Volume XIII, Number 2                                                                                                         February, 2006


A newsletter for clients and friends of Chenault Systems

Copyright © 2005 Chenault Systems, Inc.  All rights reserved.


Acronyms and data integration

By Tom Chenault

Wouldn’t be wonderful if the business world were static.  We could buy off-the-shelf systems with integrated databases that never have to change, because the industry in question or organization never changes.  Since nothing changes, we can continue to build on a foundation that never moves.  It would be like landing on an aircraft carrier in dry dock.  We could set standards that are forever.  Finally, we would never have to think up new acronyms, which are in abundance today.  Grand unified theory schemes have been around the systems industry a long time.  However, in a world that is not static, it’s impossible to have perfect integration all the time.

Until the PC spreadsheets replaced the mainframe financial modeling systems and business discovered that people decisions were the most important, decision support systems (DSS) was the rage of the 1980s.  In the 1990s we learned about enterprise resource planning (ERP) and then customer relationship management (CRM).  The term “legacy system” was invented to make the existing tried and true systems look old and outdated and get organizations to move to ERP.

ERP is about enterprise, but no one seems to have any idea where the words “resource” or “planning” came from.  In some cases ERP is the best answer.  An ERP system is best for discrete manufacturing companies, but can be very difficult and expensive to install for any organization, especially the ones that change constantly.  An enormous amount of detailed planning and implementation is required.  A project team and some kind of steering committee must be established from all points of the organization.  Specifications must be written and signed-off on.  A large amount of data has to be converted.  Finally, the most important aspect is all employees must change how they do business.  In other words, you have to change the business process to match the software, not the other way around.  Not all companies are willing to do this, especially if they are doing well just the way they are.

ERP is a cost of business and not a large return.  A Meta Group study of 63 companies discovered it took an average of 31 months to see full benefits.  The total cost of ownership (TCO), which includes hardware, software, professional services, and internal staff was an average of $15 million.  The highest was $300 million and the lowest was $400,000.  The median average annual savings were $1.6 million, which is not much of a return.  Some hidden costs, not included in this study can be training, integration with other parts of the company ERP does not cover, code customization (one size never fits all), data conversion (this is often over simplified), maintenance fees without real maintenance, testing (very time consuming), replacing people who leave, and the large consulting firms who stay longer than expected.

Recently we have come across another acronym: EDM, which stands for “event data management.”  Currently, there is no real tangible system on the market behind EDM, but it’s something to think about.  EDM means integration for all the meeting management functions, such as registration, exhibitors, accounting, marketing, etc.  This is a good idea as long as there is a logical way of doing the integration.  With any event, there are the two separate areas, which are attendees and exhibitors.  For attendees, you have historical registration data, association information, where they come from, what they do, etc.  For exhibitors, there is information regarding booth assignments, customer relationship management (CRM), etc.  Common links can be established between attendees and exhibitors, such as a match making facility to plan meetings between attendees and exhibitors before the event takes place.

The Hanley-Wood product we support, ADAPT, is a data analysis tool that can be attached to data processing system, which would be registration, or exhibitors or a future “EDM” system.  With one of our clients, the flexibility of ADAPT gave their marketing managers an improved marketing effectiveness by 20% (reduced printing cost, postage, etc.).

Since every organization is different, the customer will decide what system they really need, not institutions representing the industry.  Systems must be built incrementally, not all at once.  In some cases, custom-made interfaces between “legacy systems” can be far less expensive and disruptive.  For some organizations, ERP may be a good fit, but as a practical matter, systems don’t always have to be perfectly integrated.


Downsizing Jobs,
Outsourcing Lives

By Ilana Mercer

© 2003

The wholesale exporting of manufacturing jobs from the U.S. to countries where labor is cheap was easier for this writer to chalk up to the smooth workings of the free market than was the loss of 560,000 high-technology jobs over the last two years. There's nothing like first-hand experience to bring about a rude awakening as to the direction the American economy is headed.

The breadwinner in this family, we presumed, was not in an easily displaced occupation. Relatively young, with a Ph.D. in electrical engineering and a stellar design record, it was not unreasonable to think that an economic powerhouse like the U.S. needed his skills.

Alas, by necessity, the outsourcing or the exporting of high-income and highly skilled work to places like China and India, where wages can be as low as one-tenth of what an American with similar skill-set commands, has been the topic of discussion around our dinner table.

