Tools: Finding an Advantage in Modern Business

In today's corporate marketplace struggles, rather unglamorous and mundane things can easily become deciding factors for overcoming one's rivals. As Constable Charles d'Albert of the French found out in the hardest possible way, the appropriate tools can make much more difference than the most expensive equipment and an abundance of elan.

Yet even the best tools for the job are not enough if they are not used in the most effective manner. Taking a lesson from history: The Roman legionnaire was most efficacious when used in their proper role – utilized where their skills were most applicable and working as a closely coordinated and mutually supporting team.

A company's talent pool is the most valuable resource it has. As individuals with different talents, training, and experience, the people in that pool are collectively the toolset which management has at its disposal to make a lasting impact on the market that the company serves. 

When employees understand their roles and responsibilities, work together towards shared goals and do so efficiently and effectively, they become the primary source of value, which makes a company competitively superior in the marketplace. How they are employed and managed can make all the difference – in their individual effectiveness, how they can best contribute to the group effort and how the group can most efficiently and productively work together.

So how do companies go about organizing themselves today? Sharing instincts and behavioral traits that have been with us and our ancestors for hundreds, thousands, and even millions of years, we use tools to assist us in this endeavor – in effect, to extend our reach. The tools are a bit different, of course – instead of arrowheads made of flint, swords of iron or bows of yew wood, we use software. 

The software we use is generally classified under the area of Enterprise Resource Planning (ERP). These tools are applied to managing the use of the most important tools in our companies – namely, our employees – per their groupings in projects and programs. The kinds of tools found in the program/project management space can be generally lumped into the categories shown below.

ERP tools (Source: eDevelopment Corp., 2014)

ERP tools (Source: eDevelopment Corp., 2014)

In broad brush strokes, we can see that most companies adapt software readily available to them as part of the Microsoft office toolset. Another 28% source their project management tools from giant software houses known for their enterprise software offerings – SAP, Oracle, and the like. These are generally rather pricey and function best when employed with a suite of tools also licensed by the same firm, as they tend to be dependent on databases and utilities from these other tools. Finally, there are a small number of firms that choose their project/program management software from Open Source ecosystems.

One can immediately perceive the deficiencies inherent in any of the above categories. In the case of widely available general-purpose software from Microsoft, the tools need extensive support from their adopters to fit them to organizational requirements. Granted, they are cheap and are almost certainly already available in the organization, as they are so widely used for commonplace office applications. Nevertheless, due to the fact that these tools are “vanilla” in functionality, it is rarely possible to render them fit for such very individualized needs – it is, quite simply, often beyond their capabilities as software.

All of the other categories are more specifically purposed for project and program management. However, the exigencies of corporate entities vary quite widely, by industry and even within a given sector. The preference of the big software houses is to develop software with a 'one size fits all' design philosophy in the hope of appealing to the widest possible audience and minimize the size of the code base and its concurrent support, debug, and maintenance costs. In the end, though, what one often finds is that once all the frills are stripped away, these tools amount to little more than the equivalent of integrated versions of the Microsoft suite. Stated differently, they are often just glorified spreadsheets in basic functionality. Furthermore, with the exception of open source software, these tools also tend to command a very hefty price tag, especially since they almost always require a multitude of other tools from the same vendor in order to support their needs for data and functionality.

With the tools available today, one can naturally expect that outcomes for organizations using them for project and program management will be less than ideal. The statistical evidence in fact confirms this supposition. EEtimes demonstrated in a 2013 survey that roughly 2/3 of company projects in which the respondents were involved were late. Of the late projects, half were one to three months late and another third more than three months behind. If the legions of Suetonius had performed at that same level, they would have been annihilated by the rebelling British tribesmen and Henry V would have met his end that day in the Pas-De-Calais.

Project On-Time Rates (Source: EE Times, 2013)

Project On-Time Rates (Source: EE Times, 2013)

The blame for this state of affairs cannot be affixed completely to a lack of understanding and insufficient responsiveness to customer needs by the big software houses, though. The truth of the matter is that the overwhelming majority of companies devote almost all of their IT budgets and resources to delivering products and services to their customers. This is a very understandable and natural impulse for any enterprise, as they can instinctively comprehend that their ability as a company to deliver value to their clients will be reflected in their success in extracting payment/revenue from their customer base for value delivered. One can see this clearly in Figure 3, where in a typical Fortune 500 company, 75% of the software base is devoted to delivering offerings to customers and 20% to revenue accounting and management, but a mere 5% to an integral part of Value Delivery – the management of the resources that are used in executing on a company's projects and programs, including new product development.

Value Flow and Enterprise Software Allocation (Source: eDevelopment Corp., 2015)

Value Flow and Enterprise Software Allocation (Source: eDevelopment Corp., 2015)

Scrutinizing the above diagram, we can discern that the middle layer focuses on supply chain – the delivery of finished product from inventory to the client. Semiconductor companies are subject to the effects of four financial variables with respect to their inventory: 

  1. Carrying cost: i.e., rate of money
  2. Yield impact: The later the material is built the better yield and therefore cheaper
  3. Obsolescence: The material might not be bought or will have to be scrapped
  4. Average Selling Price: The price charged for the product, which tends to decline over time 

With these four attributes, the carrying cost of devices tends to be approximately 30% of the sales price. This means 30% of the value of every dollar is lost for each year that product sits in inventory. Building the wrong product or not building enough are also sources of extra cost. Assuming an average 60% gross margin for finished product, every dollar short on product will have almost twice the impact as carrying excess inventory. This suggests it is better to be on the safe side of carrying inventory than to be short of product. It is also not a good idea to build the wrong product, but not as bad as being short since the product might be sold at a discount and the base investment can be at least partially recovered. 

Planning the deployment and use of a company's talent pool is a comparable activity. The average carrying cost of an employee is 175% of salary. This is, of course, a non-recoverable expense – if an employee is assigned to a program that is ultimately of no benefit to the company, the cost of that employee's time on that program is a total loss.

Looking again at the figure above, we see that 75% of IT system spending is focused on Supply Chain Management (SCM) and only 5% is talent focused. What this means is that talent resource planning is a mostly untapped source of competitive advantage. When talent resource planning is weighed in IT budget allocation planning, its dismissal is frequently rooted in the idea that management is an art, which is best left to individual managers. It is not a software tools segment that is well understood in ERP circles.

As the medieval French aristocracy and the Iceni learned through bloody experience, having the right tools and using them effectively makes all the difference in complex endeavors. Well-designed and properly implemented People and Project Management (PPM) software can provide those same critical advantages to modern day commercial enterprises. How that unfolds in an organization will be the topic of the next installment of this editorial series.

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