The salesperson had worked hard for nearly six weeks on the deal. The customer's initial concern about the product's technical specifications had been laid to rest by a series of convincing and relevant demonstrations. The quantities were now agreed. This was going to be a very profitable sale and would have a beneficial 'knock-on' effect of increased manufacturing volumes at one of the group's currently well under-utilized plants. The order was then passed to Credit Control for credit approval.
Eight days later the Credit Department acknowledged receipt of the new, big order but due to unpaid, overdue invoices put the customer on hold. Although that was the Credit Department's view, the Sales Department had a different view. This department knew that an invoice had been sent to the customer a month previously for goods not yet delivered, and had informed Credit Control of this two weeks ago. However the Credit Control Supervisor responsible for customer returns and credit administration was on holiday. A deputy finally saw the note from Sales after two weeks. No one really knew the precise status of the account.
Ten days later the customer, for whom credit had not yet been approved, cancelled their order. The delay had given them time to shop around and find an alternative product. However, Production Planning was not informed about the cancellation and went ahead with the manufacture of the order. No replacement customer was found and the product had to be destroyed as it soon exceeded its shelf life.
Is this a familiar scenario? It is not based on an actual case: it does not need to be to resemble countless such occurrences in companies all over the world. What went wrong in this hypothetical example? The major failures were simply those of communication, IT system procedures not mirroring actual administration practice, unclear role definition and the adoption of a departmental 'silo' mentality by the administrative departments concerned. In addition, a lack of business and customer focus was demonstrated.
An analysis of the process
Our fictitious company's sales order and distribution system had a control routine. This was run daily in batch mode, and checked delivery details against invoice details that produced a printed exception report showing 'goods shipped, not invoiced' and 'goods invoiced, not shipped'. This was a commendable internal control routine. However, when this report was sent to the Sales Department Administrator it was read 'when time and other priorities allowed'. Failure number one: the IT system did not communicate the error directly to the right person (communication failure). Failure number two: the person concerned did not understand the potential criticality and 'knock-on' effect of the errors highlighted in the report. IT was therefore given a low priority (role definition and lack of business understanding).
Once the non-shipment had come to the attention of Sales, the department time was taken in investigating the problem before alerting Credit Control, in order to eliminate blame. Failure number three: this approach dictated that important information was not passed on until there could be no possible 'blame' attached to the department ('silo' mentality).
Once the error had been investigated and a request for credit note issuance had been sent by Sales to Credit Control, the absence of a key staff member resulted in a further delay in processing the correction. This was compounded by the lack of knowledge and understanding of the next-in-line. Failure number four: the procedure relied on a paper-based communication process (communication failure). Failure number five: the delay was due to a lack of role understanding by the deputy and the shortage of a system-based prompt that could overcome this (role definition and lack of business understanding).
As an invoice became overdue, the customer's account was automatically put on 'hold', subject to an authorized Credit Control staff member releasing the account or placing it onto a 'credit barred' status. A good, strong control measure in this company's cash flow-critical business environment. However, failure number six: the Credit Control system automatically placed a supposedly delinquent account on 'hold' without producing any report and informed neither the staff concerned nor the customer themselves (communication failure).
The initial entry of the customer's order into the sales system triggered a demand forecast in the production planning system without an assurance that the order had been accepted. The Production Department was allowed to proceed with scheduling the manufacture of the product. Failure number seven: a chain of events within the IT system was allowed to occur that was out of sequence with actual business practice (IT and administration procedure not mirroring normal business practice).
Certainly a set of procedures with many
inherent problems and weaknesses, but fairly typical of many found in companies of all
Fig.1a A passive, non-integrated system in process
Fig.1b an active, integrated system in process
What can be done to correct the situation and bring it into line with good business practice?
