Business Solutions with SAP

Will Next Generation IT Finally Transform Business

April 18th, 2011 by

Technology Enabled Business TransformationNew IT Value Propositions – Moving from Operations to Customers and Innovation

Throughout everything I do as a consultant I try to categorize my activities into the three key value proposition areas of business–, operations, customers, or innovation.  Even though I have been working primarily in the supply chain areas of SAP since 1994 (SD – Sales and Distribution, MM – Materials Management, and PP – Production Planning) I have been focusing more and more on the key value areas of customers and innovation.  The big driver for my focus on customers and innovation is because that is where business is done.

By focusing only on processes, operations, and cost reductions business and IT efforts result in mass commoditization.

Certainly every company must contain, control, and reduce costs to stay competitive in the marketplace.  More and more however the companies who are able to ensure long term success are those with a more balanced focus on retaining and acquiring customers while innovating new products or services.

Where IT has been and Where IT is Going

The last 30+ years the business and technology “revolution” has focused on operations and done little to directly address the customer or innovation.  It is almost as if technology organizations only understand Henry Ford’s assembly line mentality with business processes.  The operations focus can be seen in ERP applications (like SAP), EDI or interfaces, machine logic controllers, wired and then wireless data transfer, the Internet, or any other number of technological advances.

Today’s leading companies are integrating their IT operations into the fabric of the business.  Today’s leading companies are focused on innovation and customers.

Today, innovation is about much more than new products. It is about reinventing business processes and building entirely new markets that meet untapped customer needs. Most important, as the Internet and globalization widen the pool of new ideas, it’s about selecting and executing the right ideas and bringing them to market in record time.

In the 1990s, innovation was about technology and control of quality and cost. Today, it’s about taking corporate organizations built for efficiency and rewiring them for creativity and growth. [FN1 – excerpted from “The World’s Most Innovative Companies,” see the footnote link below.]

In announcing the recent list of innovative companies, MIT noted these companies are “setting the agenda in an increasingly important market, on the verge of disrupting an established market, or creating an entirely new market.” (BostInnovation Feb 22, 2011 citing an MIT study of innovative companies).

The Operations IT Focus Has Turned All Products Into Commodities

This better, faster, cheaper automation paradigm has worked well when processes were mostly manual and labor intensive.  As more and more processes have been automated and streamlined further technological advances provide less and less return at higher costs.  Along with that, the cost-cutting chase, and the speed of automation and process improvement has dramatically accelerated the rate of commoditization of products and services.

As just one example of how dramatic this transformation is, I personally own an iPhone.  On that iPhone I have a free application that: a) uses the phone camera to capture and process product bar codes, and then b) goes online to immediately price-compare that product to local and online sources.  My wife loves it.  She can be out shopping and do real-time price comparisons.  What does this mean? 

Every major product seller is now a commodity outlet.  Every product can be comparison shopped in real time making it a commodity also.

As a product supplier, your customer does not have the option of you re-numbering, or using a different SKU.  Why?  Because the very same ability to search for the lowest price is the same tool that finds your product to begin with.  Changing the SKU would be more counterproductive to sales than engaging in the commodity-based price wars.

The future of technology and business integration provides the two areas of business most neglected by IT or ERP or technology to focus on–, innovation and direct customer interaction.  While I personally believe we are in the early “Wild West” era of social media tools, their hype and popularity is proof enough that the marketplace as a whole recognizes a gap in customer interaction that must be filled.  The real question is what will tomorrow’s successful social media business models look like after all of the hype and snake oil sales are finished.

Next Generation Enterprises – Will They Transform Business?

Already we are beginning to see seeds of transformation being sown.  All around the globe companies are beginning to focus more directly on innovation and customer focus through technology integration.

The hype around social media and Web 2.0 is beginning to give way to a few practical applications.  The same can be said for “cloud” computing even though it is still heavily immersed in the “hype” phase.

These are all IT solutions.

What about business integration?

What are the details of how technology and social media will bring about a revolution in customer focus and innovation?


[FN1]  The World’s Most Innovative Companies (Bloomberg)

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Do You Know When To Do SAP Custom Development?

