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Create SAP Convergence Instead of Business to IT Alignment

April 4th, 2011 by
Convergence is the answer beyond business to IT alignment in the SAP organization

Business to IT Convergence

This is part of an ongoing exploration of creating an SAP or Technology “Center of Excellence” within your enterprise.  For the background and key insights on this approach see the Series on SAP Competency Center or SAP Center of Excellence .

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The real future of technology is for IT to integrate with business, or in other words to “converge” business and technology.  The idea of “aligning” with business is too weak of a statement to define what IT and SAP must do within the enterprise to generate significant ROI.

Think about it, during the course of an SAP project the focus is on integrating the enterprise into a single data repository with dependent process chains.  Somehow that same level of integration is not required of the business and IT after you go live.

Product Convergence Lessons for Next Generation SAP Organizations

Convergence, convergence, convergence, what do I mean by convergence?  The idea behind convergence is the enabling of business with technology so that the two can not be distinguished from each other.  It means the lines between business and IT departments must be deliberately blurred.

Although the following examples are about product convergence they are great illustrations for how business and IT should integrate, or “converge” their functions.

  • ARPAnet which was created by the U.S. Defense Department’s Advanced Project’s group eventually became the Internet.  This was originally an advanced data and communications “fabric” that could withstand a nuclear war and route both data and communications in the event whole areas of the network were unavailable.  That back-end technology was later combined with early graphical software to create the public Internet as a global information resource never seen before in human history.
  • E-mail was a convergence of network technology with hardware, communication protocols, and then combined with software applications.  These combined to create a new form of communication which has transformed both business and social structures.  That convergence has extended to the Internet for various forms of “webmail.”
  • The advent of the personal computer and its increasing power made the way for decentralized processing in the form of “client-server” based applications.  Central business functions and tools could run on a server but each user’s experience and application needs could be tailored at their individual workstations.
  • ERP applications such as SAP’s ERP suite were made possible by the need for a centralized source of data, at the intersection of databases, network technology, and software user interfaces.  “Cloud” based applications or Software as a Service (SaaS) were an extension of that convergence to include remote hardware sourcing and access through the Internet.
  • Social media was the next “extension” of collaborative technologies.  They converged the Internet’s ability to connect people with software applications that allowed people to communicate in new ways. LinkedIn, Twitter, Facebook, and others are moving forward by connecting people to share more information in real time.

Look at most of Apple’s products.  For many years the Mac PCs and laptops only had marginal market share, while it is increasing it was their other products, their “convergent” products which produced explosive market penetration.  What was the difference?  It was convergence, the convergence of the customer experience with the things people use (see Business Strategy and IT Strategy to Reproduce Apple Innovation ).

What is Really Different About Apple Anyway?

Since Apple is so successful today we will look at their example.  The iPhone, iPad, iPod, all have one thing in common–, they took the idea of usability around the convergence of several technology streams to the next level.  Apple leveraged technology, communication, and entertainment to create something MORE than just a Graphical User Interface (or GUI), they created something useful for entertainment.  Apple products are a pleasure to use–, they created a “user experience.”  In the iPhone, even with its irritating lack of integrated e-mail calendar integration, it is a powerful business and personal communications tool which would have been considered a miniature PC a few years ago.

Apple didn’t really invent anything new.  Apple found that place of “convergence” with quality technology products and user experience

Apple didn’t invent the cell phone, portable music (remember Sony’s Walkman?), Internet data delivery (think, music sharing streaming software).  What Apple did was converge these technologies with a great front-end and delivery system.  Or as Steve Jobs has said, they “put a Mac in a cell phone.”  Apple also went one step further, they sought to own the entire content delivery infrastructure and the hardware architecture for their devices.  For the iPod it was the music delivery system (think iTunes), for the iPhone and iPad it was the extension of iTunes to add an Application store, etc.

That is an example of a product convergence that has had huge market impact.

Business and IT Convergence Can Transform Your Company

If we take this product concept one step further and apply it to IT and Business there are ways to bring about “convergence” in the IT enabled enterprise.

Business-technology convergence and business-technology management are terms that spring from a simple idea: Technology is a means for achieving business objectives; therefore, managing business and technology together provides significantly better results than managing them in separate silos. By converging business and technology management, enterprises can nimbly respond to changing marketplace dynamics, technology evolutions and competitive pressures—capabilities that are especially important during an economic downturn. [FN1]

[C]onverged enterprises know when to change the rules to maintain a strategic advantage over their competitors—and to sense and respond to changes in the marketplace.

I am a strong advocate for the convergence of roles between business and IT–, how will the IT organization know and understand the business “rules” without participating directly in business?

The best convergence candidates are likely your power users or super users who participated in your SAP project.  They come from the business but have exposure to the system and the challenges around IT.  The IT folks should also work in the business areas to become “super analysts.”  They need to know and understand how business actually gets done so they can figure out the best way to apply technology for business objectives to be addressed.

