Tag Archives: Six Sigma

Michelangelo’s approach to workflow discovery

Take any existing workflow — any people driven business process — and I expect that most of the tasks within it could best be described as cruft.

cruft: /kruhft/
[very common; back-formation from crufty]

  1. n. An unpleasant substance. The dust that gathers under your bed is cruft; the TMRC Dictionary correctly noted that attacking it with a broom only produces more.
  2. n. The results of shoddy construction.
  3. vt. [from hand cruft, pun on ‘hand craft’] To write assembler code for something normally (and better) done by a compiler (see hand-hacking).
  4. n. Excess; superfluous junk; used esp. of redundant or superseded code.
  5. [University of Wisconsin] n. Cruft is to hackers as gaggle is to geese; that is, at UW one properly says “a cruft of hackers”.

The Jargon File, v4.4.7

Capturing and improving a workflow (optimising it even) is a processes of removing cruft to identify what really needs to be there. This is remarkably like Michalangelo{{1}}’s approach to carving David{{2}}. When asked how he created such a beautiful sculpture, everything just as it should be, Michalangeo responded (and I’m paraphrasing):

[[1]]Michelangelo Buonarroti[[1]]
[[2]]Michelangelo’s David[[2]]

Michelangelo's David
Michelangelo’s David

David was always there in the limestone; I just carved away the bits that weren’t David.

Cruft is the result of the people — the knowledge workers engaged in the process — dealing with the limitations of last decade’s technology. Cruft is the work-arounds and compensating actions for a fragmented and conflicting IT environment, an environment which gets in the road more often than it supports the knowledge workers. Or cruft might be the detritus of quality control and risk management measures put in place some time ago (decades in many instances) to prevented an expensive mistake that is no longer possible.

Most approaches to workflow automation are based on some sort of process improvement methodology, such as LEAN or Six Sigma. These methods work: I’ve often heard is stated that pointing Six Sigma at a process results in a 30% saving, each and every time. They do this by aggressively removing variation in the process — slicing away unnecessary decisions, as each decisions is an opportunity for a mistake. These decisions might represent duplicated decisions, redundant process steps, or unnecessarily complicated handoffs.

There’s a couple of problems with this though, when dealing with workflow. Looking for what’s redundant doesn’t create an explicit link between business objectives and the steps in the workflow, explicitly justifying each step’s existence, making it hard to ensure that we caught all the cruft. And the aggressive removal of variation can strip a process’s value along with its cost.

Much of the cruft in a workflow process is there for historical reasons. These reasons can range from something bad happened a long time in the past through to we don’t know why, but if we don’t do that then the whole thing falls over. A good facilitator will challenge seemingly obsolete steps, identifying those steps who have served their purpose and should be removed. However, it’s not possible to justify every step without quickly wearing down subject matter experts. Some obsolete steps will always leak through, no matter how many top-down and bottom-up iterations we do.

We can also find that we reach the end of the processes improvement journey only to find that much of the process’s value — the exceptions and variation that make the process valuable — has been cut out to make the process more efficient or easier to implement. In the quest for more science in our processes, we’ve eliminated the art that we relied on.

If business process management isn’t a programming challenge{{3}}, then this holds even truer for human driven workflow.

[[3]]A business process is not a programming challenge @ PEG[[3]]

What we need is a way to chip away the cruft and establish a clear line of traceability between the goals of each stakeholder involved in the process, and each step and decision in the workflow. And we need to do this in a way that allows us to balance art and science.

I’m pretty sure that Michalangeo had a good idea of what he wanted to create when he started belting on the chisel. He was looking for something in the rock, the natural seems and faults, that would let him find David. He kept the things that supported his grand plan, while chipping away those that didn’t.

For a workflow processes, these are the rules, tasks and points of variation that knowledge workers use to navigate their way through the day. Business rules and tasks are the basic stuff of workflow: decisions, data transformation and hand-offs between stakeholders. Points of variation let us identify those places in a workflow where we want to allow variation — alternate ways of achieving the one goal — as a way of balancing art and science.

