say to a generation plant that you have this much amount of extra capacity. Somebody has just purchased it, so when the next person comes in, you say it's not available. You can optimize the utilization of a generation plant.
Consider The Limited. Before that company's West Coast stores open each morning, managers are able to look at what's selling on the East Coast and adjust what they will sell in the West accordingly. Or in the case of General Electric, which has 1,600 technical personnel responsible for fixing MRIsand those are very expensive machines and incredibly important. They save lives. GE is using wireless devices in the field to know what parts for MRI machines are in inventory or to get instructions on a repair, and they minimize downtime and maximize uptime.
There are two values of the real-time enterprise. It's how efficiently you can execute a decision, and then there's what I call structural efficiency, or reduced costs per transaction. If you are now able to know exactly what you should be requesting for raw materials inventory, you don't have to keep extra stock. It arrives just in time, and the cost per transaction goes down. You're not placing orders you don't need to place. You're optimizing your actual purchase. It also lowers stock levels, and stocks cost money.
You also get improved revenue per employee because you have less need for personnel to perform unnecessary work. So rather than saying to a customer, "Let me put you on hold, I'll get back to you on that, I want to do a little research," now the information's right there. They answer the question, and they get onto the next person. So there are improved revenues per employee.
On the customer side, you don't have to put somebody on hold when they phone you. You have the information. What that leads to is a higher level of customer intimacy and ultimately, customer loyalty.
Companies that can achieve real time have a market edge. Because they're getting information in real time, because they can move stock around as deemed appropriate, because they can turn on and off inventory and supplies, because they have a temperature of what's going on in the marketplace and can respond quickly, they are also able to sustain that competitive leadership against companies that are unable to do that. Therefore, they're going to constantly maintain their leadership position. What company wouldn't like to achieve that? But the truth is that very few companies are doing this.
Why so few, if it's so desirable?
First of all, not everybody has this vision. Not everybody sees the need to integrate supply and demand. Not everybody sees this growth in the e-customer, which is growing at 20 percent a year. So they don't understand this explosion coming on the e-customer side.
Some companies may not have the people and processes in place. This is not just a matter of buying software and slotting it in; that's ridiculous. I'd guess that more than 90 percent of the success of a real-time enterprise has to do with people and processes: It's 60 percent people, 30 percent processes and 10 percent technology.
What Can Go Wrong
What Can Go Wrong?
What can go wrong in a real-time enterprise?
Let's assume your company is well-connected through the distribution channel out to your customers, and you're connected to two suppliers but not a third. For whatever reason, the third doesn't want to connect to your system. And now you get an increase in demand from a customer, and it works its way through the company, but you don't have the inventory. You automatically go out to suppliers one and two to find out if they have any inventory.
Let's assume suppliers one and two don't have the inventory. The first supplier could get it in a couple of weeks, so you tell your customer, "Yes, we'll be delighted to ship the product, but it is going to take about two weeks." All along, your third supplier, to whom you're not connected, has the inventory in stock. In fact, they can deliver it tomorrow morning. So the real-time enterprise is opt-in. And if I haven't opted in the appropriate individuals, I don't really have a real-time enterprise.
Now the question is, why should I be part of your real-time enterprise, and that becomes an issue I call the 3X factornobody will opt in unless for every one piece of information you ask from them, you deliver back three valuable pieces of information to them. So if you say to the supplier, "Give me daily updates on what you have in stock," you have to give them back something of value, and that might be demand in the marketplace or competitive situation updates. To seduce them to be a part of your real-time enterprise, you have to give them something. And what happens is very often companies don't put the right 3X factor into place, so they demand information from potential members, and they don't give anything back. With the Web, it's easier to realize the 3X factor, but this is a process issue or a people issue. It's not automatic that others will join your real-time enterprise.
What happened to Cisco when they were caught off-guard with a huge inventory?
Well, they didn't believe their demand forecast. They bucked the trend. They actually bought more supply when demand was dropping. You have to know what's in the inventory pipeline.
Cisco's understanding of its inventory was not as clean as it should have been. But they also made some business decisions along the way.
