Control Tower Concepts: Where do profitability management and human resource management meet?

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Profitability management and human resource management – are they distinct applications or capabilities of an integrated enterprise business management (Control Tower) application? Well, to jump to the punch line, the answer is likely “both” – depending on how one defines the terms. A significant problem that exists in organizations today is that too many decisions get made without considerations of the impact on profitability or the feasibility of the decision given the impact that it will have on the employees in the organization.  There are numerous reasons why this is the case, but most of them come down to lack of integration –

  • Integration between the processes within different departments, divisions and trading partners;
  • People working within individual silo;
  • Lack of integration within enterprise software products.

In this blog, I will stick to the last point, lack of integration within enterprise software products.  And … using the word “within” and not “between” is very deliberate. Let’s first address the “distinct application” side of the answer.  The answer is a pragmatic one.  My firm belief is that distinct applications make sense if they are supporting distinct people and processes.  Financial statement reporting is an example of a profitability application that falls into this category.  The process is typically contained within finance, and it is a very specific process of reporting “closed” financial information to shareholders. Where it makes no sense to have distinct products to handle issues such as profitability and human resource management is where these have a direct impact on decisions in business operations (so, basically in every business process). By way of a real business example, if we reference the recent post by John Westerveld, it makes a ton of sense to integrate project management (product delivery) with supply chain.  But “how” do we assess the best possible scenarios to make changes?  We do it by taking in availability of materials (supply chain), availability of people (human resources) and deciding which option makes the most sense financially (profitability management). In his post, John speaks of a scenario of installing a piece of medical equipment at a hospital where the equipment is going to be late and the power of putting the supply chain information in the project manager’s hands.  Let’s drill down on how this scenario would likely play out.  The project management would work with his equipment supplier.  They could evaluate the impact of the equipment being late and whether or not the supplier could still make the date if he found another supplier of the subcomponent which has become delayed.  What additional questions would they ask to determine if it would be worthwhile? Will the delay cost us revenue?  Will any additional cost we incur be offset by the revenue gained? (profitability) If the equipment comes on a different date, will contractors be available to install it?  Will it the inspector be available?  (human resource impacts) If the financial (cost and revenue drivers) and human resource (rates, skills) information is only available in niche, departmental solutions, how can the company expect to make profitable and realistic decisions when projects don’t go according to plan?  Answer … they can’t.  Thus, integrated capabilities in a single application are needed for integrated planning, monitoring and response management. In other words, profitability and human resource management are key to a Control Tower application.

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Tony Colwell
- January 12, 2012 at 12:45pm
Kirk, this sounds good in theory but most ERP systems are way too cumbersome to do any kind of real-time management of resources in unplanned/unforeseen scenarios. Best-in-class SCM software is addressing these issues as far as direct labor is concerned. The barriers in taking it forward with indirects, knowledge workers and managers are, as much as anything, social... i.e. resistance to Big Brother!

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