Rather than focus on programming the steps of the process, worrying if we should send an email or a fax, we need to make this (often) tacit knowledge explicit. Working top-down, from the goals of the business owners, and bottom-up, from the hand-offs and touch-points with other stakeholders, we can chip away at the rock. Each rule, task or point of variation we find is measured against our goals to see if we should chip it away, or leave it to become part of the sculpture.

That which we need stays, that which is unnecessary is chipped away.

Business is like a train…

The following analogy popped up the other day in an email discussion with a friend.

Running a business is a bit like being the Fat Controller, running his vast train network. We spend our time trying to get the trains to run on time with the all too often distraction of digging the Troublesome Trucks out of trouble.

Improvement often means upgrading the tracks to create smoother, straighter lines. After years of doing this, any improvement to the tracks can only provide a minor, incremental benefit.

What we really need is a new signalling system. We need to better utilise the tracks we already have, and this means making better decisions about which trains to run where, and better coordination between the trains. Our tracks are fine (as long as we keep up the scheduled maintenance), but we do need to better manage transit across and between them.

Swap processes for tracks, and I think that this paints quite a nice visual picture.

Years of processes improvement (via LEAN, Six Sigma and, more recently, BPM) had straightened and smoothed our processes to the point that any additional investment has hit the law of diminishing returns. Rather than continue to try and improve the processes on my own, I’d outsource process maintenance to a collection of SaaS and BPO providers.

The greater scale of these providers allows them to invest in improvements which I don’t have the time or money for. Handing over responsibility also creates the time and space for me to focus on improving the decisions on which process to run where, and when: my signalling system.

This is especially important in a world where it is becoming rare to even own the processes these days.

We forget just how important a good signalling system is. Get it right and you get the German or Japanese train networks. Get it wrong and you rapidly descend into the second or third world, regardless of the quality of your tracks.

Consulting doesn’t work any more. We need to reinvent it.

What does it mean to be in consulting these days? The consulting model that’s evolved over the last 30 – 50 years seems to be breaking down. The internet and social media have shifted the way business operates, and the consulting industry has failed to move with it. The old tricks that the industry has relied on — the did it, done it stories and the assumption that I know something you don’t — no longer apply. Margins are under pressure and revenue is on the way down (though outsourcing is propping up some) as clients find smarter ways to solve problems, or decide that they can simply do without. The knowledge and resources the consulting industry has been selling are no longer scarce, and we need to sell something else. Rather than seeing this as a problem, I see it as a huge opportunity; an opportunity to establish a more collaborative and productive relationship founded on shared, long term success. Sell outcomes, not scarcity and rationing.

I’m a consultant. I have been for some time too, working in both small and large consultancies. It seems to me that the traditional relationship between consultancy and client is breaking down. This also appears to be true for both flavours of consulting: business and technology. And by consulting I mean everything from the large tier ones down to the brave individuals carving a path for themselves.

Business is down, and the magic number seems to be roughly a 17% decline year-on-year. One possible cause might be that the life blood of the industry — the large multi-year transformation project — has lost a lot of its attraction in recent years. If you dig around in the financials for the large publicly listed consultancies and vendors you’ll find that the revenue from IT estate renewal and transformation (application licenses, application configuration and installation services, change management, and even advisory) is sagging by roughly 17% everywhere around the globe.

SABER @ American Airlines

Large transformation projects have lost much of their attraction. While IBM successfully delivered SABER back in the 60s, providing a heart transplant for American Airlines ticketing processes, more recent stabs at similarly sized projects have met with less than stellar results. Many more projects are quietly swept under the carpet, declared a success so that involved can move on to something else.

The consulting model is a simple one. Consultants work on projects, and the projects translate into billable hours. Consultancies strive to minimise overheads (working on customer premises and minimising support staff), while passing incidental costs through to clients in the form of expenses. Billable hours drive revenue, with lower grades provide higher margins.

This creates a couple of interesting, and predictable, behaviours. First, productivity enhancing tooling is frowned on. It’s better to deploy a graduate with a spreadsheet than a more senior consultant with effective tooling. Second, a small number of large transactions are preferred to a large number of small transactions. A small number of large transactions requires less overhead (sales and back-office infrastructure).

