Business Systems Eat Up Profits Every Year
You may be one of those seated quaintly in the budget meeting trying to determine why the business systems financial plan has cut into three, four, or event five percent of profit year after year. You observe the same solution brought forth to you is reminiscent of the one just last year – specifically solutions that are related to software licenses, upgrades, customizations, integrations, and changes.
“We will perform the project in house to keep costs low; and I have a good working relationship with the vendor.” Sound familiar? The next question (to yourself) should be something along the lines of “what has any of this done for us lately?”
Unfortunately, the disparity between you and the business systems teams makes it extremely difficult to truly evaluate the value of new system proposals or changes. In fact, your companies dollars are likely supporting a lot of business systems that most inside your organization don’t fully understand. But that’s OK, IT knows what the value is, right? Unfortunately, IT feels the same way about business goals and outcomes. You see, IT understands the business systems, but not the business. Management understands necessary business outcomes, but not IT infrastructure and technology that are attempting to support them. This disconnect leads to misaligned systems, costly legacy software, outdated processes, and bloated budgets.
In a recent report released by Panorama Consulting of companies undergoing enterprise software implementations, 1 in 4 respondents contested the project was a failure. The data appears to suggest that processes and organizational issues pose the most risk to the implementation. The list below highlights the top five reasons project failure belong to organizations and their lack of business systems best practices expertise. We further provide solutions on how to mitigate these risks so you can be certain the project budget doesn’t further tear into profits.
5 Reasons Why Business Systems Destroy Profits
1.) Due Diligence
Due diligence is vital for any IT project, whether it be as something as complex as an implementation or as simple as a data cleanse. It is the art of laying out business processes from quote to cash, understanding what users need to complete tasks, and selecting a methodology that meshes software with people. This can be a messy, time intensive process, and is nonexistent inside of many software projects. However, the study reveals more companies saw project success when sourcing an expert who can conduct this process for you, and help a business merge the gap between IT and management. An experts job is to ask who, what, when, where and why – a lot. This process on the front end can eliminate a lot unforeseen costs later that dip into profits.
2.) Putting Financials First
So many companies make the mistake of putting their financials on a pedestal. While understanding business costs is important, communicating a deliverable that requires financials configured first is an expensive decision. Why? As we mentioned at the start of this post, the most common reason software projects fail is because of processes and organizational issues. When investors emphasis financials as a priority during implementation, it places a top-down approach of the system that the rest of the business must adopt. Essentially, the company is doomed to duplicating the problems of the legacy system into the new system.
What you should do instead is deploy a business process modeling expert to approach the implementation with a bottom-up methodology. What should occur is a map of key business processes systematically placed to streamline actual “work.” Thereafter, all costs associated with jobs, labor and machine transactions will rise to the top – i.e. financials. This alleviates a company from spending thousands of dollars later trying reconfigure the system to dig down deep to exploit wasteful areas – and fail to see ROI.
3.) In-House Modifications
More times than not, companies will look to complete IT projects on their own, or partner with a developer/vendor. This may be one of the the least successful approaches to business software implementation, upgrading, or training. Why? Investors become invested in the development of the software itself rather than investing in a change-solution and business process improvement.
This involves blending BPMs with technical components, ensuring business systems approach a systematic imperialism the first time. That side of the project is often nonexistent in a business because they’re focus is on clients – not the technical and functional nature of tasks and jobs. Sometimes companies wait too long before coming around to accept that there’s a problem, then are stuck running through revenue dollars in IT, finance, and human resources just to see the ones in charge accept defeat.
4.) Change Management
The most common reason projects run well over scope is because there is no plan to manage change. Change management involves constant communication between the project committee, senior sponsors and users. This ensures everyone is fully involved in the changes made to a business process, or a configuration to the system, and are held accountable for that change. This way there are no unexpected issues that either extend the scope of the project, or call for an increase in funding for the IT budget next quarter. Also, change management ensures users will adopt the system since it is tailored on a week to week basis around use cases put forth to the project team.
This process inevitably delivers a system that is fully functional and completely purposeful. We’ve made example of this issue before in our previous article discussing why 100% of button projects fail. Savvy investors — like you — can mitigate this risk very simply. Source an expert business solutions expert whom implements a change management narrative into each stage of the project. This brings all stakeholders clarity on what to expect from the system. Even more importantly, departments can remain focused on their existing roles without taking on any other projects that move their attention to areas needing their full time and energy.
5.) Continuous Improvement
Continuously improving the system is as important as any project occurring at your company. This should be something budgeted for by your IT department. A continuous improvement program involves sourcing a third party to assist on data scrubs, modular integration, system integration, and user edification. Ultimately, it proves the system worthy over the life of owning the asset. This added maintenance keeps components of the system powerful and agile enough to bring ROI in as fast as advertised. CIP projects are affordable and worth the investment.
Each fiscal year the CEO, CFO, and CIO are swayed to make business system decisions that do not fully-support the business outcomes they’ve drawn up. The reason for this is that the business system administrators are not equipped to build out business processes, and the management team is not equipped to implement the technology to support their desired outcomes; and it is this approach to software projects that cause many to inevitably fail.
As we’ve touched on before, software itself it a terrible investment. Pouring hard earned capital dollars into a software solution takes venture money away growth opportunities in the short and long run. Software itself does not nix the many issues attributed to a company’s stale top-line growth. Investing in infrastructure is an emotional decision that should be considered by many in an organization. One of the best ways to mitigate these risks is to invest in having an expert assist you during selection and implementation. Datix has helped hundreds of businesses successfully navigate these projects. Contact one of our experts today to learn more about how we can help.
2 thoughts on “5 Reasons Business Systems Eat Up Profits Every Year”
Good reads! You nailed it.
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