Reasons e-Procurement Projects Fail to Achieve their ROI (and ways to overcome them)

The typical ROI projection of an ERP implementation shows break-even in about two years.  Real world experience shows that break-even usually doesn't happen until more than four years after implementation.  Many companies are forced to give up on these projects because implementation costs have run over and there was a lack of tangible results.

Sourcing strategy and technology are equally necessary in this scenario. Sourcing strategy finds and pursues the savings, while technology captures the data so that the savings can be sustained over time.  Initial aggregation of spend and negotiation of better deals with suppliers can help offset to the costs of an ERP implementation.

Equally important is a thoughtful category rollout.  It's best to go with straightforward categories first, the ones most likely to meet with success, and refrain from choosing complex categories simply because their spend volume is great.

Electronic catalog content is important for a successful ERP rollout.  If the vendors don't have adequate content in their eCatalogs, or they fail to update and cleanse their data, users cannot buy, and the ROI of the ERP is undermined.

Effectively transitioning employees onto a new ERP system so that adoption rates are high and tools are used correctly requires a consistent message from all levels of the organization that this is priority #1.  Communication needs to to be clear and consistent, training needs to be thorough and ongoing, and users need to see evidence that their efforts are paying off with feedback on savings and compliance rates.

Change management is the least expensive aspect of an e-Procurement project, and yet the lack of it is a leading cause of project failure.

From a White Paper by ICG Commerce, August 2009: http://bit.ly/dkCaXk

Eight Leadershuip Skills that Matter the Most in the Real World

1. Competence  This is the most important leadership quality; it's not enough to have vision and purpose.  Competence has four pieces to it, intellectual, emotional, strategic and instinctive. This characteristic often is not transferable - the news is full of stories of successful CEOs from one industry failing when they try to apply their skills to a new industry.
 
2. Accountability Leading is mostly about the relationship between the leader and the led, and trust, accountability, and the faith others have in you is at the core of this relationship.
 
3. Openness This is a soft skill that can't be quantified, however, openness, candor, frankness, and honesty are bedrock qualities of leadership.  This includes the ability to speak plainly, to listen to new ideas, to tolerate errors on the learning curve, and to build relationships with people at all levels.
 
4. Language Connecting relationships takes place through language.  A leader's words can inspire, and they can divide.  They need to be able to persuade effectively, communicate with clarity and transparency.
 
5. Values This includes personal core values as well as the values that represent a leader's organization. Some examples include integrity, trust, passion for winning, respect, personal mastery, and excellence.
 
6. Perspective This brings balance to a leader. What can a leader bring to the organization from the past to the present and into the future? Yesterday teaches us, we dream about tomorrow, but our reality is today.
 
7. Power Cultivating the wisdom to use power wisely should be a goal of all leaders. Without power, a leader cannot effectively lead. Personal power comes from within an individual, positional power comes from holding a particular role.  Effective leaders use both these kinds of power.
 
8. Humility This quality is the least able to be taught.  Humility can be thought of as a sense  of modesty or as the absence of arrogance.  Leaders who have this quality can laugh at their own foibles, and they can be led.  They are not interested in having things their own way, but in finding the best way.

Adapted from Bethel, Sheila Murray. A New Breed of Leader: 8 Leadership Qualities that Matter Most in the Real World: What Works, What Doesn't, and Why. New York: Penguin Group, 2009.

Few enterprises know what they spend, on which products, or with which suppliers...

In the absence of good spend data, supply managers and business executives are forced to develop strategies and decisions based on intuition rather than actual data.

Impediments to accurate spend data include:

• incompatible data sources
• incomplete and/or inaccurate spend data
• insufficient category expertise
• inconsistent naming conventions
• limited analysis tools

In the absence of all of these, it will be difficult for any organization to understand how it spends its money or how to improve procurement practices.

How controlled is YOUR telecom spend?

In my experience, telecom is viewed as a necessary evil, and the invoices and service are never examined for errors or waste. I instigated a detailed spend analysis of a previous employer's telecom service, and discovered:

1. The bill had not been examined in ten years.
2. 34 out of approximately 185 phone lines on the bill did not exist.
3. Telecom usage patterns had changed since the services were installed, and many of the lines were no longer needed.
4. The bill contained many errors, including double charges, erroneous rental charges and charges that were patently incorrect.
5. These problems were organization wide.
6. Despite the fact that this was draining much needed funds from the budget,nobody cared.