All this drives consultancies to create large, transformational projects. Advisory projects end up developing multi-year (or even multi-decade) roadmaps to consolidate, align and optimise the business. Technology projects deliver large, multi-million dollar, IT assets into the IT estate. These large, business and IT transformation projects provide the growth, revenue and margin targets required to beat the market.

This desire for large projects is packaged up in what is commonly called “best practice”. The consulting industry focuses on did it, done it stories, standard and repeatable projects to minimise risk. The sales pitch is straight-forward: “Do you want this thing we did over here?” This might be the development of a global sourcing strategy, an ERP implementation, …

Spencer Tracy & Katharine Hepburn in The Desk Set
Spencer Tracy & Katharine Hepburn in The Desk Set

This approach has worked for some time, with consultancy and client more-or-less aligned. Back when IBM developed SABER you were forced to build solutions from the tin up, and even small business solutions required significant effort to deliver. In the 1957, when Spencer Tracy played a productivity expert in The Desk Set, new IT solutions required very specific skills sets to develop and deploy. These skills were in short supply, making it hard for an organisation to create and maintain a critical mass of in-house expertise.

Rather than attempt to build an internal capability — forcing the organisation on a long learning journey, a journey involving making mistakes to acquire tacit knowledge — a more pragmatic approach is to rent the capability. Using a consultancy provides access to skills and knowledge you can’t get elsewhere, usually packaged up as a formal methodology. It’s a risk management exercise: you get a consultancy to deliver a solution or develop a strategy as they just did one last week and know where all the potholes are. If we were cheeky, then we would summerize this by stating that consultancies have a simple value proposition: I know something you don’t!

It’s a model defined by scarcity.

A lot has changed in the last few years; business moves a lot faster and a new generation of technology is starting to take hold. The business and technology environment is changing so fast that we’re struggling to keep up. Technology and business have become so interwoven that we now talk of Business-Technology, and a lot of that scarce knowledge is now easily obtainable.

The Diverging Pulse Rates of Business and Technology
The Diverging Pulse Rates of Business and Technology

The scarce tacit knowledge we used to require is now bundled up in methodologies; methodologies which are trainable, learnable, and scaleable. LEAN and Six Sigma are good examples of this, starting as more black art than science, maturing into respected methodologies, to today where certification is widely available and each methodology has a vibrate community of practitioners spread across both clients and consultancies. The growth of MBA programmes also ensures that this knowledge is spread far and wide.

Technology has followed a similar path, with the detailed knowledge required to develop distributed solutions incrementally reified in methodologies and frameworks. When I started my career XDR and sockets were the networking technologies of the day, and teams often grew to close to one hundred engineers. Today the same solution developed on a modern platform (Java, Ruby, Python …) has a team in the single digits, and takes a fraction of the time. Tacit knowledge has be reified in software platforms and frameworks. SaaS (Software as a Service) takes this to a while new level by enabling you to avoid software development entirely.

The did it, done it stories that consulting has thrived on in the past are being chewed up and spat out by the business schools, open source, and the platform and SaaS vendors. A casual survey of the market usually finds that SaaS-based solutions require 10% of the installation effort of a traditional on-premsis solution. (Yes, that’s 90% less effort.) Less effort means less revenue for the consultancies. It also reduces the need for advisory services, as provisioning a SaaS solution with the corporate credit card should not require a $200,000 project to build a cost-benefit analysis. And gone are the days when you could simply read the latest magazines and articles from the business schools, spouting what you’d read back to a client. Many clients have been on the consulting side of the fence, have a similar education in the business schools, and reads all the same articles.

I know and you don’t! no longer works. The world has moved on and the consulting industry needs to adapt. The knowledge and resources the industry has been selling are no longer scarce, and we need to sell something else. I see this is a huge opportunity; an opportunity to establish a more collaborative and productive relationship founded on shared, long term success. As Jeff Jarvis has said: stop selling scarcity, sell outcomes.

Updated: A good friend has pointed out the one area of consulting — one which we might call applied business consulting — resists the trend to be commoditized. This is the old school task of sitting with clients one-on-one, working to understand their enterprise and what makes it special, and then using this understanding to find the next area or opportunity that the enterprise is uniquely qualified to exploit. There’s no junior consultants in this area, only old grey-beards who are too expensive to stay in their old jobs, but that still are highly useful to the industry. Unfortunately this model doesn’t scale, forcing most (if not all) consultancies into a more operational knowledge transfer role (think Six Sigma and LEAN) in an attempt to improve revenue and GOP.