According to CNN's Lou Dobbs, of the 2.5 million jobs that have been shipped abroad over the past two years, a large number are such high-productivity jobs.  A company like Ernst & Young, for instance, is outsourcing, albeit through a contractor, finance and accounting services to India.  Dobbs estimates that 1 million people across India “work for U.S.-based companies, like GE Capital, Oracle and Microsoft.”

The trend is growing.  The American economy will be employing fewer engineers, accountants, information technology workers, stock analysts, radiologists, architects and research and development scientists – all highly trained top earners who ought to form the backbone of a vigorous and vibrant economy.

A company like Ernst & Young, for instance, is outsourcing, albeit through a contractor, finance and accounting services to India.

And I'm talking the lock, stock and barrel loss of careers, not a temporary shortage of jobs.  When manufacturing jobs were lost en masse, economists promised we'd become a service-oriented economy, quips columnist Paul Craig Roberts.  Now that professional services and high-tech jobs are moving offshore, often with no more than a click of the mouse, what shape is the economy destined to take?

A very poor shape indeed, I venture. Exporting jobs to where labor is cheapest may be the most efficient allocation of capital, but it results in unemployment in the U.S. and is a contributing factor to a trade deficit that increases by an average of $1.5 billion a day.  To the argument that the cheap goods sold back into our markets offset the loss of exported jobs, there is only one humane response: Tell that to the unemployed who are too poor to purchase the goods.

If a company were to buck the tide and stay put, it would, however, soon go out of business because it's competing with dirt-cheap imports.  For their part, consumers expect that every new model Pocket PC should have more features yet, at the same time, be cheaper.

On the highway to Third-World status, we've thus been exporting high-wage jobs while importing one very costly problem: an abundance of poor, Third World legal and illegal immigrants.  This influx, encouraged by successive administrations, further increases unemployment and contributes to the suppression of wages.  The “real earnings of those in the top 10 percent fell 1.4 percent over the last year,” reports Roberts, with “the real weekly pay for the median worker falling by 1.5 percent.”

The allure of outsourcing is, of course, cheap labor, although it used to be that American workers, while expensive, were also highly productive – this was a very skilled, well-educated and highly capitalized work force. Weak property rights and a dicey rule of law in the Third World outweighed the enticement of a cheap labor force. On balance, it was once viable for companies to stay in the United States.  Things, however, have changed. Doing business in Asia, for instance, where the vast work force is now relatively skilled, is far less precarious and so much cheaper that companies are willing to risk diminished legal protections.

On the highway to Third-World status, we've thus been exporting high-wage jobs while importing one very costly problem: an abundance of poor, Third World legal and illegal immigrants.

In the U.S., companies must, moreover, endure endless, punishing, government-imposed regulations, which make doing business and staying competitive increasingly difficult.  To the cost of the assorted alphabet soup of regulatory agencies a corporation must pay off, add exorbitant corporate taxes and expenses like workers compensation insurance.

Factored into the wage price the corporation pays are large government-imposed costs.  The company's before-tax wage package must offset the cost of the income-tax burden as well as the cost of a government rape known as Social Security.  Put it this way: the top high-tech employee rarely sees more than $70,000 in after-tax income, despite the fact that on paper he has a six-figure income, which the company duly pays.  Without these onerous government taxes, this employee would cost the firm 30 to 40 percent less.

Consider that the annual Social Security burden alone on an American high-tech employee, borne by the employer, is the equivalent of the annual salary of a high-tech worker living well in India, and the logic of outsourcing is self-evident!

In the U.S., companies must, moreover, endure endless, punishing, government-imposed regulations, which make doing business and staying competitive increasingly difficult.

Government omnipresence makes the notion of free trade a misnomer – trade is anything but free.

True enough, the abler American worker will not be completely replaced.  The breadwinner in this family no longer does what he loves and is so good at doing, but rather, spends his days managing – correcting and coordinating – foreign workers, while watching colleagues being downsized and lose occupation and career.  Cheap is the choice, but there's a price to pay.


Reprinted with permission of the Internet newspaper copyright 2003.

Quotes Worth Noting

“The vendors say you can throw offshore jobs over the wall and start saving money right away.  You have to build in up to a year for ironing out cultural differences.” -- Hank Zupnick, CIO of GE Real Estate

“Those who lack the capacity to achieve much in an atmosphere of freedom will clamor for power.” -- Eric Hoffer

“All large institutions eventually become trapped by their own inertia.”– Bob Culmer