The Blind Men and the Elephant: Why Major Spares Should be Managed Centrally

In the old anecdote of the Blind Men and the Elephant, six blind men each describe an elephant based on the part they touch. One man describes the elephant as a snake while holding the wiggling trunk, while another describes the elephant as a tree while feeling the knee. The differing perspectives mean that not one of the men has the complete picture of the elephant since each only knows a small portion of the truth. Decentralized management of major spares inventory by drillers often leads to the same result – a disjointed approach based on limited viewpoints.

Local operations exercise greater autonomy while held accountable for their P&L in a decentralized model. This structure is often necessary to meet the differing complexities presented by each geography but poses a challenge for managing major spares at the local level. A local operation often lacks the time, incentive, and visibility to make decisions that are in the best interest of global operations and rather does what is best for its own bottom line. The result of decentralized major spares management is often suboptimal sourcing decisions and excess or poorly maintained inventory that sits in the shipyard.

How can offshore drillers effectively manage the most critical, expensive, and highly technical inventory across a worldwide fleet? Major spares should be managed by a group who understands the technical, operational, and financial components of managing such specialized equipment. Then it is important to:

  1. Determine scope of major spares:Develop and prioritize criteria for what constitutes a major spare. Criteria may include the potential for safety incidents in case of spare failure, cost of spare part, and lead time for fixing or replacing the spare. The major spares group manages equipment that meets the set criteria while all other inventory is managed by supply chain. The group also oversees major spare processes including sourcing, inventory planning, certifications, technical specifications, and retirement decisions. The group needs full visibility of inventory within its scope across shipyards, warehouses, and assets worldwide. When disputes arise regarding needs for major spares across geographies, the major spares group has the final say. Centralized management supports improved longevity of assets and financial decisions regarding inventory levels and allocations of spares on a global scale.
  2. Centralize decision-making, decentralize execution:The central group manages major spares, but coordinates with other parties (and geographies) affected by major spare activity. This includes consulting with the projects group regarding impact on newbuilds and overhauls, operations regarding their needs and concerns, and supply chain regarding the procurement and warehousing of major spares. While decisions are managed centrally, this does not mean that all spares should then be stored in one central location. In fact, spares should be located close to the local operations – such as strategic hubs that serve particular regions or time zones. The goal is to find the right balance between enabling a quick response time to operations and achieving economic cost efficiencies through pooling resources together.
  3. Align processes to support the new major spares program:The current processes need rationalization to communicate how decisions will be made going forward and the action steps required for activities involving major spares. This entails eliminating, modifying, and adding policies and procedures to reflect the new major spares process. Part of this process is data input, as the output is only as good as the data entered into the system. If end users lack uniformity and transparency of maintenance tracking or inventory levels, the major spares group will lack visibility into the information it needs to make informed decisions at a global level.
  4. Ensure the right systems and tools are in place:In order to have global visibility into the major spares inventory, the company needs a tool that captures inventory levels and tracks maintenance across geographic locations. A user friendly system will increase likelihood of effective data entry. A critical step often missed is the initial configuration of the system to meet the information and reporting needs of the business. Once in place, end user training and acceptance testing will allow the users to learn the system and catch any issues that need fixing for a smooth go-live.

While there are unique complexities faced by each company, Trenegy has the industry experience to help companies tailor solutions to meet their needs. Learn more about our comprehensive organization design methodology by reading Say Goodbye to Mediocrity: Basic Principles of Organization Alignment.

Jamming the Revolving Door

Tired of your highest-achieving employees jumping ship for the better offer?

Whatever happened to the company man? According to the U.S. Bureau of Labor Statistics the average job tenure in the United States is 4.6 years. Further research has shown that this statistic is almost halved among young professionals. Ironically, while employers shake their heads and bemoan the mercenary culture of young millennials, they simultaneously perpetuate the job-hopping phenomenon by constantly encouraging professional competition over cooperation.