Updated: Keith Coleman (global head of public sector at Capgemini Consulting) makes a similar case with Time to sell results, not just advice (via @rpetal27).

Updated: I’ve responded to my own post, tweaking my consulting page to capture my take on what a consultant needs to do in this day and age.

Innovation should not be the race for the new-new thing

Note: This post is part of larger series on innovation, going under the collective name of Innovation and Art of Random.

We’re all searching for the new-new thing. Be it a product or a method, we’re looking for that innovation that will let us stand out from the pack, because in a world where we are all good, we need to be original. If an idea becomes a trend before we’re involved, we are not a leader. When we’re first to market, if we capture first mover advantage, then we can define the rules of the game. But how can we tap into valuable ideas for products, services or method before they are seen as trends, when they are just … random?

In today’s hyper-competitive business environment being good, being operationally efficient, has become the price of entry. We’ve leveraged methodologies like TQM, Six Sigma, LEAN to optimize our businesses, and while we might carry some baggage from our past, we are good at what we do. In this environment, it’s the ability to be original, the ability to innovate, that will let us stand out from the crowd. Innovation, though, is random. At least it often seems that way. A chance connection or unlikely insight takes someone on a journey to create something new. New developments, new product and services based on original ideas, seem to come out of the blue.

A product which created its own product category
A product which created it's own product category

Think of the first time you saw breath strips; small, minty strips that dissolve on your tongue, eliminating pre-meeting (or pre-date) bad breath. Where did they come from? Most of us can’t quite put our finger on their origin. We heard about them one day, and the next they seemed to be in every shop we walking into, anywhere around the world. A new market segment had been created, and its creator had captured most of the value.

The race for the new-new thing seems to have created an innovation arms race. We want to be the first to find an idea, nurture it, and turn it into a competitive advantage. This has made innovation—the search for new opportunities—into a race for more. More ideas, more connections, more investment, more involvement. If we can see more ideas, get access to more content, get more of our team involved, if we can get it earlier in its lifecycle, then we might be the ones with first mover advantage.

We’re starting to take this to extremes, industrialising the quest for more. Conferences (some of which are rapidly becoming media empires in their own right), such as TED, are creating idea smorgasbords for us to graze on. The industrialization of ideas has us all drinking from the same (soda) fountain. This is driving incremental improvement in our businesses by sharing best practice, which is a good thing, but it’s not going to help us find the new-new thing, the innovative product that will help us stand out from the crowd.

The challenge when managing innovation is not in capturing ideas before they develop into market shaping innovations. If we see an innovative idea outside our organization, then we must assume that we’re not the first to see it, and ideas are easily copied. If innovation is a transferable good, then we’d all have the latest version.

New ideas rarely just pop into existence though; technology, the development of ideas, is an evolutionary process. New, novel ideas, are simply combinations of existing ones, driven by someone’s desire to solve a problem. Breath strips, for example, were the chance connection between mouth wash, a Japanese trend for a dissolving sweets and our (western) desire for fresh breath, a connection made by a western executive on a business trip to Japan. As new ideas are simple combinations of existing ones, the technology we thought of yesterday might might be more valuable tomorrow, as the key component in a new solution.

Each small step of innovation is the result of someone, somewhere bringing together a collection of previously unconnected ideas to solve a problem. This is a pull, rather than a push process. Solutions are not created in search of a problem, but in response to a problem. A new idea is the result of a series of small, incremental steps from the ideas we have to the idea we need. The net result of this incremental development is huge. What makes innovation surprising, and seemingly random, is the fact that we often only see the end result, and not the journey.

Innovation, the ability to be original, comes from inside, not outside of our organizations. The real challenge is synthesis: understanding what problems are interesting, selecting the ideas which bring value to a solution (as not all ideas are created equal), and then bringing together these ideas to create something new. How do we create space and time to help our team synthesize these new, innovative ideas when presented with a challenge?

