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Cloud and the Value Entitlement Gap

Closing the entitlement gap needs to be given significant consideration because that’s where there is huge value opportunity

I often get asked the question "what is really being done differently by delivering supply chain management software through the cloud versus deploying it behind the firewall?" It's a fair and important question. I'll give my thoughts here in terms of two of the more important dimensions of supply chain management improvement programs:

  • How fast do I get value?
  • How can I sustain and increase value over time?

It is along these two dimensions that cloud represents a step improvement from previous generation deployment approaches. It provides the means by which to achieve value faster and, even more important, it provides the means by which to continuously increase value over time.

It's well recognized that enterprise software in general, and even more so supply chain management software, requires on-going care and feeding in order to realize its value potential. In traditional deployments, an entitlement gap develops almost immediately after a go-live or series of go-lives that represent the initial implementation. This initial work typically drives value along a steep curve, as the organization adapts to new processes and capabilities. Inventory is replaced by information, asset throughput is improved, sales increase, and costs are lowered. However, very soon after the initial implementation the steep curve flattens. While the initial values stays, incremental value diminishes. In this case, the actual value curve diverges from what I will call the entitlement value curve.

The reasons for this are manifold. Business conditions change; supply chain problems morph; people associated with the original program leave the company or move into new positions; IT systems are not continuously upgraded to keep up with changing business processes; new software capabilities are not explored or leveraged for additional value. Essentially, business processes and supporting IT solutions get out of alignment, leading to atrophy. This is one of the most significant opportunities for value creation in current and future SCM solutions.

SCM systems are decision-making tools; they are interwoven into business processes and their effectiveness is dependent on people skill-sets and process robustness. This is different than transaction tools, which are mechanical and repetitive in nature. Repetitive transactional tasks are less dependent on people's skill-level. Thus moving people in and out of roles associated with those tasks has less impact on the business. Since the original design of advanced SCM solutions in the 1990s the intention has always been to marry the capabilities of software with the capabilities of humans. It is this powerful combination that allows these solutions to deliver tremendous value. The software derives answers and serves up insights for production plans, shipments, and assortments. The skilled user reviews these answers and insights, imparts human intelligence, and then executes processes to solve problems in optimal ways. Furthermore, the skilled user continuously investigates new and interesting ways to engage the software to solve new and more challenging problems. And, when done correctly, technology is regularly refreshed and upgraded. The entitlement gap mentioned earlier develops when this marriage between people, technology, and process breaks down over time.

The entitlement value curve is the continuous incremental value that can be achieved through process and technology adoption over time. The value gap between actual and entitlement curves can represent very large numbers because it's cumulative over time. In integral calculus, this is called the area between the two curves. That area represents the volume of lost value and is what I call the entitlement gap. This is shown pictorially in the figure below.

Cloud allows value to start faster by disintermediating a lot of non-value added activities associated with provisioning environments and standing up software solutions. It also allows executing in parallel a number of implementation activities that are normally executed sequentially.

Once the solution is up and running, cloud offers even greater value by closing the entitlement gap. It does this by addressing the entitlement gap root causes discussed earlier:

  • People skill-set degradation
  • Business process and technology alignment
  • Technology refresh and innovation
  • Increasing leverage of new capabilities and external best practices

If you Google the word "cloud" most of what you will see are discussions about hardware, software, networks, and operations. These are all necessary ingredients, but the real business problem we are trying to solve is first speed and, second, continuous value derivation over time from your software assets. As you consider and deploy your cloud strategies, cost and speed are naturally part of the discussion, but closing the entitlement gap needs to be given significant consideration because that's where there is huge value opportunity.

More Stories By Kelly Thomas

Kelly Thomas is Group Vice President of Global Accounts at JDA Software where he is responsible for managing relationships and value delivery at JDA’s largest accounts. He has more than 27 years of experience in leading teams in design, development, sales, and delivery of supply chain management and manufacturing execution solutions. He is the author of more than a dozen papers in the area of supply chain management and is a frequent speaker at industry conferences. Thomas holds a degree in chemical engineering from Rutgers University.

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