Business Transformation continues to present challenges and disappointments more often than not.  There have been many books and publications those attempted to provide insight for business leaders (including management accountants) but we still struggle to improve business performance through transformation programs driven by ERP.  It typically isn’t a failure of one functional group rather paths to success have changed quite dramatically over the last decade or so.  There is no single approach to resolving these problems; success requires a coordinated program that involves multiple elements. This means evolving from a world that’s understood and organised by functions to where ERP applications have exposed the logical relationship b/w functions.  Most companies haven’t recognised this revelation, so they continue to attempt to resolve cross functional design issues from a functional mind set.

The Challenge:

Let’s take an example of receiving raw materials. Say, 20 years ago the material would arrive at the loading dock, and clerk would complete a paper form on which receipt will be recorded, showing material, PO number, vendor etc. The supervisor would take the material and take to purchasing department. Next morning clerk would clip the original PO to the pertinent receiver and place them on purchasing manager’s desk. Purchasing manager would check the documents and proceed to accounts department where accounting clerk would look up the standard cost for the material, multiply with the quantity, place the entry in the GL and pass the file to A/P, and so on.  Each department analysed and modified the information so then everyone who needed information received it eventually. Each department adapted the detailed information to its particular processes and procedures. As early IT applications were developed, overnight updates would translate the information from one form to another and update files.  Today when material arrives, operator takes a hand held device, looks up the PO, creates receiver on the device, enters the transaction and everything, which used to take a day or so during manual operating days, happens as a result of one action. What’s the procedure for moving from a manual process (with many opportunities to tailor the information) to one where the company has aligned all functional processes and then designed, implemented and accepted consistent cross functional business processes?

Anything as dramatic as a business transformation must be built into company’s vision, which can take the form of merger/ acquisition strategy, an organic growth approach, or many others.  To ensure an effective business transformation:

  • Vision must define, understand and address the current or potential customer’s needs(i.e., Focus on Customer).
  • Vision must include the concept of business optimization(i.e., addressing internal issues of process competence and performance).

Focus on Customer: The dynamics of moving from one style to the other require redesigning many business processes that have always been part of a logically integrated organism that we managed functionally.  Change requires the ability to see the logic and design for efficiency.  Widespread introduction of ERP applications initiated about 20 years ago. Today we have entire suites of functionality available that provide opportunities to understand cross- functional integration to meet customer’s ever changing needs.  To use the new capabilities we need a different approach to business reengineering, so its necessary to capitalise on new, logical insight into how integrated business process operate.

Business Optimisation: Business optimisation requires companies to:

  • Analyse business fundamentals that affect both cost and revenue
  • Identify areas ripe for improvement;
  • Create a ROI stream;
  • Select IT applications that support process designs and implementations;
  • Create continuous improvement governance programs; and
  • Create and implement optimal business process designs.

The Transformational Organisation

It’s the organisation rather an individual that must be truly transformational for a business to make the most effective use of the capability of IT applications. On the other hand, one key leader who doesn’t see himself or herself as transformational can easily derail the entire process.  There are many examples from both ends of the spectrum that rendered all efforts fruitless.

Example1 :One CEO declared that the business team was too busy with “more important things” to become involved in defining business processes, so the CIO was,  by edict, IT leadership, business leadership and owner of all the solutions. The CFO supported the decision and CIO accepted it.  The result? The technical team and software vendor consultants designed business process and functionality that the functional business executives never accepted. The program failed!

Example 2 :Inanotherbusiness, the CIO, a business leader, drove the transformational program at the direction and with the support of the CEO, only to be derailed by a revolt of functional business leaders who hadn’t bought into the program. Here CEO thought that by assigning a business leader to lead the ERP implementation, he could gain acceptance from the other senior executives. But, now work was done to alter the functional thought process of the other executives, and the CIO was simply written off as a traitor.

Example 3 :Inanotherbusiness,  leaders talked the talk very well, but at the end of the program, they distrusted the ROI, managed costs to the lowest level possible, compressed timelines, marginalised project teams and eliminated critical program elements because they didn’t understand their importance. Here, while individual leaders may have accepted opportunities to transform their parts of the organisation, the organisation remained rooted in past behaviours and resisted changing the business process both within and between their areas of responsibility.

Finally, we need to remember are:

  1. Transformation isn’t for the faint of hearts. It’s difficult and complex business that requires cross functional understanding and focus throughout the executive suites.
  2. Key leaders’ roles are crucial to any organisation trying to become transformational, and not one of the key leaders individually has the ability to perform all the necessary roles.
  3. Selecting key leaders who understand and embrace the transformational process is critical to success.
  4. It’s necessary to train the cross functional leadership team on the role of business process supported by integrated business applications to deliver improved business results.