Accelerate along the road to happiness

Our ability to effectively manage time is central to success in today’s hype-competitive business environment. The streamlined and high velocity value-chains we’ve created are designed to invest as little time (and money) as possible in unproductive business activities. However, being fast, being good at optimizing our day-to-day operations, is no longer enough. We’ve reached a point where managing the acceleration of our business—the ability to change direction, redeploy resources to meet new opportunities more rapidly than our competition—is the driver for best in category performance. If we can react faster than our competition then we can capitalize on a business opportunity (or disruption, as they are often the same) and harvest any value the opportunity created.

Time is our overarching business driver at the moment. We hope to be the first to approve a mortgage, capturing the customer before our competitors have even responded to the original application. We strive to be first to market with a new portable music device (Walkman or iPod), establishing early mover advantage and taking the dominant position in the market. Or we might simply want to quickly restore essential services—power, gas or water—to our customers, as they have become intensely dependent upon them. Globalization has leveled the playing field, as we’re all working from the same play book and leveraging the same resources. The most significant factor for success in this environment is the ability to execute faster than our competition—harvesting the value in an opportunity before they can.

This focus on time is a recent phenomena. Not long ago, no further back than the early nineties, we were more concerned with mass. The challenge was too get the job done. Keep the wheels turning in the factories. Keep the workers busy in their cubicles. Time is money, so we’re told, and we need to ensure that we don’t waste money by laying idle. Mass was the key to success—ensuring that we had enough work to do, enough raw materials to work on, to keep our business busy and productive.

When mass is the focus, then bigger is better. This is a world where global conglomerates rule, as size is the driver for success. Supply chains were designed so that enough stuff was available right next to the factory, where supply can be ensured, that the factory would never run out of raw materials and grind to a halt. Whether shuffling paperwork or shifting widgets, the ability to move more stuff around the business was always seen as an improvement.

This is also the world that created a pile of shipping containers too behold in the Persian Gulf, during the Gulf War in the early nineties. With no known destination, some containers couldn’t be delivered. Without a clear understanding of where they came from, others couldn’t be returned. A few of these orphaned containers were opened in an attempt to determine their destination or origin; however the sweltering Arabian sun was not kind to their contents, which included items such as raw poultry, so a stop was soon put to that. The containers just kept piling up. 22,000 of 50,000 containers simply became invisible, collecting in a pile that went by the jaunty name of Iron Mountain.

Iron Mountain: 22,000 containers that became invisible
Iron Mountain: 22,000 containers that became invisible

Our answer was to stop focusing on mass, on having enough stuff on hand to keep the wheels of industry turning. We have to admit that Iron Mountain proves that we could move sufficient mass. The next challenge was to ensure that materials arrived at just the right time for them to be consumed by the business. We moved from worrying about mass, to managing velocity.

Total quality management and process improvement efforts finally found their niche. LEAN and Six Sigma rolled through the business landscape ripping cost out businesses where-ever they went. Equipped with books on Toyota’s Production System and kanban cards, we ripped excess material from the supply chain. Raw materials arrive just-in-time, and we avoid the costs associated with storing and handling vast warehouses of material, as well as the working capital tied up in the stored material itself. Quality went up, process cycle times shrunk, and the pace of business accelerated. Much like the tea clippers from China in the 1800s, with the annual race to get the first crop back to London for the maximum profit (with skipper paid a profit share as an incentive along with their salary), we’re focused on cranking the handle of business as fast as possible.

Zara, a fashion retailer, is the poster child for this generation of business. The fashion industry is built around a value-chain that tries to push out regular product updates, beating up demand via runway shows and media coverage to support a seasonal marketing cycle. Zara takes a different approach, tracking customer preferences and trends as they happen in the stores and trying to deliver an appropriate design as rapidly as possible, allowing customer demand to pull fashion. By focusing on responding to customer demand, wherever it is, Zara has built an organization designed too minimize time from design to marketed product. For example, onshore, high-tech, agile production is preferred to low-tech but low cost, offshore production which involves long production delays. Zara takes two weeks to take a product to market, where the industry average is six months; the lifetime of Zara’s products is measured in weeks, rather than months; and the products offered in each store are tailored to the interests of the community it serves rather than a long term marketing plan.