The Aberdeen Group published a White Paper titled "Best Practice in Telecom Spend Management", detailing these problems. In it, they concluded that:

7% to 12% of telecom service charges are in error. For large enterprises, such errors are costing more than $8 million a year in lost profits. 

Up to 85% of a typical enterprise’s telecom bills are not audited and are simply paid in full. 

There is a lack of insight into telecom spending. Forty-five percent of companies are actively managing <50% of overall telecom spending.

To read this insightful paper, follow this link:

http://bit.ly/bA0SUP

Best Practices in Telecom Spend Management

The challenge: few enterprises have a detailed understanding of how much they’re spending on telecom equipment and services or with whom they are spending these dollars. The reason? Telecommunications services purchase decisions are widely decentralized and poorly controlled at most companies.

In fact, a June 2004 Aberdeen benchmark study of telecommunications spend practices of 115 enterprises uncovered the following:

• 7% to 12% of telecom service charges are in error. For large enterprises, such errors are costing more than $8 million a year in lost profits.

• Up to 85% of a typical enterprise’s telecom bills are not audited and are simply paid in full. For bills that are validated, billing analysts most often examine just a subset of invoices associated with the largest spending.

• There is a lack of insight into telecom spending. Forty-five percent of companies are actively managing less than 50% of overall telecom spending.

http://bit.ly/bA0SUP

Reasons e-Procurement Projects Fail to Achieve their ROI

Reasons e-Procurement Projects Fail to Achieve their ROI (and ways to overcome them)

The typical ROI projection of an ERP implementation shows break-even in about two years.  Real world experience shows that break-even usually doesn't happen until more than four years after implementation.  Many companies are forced to give up on these projects because implementation costs have run over and there was a lack of tangible results.

Sourcing strategy and technology are equally necessary in this scenario. Sourcing strategy finds and pursues the savings, while technology captures the data so that the savings can be sustained over time.  Initial aggregation of spend and negotiation of better deals with suppliers can help offset to the costs of an ERP implementation.

Equally important is a thoughtful category rollout.  It's best to go with straightforward categories first, the ones most likely to meet with success, and refrain from choosing complex categories simply because their spend volume is great.

Electronic catalog content is important for a successful ERP rollout.  If the vendors don't have adequate content in their eCatalogs, or they fail to update and cleanse their data, users cannot buy, and the ROI of the ERP is undermined.

Effectively transitioning employees onto a new ERP system so that adoption rates are high and tools are used correctly requires a consistent message from all levels of the organization that this is priority #1.  Communication needs to to be clear and consistent, training needs to be thorough and ongoing, and users need to see evidence that their efforts are paying off with feedback on savings and compliance rates.

Change management is the least expensive aspect of an e-Procurement project, and yet the lack of it is a leading cause of project failure.

From a White Paper by ICG Commerce, August 2009: http://bit.ly/dkCaXk

The Twelve Cardinal Sins of ERP Implementation

From a White Paper by Rockford Consulting

http://bit.ly/aigWub

The biggest issue in ERP use is implementation failure.  This often comes about as a result of the Twelve Cardinal Sins of ERP Implementation, which are:

1. Lack of top management commitment
2. Inadequate requirements definition
3. Poor ERP package selection
4. Inadequate resources
5. Resistance to change/lack of buy-in
6. Miscalculation of time and effort
7. Misfit of application software with business processes
8. Unrealistic expectations of benefits and ROI
9. Inadequate training and education
10. Poor project design and management
11. Poor communications
12. Ill-advised cost-cutting

There are numerous similarities of this list with the essence of John P. Kotter's book "Leading Change" (http://bit.ly/bRwhJ1).  To succeed in implementing any kind of major change in an organization there are several requirements.  It's necessary to establish a powerful guiding coalition and to assemble a group with enough power to lead the change effort.  A vision of this change must be created and communicated, others must be empowered to act on this vision so that obstacles can be removed and small victories achieved.  These improvements must then be consolidated and new approaches institutionalized.

Too often, change is dictated by executives who have little or no understanding of the processes underlying their business.  Without this understanding, there is little chance that a chosen solution will represent an improvement, and in a worst case, it could be a disaster.  Regardless of of the outcome, if the people doing the work of the business don't believe in the proposed change, it is destined to fail.  The most important part of implementing change is to get the buy-in of the workers and give them the support that they need so that they can succeed.  This means resources, training, and rewards for the extra effort required to bring about change successfully.