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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. 




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In Support of Strategy

March 2nd, 2010 by

Business and IT strategyWhat’s with all the “strategy bashing” of late? How could sound strategic planning possibly be a bad thing? Things have spun so far out of control that I recently had a CEO ask: “Is strategy still relevant in today’s business world, and if so, what role does strategy play in the overall make-up of a CEO’s duties and responsibilities? Let me begin by stating that strategy has never been more relevant than it is today. With all of the current emphasis on tactical execution I guess I understand how a question like this could be posed, but wow, what a sad commentary on the state of executive leadership when a CEO asks whether or not strategy is relevant. In today’s post I’ll examine the role of strategy in business, as well as the CEO’s responsibilities therein…

Strategy vs. Tactics, Instead Try Strategy AND Tactics

Let me be as blunt as I can – The issue should not be strategy vs tactics, but strategy and tactics. While separate functions and disciplines, one cannot prosper without the other. Strategy is what provides the tactical road-map, and it is tactical execution that validates and delivers strategy. The noise attempting to lift one up above the other is simply more unneeded rhetoric. The best strategy cannot succeed without tactical execution, and tactical execution is much easier to achieve with the clarity provided by a sound strategy.

With all of today’s emphasis on pleasing investors by meeting short-term financial expectations, it is not at all uncommon for many executives to press for better execution when what they really need is a better strategy. Conversely, other executives change strategic direction when what they should do is demand better execution. The truth of the matter is that a sound strategic plan can be executed with a high probability of success, whereas a flawed strategy is almost impossible to execute profitably.

The CEO Has the Ultimate Responsibility for Assuring Strategy Delivery

The emphasis for CEOs needs to be on creating long-term sustainable value for shareholders without sacrificing short-term tactical interests. While in most cases a sound strategy will allow a CEO to have his/her cake and eat it too, if you must sacrifice one over the other, you would be well served to place long-term interests above short-term objectives. History has shown us on many occasions that it is quite possible to win the battle and lose the war. CEOs must learn to fight the battles that need to be won, and not just the ones that are easy to win.

Please read the following statements very carefully…The CEO is often times the chief architect of corporate strategy, and has the ultimate responsibility for assuring the delivery of a strategy, which is consistent with the corporate values and vision. One of the primary duties of the CEO is to communicate, evangelize, and lead the company in the implementation of the corporate strategy. Absent an over abundance of blind luck, a company’s strategic planning process will be critical in the eventual success or failure of the enterprise. CEOs must view themselves as being completely accountable and responsible for the corporate strategy, regardless of whether they were the original architect.

While executives must learn to view strategy and execution as being inextricably linked, they also must come to understand that strategy should always drive tactics. The tendency for some CEOs to let tactics determine the strategy is the classic example of reactive vs. proactive leadership. It also represents a great illustration of letting the tail wag the dog. A lack of strategic focus in dictating tactical initiatives is a ready-fire-aim approach to leadership and will result in higher costs, a perpetual state of chaos, and places a higher emphasis on activity vs. productivity.

There is so much focus on execution these days that it is not uncommon for me to receive a few e-mails each week with headlines that read: “Screw Strategy” or “Tactics before Strategy.” While I’m all for exploiting trends, and I appreciate a good marketing hook as much as the next person, these e-mails from so-called business experts can be both misleading and dangerous to those readers who don’t possess the savvy to understand that they are just being pitched on a product and not being given sound counsel.

As much as some of my direct marketing friends wish it weren’t so, there are certain inevitable truths that do exist in business. Listen, I have no problem with creating velocity and leverage, but as fluid as business is today, most of the “short-cuts to success” being marketed today constitute form over substance. You see business is much like an algebraic formula, in that while there are certainly formulaic short-cuts that can be taken to solve an equation more quickly, the one thing that will provide an incorrect solution 11 times out of 10 is when the order of operation is skewed.

The Successful CEO Strategy Model

The following visual is one I developed more than 20 years ago, and the interesting thing is that it’s applicationally as sound today as it was back in 1988. The orange horizontal line that cuts the image in half is what I refer to as the leadership line. When working above the leadership line you are working “on the business in a true leadership capacity, and when working below the line you are working “in” the business in more of a management capacity.  While all good leaders spend time on both sides of the line, the most effective leaders spend as much time working above the line as possible. Follow this methodology and the ambiguity surrounding the “why” and “where” to spend your time will start to clear itself up. 