The change in product life-cycle has created a material change to customer buying habits. Traditionally customers’ will visit a fashion store a few times a year to see what a new season brings. There is no real pressure to buy in any particular visit, as they know they can return to buy the same garment later. Zara, however, with it’s dramatically shortened product cycles, drives different behavior. Customer visit more often, as they can expect to see a new range each visit. They are also more likely too buy, as they know that there is little chance of the same garment being available the next time. This approach has made Zara the most profitable arm of Inditex, a holding company of eight retail brands, and one of the biggest success stories in Spanish business.

The dirty secret of high velocity, lean businesses is that they are fragile: small disturbances can create massive knock-on effects. As we’ve ripped fat from the value chain, we’ve also weakened its ability to react to, and resolve, disruptions. A stockout can now flow all the way back along the supply chain to the literal coal face, stalling the entire business value-chain. Restoring an essential service is delayed while we scramble to procure the vital missing part. Mortgage approvals are deferred while we try reallocate the work load of a valuer dealing with a personal emergency. Or our carefully synchronized product launch falls apart for what seems like a trivial reason somewhere on the other side of the globe.

Our most powerful tools in creating todays high velocity businesses—tools like straight-through processing, LEAN and Six Sigma—worked by removing variation from business processes to increase throughput. The same tools prevent us from effectively responding to these disruptions.

Opportunities today are more frequent, but disruptive and fleeting. An open air festival in the country might represent an opportunity for a tolling operator to manage parking in an adjacent field, if the solution can be deployed as sufficient scale rapidly enough. Or the current trend for pop-up retail stores (if new products rapidly come and go, then why not stores) could be moved from an exceptional, special occasion marketing tool, into the mainstream as a means to optimize sales day-by-day. Responding to these opportunities implies reconfiguring our business on the fly—rapidly integrating business exceptions into the core of our business. This might range from reconfiguring our carefully designed global supply chain, through changing core mortgage approval criteria and processes to modifying category management strategies in (near) real time.

Sam: Waiting while his bank sorts itself out
Sam: Waiting while his bank sorts itself out

We’re entering a time when our ability to change direction, adapting to and leveraging changes in the commercial environment as they occur, will drive our success. If we can react faster than the competition then we can capitalize on a business opportunity and harvest any value the opportunity creates. Our focus will become acceleration: working too build businesses with the flexibility and spare energy required to turn and respond rapidly. These businesses will be the F1 cars of business, providing a massive step in performance over more conventional organizations. And, just like F1, they will also require a new level of performance from our knowledge workers. If acceleration is our focus, then our biggest challenge will be creating time and space required by our knowledge workers to identify these opportunities, turn the steering wheel and leverage them as they occur.

Update: A friend of mine just pointed out that the logical progression of mass → velocity → acceleration naturally leads to jerk, which is an informal unit of measurement for the third derivative.

What we’re doing today is not what we did yesterday

Telxon
Telxon hand unit

The business of IT has changed radically in the last few years. Take Walmart for example. In the 80s Walmart laid the foundations for its future growth by fielding a supply chain data warehouse. The insight the data warehouse fueled their amazing growth to become the largest retailer in the world. However, our focus has moved on from developing applications. More recently Walmart fielded the Telxon, a barcode scanner with a wireless link to the corporate back-end. This device is the front end of a distributed solution which has let Walmart devolve buying decisions to the team walking the shop floor.

For a long time IT departments have defined themselves by their ability to deliver major applications into the enterprise. CRM, MRP, even ERP; all the three letter acronyms. For a long time this has been the right thing to do. Walmart’s data warehouse, to return to our example, was a large application which was a significant driver in the company’s outlier performance for the next couple of decades.

The world has changed a lot since that data warehouse went operational. First the market for enterprise applications grew into the mature market we see today. If you have a well defined problem—an unsupported business activity—then a range of vendors will line up to provide you with off-the-shelf solutions. Next we saw a range of non-technology options emerge, from business process outsourcing (BPO) and leveraging partnerships, through to emerging software-as-a-service (SaaS) solutions.

