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2010

[Continuation]

 


I do not, for one minute, doubt that the vast majority of technology vendors actually do offer products and services that can be “solutions” for a good many SMBs. If I did not believe this with vigor, I would not be involved in the industry. But saying that a store offers shoes does not automatically imply that they have the correct “solution” for your particular foot. Your foot may be too wide or too narrow to fit comfortably in the shoes they offer. You may need a shoe for hiking in the woods and they sell only dress shoes. Or, the store may have the color and style you find suitable, but they don’t have the 10-1/2 size you foot requires.

 

Unfortunately, most – but not all – of the salespersons that I have encountered in this industry over the last quarter century are salespersons first, even though they may be engaged in a process that they refer to as “solution selling” or “consultative sales.” All too frequently they do just enough to “consulting” to find a place to get their foot in the door to “sell.”

 

The problem – more likely than not – is not the salesperson. The problem is almost certainly to be found in the policies and compensation plans under which the salesperson is engaged with their employer and the training that they have received. Even the bulk of “solution selling” and “consultative selling” training courses are only thinly disguised presentations of ways to get more salespeople in the door at clients’ and prospects’ offices and not, in fact, actually focused on the “solution” or “consulting” part of the equation. This is evident by the fact that those giving the training in “solution selling” or “consultative sales” need to know little or nothing about the actual product being sold or how to actually “consult” a business toward achieving more of its goal (read: making more money).

 

If vendor/VARs are interested in becoming real and practical “solution” sellers, they must also become real and practical “consultants” that understand how to guide management teams in the process of discovering:

 

  1. What needs to change in order for the system (i.e., the entire enterprise) to improve and make more money

  2. What the change should look like (read: Does the vendor/VAR actually have a product that “looks” like what your management team believes the “solution” should “look” in its working and effectiveness?)

  3. How to effect the change (read: Can the vendor/VAR help in deploying their technology in order to make it effective in the end result?)

 

On vendors providing low-cost or no-cost solutions

 

I, personally, find it hard to believe how many vendors today are supplying valuable applications at no-cost or low-cost to huge numbers of users. Everyone knows about Google, which alone provides search-engine capabilities, a blogging site, Google Apps – used for document sharing and collaboration, email services and more. EverNote provides a service that I find absolutely invaluable and allows me to store up to 40MB per month on their servers at no cost to me. EverNote also allows me to use their site for sharing and collaboration. Then there are low-cost applications like CEOexpress.com and eFax that also furnish me with huge benefits for pennies per day.

 

Jan Hichert is right! People are expecting more and more for less and less out-of-pocket expense. This is a trend that is not likely to end in the near future. The question is: what should vendor/VARs be doing about it?

 

My recommendation to the industry is that they convert all of their salespeople into genuine whole-hearted consultants – at least insofar as that is possible. (Some, I fear, cannot be converted. They will, perhaps, never be anything but a salesperson through and through.)

 

Note: Those who cannot be thus converted should remain salespersons, but they should be making three or four face-to-face sales calls per day making “incremental sales” being fed by a sound program of relationship marketing. It is beyond the scope of this article to go into more detail, but if you are interested, see Justin Roff-Marsh’s book entitled Reengineering the Sales Process for more information.

 

The vendor/VAR’s new staff of through-and-through consultants should be turned loose in a program of incremental transactions. Unlike today’s one-big-gulp approach to sales, allowing a relationship to build over time while gradually increasing the size of the transaction simultaneously builds a solid relationship between the prospect/customer and the vendor, while allowing the vendor/VAR to prove to your management team that a) the vendor/VAR really does have your enterprise’s best interests at heart; b) the vendor/VAR really does know how to help your business improve – i.e., make more money; and c) the vendor/VAR really can be trusted with delivering on its promises.

 

Allow me to give an example of what such a program might look like:

 

Step 1: A no-cost one-day “proof of concept” engagement about how the vendor/VAR’s approach can help you unlock valuable knowledge already present in your organization in a way the leads to improvements which, in turn, help you make more money.

 

Step 2: A $795 one-day engagement to plan the execution steps on just one of the ideas resulting from the “proof of concept” engagement (Step 1).

