Business Solutions with SAP

Outsourcing Your SAP Application Support

March 20th, 2010 by
SAP outsourcing

SAP outsourcing

I believe it was Peter Drucker who opined about outsourcing and then wrote a book on the subject. The original premise was that low level administrative functions, which were not a key or core focus of the business (like mail rooms) could be outsourced.  Fast forward several years and business has learned that virtually all “non-value add” functions can be outsourced.

IT infrastructure was value add as long as something new or better could be developed to provide cost savings, efficiencies, improvements, or as many commentators note “better, faster, cheaper” solutions. Now that the “last mile” of technology is becoming more costly with lower returns IT departments are moving into full blown maintenance mode. They are becoming the modern day “mail rooms” to be outsourced for lower cost to focus on more fundamental or core business requirements.  IT departments have allowed themselves to become a type of “administrative” overhead and a key target for cost reduction.

This outsourcing trend has focused primarily on infrastructure tasks like network monitoring, database administration, e-mail system maintenance, OS and Office application rollouts, etc.  With all of the hype around “cloud” computing, or what used to be referred to a few years ago as “ASP” (Application Service Providers), or application hosting this trend will accelerate.  

I see this same trend beginning to occur in the business application space as well. The business application functions are moving into maintenance mode and are slowly being outsourced. Those functions which support the supply chain at many companies have automated, streamlined, and process improved (i.e. “better, faster, cheaper”) so that they are now mature.  With that maturity the last mile of improvement becomes cost prohibitive with little payback.  For more insight on this topic please see the following posts:

Competitive Pressures and Value Propositions, Is Lean the Answer? 

Business and IT Alignment – Integrating Technology and IT Spend with Business

Operational technology adoption generally follows a fairly consistent adoption model:

  • Implement
  • Stabilize
  • Improve
  • Maintain

As soon as maintenance operations begin to stabilize, and as the processes and support requirements are finalized the IT area becomes a prime target for outsourcing. 

Future IT Application Alignment and Trends

The next few years of the application space will see a MAJOR separation of consultants, vendors, applications, and solutions around operations, sales, and new products / services.  Forward looking IT organizations will be those who can move into the “value add” areas of the enterprise to support and automate sales, marketing, engineering (i.e. innovation functions), etc., the losers will be those who continue to focus on operations after the initial “low hanging fruit” has been picked. 

For those in IT areas, lead, follow, or get out of the way (or you WILL be run over!)

As an IT leader if you want to avoid obsolescence and outsourcing then it is important to retool your organization with the best and the brightest to begin focusing on the customer and innovation portions of the business.  Once operations are well underway the next phase for the successful IT leader who does not want to face outsourcing their department, and possibly their own job, is to partner with the sales, marketing, and engineering sides of the business for long term success.

The Operational CIO must Become a Strategic CIO

The past business application focus has seen a focus on finance and operations.  Key metrics in the past have included improving month-end close times, reducing various supply chain cycle times, and overall view of operational and financial data in real time.  These are all the lagging indicator side of the business which is focused on the CFO / COO side of the business.  It is time for application vendors like SAP as well as consulting companies to begin focusing aggressively on the sales, marketing, and innovation / engineering portions of the business.  Or, in business terms, the leading indicator portion of the business. 

The successful CIO of tomorrow will be the one who can build a bridge with technology solutions between the CEO and the CFO / COO. Those CIOs (and by proxy their subordinate IT leaders) who are able to make that transition to covering the holistic business will see their career prospects flourish. Those who don’t will be marginalized, stagnate, and find tremendous budget pressure slowly collapsing their organizations.  I’ve penned a few things on this topic as well which explains the changing dynamic for the CIO and the future of the application space.  Here is a short piece that explains that new relationship in more detail:

What is the Proper Relationship for the CIO, CEO, and CFO?