April 11th, 2011 by

Use SAP Best Business Practices for commodity processes and development for value added processesUse SAP Best Business Practices For Commodity Processes But More Carefully Evaluate Competitive Processes

The debate and discussion around SAP best business practices usually assumes an “either-or” mindset.  Either you use the SAP best business practices as they are or you abandon them (for more background on SAP’s “Best Business Practices” see What are SAP Best Business Practices Anyway).  Several commentators suggest you should not do a software vendor’s “best practices” because you are adopting the “herd” mentality and will not be competitive in the marketplace.  They completely ignore the reality that some processes do not need huge development investments.  SAP provides a number of tools and resources to evaluate its solutions for your enterprise’s business processes (see Using SAP Solution Composer for SAP Scope – Process Alignment).

Commentators who are broadly against “best practices” have failed to recognize that there are different types of business processes.  One type are what I call “commodity processes” or the things you must do to run business, that everyone does, but adds little or no value to reducing cost, increasing revenue, or improving margins.  The other type are “value added” processes where the process itself (not ancillary manual steps) directly aid in reducing cost, increasing revenue, or improving margins.  Some business processes justify custom development when a standard solution will not do certain business critical processes (see e.g. Lower SAP Application Support Costs – TCO – by Reducing Custom Solutions).

Value added processes must directly contribute to market share or address a specific pressure from a competitor or they are commodity practices which are good candidate for “best practices.”  By reducing costs or increasing revenue and margins you are directly affecting your competitive posture in the marketplace.

What Are Value Added Processes in the SAP Organization?

Let me clarify one thing here, a “value added” process can be any process in a company.  In one company or environment a process may be a commodity process, however in another company, or industry, that same process may be a value added process.  The test for a “value added” process is whether or not it adds to your business marketplace competitive advantage.  That generally means it has to reduce cost or increase revenue in more than a minimal way.  As an illustration ask yourself, if you significantly increase your margins on a slow moving, outdated, low volume product or service is it worth a huge amount of time and effort?  Was the investment worth it?

Management’s primary responsibilities are to increase revenue, reduce cost, and improve margins

A value added business process will generally have some type of reporting requirement attached to it.  Some way to measure its performance because the process is critical to the organization’s mission.  If you have developed KPI’s, goals, metrics, or reports for a particular portion of your business processing you can be sure it is a good candidate for special attention as a “value added” process (see Why Indexed KPIs are Critical for Business Performance and Success and Using Key Performance Indicators for Building a Strategy Focused Organization).

What are Commodity Processes in the SAP Organization?

In most companies “commodity” processes would include purchasing, warehousing, inventory, distribution, or other routine processes.  Commodity processes and those business functions that do not have a direct impact on your competitive position.  If you are a third-party logistics provider then your competitive processes would include warehousing and distribution.  It is the core of your business and what you do.  However in other businesses those would be commodity processes.  If you are a consumer products company then sales and marketing processes would be value added where purchasing and inventory would be more commodity processes.

Worse still, in recent years IT has been seen as a “commodity” resource to be outsourced.  As IT and technology functions have become more and more focused on cutting costs and shaving pennies from a few process areas they are finding smaller and smaller returns at more and more cost.  As new technology is rolled out and it stabilizes the business and senior management see IT as more and more of an expensive cost center with functions that can be performed elsewhere at a lower cost.  IT organizations everywhere must begin to aggressively focus on business integration and value realization or become prey to outsourcing themselves (see IT Outsourcing, Off Shore Support, Cost Cutting and IT Department Changes).

SAP Software Best Business Practice Processes

While I have long advocated for business process engineering rather than software engineering there are times when custom development is justified.  The key to understanding when you might choose one approach or the other is related to whether a process (or sub-process) is a “commodity” process or a “value added” process.

Considering cost, revenue, and margins separated from marketplace competitiveness is misplaced.  Unless there is some significant competitive advantage or directly aligned business driver then only standard functionality should be used.

When you consider your SAP software investment it would provide the greatest business benefit to pay special attention to value added processes. Do not waste time or development effort on commodity processes.  Spend the time, effort, and money on change management for commodity processes because after the initial change cost ongoing Total Cost of Ownership (TCO) for these SAP processes will be the least expensive (see Where do you Start with SAP Return on Investment or SAP ROI?).  Regression testing, patches, fixes, new functionality, and all of the other things you do with SAP business applications will be easier and less expensive for the commodity processes.