Obviously the matter of better functional awareness through well-defined position descriptions and training is part of the solution. In our example it would probably fall on both the Finance and Sales Directors to institute such a program, so co-ordination would be necessary, possibly by Human Resources. One problem is that natural staff rotation occurs and such training can be lost. Can the necessary understanding of the need to communicate with the right functions at the right time not be 'hard-coded' into the company's procedures? Not only is this possible but these procedures can be aligned to mirror the company's business procedures and cut across functional boundaries. What is necessary is a pro-active and adaptable business system.
How can a system be pro-active?
How can a system be adaptable?
A pro-active system actively takes control of the process or processes that it handles. Based on a best practice model it monitors events, routes information and prompts action according to the status or circumstance of each transaction. It is also an agile system that is configurable to the individual procedures of different businesses and is capable of communicating with each individual person in the business according to business needs. By focusing on critical actions or activities and not on functional areas, such a system can break down departmental 'silos' and help to enable broad team working in a business and customer oriented manner.
A pro-active system employs active agents. These are intelligent monitors that can be set to watch, record and act upon problems arising within the system before those problems threaten to damage the business. How do they work? With work management techniques there is now the ability to see all the work flowing through the system from the inside. This enables software observer programs to be set up to watch out for problems. These programs can test for exceptions at multiple stages in processes instead of just at the end. They can divert process flows based on certain conditions being reached, and they can inform operators of the status of situations based on their roles, locations or individual names. Active agents change the whole premise of transaction processing from the passive, reactive and unidirectional information systems of the past into investigative, proactive and multithreaded intelligence gatherers.
The breaking down of software applications into much smaller functional building blocks to mirror these business processes and activities is now referred to as 'componentization' and its accelerating momentum, the 'component revolution'. The software components are linked together using a special framework generator in such a manner as to match an organization's own procedures or a best practice model, or a combination of both. The links can be changed to reflect changing organization structures and workflow.
How can an active solution solve the business problems in the example?
The root of the problem, the invoice generated without shipping the goods, will be detected by the system either as soon as it occurs or as soon as the batch program is run (depending on set-up). The appropriate person will have an urgent message placed on their desktop (system working environment). The system will prompt the alternative methods of solution and will monitor for action. If no action is taken within a defined period, a communication is sent to the next level staff member and/or another department. This eliminates the weak manual communication link. In addition, the system has ensured that resolution is achieved.
The request for credit note issuance is now sent electronically to the Credit Department's responsible person. Rules are set up that also route the request to another person (the deputy in the case of our example) on a temporary basis. Again the problem of communication failure is solved. Action is ensured by making sure the right person, or their nominated backup, receives the request immediately.
Before that 'wrong' invoice becomes overdue, for example a week ahead of time, the relevant Credit Controller has an electronic message placed on their desktop and an e-mail is sent to the customer. This is a second route to alerting all concerned to the problem. Again the problem solved is communication failure. The customer can initiate action from their end of the chain, as can the Credit Controller.
Finally, rules can be set up to ensure that the Production Department does not produce an order until the order is accepted (by Credit Control confirming the order in the system). Further to this, Production will be automatically and instantaneously informed of any cancellation of order (if our problem has not already been resolved) as the cancellation is made in the sales order system. Action can then be taken to stop production in time. Again the problem of communication failure is solved.
What this article attempts to illustrate is how the choice and implementation of an integrated, active and agile business IT system can bring huge business benefits to a company. Such a system changes the way people work and interact, for the better. As well as these aspects, because the system can be configured to reflect real business processes and sequences, it captures and preserves this 'knowledge' independent of the people using the system. This works until the business changes its processes in response to its changing market environment. Then, the system, possessing the necessary agility, is quickly and easily changed to reflect and support 'the new way'.
At JBA, Nick Lawrie is product marketing manager for its financials set. His responsibilities include delivering the company's Go To Market Strategy, generating new business and sales, and liaising with its solution partners. Prior to joining JBA, Nick worked for Becton Dickinson & Company as the finance director for its Benelux operations.