A permanent change in today’s business and consumer landscape is leading to a permanent change in IT staffing and project work in SAP and all other commercial applications.  You can either plan for it, adjust to it, and then learn to work within the coming paradigm or you can be run over by it.  Global economic conditions and the near financial collapse have created a permanent change in how businesses operate and customers purchase.  Financial institution regulatory controls have closed the door to many of the previous credit holes that allowed some of the out of control speculative and self-indulgent spending by consumers.   That trend is not likely to change for many years.  It is even less likely to return to the heady days of free flowing credit and consumer spending binges which fueled so many speculative bubbles. 

Related Posts:

What is the Proper Relationship for the CIO, CEO, and CFO?

February 8th, 2010 by
Global Competition Changes Everything

CIO, CEO, & CFO Roles

The CIO role in business has been changing almost as fast as technology itself for the last decade.  In the past it was enough to focus on business processes and automation.  It was enough to satisfy the business needs for operational excellence.  By doing this successfully the CIO was given carte blanche, often times large budgets and significant latitude in how best to apply technology budgets.  Those days are quickly fading and today many IT departments and IT organizations are becoming internal vendors to internal customers with “charge backs” to the internal organizations.  They are becoming little more than an internal cost center and “overhead” to the rest of the business.  And this re-alignment of the technology organization is creating significant budget pressures leading to staffing gaps.

Global Markets Are Being Dynamically Shaped and Altered

Modern technology has lowered the barrier to entry for new competitors by allowing international outsourcing, greater agility, quicker product design to market, and specialized focus on niche markets causing more market fragmentation and specialization. Customers have a wide variety of information from sellers and the Internet about products, design, services, options, pricing, and availability.  Things are more dynamic than ever.

Because of the pace of change, focusing on “best practices” and internal process improvement, or even extending processes is no longer enough. Business can rarely (if ever today) integrate, automate, and streamline to achieve marketplace success –, to one degree or another nearly every competitor is doing this or is quickly headed in that direction.

Business complexity and the breakneck pace of change turns yesterday’s breakthrough technology into today’s commodity; vendors are modestly integrated into the extended supply chain, all the way from raw materials to end customer delivery; customers are more sophisticated and have more options than ever through the Internet; competitors have worked to incorporate similar technology throughout their entire process chains by integrating, automating, and accelerating their processes.  As a result, business demand on technology simultaneously creates new opportunities and new struggles.

Today’s CIO is Being Asked to Deliver More With Less

While many technology projects still address business process improvement, cost reductions, and efficiencies, there is pressure to integrate the sales side of the business as well. More than ever there is pressure for all levels of IT decision makers to deliver business results focused on customer acquisition, customer retention, revenue growth, and innovation.  What this means is that the CIO or key IT decision maker must focus on being a bridge to the different sides of the business like never before.  The CIO who is able to properly partner with, and integrate into the business as a whole will rise above their peers and be successful.  Those who cannot will find budgeting and staffing more and more difficult. Today’s CIO has a big job, as this Booz Allen insight article from 2002 [FN1] noted, to succeed they must:

  • participate in corporate planning and strategy sessions,
  • align and integrate technology initiatives in terms the business understands — speeding products to market, enabling growth, and reading costs and risks, etc.,
  • make the case for technology spend and budgets, in business terms, with competing C-level executives,
  • develop internal knowledge and collaboration networks.

To make this transition the successful CIO must chart a course between the two sides of the business which are represented by the CFO (or COO) and the CEO (or President).  These two executive roles are a counterbalance and the successful CIO must learn to be the fulcrum in between them.  Without that integration of the CIO role into both sides of the business the IT area and IT functions are quickly seen as very expensive cost centers to be cut.

The CFO (and COO) Focuses on Business Processes and Financial Performance

The CFO role is focused on company finances and company health.  This would be a company’s lagging indicators in terms of business metrics where both operations and finance intersect.  If the company is doing well then these financial or operational lagging indicators will show this after the entire process is complete.  These results show up after customer cash is collected and vendor bills are paid together with employee salaries, fixed expenses, variable expenses, etc., etc., etc.  These lagging indicators show whether a business is healthy and headed in the right direction. The danger with a pure focus on operations, processes, and financial metrics is you must wait until you have already arrived at your destination to figure out if you took the right path.  In today’s global economy any mistakes could be disastrous.

