Managing change is key to enterprise system success. One of the key points in my AICPA presentation this week will be the need to treat enterprise systems projects as change management efforts. The McKinsey Quarterly this month has an excellent article on the psychology of change management, and it outlines four conditions for changing the mind-set of employees. They are:

1. A purpose to believe in. "Employees will alter their mind-sets only if they see the point of the change and agree with it—at least enough to give it a try."
   


2. Reinforcement systems. "The surrounding structures (reward and recognition systems, for example) must be in tune with the new behavior."
   


3. Training in skills required for change. "Many change programs make the error of exhorting employees to behave differently without teaching them how to adapt general instructions to their individual situation."
   


4. Consistent role models. "Employees must see people they respect actively modeling the change."

According to McKinsey, each of these conditions is realized independently. but "together they add up to a way of changing the behavior of people in organizations by changing attitudes about what can and should happen at work."

The article is on the McKinsey Quarterly web site.

On a personal note. I will be speaking this Friday at The American Institute of Certified Public Accountants (AICPA) Conference in Las Vegas on the subject of Process Improvement and ERP--Making the Investment Pay off, Finally! I am a last minute substitute for my friend, Dick Kuiper, of AQA Research, who put together some excellent material on the subject. Now I get to go and deliver it. Here's the abstract:

Process improvement and Enterprise Resource Planning (ERP) should go hand in hand. But many times, it is difficult to connect the two--in fact, the majority of ERP systems implemented over the past 5 –10 years have failed to deliver on the promised benefits for this very reason. Organizations must deploy a solid process improvement strategy if they want to realize the benefits of an effective ERP system. ERP, being a set of business processes that build upon process improvement initiatives, enables companies to dramatically improve customer service and productivity, both internally and externally, while sharply lowering costs and inventories. This session will assist the participant with identifying process improvement initiatives while planning an ERP implementation or re-implementation endeavor.

This is normally where I would invite readers to register and attend, but the conference is already sold out.

Cost of compliance with Sarbanes-Oxley isn't mainly in new systems

Bob Gilson pointed me today to a recent survey on the costs of Sarbanes-Oxley compliance, and the results don't back up software vendor hopes that Sarbanes-Oxley is "the next Y2K" for IT spending. The survey by PricewaterhouseCoopers (PwC) survey of US-based multi-national corporations found that only 41% cited new tools and technology as being at least "somewhat costly" in their compliance efforts.

Rather, the main costs of compliance appear to be for internal resources. According to the survey, 76% of the cost of Sarbanes-Oxley compliance is for added internal resources, and 24% for external assistance. A majority of executives listed several aspects of compliance as being at least "somewhat costly," including documentation (mentioned by 74%); legal requirements (72%); detailed policy development (65%); self-assessment (62%); attest requirements and certifications (59%); and staff training (56%).

According to Frank Brown of PwC, "Much of the cost of complying with Sarbanes-Oxley lies in gathering and certifying information. Although some companies may need to upgrade their corporate systems to provide information required by the new law, many executives see these new capabilities as adding value beyond mere compliance."

A summary of the report is on PwC's Barometer Surveys web site.

NetRegulus addresses total life cycle for quality, clinical, and regulatory data management

Over the past few months, I’ve been gathering information on software vendors that address quality data management in the life sciences industries. Related to this effort, I attended a half day presentation by NetRegulus earlier this month.

NetRegulus is one of the more prominent players in this space, which includes dozens of vendors offering solutions for quality management, such as Corrective and Preventive Action (CAPA), complaint tracking, internal and external audit, Six Sigma, non-conformance, and adverse event tracking. Some other well-known vendors in this space include Pilgrim (SmartSolve, SmartCAPA), Sparta Systems (Trackwise), and AssurX (CATSWeb).

NetRegulus, however, covers a broader set of functionality than most vendors. It provides quality and regulatory data management for the production phase of the product life cycle, and it also provides support for the "study" phase, such as management of data for preclinical and clinical studies as well as postmarket and other studies. Study Management functionality includes ability to define study protocols, design and manage case report forms (CRF), define study sites, collect and verify study data, and prepare study data for regulatory submissions and other reporting. The system makes good use of open standards, such as Adobe Acrobat, to collect and manage study data.

The business case for NetRegulus is both tactical and strategic. On the tactical side, the system can reduce cost of studies, cost of compliance, and cost of quality. On the strategic side, the system promises to improve time-to-market through better management of study data. This strategic aspect gives NetRegulus a strong selling point for many life sciences companies, for whom easier and better preparation of FDA submissions and shorter approval cycles translate into faster generation of revenue from new products. Public health and safety is also enhanced if companies use the system to provide better correlation and trending of quality data with integration of complaints or adverse events with study data.

Pricing, however, might be an obstacle to early stage start ups that are accustomed to doing things on the cheap. NetRegulus is a Tier I solution, with pricing starting at about $50,000, for a limited number of user seats. NetRegulus points out, however, that when compared with the cost of outsourcing a single study to a contract research organization (CRO), the cost of the system, which can be used for study after study at no additional charge, begins to look reasonable.

NetRegulus is not alone in addressing requirements for study management. Phase Forward offers similar functionality, and some major application vendors offer study management as part of their enterprise suites. Oracle with its Oracle Clinical product and Siebel with its Siebel Clinical product are two examples.

For the IT industry, 2002 is shaping up as the worst year ever. IDC is concluding that the worldwide IT industry in 2002 suffered its largest decline ever, with a growth rate of negative 2.3% in contrast to average annual growth of 12% over the past 20 years. Although IDC expects the growth rate in 2003 to resume at more than 5%, it cautions against higher expectations. Constraints to higher growth include continued weak demand in the software sector, sharp price competition in hardware sector, and a continued trend toward smaller projects in the services sector.