CEO Strategy

For those of you familiar with my work, you’ll see that I have consistently espoused that a bias toward action and tactical precision are essential to achieving sustainable success. However, I am also clear in my belief that misguided and ill-timed/advised tactics can also create huge problems for any business. The bottom line is that strategy matters, and that as a CEO, strategy is your responsibility. The challenges associated with leading corporate strategy initiatives are not easy, but neither is the burden of leadership. If you’re not up to task at hand you don’t deserve the title of CEO…it is harsh but true.

~~~~~~~~~~~~~~~~~~~~~~

Re-posted with author Mike Myatt’s permission, he runs a great blog at http://www.n2growth.com/blog/ and the original source for this post can be found here:

http://www.n2growth.com/blog/in-support-of-strategy/

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SAP CEO Leo Apotheker’s Departure – What is SAP’s Future?

February 8th, 2010 by

Sr. Management CommitmentEven though the timing of Apotheker’s departure is a little unusual I can not say I am surprised by it.  If I look over the landscape of a CEO’s job responsibilities (sales, strategy, etc.) and compare that to Leo’s short tenure I don’t see any direction coming from the top.  Leo Apotheker came in at a difficult time, but even in the midst of a global economic downturn it is still possible to succeed.

Setting aside some of SAP’s maintenance fee mis-steps there just hasn’t been a compelling forward-looking vision for SAP.  SAP has done little to inspire the marketplace, and the introduction of alternative maintenance players like Rimini Street means that SAP MUST innovate and create a compelling message.  And even if some argue that SAP has provided some compelling message, I’m an SAP insider, working on SAP projects since 1994 and *I* don’t know what that message is.

To that end, I even penned a plea to SAP calling for innovation and market leadership.  That posting, entitled “Opportunities for INNOVATION SAP, HELLO?” [FN1] laid out some clear, but relatively simple application changes to the ERP flagship product from SAP.  Although well received by a number of SAP insiders it is doubtful that those in key decision making roles will adopt much, or even any of the application improvement ideas.

Where SAP is Missing a Key Business and Market Opportunity for Leadership

In reading through a post on the CIO Magazine blogs (“ERP Costs: 3 Signs Companies Are Wasting Less Money” [FN2]) on Panorama’s comparison of Saas with tranditional ERP it would appear that Saas is not all it is cracked up to be.  SAP has completely missed the boat here on not capitalizing on the GENUINE shortcomings of Saas ERP compared to on-premise ERP solutions like SAP.

Saas ERP is implemented over 35% quicker (11.6 mo v. 18.4), but cost only 10% less to implement (6.2 v. 6.9 ann. rev), and even though CEOs may be slightly more satisfied (< 3% difference, may be margin of error?), business is more disappointed (23.5 sat v. 42.9) and Saas is more often over budget (70.6% vs. 59%).  If this were a head to head comparison by the SAME measures on premise ERP applications have been measured by this would be considered an utter failure and an unmitigated disaster.  But the technology trade publications tend to be eerily silent on this.  Where is SAP’s market leadership in pointing this out?  And on top of that, what about the security issues involved as well?

  • It is implemented over 35% faster but only costs 10% less?
  • CEO satisfaction difference is marginal so that unless the sampling size is massive (which is doubtful) it falls within a margin of error.
  • Businesses are about HALF as satisfied with Saas solutions as they are with on-premise solutions?
  • Saas blows the budget about 17% – 20% MORE often than on-premise ERP?  (The % difference between 59% and 70.6% as a proportion of the 59% on-premise budget score).
  • Off site (off premise) access and security troubles plague Saas and “Cloud computing” models.
  • Another layer and level of contracts and service level agreements which must be correctly navigated.

When you look at the facts and strip away the hype on-premise ERP solutions win hands down.  Even with the on-premise ERP results, by comparison to Saas they look wonderful.

And SAP has done nothing to address this in the marketplace.  SAP has also done little to really address the usability of their software other than to provide a technical toolkit (GUI XT) to allow customers to create their own front ends.  MUCH more could be done. 

SAP could today “apple-ize” their user interface and end user experience to be more intuitive and more responsive to end users.  I’m not referring to an IPod, or IPad touch interface, but more of an intuitive look and feel that would make a user’s daily tasks simpler and less confusing.

What Does the Future of SAP Look Like?

  • SAP will need to define and articulate to the marketplace a clearer message about its value proposition and its differences. 
  • SAP should focus on end-user experience and a more intuitive user interface to help reduce the change management, adoption, and transition pain.
  • SAP should refocus its application landscape messages, its sales messages, and its strengths on business solutions rather than package solutions.[FN3]  Too much time and attention is spent on application features by the SAP literature and sales force and not enough on what those features mean to business.
  • SAP MUST develop an internal reference database of EVERY consultant who has ever taken a course, or been certified with them.  For far too long the company has allowed fakes, frauds, and cons to lie about certifications or training and SAP has not provided any way to verify these claims.  It is long past time for SAP to provide a “transcript” of courses and certifications for end-customer use when a potential employee or contractor comes to them.

These and many other straight forward solutions would help to generate marketplace buzz about SAP’s enterprise application suite and provide customers reasons for a purchase or upgrade.

[FN1]  http://www.r3now.com/opportunities-for-innovation-sap-hello

[FN2]  http://www.cio.com/article/531863/ERP_Costs_3_Signs_Companies_Are_Wasting_Less_Money

[FN3]  Over the years I have heard so many SAP sales reps and sales presentations that focus on this SAP application or that SAP application rather than addressing a business need or actual business requirements.  This is a classic sales No, No.  All these sales people do is describe features rather than explaining to the business what these features mean to the business in terms of benefit.  For way too long many in the SAP sales force have relied on the SAP name.

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