To survive in today’s global economy a business must know early on where to make course corrections to stay on track.  Business no longer has the luxury of waiting until the financial results are in to figure out if things are headed in the right direction.

For most CIOs and IT managers they have almost exclusively focused on this entire domain.  Nearly all technology activities and certainly most SAP implementations focus on these areas exclusively.

The CEO Focuses on Strategy, Business Growth, Sales, and Marketing

The CEO role is about future strategy, sales, marketing, and business growth.  This would represent a company’s leading indicators in terms of business metrics.  If the company has:

  • new customer prospects in a healthy sales pipeline
  • a steady stream of customers being converted from the pipeline into orders
  • a growing order backlog while the fulfillment process performance is static or improving
  • existing customers buying more or higher margin products and services
  • a low percentage of customer churn

then these leading indicators of future growth and prosperity look good.  These kinds of leading indicators demonstrate future company performance and have been largely lacking from the technology equation.

The CEO, often through the interaction between the sales, marketing, engineering / product development areas also bears the responsibility for new products or services.

Today the extent of nearly all “leading indicator” initiatives is around CRM applications.  And unfortunately CRM applications are little more than gigantic contact management systems with some built-in analytics.  SAP’s CRM application, as well as other top-tier vendors does offer a measure of sales accountability and sales process discipline that has been lacking.  However few if any of the CRM applications actually provide real technology benefits to improve the sales process, or promote customer retention.  They may modestly improve customer acquisition because of the amount of data and customer-centered intelligence they can provide but this is proving to be marginal.

Where does the CIO Role Fit in Today’s Global Economy?

CIO’s have traditionally focused on process improvement, automation, and those items related to a company’s fiscal health and performance.  Few technology leaders or technology projects have addressed the leading indicator side of the business equation beyond installing CRM applications.  But today’s CIO will have to change that.  More than ever the CIO must focus on the integration of the leading indicator side of the business with the lagging indicators.

The successful CIO will become the “integration glue” between the CFO and the CEO.

In a nutshell, the CIO role, and the IT staff in a properly aligned organization must be business-centric first and they must address business events from both a lagging AND leading indicator perspective.  The most successful CIO will become the bridge between the CEO and the CFO, and thereby integrate business leading and lagging functions with technology.  In other words the successful CIO must find ways to integrate operations, finance, and sales.  And not just integrate them, but do so in such a way that technology investment and technology spend becomes focused more aggressively on the “demand” side (customer sales and innovation) rather than on the “supply” side (operations, processes, and automation) of the business equation.

CEO CIO CFO Alignment

This graphic shows not only the proper CFO/COO, CIO, and CEO level alignment, it also illustrates the burden that the most successful CIO and IT decision maker will carry.  Future CIO success with technology in the business will require a more holistic or complete focus on business demand.  The CIO role is becoming larger, and yet more difficult at the same time that the IT organization is under more and more financial and budget scrutiny.  What this means for the CIO, IT Director, or other IT decision makers is that if they do not have an MBA or other formal business training themselves they may wish to look at enhancing their IT departments and IT organizations with true business analysts who also know technology (or can learn technology).

IT organizations and technology budgets that fail to address both sides of the business equation (lagging AND leading indicators) experience:

  • significant budget cuts,
  • a move into “maintenance mode,”
  • their organization support model converted to an internal vendor to internal customers with “charge-backs” for services provided to the organization,
  • being closed out of partnership with the business.

As the business as a whole pushes back on what they see as a very expensive IT department they will find their own internal ways around the budget hits from IT.  Internal company departments will avoid budget hits from these “charge-backs” by doing things themselves whether that means manual processes or developing some measure of internal IT autonomy in some of their tech savvy departmental employees.

What Can IT Decision Makers Do to More Aggressively Address Business Needs?

There are a number of approaches that can be taken and a number of requirements that will be needed for a changing job role.