So, how can employers foster excellence without the motivating pressure of competition? Focus on teamwork and individual development. Here’s a few quick fixes:

  1. Don’t pit employees against each other. There’s a scene in the 2006 James Bond film, Casino Royale, where Bond tells his boss that he can’t be “half-monk, half-hit man.” Ambitious young professionals frequently find themselves in a similar conundrum. Forcing employees to compete for incentives or projects is equivalent to asking them to sacrifice relationships for success and there is no quicker way to destroy an employee’s emotional investment in a company. Employers shouldn’t be surprised when the mercenary they’ve created turns the tables and jumps the company ship for a pay raise.
  2. DON’T play favorites; DO emphasize individual strengths. Sure, every company has a few go-getters that excel no matter what the situation, but they need to be careful not to put them on a pedestal. When other employees are pressured to “be more like John or Linda”, individual skills and commitment are minimized and the high-performers are ostracized. Every employee will bring a different set of strengths to the table. Fostering these diversified skills creates a well-rounded team and more fulfilled employees.
  3. Recognize team success. Individuals are commonly recognized for an extraordinary effort or accomplishment, but team success is often overlooked. What’s worse, a team effort often gets attributed to one individual. This not only creates resentment amongst the slighted parties, but it puts the credited employee in an awkward position and creates unrealistic expectations of them going forward. On the other hand, a team that is recognized for collectively excellent work develops a sense of pride and attachment to their teammates, fostering an emotional investment in the company.

These three methods are just a few ways to increase employee investment and decrease turnover. Here’s the bottom line: if employees feel like valued, capable parts of the team, employers will find that pesky old revolving door turning a whole lot slower.

Trenegy helps companies successfully implement change management strategies through innovative and practical solutions. We help our clients assess their organizational structure by identifying flaws and closing the gaps between vision and strategy. Read about our key principles of organizational alignment in our Perspective: Say Goodbye to Mediocrity: Basic Principles of Organizational Alignment.

Looking for the Achilles Heel … How to Select a ‘Tier 2’ Package

High growth companies that outgrow their small company accounting systems (QuickBooks, Peachtree, Solomon, etc.) are challenged with finding a cost effective and robust ERP. The Tier 1 ERP solutions, Oracle eBusiness and SAP ECC, provide fully functional ERP and reporting solutions across all industries and are excellent alternatives. However, the associated costs may drive a high growth company to look at Tier 2 options. The Tier 2 list is longer and includes SAP B1, Microsoft Dynamics, Infor, NetSuite and Epicor, to name a few. Investments by Tier 2 vendors over the past five years allow these applications to offer a tantalizing alternative by providing integrated solutions at a much lower total cost of ownership.

Selecting the right Tier 2 package is daunting given the number of alternatives available. How can a company be confident when determining which Tier 2 package will support a growing company? It is all about finding and addressing the Achilles heel of Tier 2 alternatives:

  • Chart of Accounts Structure. Companies implement new ERP systems to improve the quality and timeliness of information required to support the business. Capturing profitability across a variety of dimensions including geography, division, product or service line, and customer is critical. Most Tier 2 packages incorporate the profitability dimensions as part of the chart of accounts. In this case, all valid combinations will need to be entered into the system. This makes the chart of accounts difficult to use and maintain for larger companies with complex organizational structures. However, there are a few Tier 2 packages that support dimensionality. These solutions should be short listed when a company is considering implementing a new ERP.
  • Intercompany Processing. Accounting for the transfer or sale of products and services in a complex legal entity structure can be difficult for many Tier 2 packages. There are few Tier 2 packages that offer intercompany transaction processing as core package functionality. In this case, intercompany transactions would need to be processed and consolidated manually, resulting in data entry errors and delayed month end closes. Many fast growing companies have legal entity structures that result in intercompany transactions. These companies should only consider Tier 2 solutions that have automated intercompany processing capability.
  • Foreign Exchange Support. Many high growth companies differentiate services by operating globally. Sales transactions can result in product being sourced in USD but sold in local currency. Bills are generated and collected in local currency while profits are transferred to headquarters in USD. It sounds simple but many Tier 2 packages do not support this functionality without need for modification or third party solution. Either add cost and complexity to the implementation.
  • Configuration for Ease of Use. Tier 2 ERP solutions provide a variety of experiences for end-users. Some provide a ‘green screen’-like environment that is comforting for users who do not want to click through the transaction entry process. Other Tier 2 ERP solutions have completely rewritten the user interface to take advantage of modern technology and provide a Windows type interface. A few Tier 2 ERP solutions have taken the middle ground by taking advantage of the best of both options while providing powerful tools to simplify transaction entry processing. The packages that have taken the middle ground can be easily configured to support company specific ‘best practice’ processes.
  • Implementation Approach. The majority of Tier 2 implementation consultants take the ‘homework’ or ‘workbook’ model approach to installing and configuring software. The implementers bring in set up checklists and questions to decide how the system should be configured. Critical report design, workflow settings, and data integration work is assigned to customers and must be completed before the implementation consultant can configure the system for testing. Tier 2 ERP consultants leave and do not come back until the homework assignments are completed by the customer. This works well for very small simple companies. However, rapidly growing companies require more assistance to navigate the organization and leverage best practices from across the industry to determine the appropriate future state. As a result, fast growing companies require more systems integrator attention to ensure these tasks are completed correctly. Most Tier 2 ERP consultants are not comfortable working in this environment and should be vetted carefully.
  • Post Implementation Support. Tier 2 ERP solution providers vary in size and ability to provide post implementation support. Customers of smaller Tier 2 ERP solutions may have difficulty in obtaining support during critical outages because their one ‘support consultant’ is on vacation hiking Mt. Kilimanjaro. Selecting a Tier 2 service provider that has a sound financial position, invests in new functionality and offers the right level of post implementation support is critical for a successful implementation.

Trenegy helps companies successfully select the right ERP solution to support growth and change. Read how to properly prepare for implementation in: Preparing for an ERP Implementation….Reducing the Pain!

3 Warning Signs the “Homework Model” Isn’t Working

If the check oil light comes on and your engine is running louder than normal, it’s probably time to stop and check your oil. Ignoring these warning signs can lead to costly repairs for a seized engine. The same is true during ERP system implementation. The popular Tier 2 implementation method uses the ‘homework model,’ an assignment-driven implementation task list to complete Go-Live preparation. This model proves challenging for companies and often leads to costly overruns as overworked employees do not complete assignments given by the systems integrator.

ERP implementation teams often fail to identify the warning signs of a failed ‘homework model’:

  1. Confusion. An unclear vision for moving from current to future state creates confusion. Employees are primarily concerned with their area of responsibility and ignore assignments that require coordination across multiple functions, from operations to back office leading to incomplete and inaccurate data. The calendar of homework assignments is not to be confused with a project plan. A detailed vision and work-plan provides clarity and ensures a comprehensive approach.
  2. Missed Milestones. Internal resources are often dedicated to implementation efforts on a part-time basis. The resources are forced to split priorities between fulfilling the expectations of primary job responsibilities and completing project ‘homework assignments.’ Strained employees cause missed meetings and critical assignments that may delay Go-Live. Employees feel frustrated and over-worked as they essentially have two roles and two direct reports during implementation. Dedicating full-time internal resources with a comprehensive project understanding can bridge potential knowledge gaps and reduce the need to scramble as Go-Live approaches.
  3. Lack of Ownership. Without clearly assigned project roles and responsibilities, accountability is low and critical tasks fall between the cracks. An inability to answer basic project questions is a telling sign that employee ownership is low. This gap may arise due to overconfidence with the system integrators’ ability. There is no alternative for an internal project governance model that provides vision and delegation of responsibilities.

Trenegy helps companies successfully implement ERP systems using the homework model. For more on how to avoid the pitfalls of a failed homework model, read The Dog Ate My Homework… Completing Critical ERP Tasks.

