ERP and the Business of Change

High inventory levels, part shortages, long lead times, bad decisions, high costs of maintaining legacy systems, and faulty information through the business are but some of the reasons companies embark in ERP systems implementation. However, the greatest value in most ERP implementations is the increased capability to manage change in the supply chain. A more nimble and flexible supply chain is critical for the survival and competitiveness of any organization now more than ever before. The trend seems to be in the direction of more frequent, faster, and more radical change than before. Change capability requires an “upgrade” in information systems and key business processes. It also requires an upgrade in the mindset and culture of the organization. The paradox is that for an organization to achieve greater change ability and the resulting superior competitive advantage, the organization itself must undergo a fundamental change process at three distinct levels.

Enterprise Change happens for one or both of the following reasons. First, during a change this large, complex and demanding, it is not uncommon for people to begin to wonder how the effort supports the business objectives and strategy or what the strategy is. The key task is to clarify and reinforce the business strategy and link key business processes and performance management to corporate objectives and strategy. A clearly defined and relevant strategy provides a much needed constant in an otherwise uncertain environment. Second, the cross-functional nature of most ERP efforts requires communication, coordination, and collaboration across the enterprise both internally and with third party providers, suppliers, and partners. Whereas communication and coordination are mostly management activities, collaboration is a byproduct of effective change and one that cannot be mandated but is critical to the success of such large project. In both cases, strong change leadership is vital — a cohesive coalition of business and technical leaders who get involved early and continue committed throughout the project.

Work Group Changes might include adopting a new practice, sharing information with others, collaboration across groups, change in the business process, new metrics, increased visibility, different decision making processes, etc. In every case, groups will tend to defend what’s theirs and maintain status quo as much as possible. For instance, in creating a common standard, each group might defend the virtues and advantages of their current practice and struggle to find consensus in a seemingly win-lose situation. Naturally, inter-group (and often intra-group) conflict and politics are common. Effective and early stakeholder involvement and communication are vital to address issues and to facilitate action. This requires a strong change champion who has enlisted key stakeholders (not just IT professionals) to develop ownership of the project business case and plan, and who effectively links behavior at the lowest levels of the organization to the key operational, business, and corporate objectives.

Individual Change is where the point of impact is and perhaps the most difficult to address because of the scope and complexity of the issues. An individual may be confronted with a new user interface, a new “best practice”, a different way to make decisions, or any number of new requirements. When this is the case, individuals will tend to experience one or more of the following five key factors: fear, anxiety, confusion, loss of control, or erosion of power or influence in the organization. The more an individual feels any of these emotions, the less likely they are to accept the new way of doing things. Lack of acceptance will diminish or delay the benefits of the ERP effort. The key imperative for individual change is to 1) address the root causes of the five factors that hinder acceptance, 2) create individual conviction through involvement and experience, and 3) enable action and behavior change through systemic support.

To successfully achieve supply chain flexibility requires the right ERP solution and a critical review of the key business and support processes throughout the supply chain. But both of these efforts will come short of the promised benefits unless the culture and mindsets within the organization support and drive the desired business objectives.

ERP initiatives are all about enabling the client organization deal with change and enabling it to grow. As ERP efforts spread across several industries, types of organizations, and sectors of the economy, one of the real differentiators might be those solutions which create not only the systems and business capability but also the leadership, organizational, and cultural capability to change.

Can Fiat Change Culture at Chrysler?

The Boston Herald's recently published an article on Fiat's 'shake up' of management and culture at Chrysler (see full article). Quite interesting, there is a realization that the change needs to go beyond moving the boxes and changing names, titles, and logos.

Fiat certainly has a story to tell when it comes to corporate and cultural transformation. Sergio Marchionne's HBR article describes how he transformed a staunchy, tightly controlled, slow to change culture into an example of makeovers. He did four things:

1) Engaged with and developed a new breed of leaders.

2) Pushed the organization to accomplish the impossible by challenging old assumptions.

