It’s Like This…

Andrew

I like it. As a colleague said, in financial services IT is the factory floor. Similar to your analogy and one I use with my own students.

Dermot

I agree with the analogy. To give you context, my company bought and heavily customised an enterprise software product from a vendor. The core software is not customised and the IP belongs to the vendor, but the custom business rules, all the logic and calculations in the application layer are in fact our IP and protected by confidentiality agreements. Hence, our main competitor who has just entered into an agreement with the vendor cannot have access to this valuable information, which gives us an inherently protected commodity if you like. Thus, the business rules can be compared I think to business processes that you refer to, which are unique to a company.

I don’t know however if this is how other enterprise applications work whereby the business specific rules and logic – the customised element, can sit on top of the core product and be protected from the competition. I wonder if any other readers can shed light on this?

That is a very interesting way of looking at competition. I feel it is impossible for two companies to have the exact marketing techniques. Yeah everyone has access to the same tools but are they being marketing in the same way?

Yes, I do think this is a promising analogy.

Somehow the exchange with Charlie Rose here makes me think of the way CRM was being touted during the mid- to late-1990s as a panacea for sales and marketing problems. Many companies were disappointed with the results, but probably more due to naivety and unrealistic expectations than to any essential deficiency in the technologies or the idea of customer relationship management.

Organizational effectiveness doesn’t automatically improve merely from the application of technologies, because those technologies are intimately enmeshed with the people and processes in the organization. So putting providing better data and access for your call center, for example, won’t improve your sales and customer service if your personnel are poorly trained or if the company at its core just doesn’t really care about its customers.

One aspect of your analogy that I’m a little uncertain of is that it seems to imply that business processes are a result of the technology, whereas I wonder if that’s an oversimplification. I tend to think of technology, processes, and people in more of a symbiotic relationship rather than saying that one arises from the other.

Nevertheless, I do like the factory analogy and wonder if it might benefit from some refining and further articulation.

I find the analogy interesting but I am not clear on what it conveys. Are you suggesting that two companies can differentiate in spite of having identical IT systems? And that such differentiation comes from process innovation enabled by flexible systems?

But isn’t that true for pretty much every investment a business can make. For instance, you and buy identical billboards or TV slots for advertising and then differentiate on the ad content. Or you and buy identical taxi cabs but offer different prices. Is this innovation enabled by billboards and taxi cabs? Or is innovation in these cases orthogonal to billboards, cars and IT?

Finally, I can differentiate around the speed with which I adopt the latest IT systems and how well I execute the project etc. So, the premise that two competitors have identical systems (in place) because they are talking to the same vendor is not really true.

And frankly, this is where the newer models of computing can provide and edge to a competitor. Smaller capital expenditures, faster implementations and more agile systems.

(Disclaimer: The opinions expressed here are entirely personal.)

Dear Andrew,

I personally liked your example in the interview with Charlie Rose and I think itÂ’s a powerful analogy for educating public on how the enterprise software is like. However, regarding your question about whether it holds up or not, I would say I prefer to use the analogy of process store or process shop rather than process factory.

First, I try to give some comments and then explain my reasons, taking SAP as an example of enterprise software and a PDA as a product.

-Your comment “So even if you and I buy the same basic factory from [Leo], we`re going to do very different things with it. If I do smarter things than you, I will get ahead over time.” Assumes that getting ahead over time is a function of smart actions. That means getting ahead depends on the actions of the buyers. However, in the software world, there are sometimes external elements such as the power of location. Two years ago, I was working on a global transformation project with a Finnish company. We had to wait for one year because SAP hadn’t had any Finnish version at the time. A German company which has bought the same solution might be ahead of the Finnish one not because of smartness but because of the learning advantage which it has had (You see: It’s like a Chinese having a PDA with English manual, in this case the source of advantage is being able to access complementary info.).

-Typically if you are an inventor and want to turn out a product from a factory, you contact them, give them your product specification and they produce a sample for you. If you donÂ’t like the sample, you make some comments and then they will modify it based on your comments. However, if we look at the enterprise software world (as I mentioned, letÂ’s take SAP as an example), itÂ’s not SAP producing the business processes which companies want: There are other entities within the enterprise software ecosystem which are normally doing this (companies like Accenture, Deloitte, etc.). SAP in this case has the role of a selling agent.
-An inventor of a PDA knows what he/she wants; that means that there is no need for another person here. He/she talks to the factory people and communicates the product specification in his/her mind. Therefore, after receiving the produced sample, itÂ’s possible to compare the product functions with the product spec. and see if itÂ’s really the product which was ordered. In the case of enterprise software many companies donÂ’t know what they want and they need help for evaluating the software capabilities both for accepting it and using it.
Now let’s go to the “Process-Store” analogy: Imagine that you want to buy a PDA. You don’t know what is out there, so you might go to a store or different stores to see the models. You might also pay for some magazines which have PDA reviews or ask your friends what PDA they have and if they like it.

PDA is not very cheap, so you might accept payment for buying such magazines because they evaluators who have written the reviews know many models of PDAs (they are expected to ).

After you spend some time and effort doing investigation, you buy the product but you notice that it doesnÂ’t do all the things you want: It requires some additional memory. You spent some more time to see which brand is goodÂ…..Ok, I think you got the idea:

What I wanted to highlight is the process of decision making, the external entities which influence that and the time and money which is being spent improving the decision, use of it, etc. (I am not sure about my analogy either as I just wrote it as a comment, appreciate the feedback

Best

I think that there are two interesting sides to this analogy.