 

Step 3: A engagement called the “Next Steps” program to help formulate step-by-step plans to leverage additional concepts stemming from Steps 1 and 2.

 

Step 4: A one-year engagement to help the client develop and execute on a POOGI (Process Of On-Going Improvement) program.

 

Step 5: Sale of an updated or upgraded ERP system or tactical extensible technologies that support the POOGI or “Next Steps” initiatives

 

Note: The reference to “Insert Value Price” has to do with value-price, not by-the-hour consulting. This means that, if you, as a client, are going to benefit to the tune of say $100,000 in Throughput from a particular initiative, you might be willing to pay on a plan such as: $30,000 up front, plus n% of the increase in Throughput over the next 12 months. (For more on value-pricing, take a look at VeraSage.)

 

Arrangements and sales approaches such as these are a win-win for the parties involved. You and your management team are more likely to reap benefits from real – not hyped or hypothetical “solutions” – and the vendor/VAR can make more money because you are making more money.  That sounds fair, does it not?


Summary

 

We are not entering a new ERA in ERP. We are – for better or worse – already into the new era. The question is how will vendors/VARs and you, as the buyer, respond in this new age. By keeping the roles of each party clear and by you and your management team taking full responsibility for sound and rationally calculated ROI for each new IT investment, everyone wins.

 

Plus, if vendor/VARs become really and truly solution-oriented, this team of people that work day after day with SMBs and have considerable experience can learn to bring no-cost and low-cost solutions to your doorstep by helping you unlock what you already know – but frequently do not know that you know. This, too, is a win-win for all involved.

 


(c)2010 Richard D. Cushing

[continuation]

 

How can we make it right?

 

First of all, we should begin by clarifying the proper roles and boundaries in the arrangements between vendor/VARs and you, the buyer. W. Edwards Deming once said, “It’s management’s job to know.” That is a sweeping statement, but I am absolutely convinced that it is true. If you are an executive manager (meaning you have authority to “execute” – to take action), then it is your job to know the impact (or potential impact) of every action you undertake. It is not the vendor’s or VAR’s job to tell you with certainty impact of your actions regarding his or her product or service in your particular circumstances.

 

So, what is the role of the vendor/VAR?

 

The vendor/VAR should be fully equipped to understand what the product or service under consideration for purchase is capable of doing – including being fully aware of its limitations. Furthermore, the vendor/VAR should be equipped to help guide your management team into a rational evaluation of the benefits your organization might receive through the proper application of the product or service under consideration. In my opinion, the evaluation assistance should not be predicated on sweeping generalizations. Rather, the vendor/VAR should be willing and able to provide proof of concept based on what your knowing management team has concluded is the change required to be regarded as “improvement” or “sufficient improvement” in some measurable way.

 

Example:

 

If your management team has determined that your warehouse operations can presently process (i.e., pick, pack and ship) an average of 68.7 shipment lines per hour, but with significant growth on the horizon, your team has decided that you will need to ship an average of about 100 lines per hour (a 45.6% improvement) without a change in personnel or the number of persons staffing this function, then the vendor/VAR should be able to demonstrate to you – in a proof of concept environment – that their technologies will, in fact, help your current staff achieve an average of 100 lines per hour.

 

By the way, the buyer’s management team should also know, by this point in the process, the estimated value of these three critical factors:

 

1. delta-T: The change in Throughput [T], where T = Revenue less Truly Variable Costs

 

2. delta-OE: The change in Operating Expenses [OE], which may be implied to be zero in the scenario stated above

 

3. delta-I: The change in Inventory or demand for other Investment, which would be the “capital budget” the management team has established for the purchase and implementation of the new technology in order to achieve a predetermined ROI

 

These three important financial metrics come together in the following formula:

TOC ROI.jpg

By assuming these appropriate roles and division of labor, the vendor/VAR avoids the risk of making claims about ROI that the product might be able to deliver, but may fail to deliver due to circumstances beyond his control in the customer’s environment. Similarly, you and your management team avoid making rash and risky assumptions about ROI predicated on “averages” and other “promises” insinuated by the vendor/VAR. Both parties know precisely where they stand in the arrangement and, yet, an ROI has been effectively calculated.
On the need for technology vendors to shift from selling “products” to selling “solutions”

 

A lot of salespeople who presently work for technology companies are going to throw stones at me for this, so let me get some clarifying statements on the table right away:

 

First, I know that there are technology firms, and even individual salespeople, that are 100% genuine in the desire to sell “solutions” rather than “products,” and this is to be applauded.

