Case Study: Did We Get Anything Out Of This?


Company X processes 50,000 customer orders every year. To do this, they employ 30 customer service representatives in a centralized department. In January of 2011 the company decided to invest in software modifications that it said would cut thousands of man-hours of administrative work.

The order processing ‘process’ had multiple steps, and involved having to manually check each customer order even though nearly all orders were sent electronically directly to the company’s ERP system. Order changes were also cumbersome, and the company had no systemic way of ‘allocating’ available inventory to specific customers in cases where product was in short supply.

A lot of work went into calculating the projected savings in reduced administration. Automation of transactions would significantly reduce the time required for daily activities in the system. For example, a ‘no touch’ order process was designed so that the system would perform the checks that human beings would have done.

The IT experts in Company X and its contract developers were consulted to determine the cost of the software modifications, using a list of 12 modifications the customer service team had drafted. Nearly all of the cost would be for the ERP software developers’ time and for a consultant with ERP design experience who could work directly with the customer service team to interpret their needs and translate them into specifications the developers would need to complete the programming.

The estimated cost was $400,000, not a huge sum for Company X, and relatively small by software project standards. The team estimated it would take six to eight months to complete all 12 enhancements, but they would be phased in as soon as they were completed.

This expense was to be considered a capital investment, since software costs, for tax purposes in the United States, are normally depreciated over a three-year life. So the team prepared a capital expense request with the requisite project benefits and costs. The team proposed that while actual labor costs would not decrease, the huge reduction in administrative work would allow the customer service team to pursue more “value-added” work, such as helping the customer determine a more efficient order size and order frequency. Also, Company X had an aggressive growth plan — sales were growing at about 20% per year — and the team argued that the reduction in administrative work made possible by the software modifications would allow the company to grow without adding headcount.

Company X approved the $400,000 capital investment. It was April 2011 before the right consultant could be available to launch the effort, and he split his time between New York, where Company X was headquartered, and Texas, where the customer service team was based.

The first enhancements were delivered in the fall of 2011, and they worked as designed by the team. But they represented only about a third of the total modifications needed. It took until late summer of 2012 to complete the biggest modification: systematic allocation of available inventory to specific customers selected by the customer service team. Even then, while this enhancement was complete, it still had to be thoroughly tested, and this took until the end of 2012.

The costs for the project rose to about $625,000, due to unforeseen complexity in the inventory allocation enhancement and the extra months of the consultant’s time and travel expenses due to the project taking longer than expected.

The customer service team is using the modified software and some team members report solid efficiency improvements in their work. The team is the same size as before the project began. None of the customer orders can be processed as ‘no touch’ and many require several touches before being released into the ERP system.

While the system changes produced some efficiency, it was not substantial enough to make a clear difference in generating more valuable time for the team.

Key Points

From the outset, the project’s ROI was non-specific and “soft,” meaning no hard dollars were identified, just reduced hours of administrative work. The company didn’t get specific commitments for cost reduction, sales increases, or other tangible benefits, just hours saved that could be invested in more valuable work.

As a result, the improvements from the new software are hard to see and measure. Some who work with the new changes say they are time-savers, but what is done with the time saved has only been anecdotally communicated, not measured and verifiable. The customer service team is, however, able to process about 10% more customer orders per person than it could prior to the software enhancements.

Processes didn’t change to line up with the new capabilities, primarily due to a lack of commitment to change. Users were involved in identifying inefficiencies, in finalizing the specifications for the changes, and in testing the developments. But there was not a commensurate commitment to change the way the team processed orders. As a result, things became more efficient in a narrow sense, whereas a pre-project commitment to new and more efficient processes could have resulted in realization of greater benefits.

Poor initial estimates of cost were caused by a lack of understanding of the level of complexity the changes would require. Not enough time was spent thinking through the changes that would have to be made to the ERP system. The developers working on the project did not have experience with some of the desired changes, so there was a level of creativity and inventiveness that had to take place. This made it difficult to nail down accurate cost estimates.

A lack of cost control, both contractually with the developers and management-wise with the project team, allowed costs to creep upward without much resistance. The team did not regularly review costs incurred to date and estimated costs to completion. Often the increases were not disclosed until the developers submitted invoices.