Before going to bed, Gail does a last check of her e-mail. One message immediately catches her eye. It's from Scott, and the subject reads. "Not urgent but important."
"Interesting," she whispers to herself as she opens it. Like every e-mail from Scott, it is very short. "Thank you for your clear notes. When can you meet me? Ask Lenny to join in."
What notes? Gail wonders. Oh, it must be my notes from the meeting with Maggie and George. While bringing up her itinerary, she wonders what could be so important about those notes. Her schedule is jampacked for the rest of the week, and everything looks important.
"Not urgent," wrote Scott, "but important." Her curiosity grows. It can't be the notes themselves, it must be some insight that Scott hopes to gain from them. Did he discover something that can help maintain our growth rate? She can't imagine such a miracle, but with Scott, anything is possible. Well, there's only one way to find out.
After talking with Lenny on the phone, she writes an e-mail to Scott suggesting a meeting at nine A.M. For the next ten minutes she is busy writing e-mails, clearing the entire morning.
"Lenny, did you have a chance to go over Gail's notes?" Scott asks.
"Yes, nothing new."
Gail is surprised. What does he mean by 'nothing new'? "Isn't it new to you that the way we usually justify our system has so little to do with the bottom line?"
"Yesterday's news, Gail." Lenny is grinning. "Scott told me all about it when he returned from his visit to Pierco. Your notes just confirm it."
Show off, she thinks.
Turning to Scott, Lenny continues. "As I already told you, it does not have any effect on our system. Take, for example, the new features that I've just now authorized. In my opinion, none of them will contribute even one cent to any client's bottom line. But it doesn't matter. The clients demand it, and we have to respond to the clients' demands. That's life," he finishes with a sigh.
Gail thinks about it, then says, "I agree."
"Well, I don't agree," says Scott.
Lenny can usually read Scott's mind pretty well. Not this time. When Lenny is embarrassed, he usually jokes. "Gail, you get what Scott is saying? He just said that we don't have to respond to the clients' demands. That's news! Problem solved! No more stupid features."
She doesn't bother smiling.
"I don't agree that the information in Gail's notes doesn't have ramifications on our system." Scott leans back in his armchair and declares, "As a matter of fact, I think that what we got yesterday has major ramifications not just on our system, but on every aspect of how we do business."
Lenny's face lights up. "Wow, so you solved the problem. Not a minute too early. Let's hear it."
"What we got yesterday/' Scott starts to explain, "is the true value of our system for a large company. I say the true value, because it is the first time I've seen a justification stripped of all the brou-ha-ha of admiration of technology. It isn't cluttered with vague words like 'visibility' or 'productivity,' or even 'dead-time.' It's just the hard dollar benefits.
"Yesterday evening, I did a simple, logical exercise. I took Pierco's justification, and I tried to see what the benefits would have been if Pierco was worth a hundred million dollars, rather than ten billion. The results are quite surprising. Shall we go over it together?"
They both nod, not out of politeness, but because they are genuinely interested.
"The benefits to Pierco are due to five main items," Scott says, starting to do the analysis. "The five items are: reduction in days of outstanding receivables, Y2K ..."
"Scott," Gail interrupts, "let's ignore the impact of Y2K. Every company that's concerned about it has already decided on the actions to take. I think that Y2K is no longer a factor in any company's decision to upgrade its computer systems."
"I agree," says Lenny.
Scott starts again. "So, the benefits are coming from four items; reduction in days of outstanding receivables, reduction in material costs, reduction in inventory, and increase in sales. The analysis KP1 did for Pierco gives us vital information. It gives us the reasons for these improvements.
"The reason for the reduction in outstanding days is the fact that our system enables the client to generate invoices with fewer mistakes. On this item, do you see any difference between a large company and a small one?"
After a moment Lenny answers, "Not really. A smaller company also generates invoices with mistakes. Of course, a smaller company won't gain as many millions from having the invoices right the first time, but a smaller company doesn't have to pay so much for our system. I don't see any reason to believe that the relative impact from this item is much different for a smaller company."