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Successful SAP Project Team Composition – Technicians or Experts?

September 27th, 2010 by

performanceContinuing on the theme from a previous post about getting SAP expertise do you need SAP Technicians or Experts? There is academic study I want to take some time to review about gaining SAP ROI and reducing your SAP TCO.

The study points out the type of SAP project team expertise to gain ROI and competitive advantage from your ERP project.  If you want real return, real results, and real benefits then you need real skill (see e.g. Screening and Interview Methods to Find the Right Consultant – Part 2).

These consulting skills for SAP project benefit are available but they are difficult to find even in economically challenging environments.  What the marketplace needs is reproducibly superior performance, or real expertise.

Reproducibly Superior Performance for SAP Projects

The academic study has significant implications for any type of expertise, across any domain of experience. 

The study itself was quite lengthy and boring but in spite of the “dry read” it was one of the most enlightening studies I have read in years.  The basic premise is that with few exceptions it really is possible for anyone to be a superstar. 

Ericsson, K., Roring, R., and Nandagopal, K. (2007);  Giftedness and evidence for reproducibly superior performance: an account based on the expert performance framework.  High Ability Studies Vol. 18, No. 1, June 2007, pp. 3–56.

Boring or not this is required for every HR employee, every manager, every supervisor, and every executive who is interested in the secret to breakthrough success.  It is required reading for anyone who manages people, processes, or has any form of leadership role in a company.  And it is among the most critical reading for anyone considering a vendor selection for an SAP implementation.

ANY “technician” can ask questions, but only experts can efficiently, effectively, and fully address the issues or problems those questions raise.  In some cases only an expert can even understand the issue or problem.

The “Expert Performance” Study Background and its Broad Implications for SAP Consulting

The lengthy study (over 50 pages) does a thorough and fairly comprehensive evaluation of studies, literature, and research dating back as far as 1904 to the year of the publication in 2007.

The research on Expert Performance has wide ranging application to nearly any domain of expertise

The authors challenge the idea that “giftedness” is an inherent attribute that cannot be reproduced.  The study offers a very compelling and accurate evaluation (or criticism) of past analytical approaches to superior performance.  They pointed to research problems in reliability and methodologies from prior studies which suggested “giftedness” is an innate trait. 

What the authors show is that in nearly any focused domain of expertise it is possible to achieve significant levels of consistent superior performance.  They evaluated the domains of scientific research / discovery, memory, medicine, chess, various professional (and Olympic) sports, aptitude tests (reading, writing, math, verbal, and IQ), art , music, professional writing, psychology, and other areas. 

What is the Expert Performance Approach?

The study’s authors advocate for a new method of evaluating, developing, and pursuing high performance called the “expert performance approach.”  That approach, summed up in a phrase is the relentless pursuit of excellence.  It means that “reproducibly superior performance [is the result of] extended periods of incremental development” (Ericsson, K., et. al. 2007, pg. 14).  At roughly 10 years of experience, with a minimum of 10,000 hours of focused effort it has “been found to be closely correlated with the attainment of expert and elite performance in a wide range of domains…” (Ericsson, K., et. al. 2007, pg. 17).

“[E]ven the most ‘talented’ need 10 years or more of intense involvement before they reach a level where they can consistently demonstrate superior performance in international adult competitions in sports, sciences and the arts… Even in cases of famous legends, such as prodigies like Bobby Fischer, the required time to reach grandmaster status was still around nine years, and it took another two decades before Fischer played for the world championship. In many domains of expertise, most elite individuals take considerably longer than 10 years of intensive practice to win international competitions consistently. Further, outstanding scientists and authors normally publish their first work at around age 25 after an extended preparation, and their best work takes an additional 10 years…[E]ngaging in particular practice activities produces dramatically elevated levels of performance over an extended period of time.” (Ericsson, K., et. al. 2007, ppg. 16, 17)

The implications of this research for system integrators in the SAP and ERP space cannot be underestimated.  Because of the way consulting companies are structured and operate it is nearly impossible to achieve expert performance levels from their consultants.  Even consultants who really desire to achieve expertise find the consulting firm culture difficult to ensure domain expertise is acquired.

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