 

Second, I know that, in general, salespeople at technology firms get compensated for selling their technologies and not for selling “solutions” – which “solution sale” cannot be measured.

 

Third, I know that technology salespeople can and do walk away from prospects where it is abundantly clear that the sale of their firm’s technology would not be a “solution” for the particular prospect in question.
“Solution selling” – so-called

 

Now I know that so-called “solution selling” is all the rage in the technology industry. Every firm in the industry certainly wants to be known for selling “solutions” and not just their particular brand of technology. Nevertheless, the process described as “solution selling” has its limitations, even when properly and diligently applied by conscientious practitioners.

 

Consider the fact that no matter how long a salesperson is engaged with you as a client or a prospect, there will always be things that the salesperson does not know about your firm and how it works, about your industry, and about your particular environment, people, and intentions with the product under consideration. On the other side of the same coin, there will always be things that you and your management team do not know about the product you are considering – its capabilities, its capacities, its limitations, and more.

 

This is not to suggest malice or subtlety on the part of either party. The salesperson may be as honest as the day is long and full of good intentions. Nevertheless, lacking clairvoyance or omniscience, there will be questions that are not asked on both sides of the pending transaction that do not get asked. And, these questions do not get asked simply because neither party ever thought to ask them because neither party – at the time – felt that the question had any relevance given their understandings of the circumstances at the time.

 

The problem with “solution selling” is that it confuses the roles and boundaries once again. The process implies that the vendor/VAR knows and understands more about the client or prospect’s business and environment than he or she does. It implies, in fact, that the vendor/VAR knows and understands the actual matters of what needs to change in order for the organization (as a whole) to improve – where “improvement” is defined as making more money tomorrow than they are making today (in a for-profit scenario). I say this because, only then – only if and when the vendor/VAR actually understood what needs to change – would the salesperson be in a position to offer an actual and effective “solution.”

 

However, knowing what needs to change to make the enterprise – as a whole and integrated system – improve is the purview of you and your executive management team and not that of the vendor/VAR. Once these roles are re-clarified and each party in the engagement takes proper responsibility for their part of the “knowing,” then real and effective “solutions” may be the result.

 


[To be continued]

 

(c)2010 Richard D. Cushing

Jan Hichert, CEO of Astaro Corporation wrote, “[A]s a slow recovery begins it is becoming clear the emerging economy will not be the same as we became accustomed to before the recession and businesses will not be run as they were prior to the economic collapse in late 2008. Budgets will remain small and despite growth, businesses will continue to be wary of investing in new solutions causing them to scrutinize the cost and benefit of new products. Because of this change, business to business vendors, especially technology vendors will need to shift the business model from providing products to providing solutions and focusing on customer needs rather than product capabilities. Vendors that are able to provide low cost or even free business solutions like Vistaprint, will be better positioned to survive and thrive in this new economy.”

 

Mr. Hichert’s words set forth three salient factors surrounding SMBs (small-to-mid-sized businesses) in the new economic era in which we find ourselves operating today:

 

1.       Smaller budgets and increased return-on-investment (ROI) vigilance on the part of the technology buyers

 

2.       Increased need for technology vendors to shift dramatically from selling “products” to selling “solutions”

 

3.       Vendors that are able to provide low-cost or no-cost solutions will be better positioned to survive and thrive

 

On smaller budgets and increased attention to ROI
Some history

 

Since the emergence of PC-based accounting and ERP (enterprise resource planning) applications for SMBs beginning in the 1980s, software vendors and resellers (VARs) have gone through some schizophrenia over the whole matter of talking about ROI with their prospects and customers. In the early days, there software vendors and VARs offered considerable “hype” about the ROI available to those who adopted computer-based accounting solutions. Unfortunately, it was the vendors or the VARs doing the calculations and, when some firms did not reap the benefits anticipated from the so-called “promises” made by the vendors, law suits ensued. Of course, the legal wrangling, and the fallout thereof, squelched much of real and legitimate discussion regarding the benefits that should accrue to the organization that buys and implements new technology.