Scott looks at Gail, who says, "I agree, but this item isn't that important. It gives just a onetime contribution to cash, and the impact on profit is negligible. Let's move on."
Scott does. "The reduction in material costs is due to consolidating the purchasing for all plants in the company. Do you see any difference here?"
"A big difference," Gail is quick to answer. "A smaller company might have only one or two plants. In that case consolidation of purchasing will amount to nothing, or close to it."
"That's interesting," Lenny observes. "On this item, the less geographically diverse the company, the less value it gets. Even in relative terms. And of course, smaller companies tend to be much less diverse than large companies."
"Correct," Scott confirms. "Now let's move to the last two items on our list, the inventory reduction, and the sales increase. Both are the result of the same change, the reduction in the time the information takes to get from the many regional distribution centers to the production plants."
"Same thing," Gail is quick to notice. "A smaller company might not have a distribution network at all. And if it has, it is definitely much smaller than Pierco's worldwide distribution network. The less diverse the company's operations, the fewer benefits they are going to get. Hell, for most smaller companies, these last two items will amount to practically zero!"
"Scott, I see where you are heading," Lenny remarks. "But before you reach a conclusion, let me make one remark. There's one big item that we don't see in Pierco's case. The savings due to reduction in manpower."
Before Scott has a chance to answer, Gail interjects. "Pierco is not an exception. In most companies, in order to reduce the resistance to change, they give some type of promise that nobody, or almost nobody, will get hurt because of the new technology."
"Still the potential here is big." Lenny is not fully convinced.
"Lenny, I'm out there every day," Gail says impatiently "and I'm telling you that savings from layoffs are relatively small. So far I haven't seen even one case where substantial layoffs were done as a result of implementing our system. Scott, I think that we can take the Pierco case as quite representative."
"I agree," says Scott. "It might be that KPI, when they did the analysis for Pierco, neglected to consider some additional benefits. It might be that for other companies there are some additional benefits. But the conclusion is the same: the smaller the company the less it stands to gain from our technology. Even in relative terms."
Lenny is willing to accept that. "So what you're telling us is that for the large companies, we offer a tremendous bargain, but for the mid-range companies, we're offering very little real value?!"
"I tend to agree." Gail is thoughtful. "I've always claimed that mid-sized companies are not a good market for us."
"Why?" Lenny asks.
"Isn't it obvious?" Gail answers. "If we don't bring enough real value, only the people who admire new technology, who think that they must be modern, must move with the current fashion, only they will buy our system."
Immediately she adds, "Thank God there are lots of them. But of course, not everybody in a company is a technology freak, so if we don't offer real value it takes much more time and effort to overcome the resistance of the skeptics."
"Gail, give me some credit," Lenny says. "I understand all that. What I mean is that we can do something about it."
"What?" And without letting Lenny answer, she continues. "We have tried to tailor a mini-system for the mid-market. Did it help? No. For any feature that we trim there are always some mid-size companies that need it. Now we see that even if we had provided a mini-system, we would still be losing. There isn't real value in it for them. Lenny how much time did you waste trying to do it? Do you want to continue wasting your time?"
Lenny doesn't seem to be impressed with Gail's barrage. He simply states, "If we don't sell real value, we have a problem. What we have to do is make sure that our product brings value to the mid-market. That's the only way out."
After a short pause, he smiles and says, "Scott, I owe you an apology. You told me that we wouldn't be able to find a comprehensive solution until we could see the product and the market simultaneously. Frankly, until now I thought that was just a rotten excuse."
"Why?" Scott is genuinely surprised.
"Those pompous words, 'the product and the market simultaneously,' Now I realize that it's exactly what you forced me to conclude. 'Making sure that our product brings value to the mid-market' is an excellent example of simultaneously considering the product and the market. I admit, you were right. Again."
Scott appreciates this.
Gail can't tolerate it anymore. "Hey fellas, back down to earth. It's one thing to state that we must provide a product that brings value. It's a totally different story to do it. You behave as if we know what this miracle product is. Correct me if I'm wrong, but I don't think that we have a clue."
"I believe that Scott does," Lenny says confidently "Otherwise he wouldn't look like the cat that swallowed the canary. Well Scott, are you going to share the solution with us?"