  1. Engage the CFO / COO and the CEO in discussions about supporting their business needs.
  2. Find ways to actively and directly integrate part of the IT staff into key business departments.  For example, should the Finance, Operations, and Sales departments each have their own dedicated IT staff members?  Or how do you take a limited staff and create a responsibility matrix to maximize business attention on these key departments?
  3. Invest in business analysts, those with business degrees or a business focus, who know or can learn the key technologies to support the business.
  4. Define and develop a technology strategy execution team consisting of at least one senior level VP or Director from Finance and Operations (appointed by the CFO / COO), Sales, Marketing, and Engineering (appointed by the CEO), and Technology (appointed by the CIO).
  5. Have the strategy execution team work together with any of their own key resources to define top level KPIs for IT to business integration.
  6. Revisit current KPIs, departmental goals, and metrics to ensure that technology and IT are aligned to these important business measurements.
  7. Use the underlying metrics and business goals for the KPIs as the source for both reporting and technology initiatives.

[FN1] Boochever, J., Park, T., Weinberg, J., CEO vs. CIO: Can This Marriage Be Saved? Booz Allen Hamilton, Strategy Business Online, July 17, 2002, retrieved online February 6, 2010 at


Part 1:  What is the Proper Relationship for the CIO, CEO, and CFO?

In the first part of this series we looked at the changing business landscape and what it means to the CIO, IT Director, IT Manager, or other key technology decision makers.  From a high level the current global business competition, as well as economic issues are directly affecting the C-level executive requirements and the CIO – CFO – CEO dynamic.  This article reviewed how and where the CIO role is coming under tremendous pressure and how to change the current dynamic by more appropriately partnering with the CFO and the CEO.  This partnership is a critical business bridge between lagging business indicators of business financial and process health on the CFO – COO side of the business house and the leading indicators of sales and product or service pipelines on the CEO side of the business house.

Part 2:  CIO, CFO, and CEO Alignment – Why ROI is Lacking from Today’s System Landscape

The second part was an overview of the current system landscape and its focus on business processes and the emerging trend of trying to focus on the customer.  This piece also looked at the future business landscape and how the technology focus and direction will be permanently changed no matter what happens with the economy and global competition.  Because the technology marketplace (business consumer) is becoming more sophisticated and more attuned to business / technology alignment, the IT dynamic is going through a structural change.  The whole technology sector is slowly moving away from the “operational excellence” value proposition to the “customer focus” and “innovation” areas of the business.  Very few of the consulting companies and few of the application vendors see this sea change and are doing little to address it.  This is the area of technology market winners and losers of the next 20 years.

Part 3:  Changing the Direction of SAP, ERP, and IT Applications to Focus on the Customer and Innovation

The third part in the series looked at current technology landscapes and how they are aligned and then looked at future technology landscapes.  A brief review of the supply side and the demand side of business shows that unless you have lots of customers (demand) to fill a bigger and bigger pipeline (supply) then your business model collapses.  While it is hidden during good economic climates, any disruption in those economic conditions which fails to fill the capacity pipeline points out the glaring insufficiency of the “operational focus” to technology.  During any economic disruption, or any reduction in demand from customers for your products or services the current technology model falls apart.

Part 4:  Future Technology Landscape Alignment for the CIO, IT Director, or Key IT Decision Maker

The final part of the series looks at the emerging technology landscape and what the future holds.  It lays out an emerging technology landscape model which has some re-alignment and some components already in use by some of the world’s most successful companies.  A new alignment of technology with the customer facing processes, and the use of social or collaboration tools across the enterprise with a clear business objective is explored.  The driver for the future change will be because the business does not see the revenue generation prospects of technology–, they fail to see the possibilities of promoting customer retention, customer acquisition, innovation, and marketplace analytics.  The new technology model looks to change that dynamic.

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Competitive Pressures and Value Propositions, Is Lean the Answer?

November 10th, 2009 by

business and IT strategy

Modern technology has lowered the barrier to entry for new competitors by allowing international outsourcing, greater agility, quicker product design to market, and specialized focus on niche markets causing more market fragmentation and specialization. Customers have a wide variety of information from sellers and the Internet about products, design, services, options, pricing, and availability.  Things are more dynamic than ever.