The first is the “we’re inventors” part. The idea here is that even though you have the same factories, you may invent different types of lawnmower to build and keep your competitive advantage through better innovations, IP protection for your designs etc. Having access to the same factory can’t level the playing field here.
Similarly, companies with the same software are almost certainly not trying to use it to solve exactly the same problem. For example, CRM software is widely available, so you could say that two companies are able to provide exactly the same customer service experience (as they presumably have access to the same pool of employees – the other “raw material” here). However, both companies are unlikely to have the same approach to delivering customer service: one might be following a strategy of customer segmentation to over-serve profitable customers and encourage unprofitable ones to leave; while the other wants to improve its mass appeal by servicing as many customers as they can as efficiently as possible. Both companies can use the same software to support their strategy, but as long as their strategies are different there is scope for differentiation and competition.

The second part is the “process factories” part of the analogy: the concept that software is a way of building and replicating business processes. This is, I feel, still an appropriate analogy but can also be used against your argument that IT does not level the playing field: specifically in cases where the business software is so prescriptive that the business processes are defined by it and therefore identical.
To illustrate this: say the factory is identical down to every last detail, including the shape of the moulds used to make the plastic lawnmower body and the templates used to cut the blades. In that situation, the lawnmowers produced would be identical. You could perhaps pull ahead in productivity by innovating your workers shift patterns, incentive schemes or the management structure (you can always do something better) but the resulting products would not differ.
Customized IT solutions for big companies would not follow this pattern, but enterprise IT is becoming more affordable and useable for smaller companies precisely by becoming more “off-the-shelf”. Two start-ups using a basic salesforce.com product to handle online customer enquiries are likely to have identical processes, and often near-identical outputs.

So I think the analogy holds, but there is more scope to explore exactly how you are defining “identical” factories in relation to the potential for customization of the software.

Andrew,
I like your analogy. I was recently pondering a similar issue with the use of enterprise software. So if you are looking for additional meat and potatoes to compliment your hardware analogy, I submit that given identical opportunities with enterprise software, the differences in success that may be observed a given time later may have more to do with each institutions ability to communicate the individual and organizational benefits of using a well thought out strategy, and then implementing it. In short, given equal tools, the one that can motivate their work forces understanding and smart use of the tools will likely see greater success more quickly.

The challenge with using a product-based analogy is that it does not account for the impact and importance of design on competitive advantage — i.e. you may have better designers, but not necessarily better processes.

However, I do believe that the source of competitive advantage is not in the features and functions of the software, but in the ability to configure/customize the software to unique business processes.

I like the analogy as far as it goes. It leads me to this question though: Once you and your competitor have made the identical investment in IT, what then provides the competitive differentiation? How do your investments to date and your future investments create the differentiation in how you employ the ‘process factory’?

I think it is a fine analogy

I would even add one extension. As you said, the process is important. And how you mange the process.

Your quote; So even if you and I buy the same basic factory from [Leo], we`re going to do very different things with it.

I would argue that even if you **were** doing the same thing with it, (ie direct competitors making a widget) The management and processes are the variables, not the factory.

His sales reps outsell yours 5 to 1

His aged inventory is 1/3 of yours

His defect rate is almost zero while yours is 12%

His first time accurate and on time delivery is 97%, yours is 40

The factory is the commodity in this analogy – but how you **manage** that commodity is where competitive advantage lies

And ditto for technology -

Dear Andrew

I have to respectfully disagree. In reality, use of enterprise software of the likes sold by SAP or Oracle has not been significant beyond double-entry book-keeping and logistics. And we all know how wasteful (in the view of Japanese production concepts) double-entry book keeping is.

Better research is needed to quantitatively tie firm competitive advantage to its innovative use of enterprise IT. It is difficult to see the correlation if Toyota can run the most competitive auto company in the world with hand signals and ad hoc changes on the manufacturing world, and GM, a poster child of a idiocracy with umpteen enterprise systems and yes, SAP.

Although in pure theoretical terms I agree with your thesis, in reality it's a different story.

The theory of your claim can and does work extremely well when various pieces of software can be collected, customized and centralized to specifically dictate the unique business process requirements of a company. Those pieces, cobbled together, creates the process factory for the company in question.

Eg. a learning management system that actually acts as a social learning engine, not as an archaic course management tool, combined with a proper talent management/succession planning tool, combined with a sales cycle forecasting/prospecting/tracking tool, combined with a robust budgeting & analysis application, combined with <insert sales, human, asset and/or technology tool> etc etc etc

In my opinion, this is extremely difficult to achieve with an ERP.

Enterprise software development companies such as SAP et al certainly try to bring this perceived panacea to fruition, but the reality is that it often takes loads of customization (software development customization, not necessarily business process customization) to achieve the desired end state.

This is where the hay falls off the wagon as the more one customizes an ERP, the less likely it is — ironically I might add — to achieve the desired customized business process end state. Customizing the ERP requires gobs of money, and when an upgrade presents itself downstream to 'improve' the ERP, it's likely to involve even more dollars in order to retrofit the upgrade into the older and ultimately customized ERP system currently in place.

I guess my ultimate argument is that the ERP system is in fact inflexible, and although configurable, it is at times much easier to purchase separate software pieces to achieve your desired business process end state. It allows for easier customization and upgrades over time.

Whatever happened with your argument about the mash-up anyway? Isn't this the basis for Enterprise 2.0???

I think the analogy works well. An additional point about the factory – although you might buy the same “process factory” you want to find the best location for your intended customers (and partners). The more who can discover what you are building, and try your product, the better the chance of beating the competition. You may also find that your customers and partners can easily recommend their own customers if they can easily access your factory!