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Reduce the Risk of an MES Deployment by Thinking like a Venture Capitalist

iBASEtblog Manufacturing Execution System (MES)Reduce the Risk of an MES Deployment by Thinking like a Venture Capitalist

Dec

6

Reduce the Risk of an MES Deployment by Thinking like a Venture Capitalist


Successful Venture Capitalists have one thing in common – they know how to effectively manage risk. Given the challenges and risks associated with implementing a Manufacturing Execution System (MES), perhaps manufacturers can learn from this community and reduce the risk of failure in an MES deployment? 

Three Ways VCs Mitigate Risk

Paul Cohn appears to be a pretty knowledgeable subject matter expert on how to run a Venture Capital firm. Based on his biography, he has been a VC/PE finance guy his whole career. His experience includes being a Managing Director and a member of the Investment Committee at Fort Washington Capital Partners, an investment advisory firm with a $3.5 billion of assets under management.

He published a blog post a couple of years ago and spoke to three ways that a VC can mitigate risk: 1) structurally, 2) through due diligence, and 3) by investing in a portfolio of companies. This advice makes a lot of sense. What follows is my interpretation of how these insights can be applied to an MES deployment, to see if this logic can transcend into the world of manufacturing, to learn from his insights.

 

1. Structure an MES Investment Through a Phased Approach

A common strategy that investors pursue when evaluating whether to put money into a new startup is to participate in a sequence of investment “rounds” as part of the overall funding strategy. Angel investors provide the first funds, typically coming from the founder, their family member, or a friend. This money starts the company but will only last so long. The Series “A” round comes next as a proof of concept to see if the company’s business model and strategy has merit. 

Manufacturers evaluating how to start a digital transformation of their operations could follow a similar structured approach. Instead of trying to architect, finance, and coordinate a large, multi-million-dollar implementation across multiple sites as one big project, they could instead choose to do a Series “A” round, or what I will define as a Pilot program.

The key to a success here is to clearly define the goal of the project, what is included, and how you will measure success. Most Pilots are set up to be implemented with a short timeframe to validate that the software solution under consideration can address the business challenges being faced. If it doesn’t, then you can “fail fast” and move on to an alternative solution. If it works, then deployment risk has been substantially reduced, increasing the chance that the desired outcome can be achieved. Or, in VC speak, opening the door to funding the next Series “B” or “C” rounds. 

2. Perform the Necessary Due Diligence

It is always a good idea to research new projects before committing. This preparation helps to avoid surprises and better plan for success. The same can be said of an MES implementation. Those that have done this type of due diligence know that much has been written about the potential pitfalls of completing this type of project. 

From a risk management perspective, one of the biggest challenges is that the project takes too long to complete – so it is never fully implemented. Project timeframe delays, scope creep, or share of wallet issues that arise out of an extended installation add considerable risk that an MES investment will not provide the necessary returns, negatively impacting your ROI.

To learn from VCs, manufacturers could limit this risk by choosing to first start with a small project, such as a Pilot. This type of program can be implemented quickly in 12 weeks or less, effectively reducing the risk of non-completion. 

3. Invest in a Portfolio of IT and OT Projects

Those tasked with implementing or upgrading software applications at manufacturing organizations can also learn from the VC community by adopting a portfolio strategy. Venture Capitalists seldom invest in just one company. That would be akin to playing roulette by placing your entire bet on 22 black. It is an “all or nothing” highly risky choice. 

CEOs, CIOs and other executives responsible for the financial performance of software investment could better hedge their annual budget by doing 10 Pilot projects, each with a budget of say $250,000. The risk that all 10 projects fail is very low compared to being “all in” with one project costing $2.5 million (that might take a year or two to implement). 

 

In conclusion, there is a very compelling logic to think like a VC when planning how to invest in new software implementations. The risk of total failure can be effectively mitigated to zero while the potential for upside and knowledge gain is quite high. A Pilot MES might be the perfect way to get started and move your digital transformation through from just a planning project to one that can deliver real results and an ROI. 

A new program was just launched by iBASEt whereby a pre-configured “solution in a box” can be deployed in just 90 days. With this option, you can test the waters with how an MES can perform and know quickly if it is the right option. 

Maybe now it is time to start thinking more like a VC and reduce your risk exposure? Include a higher number of Pilot programs in your investment plan knowing that you will either fail fast or identify a new path forward as part of your Industry 4.0 strategy.

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About Gordon Benzie

Director, Marketing & Communications at iBASEt

Gordon Benzie has 20+ years of leadership experience in marketing and communication roles at software solution providers driving digital transformation across industrial operations. As an avid technologist, Gordon has a deep understanding of how today’s technologies are improving the manufacturing processes within discrete, hybrid and process industries.

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