Because of the pace of change, focusing on “best practices” and internal process improvement, or even extending processes is no longer enough. Business can rarely (if ever today) integrate, automate, and streamline to achieve marketplace success –, to one degree or another nearly every competitor is doing this or is quickly headed in that direction.

Business complexity and the breakneck pace of change turns yesterday’s breakthrough technology into today’s commodity; vendors are modestly integrated into the extended supply chain, all the way from raw materials to end customer delivery; customers are more sophisticated and have more options than ever through the Internet; competitors have worked to incorporate similar technology throughout their entire process chains by integrating, automating, and accelerating their processes.  As a result, business demand on technology simultaneously creates new opportunities and new struggles. 

For years SAP has been trying to encourage their customer base to focus on creating value as one way to address some of the changing business dynamics. SAP has developed major toolsets to focus on strategy and value for over a decade and often reference this need for a value and strategic focus in their literature:

Investing in technology is only half the game. Investing in IT without analogous improvements in the management practices around IT will lead only to a slight increase in productivity. Leading companies that invest in IT while enhancing management practices and governance have experienced sustainable results in increased value and improved productivity, in some instances as much as a 20% boost (reported in Stephen J. Dorgan and John J. Dowdy, “When IT Lifts Productivity,” The McKinsey Quarterly, November 2004)… [A]n IT project needs to be not only on time and on budget but also on value. Similar to any other capital investment, the project is not done when it goes live.

SAP Executive Insight Series. Accelerate Value Creation: The Virtuous Cycle of Using Technology to Maximize Business Value, pg. 3, September 7, 2009.

SAP built a multi-billion dollar business based on helping business succeed in strategy and value as critical components of their software implementation. So why isn’t it happening? 

What about “Lean”?

If you are embarking on “Lean” initiatives it indicates that your market space already is, or is rapidly headed for commoditization. The reason is that “Lean” processes are primarily another type of process improvement initiative that only addresses one of the three key areas of the “value proposition.” Lean focuses on the value proposition area of operational excellence but does very little in the other key arenas of customer focus or innovation. In turn, operational excellence addresses cost reduction through automation, cycle-time reduction, and operational efficiency.  But is that what you need?

Excess capacities, combined with the frequent layoffs that occur during economic downturns indicate that many enterprises are operating at or near optimal levels, maybe not perfect, but certainly efficient. Whatever backlog exists before any market downturn or disruption is low enough that those backlogs quickly dissolve. When market downturns occur, resources are adjusted relatively quickly in response. As market downturns point out, integration, automation, and streamlining are not the problem. The excess capacity, whether in products or services, demonstrates that processes are effective and efficient.

Do you need “Lean” or Six Sigma? Maybe, maybe not. There are two reasons your business or organization should consider this operational excellence proposition over the others–, 1) your competitors are beating you on price, or your market is already a commodity or is quickly becoming commoditized, or 2) if your product or service requires a significant amount of precision, Lean makes sense.  Otherwise why would your pour your company’s limited resources, time, and energy into these methodologies where the “last mile” of change has the highest cost but yields the smallest gains? 

If your competitors have a significant price point advantage then it may make sense. Otherwise your efforts and resources might be better spent focusing on competitive pressures, market dynamics, business strategy, IT strategy, and value propositions.  With Lean you may be running a dangerous race to the lowest price in the marketplace that will squeeze your profit margins, press your cash flows, and commoditize your products or services.  On top of all of this you may risk of stagnating or even declining stock prices unless you are able to capture significant market share.

Using “Lean” methodologies to squeeze out the “last mile” of very small efficiency gains is no longer enough to gain real competitive advantage in the marketplace. It might eliminate or streamline some of the bureaucracy, and it will help to minimally improve margins and improve cycle times, but it will not create breakthroughs that companies need to survive and thrive in today’s business environment. In a nutshell, process integration, automation, and streamlining is not the only issue to be addressed.

Is there an Answer to Competitive Pressures and Value Propositions?