Making a List and Doing it Right …The Power of the Checklist

Suddenly there’s a kick while pumping mud and a blowout is imminent. Could this have been prevented? What do you do now? The answer to those questions can be found in a checklist. Companies often misconstrue the purpose of checklists – they believe it’s a user’s guide that creates robotic employees mindlessly carrying out tasks. A checklist is not a sign of weakness nor does it indicate a lack of expertise, but instead a checklist is designed to act as a reference in high-risk situations because nobody is perfect 100% of the time.

Statistics show when designed and implemented correctly, a checklist can reduce errors in the workplace that range from miniscule to disastrous. The aviation industry is one of the first industries to fully utilize the power of checklists. Audience, content and design should be carefully considered when creating a checklist.

Who is the audience? When designing an effective checklist one of the most critical components is understanding your end-to-end processes and all of the parties involved. A checklist created without input from the end-users will lead to low buy-in and missed steps. A pilot’s checklist created without coordinating with air traffic control, flight attendants and the ground personnel would create chaos. The same is true when creating checklists between corporate and field offices. Two-way communication throughout the processes is key to developing something that everyone can use. Training the end-user is half the battle. Without knowledge and awareness of the checklist, validating the usefulness will be difficult.

What to include in a checklist? The level of detail can quickly ground a checklist before it takes off. On the other hand, a checklist that is too vague may have the same negative effects. It’s about finding the right balance. A checklist needs to be precise, simple, easy to understand and at a level of detail that ensures repeatable success. There are two basic types of checklists. The first is called a do-confirm. Once a task is complete the user references the checklist to confirm that the steps were done as intended. In this scenario the user is acting upon experience and the checklist is a simple reminder. The second type of checklist, read-do, is for rare or more critical events when steps may be unfamiliar and when skipped can be costly or harmful. Considering the criticality and familiarity of events will help organizations decide on the type of checklist.

How to create a checklist? The organization and structure of the checklist is critical. A good checklist will have 5-9 major points. If there are more than 9 items the list will seem too lengthy to use. Less than 5 points and it’s likely the user may not have enough information. The second key to mapping out a good checklist is locating and placing the pause points. This is the moment when users stop to reference the list, whether to confirm their recent actions or to see what steps are next. If there are too many pause points, the checklist will not flow. Too few, and the likelihood of missing steps will increase. Deciding when and where to put the pause points is almost as critical as the content itself.

The aviation industry championed checklists in the workplace, but they have started a phenomena that greatly reduces business risks if used properly. Trenegy has a fit for purpose method to help companies develop useful checklist to decrease mission critical errors and increase efficiency.

The Corporate Financial Planning Owner’s Manual Section: Vehicle Maintenance

A vehicle is heavily relied on for many tasks such as getting to work, traveling on vacation, or hauling home improvement items. The maintenance of a vehicle is often an intimidating or overlooked task to the average owner. By pushing off this important task, a vehicle begins to deteriorate quickly until eventually the vehicle breaks down and is in the shop for two weeks. The price of this check-up is substantially different than the collective cost of regular check-ups.

Similar to a vehicle’s importance to a person, corporate financial planning’s deliverables are critical to an organization. The numbers gathered, analyzed, and presented to executives in budget and forecast reports drive crucial decisions for a company’s future. However, one wrong input or inadequate data in the budget and forecast models can lead to big decisions doomed for failure. Just like a vehicle, corporate financial planning’s deliverables need to be well maintained to prevent costly mistakes.