3) Looked to the outside for innovation and new ideas.

4) Demonstrated real, tangible respect for employees.

I'm sure it took lots more work and it was complicated, messy, and painful than the article makes it sound (these articles never tell you the whole story of course). But if the story is as good as it looks the question is...can they do a repeat with Chrysler? Probably so but they'll need to go at it differently, you can't expect the same results when you have a different series of variables at play.

Here are some challenges to consider:

1. Italian and American cultures are quite different. The communication and collaboration styles will need to be well understood and managed.
2. The American union environment might be quite different from the Italian form of collective bargaining process.
3. The environmental situation is quite different from what it was in 2004-2005 when Fiat started its own transformation. Today's economic landscape is quite more volatile and with GM going through its own bankrutpcy, you can't ignore the effect that has on the overall auto industry.
4. Corporate governance is not the same. Fiat's 35% stake in Chrysler may not provide the necessary leverage to accomplish some of the most difficult tasks.

Bottom line...can Fiat pull it off? Maybe! At least that's what we all are hoping for. What's certain is that it'll be an uphill battle and it'll prove a real test for Fiat to see if their success can be replicated at Chrysler.

The end of business as usual

The Washington Post's article on the need for autoworkers to be adaptable (http://www.washingtonpost.com/wp-dyn/content/story/2009/06/07/ST2009060702616.html?sid=ST2009060702616) sheds some very interesting light on what I believe has plagued many of American corporations.

In the article, the Post interviews a current GM employee, Tom Goddard, who sees a critical need for all in his situation to change their mindset, turn the page, and say goodbye to the time when being a union covered employee meant high wages, unparalleled benefits, and job security and be more adaptable to their new reality. I say, welcome to the real world!

For those in the salaried world (and much more so for the self-employed/business owners like me), performance and adaptability has always been an important aspect of job stability (not security), advancement, and financial success (yes, I know there are exceptions! a.k.a. Enron, AIG, etc.). However, the entitlement mentality that has been a hallmark of the union movement and which has also been pervasive in too many cozy corners of the corporate world has taken too long to finally come to a reality check.

Don't get me wrong, I'm not anti-union or unfriendly to union-covered employees. I have family members and dear friends who work or have worked in such positions. I've worked side by side with people "on the floor" helping make change happen. Many of the people that I've known within union shops are hard workers and want to truly contribute to the company and make a difference. The irony is that many times what holds them back is...yes, the union. Specifically, the union contract and the stifling cultures that they often create. Cultures that kill innovation (pay for time, not contribution), resist change (contract violation), reward longevity instead of performance (seniority model), squash accountability (it's always management fault, never the employee), create a false sense of security ("I'll turn the lights off if we ever close"...don't know how many times I've heard that...not lately though), and keep people doing the same few jobs because they can make more than their supervisor ($25-$35/hr for manual labor+time and a half for OT+60-hr. weeks!) so what's the point in advancement? What sense does that make? And we wonser why we've lost our edge in the world!

I may be a lone bird singing here but I believe unions AND management alike are to blame for the plight of many union employee and retirees. First, corporations such as GM, etc. sold their future 30 or 40 years ago by making concessions that now folks like Tom are having to pay for (and by extension all the rest of us who will have to bail out the pensions plans of the bankrupt companies who can't fulfill their financial liabilities). Second, the decades of tango that unions and large corporations have been dancing (I've seen this first hand, posturing, positioning, phony deals that are so absurd as to put a spanish-speaking soap opera to shame) has produced an employment model that is just not sustainable. The cracks are showing and obviously people are feeling the pain.

Yes, I agree with Tom, it is time for a more adaptable model. The whole union movement needs to drastically change the model. I'm not saying that collective representation should dissappear but I do believe the union model of the 30's has outlived its usefulness. I also believe adaptability and a new paradigm is necessary at the top of American corporations and throughout every office if we are to regain our footing and standing in the global economy.