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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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Social Media Fads and the Risk to the Enterprise

March 17th, 2010 by

Social Media

Today’s IT landscape is filled with hype around Web 2.0 and while collaboration is a key forward looking initiative for any organization social media requires a specific purpose and goal. Without a clear direction and purpose for social media initiatives they are at best a distracting fad, and at worst an enterprise disaster.

When I look at today’s “Twitter” and “Facebook” applications I see them as a fad. Popular today, and they will be around for a while, but like all “social” outlets they are waiting for the “next big thing.”  MySpace was eclipsed by Facebook and text messaging, while still popular, has been knocked down a couple of pegs by Twitter.

Is social media important to the IT organization and future? Yes, but ONLY in the context of a genuine and legitimate business purpose.

Social Media Study Shows Current Tools Have Little Value In the Enterprise

The other day, while on a flight to a client site, I picked up the back of the seat airline magazine and read through a Harvard Business Review synopsis of an experiment done with Facebook at an Austin based company.   This was a marketing experiment to see if social media like Facebook could be used to increase customer loyalty and therefore influence customer spend, or acquire new customers.  Although the Harvard Review article was very upbeat about this experiment in social media there was little evidence of consumer behavior changes that could be attributed to their Facebook experiment.  First, a little over 2% of the thousands of existing customers the company contacted actually joined Facebook and became “fans”.  The ones that did were already “raving fans” of the company.  The existing customers who joined did slightly increase their overall spend BUT, it is not known if the increase in spend was related to the Facebook offers and promotions or if the use of the social media channel had any influence (in other words, would other marketing channels to provide similar offers have produced similar, or even better results?).

This Harvard supported study showed that new customer conversion was low, the bulk of “fans” were those who were already dedicated customers, and very few new customers were added through Facebook over the 3 months of the experiment.  The rate of gaining new customers was not enough to make it a significant marketing medium for this company.

It is questionable if the medium had any bearing on changing customer buying behavior beyond other types of marketing–, it’s efficacy as a sales source is debatable.   So, in the end, Facebook and other social media outlets may just be all hype.  For this particular experiment there was a specific business purpose, and there was promotion and coupon activity.  So if in the end it turns out to be an effective marketing medium it must be looked at as a small part of an overall marketing portfolio with limited appeal to customers who are already some of the best buyers.  The next question would be whether or not there is any cost / benefit.

The Facebook study confirmed my suspicions about the “value” of these type of social media outlets in the enterprise. That does not mean that some types of social media do not have a clear place in the enterprise, only that today’s hype is overblown and risky to business.

Social Media and Collaboration Must Have a Specific Business Purpose to Have Any Value

In a nutshell, as I have written:

“Collaborative initiatives that are divorced from a specific business purpose are disasters waiting to happen.”

I will say Twitter as a social media platform is interesting because of the ability to gain access to individuals who particpate there that you might never be able to gain acces to any other way.  As a sounding board for media types it is also interesting but there are still very few (if any) great business models on Twitter’s cost effective use to gain, retain, upsell, or cross-sell into your customer base.

From Collaboration to Innovation to Market – Toward a Working Model
http://www.r3now.com/from-collaboration-to-innovation-to-market-toward-a-working-model

I’ve been working with collaboration technologies as a Knowledge Manager for about a dozen years now. I started with collaboration tools in the enterprise long before the hype and the Web 2.0 fervor and I say a lot of the hype is HOGWASH!

Based on my years of collaboration experience, a short excerpt from a recent post:

ERP III – Is the Integration of Collaboration the Future of Enterprise Applications
http://www.r3now.com/erp-iii-is-the-integration-of-collaboration-the-future-of-enterprise-applications

Too many organizations undertake the introduction of social media for the purpose of introducing social media into the enterprise. Again, this is like having information without the context of application and experience. That information is NOT knowledge, nor are collaboration tools which are divorced from a specific business purpose very productive (if at all).

Niether consultants nor business has learned how to use social media to drive business value. There are few consultants out there with a coherent or even minimally functional method for business to use collaboration tools to propel a company’s key value propositions.

What say you?  Are you considering social media in your enterprise?  If so, does it serve a specific business purpose or objective?

I am VERY interested in any of the social media marketing types and their perspective.  Can you help me with ways to gain concrete business value from the use of social media?

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

March 2nd, 2010 by

Bridge to IT success

This series takes a look at the role of the CIO, the current technology landscape, where the gaps are, and this final piece looks at the emerging technology landscape and what the future holds. This is the last post on the future of business to technology alignment. 

This four part series covers the entire breadth of the business to technology landscape of the future –, IT organizational alignment, business alignment, and future technology alignment for success in tomorrow’s marketplace. 

What Does the Future Technology to Business Alignment Hold – Future ERP, SAP, and IT Value

A number of changes on the horizon will produce a number of winners and losers in the technology marketplace.  Those software companies, system integrators, and consultants who persist in delivering only solutions narrowly tailored to address operational concerns will find a shrinking landscape of customers to sell to, and the competition for the market space will drive prices down to commodity status.  Together with this, the CIO, IT Director, or IT Decision Maker who focuses on the operational side of the equation, or the lagging indicators will continue to face greater and greater cost containment requirements no matter how well the business or economy performs.  As the CFO and COO continue to press for getting more for less from the IT department to cover the cost side of the lagging indicator equation the senior level IT decision makers will find their career prospects more limited.

The way to propel an IT career forward in the years ahead will require a demonstration of business value within the overall organization.  The CIO will need to carry the torch for bridging the business gap between the business lagging and leading indicators of business health.  The important focus both now and in the coming years is on the demand side of the business equation.  That demand side is a focus on customer acquisition, customer retention, sales conversions, up-selling, cross-selling, and customer centered innovation.

A New Wave Technology Model for IT Decision Maker Success

This is a technology alignment model, it shows one possible method for CIO, IT Director, or other IT decision maker to achieve success in the demands to advance the business.  Keep in mind, this is NOT an organizational model, it is a technology alignment model or a business to technology map. 

This model represents the role of the CIO as the bridge between the lagging side of the business (finance, people, process) and the leading side of the business (strategy and sales).  In this model, although the CIO position appears above the CFO and COO organizationally they are generally more equally aligned, or, in many organizations the CIO may answer to the CFO.  The correct CIO role is one of technology integration between the lagging and leading sides of the business.  The CIO role with the use of technology is the “glue” between the two sides.  For the CFO who has responsibility for the CIO and technology spend the surest way to ensure company health and to promote business needs is to encourage the adaptation of the CIO role as a bridge between the CEO and CFO.  As is often the case, success here will cause the company ship to “rise” in the marketplace and a rising ship benefits all participants.

CIO Alignment and Key Responsibilities of the Future Business Aligned Technology Organization

The unfortunate reality is the CIO alignment in most modern organizations is almost exclusively housed in the lagging indicator category (see Part 2 and Part 3 of this series listed at the end).  The zealous focus on only lagging indicators, with its heavy reliance on cost cutting (through automation, performance improvement, etc) leads to cost cutting in the IT department itself. 

After things are working and then automated the IT department is pressed into maintenance mode 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 technology map of the future will focus much more aggressively on the customer integration into the business process.  And collaboration activities will occur across the entire value chain, on both the lagging and leading indicator side of the business.  Future collaborative integration will produce new market intelligence, product or service innovation, early defect detection and correction, and other business possibilities which help to retain and acquire new customers.

The future of the successful technology application is going to depend heavily on the ability to drive innovation and process improvement around customer retention, acquisition, and product or service innovation.  There are already signs this is beginning to occur in some of the leading edge companies that this is the future of business technology.

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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