"I'm afraid that your expectations are a little too high," Scott answers. "I don't have a solution. What I have, at best, is a direction towards which I hope we can find a solution. Lenny, you once told me that the problem is not the number of modules we have, the problem is that the number of features is getting out of hand."
"Correct."
"So adding one more module is something we can get away with?"
"Of course."
"Good. Now let's see where we stand. We can add one module. What should we require from that module? I think that now we know the answer to that important question. It must be a module that was an integral part of the ERP system that brings brings significant bottom-line value."
"Especially to a mid-size company," Lenny adds.
"And where are we going to find such a miracle?" Gail snaps.
"Bear with me," Scott smiles. "I know that I'm slow, but I promise that I'll reach something tangible."
"Sorry." Gail is surprised at her own impatience. Where is it coming from? It must be that her intuition is trying to warn her about something.
Scott continues. "We have concluded that due to the fact that mid-size companies are not as diverse as large companies, we can't expect that our current system will significantly decrease their inventory or increase their sales. But there are software companies promising just that. I refer to the relatively new companies offering Advanced Planning and Scheduling, or APS, as they call them."
"Oh, no. Not that again. We had talks in the past about adding finite-capacity scheduling. Aren't these APS programs based on an expansion of that kind of approach?" Gail asks.
"Basically yes," Lenny answers. "I looked into it a little. They do have something. You see, our system is based on utilizing the power of the computer to store and transfer immense amounts of data, and then being able to instantly retrieve anything that is needed. Those APS programs are based on accessing an entirely different capability of the computer. The capability to do an immense number of calculations in a very short time. They claim to optimize the entire operation, which might have a major impact on inventory and sales. I think it's time to explore that avenue in more depth. I'd have done it already if I hadn't been trapped controlling the complexity of our current system."
"Do they really bring bottom-line value?" Gail is still very skeptical.
"I don't know," Lenny admits. "As I said, I didn't have time to check."
"All their marketing is based on this claim," Scott remarks. "So, assuming that they do, I was thinking that if we integrate an APS as an additional module in our system, we can offer the market a very attractive product."
"Stressing the bottom line value will convince the conservative souls," Lenny thinks aloud, "while the overall capabilities of our system will pull all the rest.
"What do you think, Gail?" Scott asks.
"I'm not sure. Even if they do deliver bottom-line value, it's not going to be simple. Our current sales tactic is based on an alliance with the clients' Information Technology people. And this tactic becomes totally inappropriate when one tries to sell bottom-line value."
"So what?" Lenny is impatient. "Who said that our sales tactics are sacred?"
Gail prefers to ignore Lenny's statement. She knows that sales tactics are what make or break companies. You don't just gamble on a drastic change in the sales tactics. Definitely not when you have as good a tactic as BGSoft does. And you don't do it because of unfounded speculations. How can I stop this nonsense, she wonders.
Lenny is annoyed with her lack of response. "Listen Gail, if the analysis shows that..."
She cuts him off. "I'm not yet convinced that our analysis is correct."
"Why?" Lenny presses.
Gail knows that an answer like, 'I feel it,' will not be acceptable. To gain another second, she says, "because it's based on something that is apparently wrong."
"What do you think is wrong, Gail?" Scott asks calmly
Like any excellent salesperson, she has learned to trust her ability to think things through on her feet. Again, it doesn't fail her. With passion in her voice, she says, "Look, you said that our system doesn't bring much value to a mid-size company. Well, this isn't true. If you don't mind, one of our smallest clients is probably our best bottom-line reference. You both know which one I'm referring to. Stein Industries. They claim that their return on investment on our system was much less than a year, and that due to our system, they have more than tripled their business in less than three years. Not one of our big clients has a return on our system that's even close."
Lenny looks at her and says, "Gosh, I know them well. Scott, she has a point."
"Unfortunately, she does/' Scott admits. "We have to check what is really happening in Stein Industries."
"Important, but not urgent?" Lenny jokes.
Knowing Lenny's schedule, Scott doesn't take any chances. "No Lenny, very important and damn urgent."