Originally published in the July 2011 edition of The Stimson Group's AV Matters newsletter.
As you sit around noodling why profit is so elusive, let me ask a few questions. If you bid projects with the intent of making 10 percent net profit, why are you only making 2 percent or less? Mistakes. Why does your firm make mistakes? Poor communication, inadequate planning, and lots of unforeseen stuff. How long has this been going on? Well, at least since 2001 - ok, forever. But it's been worse since the Recession. So, if in the ideal world you would have made 10 percent net profit every year for the past ten years - but you didn't - what did all those mistakes ultimately cost you? A ton of money. What will mistakes cost you over the next ten years? Probably even more money because margins are getting even thinner.
What is ironic and somewhat sad about all this is that the thing integrators and stagers are supposed to be good at - project management - is where our systems breakdown and profit leaks out. You sell a "profitable" project and then scramble to keep any of the money. The single most important investment that a project-based organization can make is software.
How many pieces of software does it take to manage your company? What is the annual cost in support, maintenance, training, and licenses? What is your internal adoption rate? How many of the redundant software features are you using effectively? What is you took all those costs and bought something that worked instead?
Enterprise Resource Planning (ERP) integrates internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application. Its purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders.
ERP systems typically share a common database in real time across multiple modules (or apps) tailored for each department or process in a firm. If we extrapolate this concept into Web 2.0 terms - ERP can share data across unlimited devices, which means that your ERP could exist in the Cloud rather than a server in your closet.
Over the years I have observed a fair amount of resistance to ERP in the AV world. The "I don't want all my eggs in one basket" syndrome has lead to companies maintaining multiple databases between inventory control, accounting, CRM (customer relationship management), scheduling, human resources, etc... There has also been a cost factor: true ERP from one of the big software companies has been a customized, painful, long, multi-million dollar implementation process.
Because any AV company can buy accounting software as a package (and hire someone that already knows how to use it), and because it can do some of the operational things that seem important, like proposals, inventory management, and purchasing - accounting software has become the backbone of most companies. It has also become the biggest obstacle to change inside project-focused organizations. Very few business owners understand their accounting systems and have no choice but to trust their accountant when he or she says that changing systems (or even simple processes) would be extremely risky. Not to mention the dreaded "double-entry" of data if proposals are done in a different system from invoices!
Enter project management software. These programs have been the stopgap solution for managing information for almost two decades. In the rental-staging world there are rental management systems that generate proposals, track inventory, and allocate rental assets. Integration companies also have off-the-shelf project management software packages to manage quotes, ordering, inventory, and scheduling. Most can even generate an invoice and then export a batch of transactions to the accounting software. However, there are no real time updates across systems, no common database, no two-way synchronization of data between CRM, project management and accounting. And because these systems were basically designed to manage operations, users have often bought CRM packages to help manage the business development and marketing of the firm. At best these systems only interface in batch mode and only in one direction: CRM to Project Management to Accounting.
(Note to software developers: yes, I know that your software overcomes all these limitations. I am trying to help you by getting folks to think differently about how software can and should work. You can thank me later...)
It is easy to see that Obstacle #1 to adopting ERP is that AV companies run three distinct silos of information: the sales Rolodex, the operations whiteboard, and the accounting spreadsheet. These systems are in turn augmented by ad hoc spreadsheets, sticky notes, and calendars designed to consolidate information for individual users that need to work across two or three silos in order to do their jobs well. This is a lot of perfectly good processes to undo.
Obstacle #2 is that every company wants to believe that their internal project management process is unique from and perhaps, better than everyone else's. "If I start using the same software as my competitor, then we aren't different any more."
A New Era
One-third of our workforce has grown up with access to a personal computer. A Smart Phone today is far more powerful than a 1990's desktop computer. Email, text messaging, and social networking have replaced meetings, phone calls, and business lunches. If you were to start a new integration or rental company today, would you buy three different software systems? Or, would you expect to use an iPad in the field to make sales presentations, place orders, check status, and update contact information? Would your operations center have a master control room with real-time data, schedules, and accurate work in progress data on an array of screens? Would your system be able to generate accounting reports that you could access from your phone? As a manager, wouldn't you expect to see everything from wherever you might be?
Before you all call me, there is not an off-the-shelf system that truly meets all these expectations at a reasonable cost - yet. However, the capabilities exist. The most cost-effective solutions will be Cloud-based. Why? Because it is easier to manage features for hundreds or millions of users that way. Would Facebook be ubiquitous if every user had to download a new application and re-sync their database just to post a status update?
Which leads me to Obstacle #3: security. The over-40 crowd is absolutely paranoid about storing data remotely. "Someone at the software company might share my data with my competitor." Trust me, if someone actually wanted your data there are far easier ways to get it than coaxing a software executive to compromise the integrity of his or her business by stealing your competitor's contact data.
Your processes are not all that good - if they were, you'd be making more money. The three-silo model looks fine on paper, but the walls of those silos are thicker than you think. Every time you port data from one system to the next, something is lost.
Being unique is a marketing concept and true strategic uniqueness is quite rare. What would be really special in our industry is flawless execution and 100 percent uptime. Achieve that and then we can have a philosophical discussion about your value proposition.
No one in your industry really wants your data. Most of people are overwhelmed with the information they have now. Paranoia is too expensive for what you get in return.
The Cloud is scary because it levels the playing field. The future of project-based rental and integration businesses (until the next unforeseen innovation comes along) is Cloud-based ERP. Your next big competitor could be a five-person company with up-to-the-moment data at their fingertips while you are still storing project-critical spreadsheets in a folder on a p-drive.
If you think that having a variety software systems running on multiple servers with RAID arrays, and hot-swap drive backups is some sort of a status symbol instead of a potential point of failure - then a Cloud-based ERP is probably not in your future. Next to Accountants, IT Managers have the most to gain from status quo solutions. But given that what most companies use now for information-sharing is inadequate at best, inefficient at worst - surviving the next decade is going to take some re-thinking about what's really important for your company and to your customers. Start with ERP and you'll be ready for whatever comes next.