Remember, the real-time enterprise is not an automatic pilot system. Business judgments have to be made. For example, if there's a shortage of supply, you have to limit supply to your customers. Which customers do you limit supply to? The system can look at the database and say who our most profitable customers are, who's given us the most loyal business. That might be a business rule.
But you might also say that a new customer, which happens to be IBM, is really important long-term, and even though they're not very profitable now, you want supply to go to them. Well, that's a business decision, and those are human judgments, and that's what Cisco didit made some human judgments, and they paid a dear price, although they're not doing too badly. It was a hiccup. Look at Siebel. They're pretty much on route to becoming a real-time enterprise, and they saw in March 2001 that demand was dropping, and they laid off a large portion of people.
Steps to Real Time
Steps to Real Time
Would you ever advise a company to hold off on real time? When is it not needed?
You don't buy software to become a real-time enterprise, that's ridiculous. What you do is become a real-time enterprise over time. All companies have some of this in place already. The first thing you do in creating a real-time enterprise is analyze your current building blocks. So where have you invested in CRM, ERP, supply chain management? These systems are already connecting employees and customers and partners. So you want to look at how best to exploit these.
Second, you create a real-time enterprise road map, a clear vision of how the company will be functioning as a real-time enterprise. It should lay out the processes that need to be put into place, how you're going to accomplish them, the real-time enterprise people issues, resistance and how to overcome it, and which additional technologies are needed. The road map usually looks three to five years out, and it's somewhat philosophical, but it's got some real milestones along the way.
The third step is to prioritize the processes and functions you want to automate. Where can you line up some quick wins?
Fourth, secure strong supplier, partner, and customer buy-in, because unless you have the suppliers, you're not going to succeed. You have to communicate the real-time benefits for employees, for customers, for suppliers and for partnersmeet with them, explain the value proposition and discuss the benefits of participating in your real-time enterprise.
The fifth step is to gain top management support. You have to build a value proposition based on both the executional efficiency (lower cost per transaction, higher revenue per employee) as well as the structural efficiency (the sustainable competitive advantage). You wrap this value proposition up within a business case and offer it to top management.
Step six, you launch change management programs, training programs, and communication programs early on, because in a real-time enterprise people's work is very visible. There are no private C drives. You tell employees what it will mean for their day-to-day lives. All their work remains very visible.
In step seven, you now turn to these real-time technical architectures and applications. There's an explosion of new technologies. You have to research them and see how they fit into your strategy. And the exciting news is that there are just a lot of very cost effective real-time enterprise technologies today.
Step eight, execute your road map in small accomplishable steps, and this is very important in terms of getting buy-in and money. Tackling too large of a technical project will doom its success from the outset. You've got to take small bites and get lots of quick wins.
Nine, deliver strong analytics and operational excellence, which means at each stage of implementing the road map you have to deliver to upper management good analytics so they know what's going on.
Step 10 is measure, record and communicate the success. Report the benefits on a monthly or quarterly basis to top management, to internal users, to suppliers, to partners and to customers.
All of this is a way in a technology downturn to move toward a real-time enterprise without breaking the piggy bank. As you get into it, you are talking fairly significant money. It can be anywhere from a couple of hundred thousand to many, many millions.
Is real-time inevitable?
More companies are moving toward real-time status, and there are have more real-time enterprise vendors. In 2005, there will be many real-time enterprises. Today's real-time enterprises will begin to pull away from the pack, and the competitors will wonder, "Gee whiz, what happened?"
By 2010, I predict there will be an industry that will be roaring. As in CRM, there will be an increased number of real-time enterprise vendors, consultants and analysts. Real-time enterprises will sustain their leadership. Customers will prefer to work with them. Venture capital will invest heavily, and market caps will begin to soar. My humble opinion is that you cannot avoid becoming a real-time enterprise, because if you try to avoid it, you'll be squashed by your competition as it runs away from the pack.
It just makes sense. Do you like to be told, "Let me put you on hold, I'll get back to you"? None of us likes that. And if we have the information and we have the technology and we can put processes into place, why in the dickens aren't we working in real time? When I visited my 10-year-old niece recently, she said, "Uncle Bart, what was your favorite Web site when you were my age?" These kids aren't questioning the real-time enterprise, they're wondering, "What's your problem?"