What used to be a big problem—fielding a large bespoke (or even off-the-shelf) application—has become a (relatively) small one. Take CRM (customer relationship management) as one example. What was a multi-year project requiring an investment of tens of millions of dollars to deploy a best-of-breed on-premises solution, has become a few million dollar and a matter of months to field SaaS solution. And the SaaS solutions seem to be pulling ahead in the feature-function war; Salesforce.com (one of the early SaaS CRM solutions) is now seen as the market leader (check with your favorite analyst).

Nor has business been standing still while technology has been marching forward. The productivity improvements provided by the last generation of enterprise applications have created the time and space for business stakeholders to solve more difficult problems. That supply chain solution Walmart deployed that was the first of many, automating most (if not all) of the mundane tasks across the supply chain. Business process methodologies such as LEAN (derived from the Toyota Production System) and Six Sigma (from GE) then rolled through the business, ripping all the fat from our supply chains as they went past. The latest focus has been category management: managing groups of product as separate businesses and, in many chases, handing responsibility for managing the category back to the supplier.

Which brings us back to the Telxon. If we’ve all been on the same journey—fielding a complete set of applications, optimizing our business processes, and deploying the latest, best practice, management techniques—then how do we differentiate? Walmart realized that, all things being equal, it was their ability to respond to supply chain exceptions that would provide them with an edge. As a retailer, this means responding to stock-outs on the shop floor. The only way to do this in a timely manner is to empower the people walking the floor to make a procurement decision when they see fit. Walmart’s solution was the Telxon.

The Telxon is an interesting device as it reveals an astonishing amounts of information: the quantity that should be on the shelf, the availability from the nearest warehouse, the retail price, and even the markup. It also empowers the employee to place an order for anything from a pallet to a truck-load.

Writer
Writer Charles Platt during his stint as a Wal-Mart employee in Flagstaff, Ariz.

As one journalist found:

We received an inspirational talk on this subject, from an employee who reacted after the store test-marketed tents that could protect cars for people who didn’t have enough garage space. They sold out quickly, and several customers came in asking for more. Clearly this was a singular, exceptional case of word-of-mouth, so he ordered literally a truckload of tent-garages, “Which I shouldn’t have done really without asking someone,” he said with a shrug, “because I hadn’t been working at the store for long.” But the item was a huge success. His VPI was the biggest in store history—and that kind of thing doesn’t go unnoticed in Arkansas.

Charles Platt, Fly on the Wall (7th Feb 2009), New Your Post

Clearly the IT world has moved on since that first data warehouse went live in Arkansas. Enterprise applications have been transformed from generators of competitive advantage into efficient sources of commodity functionality. Technology’s ability to create value should be focused on how we effectively support knowledge workers and the differentiation they create. These solutions only have a passing resemblance to the application monoliths of the past. They’re distributed, rather than centralized, pulling information from a range of sources, including partner and public sources. They’re increasingly real time, in the Twitter sense of the term, pulling current transactional data in as needed rather than working from historical data and relying on overnight ETLs. They’re heterogeneous, integrating a range of technologies as well as changes in business processes and employee workplace agreements, all brought together for delivery of the final solution. And, most importantly, they’re not standalone n-tier applications like we built in the past.

But while the IT world has moved on, it seems that many of our IT departments haven’t. Our heritage as application factories has us focused on managing applications, rather than technology, actively preventing us from creating this new generation of solutions. This behavior is ingrained in our organizations, with a large number of architects through project managers to senior management measuring their worth by the size of the project (in terms of CAPEX and OPEX required, or head count) that they are involved in, with the counter productive behavior that this creates.

In a world where solutions are shrinking and becoming more heterogeneous (even to the extent of becoming increasingly cross discipline) our inability to change ourselves is the biggest thing holding us back

Applications let us differentiate, not!

Being involved in enterprise IT, we tend to think that the applications we build, install and maintain will provide a competitive advantage to the companies we work for.

Take Walmart, for example. During the early 80s, Walmart invested heavily in creating a data warehouse to help it analyze its end-to-end supply chain. The data was used to statically optimize Walmart’s supply chain, creating the most efficient, lowest cost supply chain in the world at the time. Half the savings were passed on to Walmart’s customers, half whet directly to the bottom line, and the rest is history. The IT asset, the data warehouse, enabled Walmart to differentiate, while the investment and time required to develop the data warehouse created a barrier to competition. Unfortunately this approach doesn’t work anymore.