  • Quality Data – Vehicles require fuel to run; quality fuel allows a vehicle to run better. The fuel for corporate planning is data. Quality data is a crucial component that enables corporate financial planning to produce quality reports to support business decisions. Inadequate data used in models will lead to unreliable reports deemed useless by executives. Without reliable planning reports, executives must make decisions for a company’s future with little support. Many factors play into determining data quality, such as the reliability of the source system, accounting for any manual changes, and the timeliness of capturing the data. By conducting a thorough analysis of the data quality used in planning models, corporate financial planning can determine the necessary steps to improve their fuel.
  • Fine-Tuned Models – Many parts of a vehicle require regular check-ups. The oil needs to be changed, the brake pads need to be replaced, and the tires need to be rotated. The model used by corporate financial planning for budgets and forecasts also has parts. The collection model that gathers data from different businesses, the revenue model, and the capital expenditure model are examples of various parts in a corporate financial planning model. Whether these models are in a million-dollar system or in Excel, regular upkeep is critical. Failure to technically maintain these models can lead to broken links, missing pieces of data for critical formulas, or version control issues. No matter how sufficient the data brought into the model is, a poorly maintained model will not produce the necessary outputs. By taking the time to regularly maintain these models, corporate financial planning will prevent a future costly mistake as a result of an insufficient model. Regular maintenance may even require completely rebuilding current parts of the model to remove legacy assumptions or recurring errors.
  • Effective Output – Accordingly, with quality fuel and regular maintenance, a vehicle should run properly for at least its intended useful life. However, just because a vehicle runs properly does not mean it is effective to its owner. For example, a convertible car may work perfectly but would be considered ineffective to a rancher. Similarly, quality data and technically sufficient models may not produce effective outputs. The outputs produced by the data and models must conceptually align with the business decision needs. Each report and metric produced by corporate financial planning’s model must be rationalized with the executive team. If considered ineffective, it’s either time to replace a part or trade-in for a new vehicle.

By following all components of this maintenance checklist, corporate financial planning can efficiently and effectively meet the needs required to make critical business decisions. In other words, no matter how efficiently a vehicle runs, the effectiveness of that vehicle plays a large role in vehicle maintenance. Vice versa, a vehicle can only run effectively for a short time without regular maintenance. So, oil change on the way home today? Or, is it time to trade-in that convertible?

To read more on data quality for planning systems, read Like Putting Gasoline in a Diesel… How Bad Data Can Ruin a Host Analytics Tenant.

Why Change Management

Notre Dame leads Georgia Tech 24-3 in the final 28 seconds of a 1975 football game in South Bend. The game is essentially over. The crowd is relatively calm and the Notre Dame Bench is quiet as the season winds to an end. Notre Dame Coach Dan Devine puts number 45 in for the last few plays of the game and the fans and players erupt in excitement. Number 45 makes an inconsequential sack on the last play of the game. The crowd goes wild and number 45 is carried off the field on his teammates’ shoulders in celebration. Why all the excitement over a trivial end of game play?

Grown men shed tears of joy seeing the moment recaptured in the film “Rudy”. Understanding why the excitement and tears requires explanation. Number 45 was Rudy Ruettiger. Rudy was the first in his family to attend college after shirking a destined life of a melancholy factory worker in an Illinois small town. Rudy’s learning disabilities did not prevent him from being admitted to Notre Dame. However, Rudy’s 5’6″ and 185 pound frame was far beneath the standard for collegiate football. Despite Rudy’s physical and mental challenges, Rudy persevered and joined the elite Notre Dame Football squad. The film “Rudy” immortalizes Rudy’s heart-warming story and helps viewers understand why the seemingly trivial football play is of importance. Understanding why makes a difference.

Introducing a change in how a corporation’s leadership wishes to conduct business is often delivered without explaining why it is important. The change is met with resistance, good people leave the organization or people decide to work around the change. One of the most common causes of change occurs when a growing organization faces the challenge of implementing new business or ERP systems. The new ERP system impacts everyone in the organization. However, the only tears shed are tears of frustration and the only eruptions are those curses hurled at computer screens.

People in the organization only see how the new ERP system is impacting them at a personal level. In most cases, the new ERP system makes their job more difficult. More information is required to process an invoice, short cuts cannot be taken and reports take longer to run. Paper is eliminated! People in an organization need to understand why the new ERP solution is being implemented.

A large oil and gas company was recently faced with the challenge of replacing all of their business systems. Prior to implementation, the organization’s leadership took the time to clearly communicate why the organization needed to implement a new ERP system.

