Chapter 4: ERP & IT industry failure & fraud

The new IT-based Digitalization, Robotization, Big Data, Apps, Blockchain and Agile software development are major risks for businesses in the hands of IT & ERP Community.

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Before we go through the Staircase step by step, starting with Customer / Market, it’s important to highlight the current situation in the bottom step of the staircase; IT.

IT serves, for various reasons, as a straitjacket in many businesses today, which is failure and a fraud as a consequence of the fact that part of the IT / ERP community continues to act as if the conditions for industrial society continue to apply and where any additional 3rd party product may further limit companies.

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ERP - an industrial foundation from the 20th century.

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To illustrate, we will use imagery to facilitate understanding in these IT labyrinths.

Already in the 1980s, the signals were very clear that a paradigm shift between industrial society and post-industrial society was under way. This is well documented in the books The Hiden Treasury Chest (Bergstrand, 1993) and The New Business Information (Bergstrand, 1995).

However, ERP providers did not react. Instead, they continued to build on an outdated platform. Different "rooms" were arranged on the platform for a company's different departments or functions – a Talyoristic hierarchical approach, such as purchasing, production, sales, economics etc. Many times, with thick supporting walls in between.

In today’s post-industrial society with a growing soft refinements’ process, these walls are great obstacles to process orientation of the so-called bureaucracy. The only overall process that the ERP community was focusing on, was the hard refinement of products where Absorption Costing of salary and material dominated and where the work in different departments or functions (“rooms”) was distributed through overhead costs.

These overheads were very small initially, in the 60s or 70s, but have gradually grown in line with increasing soft refinement and thus, increasingly lost their connection to companies’ originally absorption costing of salary and material. In turn, bureaucracy has become a major problem - see the chapter "A helicopter perspective to profitability".

ERP / IT should no longer be an automated typewriter or archive.

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For many business executives, IT / ERP is a black box that is uncontrolled and may not fully realize his or her company’s opportunities. In most companies, IT / ERP has been most commonly incorporated into a company, which means that decisions taken / changes made on the basis of a unilateral IT / ERP perspective (eg updates to new releases of ERP) may affect different parts of the company more or less eye-catching and further tighten the coercion.

Now the IT world has put in another shift in the form of digitization, robotization, big data, apps, agile software development and, not least, the blockchain technology that for instance Bitcoin is an application on. That is, it becomes more and more critical that corporate executives take control of IT development from a holistic perspective and exploit the potential of the new IT leap to eradicate the hieratic structures built up in companies, not least as a consequence of ERP systems.

Letting external IT / ERP providers run the company's development (see section Business needs of companies and IT / ERP suppliers' business model on collision course?) means that management more or less surrender to external parties having business models that can be on a direct collision course with your company's interests.

 

Back to the 70’s


In the 70's, each function (purchasing, production, finance, market, etc.) built their own “house” to utilize ADB (Automatic Data Processing) to streamline the work of a specific department.

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Over time, they began to see the need to integrate the different departmental solutions but found that the different "houses" had different layouts and content for data such as products, customers etc. That's why integration could be both complex and expensive. It required translation and often supplementation tables between the different solutions.

Then, the concept of ERP was introduced in the 80’s, among other things, with the basic idea to get a common storage of data (product, customer, etc.) and where function-focused island solutions were replaced with different “rooms” but in the same “house” (ERP solution). However, the rooms where built with thick supporting walls in between (see ERP - an industrial foundation from the 20th century above)

Today, we are back in a similar situation as in the 70’s, where ERP in many cases is just one of all IT solutions your company runs. Solutions like CRM, e-Sales etc (so-called 3rd party solutions) may have been chosen by companies because these are considered to solve the companies’ needs better than corresponding functionality of the ERP. But the coin has a back side. Just like in the 70's, companies are in a situation where the various 3rd party solutions and ERP individually store data about customers, products, etc., structured in a variety of ways. That is, once again, necessary to use translation tables to enable ERP and a 3rd party solutions to work together.

Most likely, 3rd party solutions and the company's ERP will overlap in functionality


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Another  back of the coin may be that 3rd party solutions and ERP have duplicated business logic, which may require adjustments in any of the solutions to enable them to interact.