If your organization approaches your SAP or IT investment from a business and IT strategy perspective you are far more likely to achieve the kind of benefits and results you are looking for. Unfortunately by the time you get to the RFP you are asking vendors to bid on a project where there is a built in emphasis on putting the system in.  Integrators are bidding on the IT work, not on business transformation, not on business benefit, not on business goals, not on addressing competitive pressures–, the RFP only addresses IT work. Before the vendor RFP is issued by your company you should be having key internal discussions about why you are doing the project.  What are your business drivers?  The direction of the company must be considered, the key goals and initiatives defined, and then your RFP should insist on vendors demonstrating their direct competence on delivering solutions that enable your key business drivers.

IT Directors, CIOs, CFOs, and other key decision makers who influence technology decisions find it difficult, if not impossible for their vendors to provide the innovation and guidance for this type of implementation. It is a creature of the business climate and the traditional RFP approach that these typical implementations occur in.  Some of the things that influence the RFP focus on delivering a technology solution rather than business solutions are:

1. ERP systems generally can be very costly to implement.

2. The marketplace has dictated lower implementation costs, which has in turn led to;
   a. Implementation “success” being defined down to “on time and on budget.”
   b. Many software vendors hire the least cost but acceptable application consultants to meet some cost and margin goals.

3. Few or no real entrance requirements to SAP consulting has led to a wholesale consultant cottage industry of frauds and fakes that are not well-vetted.

4. Of the actual SAP consultants with verifiable experience few have real business background outside of an SAP implementation (as a result they do not understand value propositions, business strategies, competitive markets, etc.).

5. Fewer consultants have real process integration experience to be able to cover an entire process from start to finish. For example, there are few genuine “Order to Cash” or “Requisition to Pay” or “Plan to Produce” consultants.

6. Implementation vendors have no incentive and no requirement to participate in or drive organization success. They have an incentive for project success, as defined by “on time and on budget” but no incentive or guidance on your organization’s success.

If you don’t see the spark of innovation, creativity, strategy, or marketplace understanding in an implementation vendor during the selection process it is unlikely to change once you sign the contract with them. If business expertise and strategy development appears lacking in the consultants being proposed for your project you won’t see it in your project; and it is even less likely you will see it in the SAP solution that is rolled out to the user community. If they don’t have it when they come to the table, they won’t have it when you start paying them! There are ways to change this frequent disappointment:

First, the business must drive the project right from the beginning–, and that beginning is before an RFP is created.

Second, an educational process is required which includes critical tools, resources, methods, and techniques to ensure you finally realize ROI and business benefit from your SAP implementation. And not just cost-focused benefit either, but real business transformation benefits and business focus on the IT investment.  This process must include some repeatable process for evaluating your competitive pressures, addressing your value proposition, and integrating your employees through collaboration.

Third, that new knowledge from the educational process must be incorporated into the entire implementation process, and ultimately in the entire organization–, from before the RFP is issued, to the vendor selection, through the Blueprint, into the Implementation, and throughout the organization once your SAP system is operational.

Today’s organizations need more than the old vendor implementation model, today’s organizations need consultants to deliver results. Previous consulting methods have produced consultants that are little more than expensive commodities that focus exclusively on the “better, faster, cheaper” method of project delivery. But they only deliver technology solutions, they rarely, if ever, deliver business solutions.  That same commodity is available to every organization everywhere. It does nothing to tailor the organization for today’s global competitive pressures or for enhancing their value propositions.

The client or customer who implements, upgrades, and adds on to their SAP landscape can no longer afford the commodity consultant. Because of the lack of genuine business knowledge and experience from application “technicians” there is consistent disappointment from C-level executives who want to see the promise of technology transform their business. These “technicians” are not able to assist in transforming the enterprise, or business, or an organization to compete in today’s marketplace. Your company must insist on more from consulting vendors and from placement firms or you will continue to be disappointed by the lack of results.

Additional Reading and Resources on Business and IT strategy:

The Real Reason Executive Participation Creates IT Project Success

CRM, ERP, BI, and IT Investment — Where Do You Find the Business Benefit?

Why SAP Projects Fail to Deliver ROI (and How to Change IT)

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