Give everyone a reason why –There are plenty of small-framed men who break the collegiate football barriers. However, Rudy’s plight was multidimensional with physical, socio-economic and mental barriers. The “why change?” at the oil and gas company had multiple dimensions. The “why” at the CEO level was supporting acquisition growth. The “why” at the Revenue Accountant level was giving them the opportunity to clean up data to streamline prior period adjustments (one of accountings’ most significant headaches). The “why” for operations was more timely production data. The ERP team ensured that each group had their personal set of “why”.

Do more than just implement – Rudy’s academic success was attributed to befriending an intelligent, yet awkward graduate student named D-Bob. D-Bob tutored Rudy while Rudy helped D-Bob overcome his awkwardness with the co-eds. During implementation, the ERP team looked for quick wins to help sustain the excitement. For example, the ERP team found a simple way to improve the planning process and assist the Finance team with developing a plan to eliminate manual data entry. A parochial ERP team might have declared the improvement “out of scope”. However, the investment to assist the planning group was small in comparison with the benefit of improving the planning process. This gave the ERP team one more “why”.

Never Give Up – Rudy applied for admission to Notre Dame and was denied multiple times. Once admitted, Rudy did not make the roster until the final game of his senior year. Likewise, perseverance was key to the ERP implementation team’s success. During process design sessions, the team was told the new AFE process would not work. Yet, the team knew the new AFE process would improve well scheduling and accelerate production. Most ERP teams would throw in the towel, but the team persevered through the design sessions and conference room pilots and ultimately proved the new AFE process would work during user acceptance testing. This allowed the ERP team to allow a “why” to survive the pundits.

Be Passionate In the movie, Rudy makes a passionate plea to convince his doubtful family that he will play football for Notre Dame. The emotions run high yet Rudy later turns his family’s doubt by being honored at the Georgia Tech game. At the oil and gas company, the project sponsors and steering committee were not afraid to be passionate about the project. For example, one of the engineering groups started a conflicting initiative. The ERP steering team made a passionate plea in support of “why” the company is changing. This halted the conflicts and kept the ERP project on track.

The “why change” is the cornerstone of ensuring a successful change effort. Additionally, the “why” needs to be reinforced and supported throughout a large scale organization change initiative.

Trenegy works with our clients to develop and implement change programs for ERP selection, ERP implementation and acquisition integration. Read about how to execute an effective change management program in The North Wind and The Sun Change Management Approach.

The Secret to ERP Go-Live Success? Test Well and Test Often

Students from first grade on can see a direct relationship between studying for a test and the final class grade. The more preparation, the better the grade. Promising students study through repetition either through the use of note cards or flash cards. Students who postpone studying to play find themselves scrambling to learn the material the night before the big test. Come test day the grade reflects the preparation.

Implementation teams face the same situation when testing new system functionality. The more preparation and emphasis placed on testing repetition, the smoother the transition to a new system. Most project teams plan for testing but get distracted with development and at the eleventh hour spend a minimal amount of time testing. Much like cramming the night before a vocabulary test, not allowing adequate time to cover key testing objectives will result in a chaotic and unplanned go-live.

How can project managers avoid running out of time for testing? It’s essential to break down the main components of testing and plan for the critical objectives associated with each phase:

  • Unit Testing

    Unit Testing is the most simplistic testing phase during a system implementation. The objective of unit testing is to validate small pieces of functionality within a larger business process. Test scripts need to be developed to ensure all components of functionality are tested. Many teams forego developing scripts for unit tests. This is a mistake because key test steps can be missed. Done correctly, the scripts can be strung together to support subsequent testing cycles. Unit testing without scripts is like learning multiplication tables without flash cards.

  • Integration Testing

    Integration Testing is critical to determining if a combined system and business process supports the future state vision. This testing should focus on making sure transactions, interfaces, reports and business process handoffs are all working correctly. Project teams often segregate the system and business process testing which leads to issues after go live. Not including end-to-end testing is like studying for a vocabulary test but only memorizing the spelling.