 

Soon, technology vendors were making only the vaguest of references to ROI with benefits being stated in the roundest of numbers using remarks that include many qualifications and limitations. Frequently there were expressions of “results obtained by others” without reference to who these “others” might be, nor an opportunity – in most cases – for the prospective buyer to discuss the specifics surrounding these published “results” with a living reference. Gradually, even that dissipated into merely discussions around “the ways” in which an organization “might” reap benefits from the purchase of this technology or that one, but even the language of assurance slipped away.

 

Of course, this diminishing willingness on the part of technology vendors to discuss solid ROI calculations with their prospects was accompanied by an increasing number of troubling stories appearing in trade – and even mainstream – publications about ERP implementations going vastly over budget, not producing business benefits that had been anticipated, or both. Some ERP deployments even failed entirely – usually after the expenditure of some millions of dollars – and the proverbial “plug was pulled” on some of these projects. Even more devastatingly (though rare), there was the occasional firm that, itself, failed to survive after its ERP implementation went awry.
Where this went wrong

 

There any number of directions one might point a finger of blame for this whole matter of technology and return-on-investment going wrong. However, allow me to suggest a few that might be worthy of consideration:

 

Technology vendors/VARs – For better or for worse, many folks that became involved in the explosion of PC-based technologies over the last 30 years or so did so because they simply enjoyed technology. This makes sense, and I have nothing against one enjoying the work they do. In fact, I believe it should be so. However, some of these vendors and VARs were convinced that the technologies they offered were the answer to every question. Some of them sincerely believed that if a process could be automated, then it should be automated.


Since moving companies off paper-based accounting processes, or even off very costly mini- or mainframe computing systems, was easy to sell and typically allowed companies to grow several times over without dramatically increasing back-office overhead, ROI was a “no-brainer” and most companies that purchased were virtually assured to benefit – at least enough to make it worth the buyer’s investment, even if not as much as buyers had hoped before closing the deal.


This ease-of-selling and ease-of-ROI caused many technology vendors to get rich. It also caused far too many of them to get lazy. “ROI? Absolutely! No problem. You’ll probably get between x% and y% increase in revenues and your operating expenses will probably decrease by between n% and m%. You’ll be sittin’ pretty. Trust me.” Thus was the standard sales chatter, and many first- or second-time buyers of PC-based accounting and ERP technologies bought it – hook, line and sinker.


The SMB executives – Just like the vendors sold it, the SMB executives bought it. Both sides of the transaction were pretty certain that new technology worked just like “new and improved” additives for your car’s engine. Just pour it in and the engine would run smoother, quieter, longer and with less friction. So, these vendors and executives poured in new technologies from time to time expecting the companies to run smoother, more efficiently, and make more money – it was as simple as that.


The SMB IT departments – Unfortunately, just like folks getting into PC-based technologies as a vendor or VAR, many of the people who got into corporate IT got into the field for exactly the same reason as the vendors/VARs. They simply liked working with the latest and greatest technologies – and, for the most part, they were good at it.


Nevertheless, this led many corporate IT staffers and managers to take on the same sense that engulfed the vendor/VAR community: namely, if it can be automated, then it should be automated. In fact, many corporate IT staff and managers actually moved pretty fluidly back and forth between working for vendors/VARs and working on IT departments. Some of the relationships even bordered on incestuous and provided little cause for rethinking the ROI value of technologies available or proffered by the vendors.

 


[To be continued]

 

(c)2010 Richard D. Cushing

A friend of mine, Ed Kless, recently posted at VeraSage a small article on the Stan Shih Smile Curve. The essence of the Stan Shih Smile Curve is to show the rate at which value is added to a product over the supply chain.

Stan Shih Smile Curve.jpg

From the curve, it becomes readily apparent that the most value is added at the ends of the supply chain. That is, the development of the concept and the research necessary to bring a product to market (say, a new cellular phone) adds more value to the end product than the branding effort or the design effort. Similarly, marketing, sales and after-market service adds more relative value to the product than does distribution.