According to IDC's Stephen Minton, "Although the industry as a whole won’t return to the kind of growth enjoyed before the downturn, there will be a number of bright spots over the next several years.” For the U.S. market, spending growth in 2003 will be led by renewed demand for servers, security, and network equipment, with growth in storage and software expected starting in 2005. IDC's press release has more details, including projections for international markets.

Revenue recognition problem in PeopleSoft's refund offer to prospects?

The trade press is admiring PeopleSoft's latest tactic to frustrate Oracle's hostile takeover bid. At the risk of oversimplification, PeopleSoft is offering prospects double-your-money back in the event that Oracle acquires PeopleSoft. According to Computerworld, which obtained a copy of a letter from PeopleSoft to a prospect, "the payment would be triggered should PeopleSoft be bought within a year and if within two years the new owner drops the purchased applications or sets plans to stop supporting them."

But there's a problem with PeopleSoft's tactic. Earlier this week I was discussing this latest development with an experienced sales executive, and he asked how PeopleSoft can properly recognize the revenue from such sales if there is a refund condition attached? Revenue recognition is a sensitive subject in the software industry. A number of vendors in the past, including Oracle, have been investigated by SEC for using "side letters" that put conditions on the sale. Everyone is lauding PeopleSoft for its clever tactic in trying to close new business before the end of the quarter. But no one is talking about the accounting problem of booking sales with refund conditions attached. Am I missing something here?

Computerworld has an article on PeopleSoft's tactic, but no mention of the revenue recognition problem.

In spite of relaxed deadline, Sarbanes-Oxley is giving urgency to some IT initiatives

Much to the relief of corporate officers, last month the SEC pushed back the deadline one year for compliance with Sarbanes-Oxley Section 404 (internal controls). Although one would expect that companies would respond by relaxing their efforts to beef up internal controls, apparently this has not been the case. Research firm AMR recently found that many companies are actually using the extra time to expand their efforts in strengthening internal controls. In terms of information technology, AMR found that Sarbanes-Oxley is giving urgency to three types of projects:

1. ERP instance consolidation. Public companies that have different ERP systems across multiple business units are using Sarbanes-Oxley as a reason to migrate to a single system, making internal controls easier to standardize. AMR found that "Nearly 65% of public companies are strongly considering ERP instance consolidation as a remedy to process standardization."
   


2. Better implementation of existing controls and processes. In many cases, ERP systems already have features and functions needed to strengthen internal controls--but they are not fully implemented. AMR found that "nearly 40% of companies surveyed will evaluate the existing features and functions of applications and platforms already in place and configure their systems to take advantage of this built-in and often-ignored functionality."
   


3. Investments in Enterprise Performance Management (EPM). One hot class of applications in light of Sarbanes-Oxley is EPM--software that gathers and operating metrics across multiple operating units. AMR found that "slightly more than 32% of companies surveyed are considering EPM....Demand for better internal and external disclosure, and longer term requirement for near real-time reporting of material events to outside regulators."

The full article is on AMR's web site.

IFS wants a piece of the JDE installed base

Seeking to capitalize on uncertainty surrounding PeopleSoft's proposed acquisition of J.D. Edwards, IFS is offering its mid-market ERP suite at no upfront license charge to installed clients of J.D. Edwards. This "rescue plan" only applies to vertical industries where IFS is currently focused, such as automotive, electronics, medical devices, pharmaceuticals, fabricated metals, heavy machinery, and process industries such as food and beverage and paint and adhesives. Although takers don't need to pay an upfront license fee, they will need to sign up for three years of maintenance fees at $1000 per named user, plus implementation consulting support.

IFS is a solid mid-tier ERP vendor, with headquarters in Sweden and offices in 45 countries, including nine in North America. IFS began actively selling in the US in the late 1990s and frequently shows up today against J.D. Edwards in manufacturing deals, especially in those verticals mentioned above. Its strong points are its component based architecture, which allows parts of the system to be upgraded independently, its full-blown product data management and document management functionality, and its integrated plant and equipment maintenance system. All of these features are rare to see in a mid-tier offering, although J.D. Edwards itself has a well-regarded plant and equipment maintenance offering. IFS also has a strong offering for aerospace and defense contractors, with functionality for compliance with US Department of Defense regulations.

That said, I would be surprised if IFS gets very many takers on its offer to the JDE installed base. I am not hearing much concern among JDE users about the proposed acquisition by PeopleSoft. However, if a JDE client were already planning to switch, this offer from IFS could be quite attractive. Details are on the IFS web site.

SSA adds Ironside Technologies to its ecosystem. SSA GT continues on its acquisition binge this week, picking up Ironside Technologies for an undisclosed sum. Ironside offers B2B e-commerce solutions for both sell side and buy side. Its strategy in the past has been to provide off-the-shelf adapters to a variety of ERP systems, offering companies a way to add Internet e-commerce capabilities to their legacy systems. Right from the start in the mid-1990s, Ironside was targeting the BPCS installed base, among others. I have evaluated Ironside products from time to time since then, and I think it will make an excellent addition to the SSA portfolio.

SSA's press release gives the details.

PeopleSoft rallies dog lovers against Oracle. There's a good article on Bloomberg today, contrasting the personal style of Oracle's CEO Larry Ellison with that of PeopleSoft's founder Dave Duffield and its CEO, Craig Conway. The best quote is at the end, where Conway comments on Oracle's stated intention to stop development on PeopleSoft's products if Oracle succeeds in its hostile takeover of PeopleSoft. He says, "It's like me asking if I could buy your dog so I can go out back and shoot it.''