Because each supplier naturally wants to expand its business, it is not unlikely that a 3rd party solution will try to take over additional parts of the ERP, even parts that make up the core of ERP. We see this phenomenon in, for example, Supply Chain Management Solutions. Consequence, specific processes can be more efficient, but the back of the coin is more complex and costly integrations.

To add insult to injury, 3rd party solutions and ERP are likely to have different upgrade cycles, which means that already complex integrations are affected each time the different solutions are upgraded.

Business needs of companies and IT / ERP suppliers' business model on collision course?

IT / ERP consultancy partners who do not have a clearly business-related business development unit, but instead represents one or more software products, are targeted to maximize seller's bonus based on the number of licenses or number of hours sold. This bonus driving power of selling licenses (or more products or modules) can lead to sales where the customer's business benefit may be doubtful.

Consultations driven by sold hours are chasing more and no less hours. A driving force that can counteract the smart efficient solutions. Certainly, IT / ERP providers must be specialized in the depths of the different functional / departmental areas within a product. However, it is too common for these IT / ERP consultants to ask users what functionality they want based on their user's own perspective without balancing these needs or wishes towards overall efficiency. That is, the functional and hierarchical is cemented.

A natural approach would be to look at your business as a whole and limit specialists to spend hours in their functional consulting. This would, however, be a conflict of interests of the ERP/IT supplier, for you to be aware of.

Also, an unfortunate classic problem is the gap between the IT / ERP provider's sales and its implementation organization. The sales organization sells one thing and the consultants implement something else, whereupon costly adjustments and dispute arise between the customer and the IT-ERP provider.

The new IT leap, Digitalization, Robotization, Big Data, Apps, Blockchain and Agile Software Development are major business risks for businesses in the hands of IT / ERP Community

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IT is no longer a tool for doing business, but to a greater extent the very foundation of the business's business. Letting external IT / ERP consultants with their software and business drives and skills still have a decisive influence must be questioned.

Based on the same argument, one must question with force those people that unreserved praise the agile software development and state it as the next big and real epoch of IT. Instead, it’s a frightening thought you are reading a new 70's with the difference that IT communities today are using much more powerful tools. Thus, IT-community possess tools that are uncontrolled based on business benefit perspectives and may therefore cause major business injury.

IT community must once and for all learn IT is an integral part of the business process of improvement and, like the hard investments, it should be obvious to the IT community that any investment or maintenance in IT solutions must be economically justified on the basis of business benefits.

In this context, we want to address methods like Scrum, a framework for developing, providing and maintaining complex products. As we perceive, Scrum has developed into something in the hands of IT community, where it has often lost its root in reality. Sure, it sounds good. Working with “try and error” until a user is satisfied with the solution, but the back of the coin is at risk of broken timeframes and budgets. It’s no sense optimize a functionality if a rational business-oriented approach would have resulted in the abandonment of the user's work tasks or even employment as a whole.

Amazon is an example of today's post-industrial reality. A globally very successful company with basically just soft refinement and inspired by manufacturing companies when Amazon developed its supply chain and logistics. Amazon's success is based on the full understanding of IT's importance from an operational perspective and full control over the IT community.

Management must be in charge of IT in a business benefit perspective

The new IT leap, Digitalization, Robotization, Big Data, Apps, Blockchain and Agile Development will be a decisive delinquency between the companies that control IT development and exploit the revolutionary new business opportunities and those companies resting in the laps of the IT community. An IT community that risks having business models and skills that are more or less business-destructive to businesses.

Change/Change Management

Already in the book The New Business Information (Bergstrand, 1995) we stressed the importance of distinguishing between the refinement process, which produces goods and services, and the change process, which will ensure a long-term efficient refinement process. 

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This statement is a crucial prerequisite for utilizing today's explosive development in IT in a controlled commercial manner.

In the next chapter we will focus on Change based on The Staircase Concept / Methodology.

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In this chapter we will give an overview of how to work both long-term in their business analyzes as "short-term" in terms of realization of streamlining of operations, of course, where IT development and its capabilities play a central role.

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We will show that there is no “either or situation” between agile development and fixed structures, but an interaction.