 

Smack-dab in the middle--and at the bottom of--the Stan Shih Smile Curve is manufacturing. Of all the processes in the supply chain and a product's life cycle, the actual manufacturing or production adds the least value to the product itself. This is readily apparent because, if the design is fixed and the distribution is in place, it really makes little difference which competent manufacturer produces the product--and whether the product is manufactured in the U.S. or in some foreign country.

 

On either side of "manufacturing" on the Smile Curve are two very important elements that deserve attention, however. The "design" phase is critical because the relative complexity or simplicity of a product design, its use or lack of use of standardized components, and its modularity of design may play an important role in determining the manufacturers that may be capable of producing the product in sufficient quantities, with high quality, and on-time for delivery.

 

The "distribution" phase is also critical to product success and value-add. The ability to meet customer demand without overburdening the supply chain with inventory is an important value-add to the supply chain. Equally as important is the ability to capably manage changes (long-term) and fluxuations (short-term) in market demand with market-dampening, profit-killing stock-outs or (again) excess inventories in the supply chain.

 

Wherever your organization lies in the supply chain, understanding your role in adding value to the products and services you deliver will help you better develop win-win propositions for your trading partners.

In a recent report, NPI identified top areas of supply chain overspending in 2010. NPI is a privately-held company that helps large and medium-sized businesses  achieve fair market value for their transportation and technology  purchases. The report states that "NPI estimates that supply chain organizations will overspend $124.5 billion on shipping and logistics services in 2010." The areas included in this overspending are
    1.  Fuel surcharges
    2.  Overnight deliveries
    3.  Unclaimed refunds
    4.  Address correction charges
   
Over the years of my work with small-to-mid-sized companies implementing new technologies, I have frequently advised firms to trim down their general ledger's chart of accounts.  I tell them that there are two--and only two--reasons to add another account to your chart of accounts.  The first reason is because some government agency requires you to report on it.  Things like revenues, categories of expenses, and many more fall into this category.

 

The second reason is because the firm is going to proactively manage some value tracked in the general ledger (GL), and there's no convenient place to get that number elsewhere.  Of course, I emphasize the phrase "proactively manage" in this discussion.  For example, I might say, "If you are not going to proactively manages sales by product line, then don't break down sales in product lines on your GL.  Throw it all into a single GL account."  Do this helps keep management focused on the smaller number of things that they are likely able to actually affect through their efforts.

 

However, the NPI report brings the opposite issue into focus.

 

Not infrequently, when working with manufacturers and distributors, I will ask the question: "Do you track 'excess freight' in your system, and do you manage it?"

 

The usual answer is, "What is 'excess freight'?"

 

When I hear this, I know there is likely a problem that can be managed in a way to help the company start making more money--more profit--almost immediately.

 

EXCESS FREIGHT


"'Excess freight' is," I tell them, "when you end up paying higher freight charges because something eles in your system (your 'organization') did not work like it was supposed to." Further, I explain that if purchasing has to pay for overnight delivery or some other expedited freight charges on all or any part of an order to keep production moving or customers happy, then those charges for expedited delivery are "excess freight."  If the firm has to higher than normal charges to get product delivered to a customer on-time and as-promised (for whatever reason), then those extra shipping charges are "excess freight."

 

The point is, if the firm pays extra charges for shipping because sales or purchasing or production or some other department does not do its job properly or on time in order to avoid such extra charges, then the company is paying more ("excess") for shipping to cover up internal systemic failures.  If the firm does not track the "Excess Freight" charges somewhere, no one knows the size of the problem.  In fact, if the dollar-amount is not tracked, you can be certain that almost everyone in the organization believes the problem is smaller than it really is.

 

As long as executives at the firm have no idea whether the problem is $10,000 problem or a $100,000 problem or a million-dollar problem, no one knows how much it is worth to the firm to "fix" the issue. But here's the thing: If the company is presently netting 7% after-tax profits and "Excess Freight" is a $10,000-a-year problem, it takes $142,857 in gross revenues to make up for what "excess freight" is costing them.

 

Which do you think is easier to do for the firm: add almost $150,000 in new revenues or work on internal problems that lead to "excess freight"? And, if adding $150,000 in new revenues is easier than fixing then "excess freight" problem, then they ought to do both. Then look at their bottom line with a bigger smile.