  • User Acceptance Testing

    User Acceptance Testing is often the final test before go-live. User Acceptance Testing is a set of integrated tests performed by non-project team members to ensure the system will support day to day activities. To truly simulate everyday processes and activities, representatives from each functional area need to re-create the processing of historical transactions. This is the first time many users interact with the system and is also the last chance to break the system before go-live. Not performing user acceptance testing is like skipping the final exam when the student has an “A” in the class.

Companies should involve as many end users as possible during the Integration and User Acceptance Testing phases. Testing can serve as the start of training and can increase buy in of key end users; a strong change management tool. Trenegy helps companies successfully implement new systems to support growth and change. Read about how to avoid other pitfalls during system implementation “Boiling the Frog… How ERP Implementations go wrong!”

Function or Dysfunction – Elimination of the “Manage the Managers” mentality

The popular cult classic Office Space satirized a company where job functions solely existed to hand off paper work between departments. Superfluous functions ‘managed the managers’ or ‘checked the checkers’ to ensure paper work flowed smoothly. Employees were stumped when the consultant asked: “so, what do you actually do here at Initech”. Unfortunately the Office Space satire is reflected in many large organizations where superfluous functions exist to ‘manage the managers’ or ‘check the checkers’. The most common superfluous functions are Quality, Strategic Sourcing, Corporate Strategy, Process Improvement and Shared Services Administration. The existence of these superfluous functions dilutes accountability for results and become organizational crutches.

  1. Quality – Quality is important and should be a part of everyone’s job. Large organizations try to drive quality by assembling teams of people to manage and measure quality in the organization. The Quality teams dream up complex measurement systems rarely understood by the people doing the work. The common result is operational departments shirking accountability for quality. Eliminate the Quality function in non-manufacturing companies and hold operations accountable for defining, measuring and delivering quality.
  2. Strategic Sourcing – Organizations set up strategic sourcing functions as permanent bastions for vendor warfare. The fight to optimize pricing and quality oftentimes costs the organization more than what is saved. Vendors facing customer Strategic Sourcing hike up their initial bids knowing a tough negotiation is impending. As an offensive tactic, the sourcing functions develop a complex array of measures to justify their existence through overstated savings. Strategic sourcing should be an initiative instead of a permanent function. The buyers in an organization can collaborate with operations to optimize vendor spend and quality on an ongoing basis.
  3. Corporate Strategy – Defining and planning the strategy is an event, not a function. The strategic planning event actually involves several functions including market planning, financial planning and operational planning. The strategy function rarely collaborates well with each of these functions and tends to work in a bubble. For example, the financial planning assumptions rarely ties closely with the strategic planning assumptions. The discrepancies create duplication of effort. Strategic Planning and Financial Planning can be integrated and tied together into one process. Marketing should drive market planning and Operations should drive Operational planning. The CFO’s Financial Planning and Analysis function can be the glue that ties the planning processes together.
  4. Process Improvement – Many large organizations have teams of people focused on helping the organization through process improvement efforts. While it seems to make sense to improve processes internally instead of spending money for outside consulting, most organizations grow tired of the internal process improvement teams. The internal teams are rarely exposed to what peer or leading companies are doing. The lack of exposure results in a lack of innovation and the inability to achieve the step change needed to compete. Leading organizations have folded process improvement into the Internal Audit function. The combination has allowed the companies to leverage the work already performed by Internal Audit and balance process improvement with the audit assessment process. The remainder is best left to outside experts.
  5. Shared Services Administration – Shared services seems to have taken on a life of its’ own in many large organizations. Lengthy Service Level Agreements, administrative invoicing and complex process measurements have required organizations to have a team of people solely focused on the administration of the Shared Services Functions. Many of our clients have simplified service level agreements to eliminate the need for the administration of shared functions. Finance agreements are managed within the CFO’s organization and Human Resource Agreements are managed within HR. A stand-alone department focused solely on administering the Shared Services processes can be eliminated.

The bottom line is that most of the superfluous functions drive accountability away from operations and support functions. When accountability is diluted, performance declines. High performing organizations should seek to eliminate these superfluous functions and streamline. Read more at “Handcuffing the Kraken”.