Fast forward to the recent past. The market for enterprise applications has grown tremendously since Walmart first brought that data warehouse online. Today, applications providing solutions to most business problems are available from a range of vendors, and at a fraction of the cost required for the first bespoke solutions that blazed the enterprise application trail. Walmart even replaced that original bespoke supply chain data warehouse, which had become something of an expensive albatross, with an off-the-rack solution. How is it possible for enterprise applications to provide a competitive advantage if we’re all buying from the same vendors?

One argument is that differentiation rests in how we use enterprise applications, rather than in the applications themselves. Think of the manufacturing industries (to use a popular analogy at the moment). If two companies have access to identical factories, then they can still make different, and differentiated, products. Now think of enterprise applications as business process factories. Instead of turning out products, we use these factories to turn out business processes. These digital process factories are very flexible. Even if we all start with the same basic functionality, if I’m smarter at configuring the factory, then I’ll get ahead over time and create a competitive advantage.

This analogy is so general that it’s hard to disagree with. Yes, enterprise applications are (mostly) commodities so any differentiation they might provide now rests in how you use them. However, this is not a simple question of configuration and customization. The problem is a bit more nuanced than that.

Many companies make the mistake that customizing (code changes etc) their unique business processes into an application will provide them with a competitive advantage. Unfortunately the economics of the enterprise software market mean that they are more likely to have created an albatross for their enterprise, than provided a competitive advantage.

Applications are typically parameterized bespoke solutions. (Many of the early enterprise applications were bespoke COBOL solutions where some of the static information—from company name through shop floor configuration—has been pushed into databases as configuration parameters. ) The more configuration parameters provided by the vendor, the more you can bend the application to a shape that suits you.

Each of these configuration parameters requires and investment of time and effort to develop and maintain. They complicate the solution, pushing up its maintenance cost. This leads vendors to try and minimize the number of configuration points they provide to a set of points that will meet most, but not all customers’ needs. In practical terms, it is not possible to configure an application to let you differentiate in a meaningful way. The configuration space is simply too small.

Some companies resort to customizing the application—changing its code—to get their “IP” in. While this might give you a solution reflecting how your business runs today, every customization takes you further from a packaged solution (low cost, easy to maintain, relatively straight forward to upgrade …) and closer to a bespoke solution (high cost, expensive to maintain, difficult or impossible to upgrade). I’ve worked with a number of companies where an application is so heavily customized that it is impossible to deploy vendor patches and/or upgrades. The application that was supposed to help them differentiate had become an expensive burden.

Any advantage to be wrung from enterprise IT now comes from the gaps between applications, not from the applications themselves. Take supply chain for example. Most large businesses have deployed planning and supply chain management solutions, and have been on either the LEAN or Six Sigma journey. Configuring your planning solution slightly differently to your competitors is not going to provide much of an edge, as we’re all using the same algorithms, data models and planning drivers to operate our planning process.

Most of the potential for differentiation now lies with the messier parts of the process, such as exception management (the people who deal with stock-outs and lost or delayed shipments). If I can bring together a work environment that makes my exception managers more productive than yours—responding more rapidly and accurately to exceptions—then I’ve created a competitive advantage as my supply chain is now more agile than yours. If I can capture what it is that my exception managers do, their non-linear and creative problem solving process, automate it, and use this to create time and space for my exception managers to continuously improve how supply chain disruptions are handled, then I’ve created a sustainable competitive advantage. (This is why Enterprise 2.0 is so exciting, since a lot of this IP in this space is tacit information or collaboration.)

Simply configuring an application with today’s best practice—how your company currently does stuff—doesn’t cut it. You need to understand the synergies between your business and the technologies available, and find ways to exploit these synergies. The trick is to understand the 5% that really makes your company different, and then reconfiguring both the business and technology to amplify this advantage while commoditizing the other 95%. Rolls-Royce (appears to be) a great example of getting this right. Starting life as an manufacturer of aircraft engines, Rolls Royce has leveraged its deep understanding of how aircraft engines work (from design through operation and maintenance), reifying this knowledge in a business and IT estate that can provide clients with a service to keep their aircraft moving.