Completing the SAP Convergence

On top of the business users being integrated into IT and IT integrated into the business, the steering committee must not be disbanded.  This need cannot be stressed strongly enough.  That group of senior level business individuals are a key part of the “glue” for a successful and ongoing transformation of the business.  They are one of the critical ingredients for convergence to occur.

If you continue to develop your key business users and maintain your steering committee you have a power organization structure in place to build on convergence of business technology. For more information on the importance of continuing involvement by the steering committee long after the SAP project has gone live see my previous post on Using Your SAP Steering Committee for Business Transformation .

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[FN1]  http://www.baselinemag.com/c/a/Business-Intelligence/The-Value-of-Convergence-236013/




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Toward an SAP Center of Excellence or SAP Competency Center – PART 2

July 27th, 2010 by

SAP Production Support 2Part 2 of 3

SAP Competency Center – Doing Things Right

SAP Center of Excellence – Doing the Right Things

The SAP Center of Excellence approach assumes a dynamic organization that is experiencing a fair amount of change, at a pace that causes the organization to stretch.  This is usually the case with growth oriented companies who are seeking to find new competitive methods and ways of operating in a challenging global climate.

The SAP Competency Center approach assumes a fairly stable business model, without significant market disruptors, and a mature marketplace.  This is generally seen with older companies who compete in commodity spaces.  The SAP Competency Center is sometimes called an SAP Center of Expertise, but without more direct and clearly aligned business integration the organization name does not make it a true center of excellence.

The SAP Center of Excellence Structure and Purpose

For purposes of this post we will focus primarily on the SAP Center of Excellence structure or model (where IT organizations focus on business to SAP alignment).  This Center of Excellence structure first requires building out some of the stability infrastructure that comes from developing an SAP Competency Center.  The SAP Competency Center Framework is used to stabilize the application and business processes immediately after go-live.  The  SAP Competency Center becomes the foundation for the Center of Excellence structure (to aggressively focus on market and competitive pressures).

The basic differences between an SAP Competency Center and an SAP Center of Excellence are related to maturity and function.

The competency center seeks to employ change management strategies to regain system and business stability; the center of excellence seeks to integrate application support staff and support technology into the business for competitive advantage.

SAP Competency Centers are REACTIVE to any business need, waiting for unsolicited help desk tickets or business input.  Competency Centers react to requirements.

SAP Centers of Excellence on the other hand are PROACTIVE and try to find ways to apply technology and resources to value propositions and competitive pressures in an ongoing manner.  Centers of Excellence actively look for value opportunities.

SAP Competency Center – Doing Things Right

From an SAP Competency Center approach there is a strong focus on:

  • resolving day to day activities,
  • preserving existing market share (customer retention),
  • managing help desk requests,
  • and a general focus on stability and structure.

The Competency Center approach is needed for some time after a new SAP implementation goes into production, and it is a good place to start for companies who want to build a true Center of Excellence.  However, as Peter Drucker has noted there is a difference in philosophy around doing things right or doing the right things.  SAP Competency Center management does not seek to achieve a strong, changing, vibrant dynamic within the business.

The Competency Center framework and approach seeks stability, predictability and short to mid-term incremental improvements.  Not too much change and not too much disruption.  The goal of a competency center is to maintain smooth operations after the period of system stabilization.  Long term adoption of an SAP Competency Center framework is for those companies who have a business model that is both change and risk averse.  Otherwise the SAP Competency Center framework should become the foundational building blocks for an SAP Center of Excellence Structure shortly after achieving stable production operations.

SAP Center of Excellence – Doing the Right Things

The SAP Center of Excellence approach assumes a more aggressive business model, one that is dynamic and pursuing market opportunities.  This model and approach are well suited to growth oriented companies no matter what their size.  The idea of doing the right things means that in the process of change some things may not always be done at their optimal level.  Business is not perfect, markets are not perfect, no matter how hard companies may try, products and services are not perfect.  This does not mean they are sloppy, it just means you don’t have the luxury of pursuing the last mile of perfection.

The SAP Center of Excellence structure tries to find the right things to do to continue to be a market maker or a market mover.  This usually means creating a very dynamic and fluid SAP support organization that is more closely integrated into the business (and not just aligned to it). Because of the pace, and the struggles involved in being a market maker or market mover some things can not always be anticipated.

Is Your Company a Good Fit for an SAP Center of Excellence?

Companies that are good candidates for an SAP Center of Excellence are (or want to be) able to change and adapt quickly because of market necessities or because it is part of their business model. Together with many of the items listed for Competency Center focused companies, those who want to implement an SAP Center of Excellence structure have a strong focus on:

  • wanting to gain market share, or wanting to protect market share in a volatile marketplace
  • customer retention and customer acquisition,
  • market intelligence,
  • innovation,
  • market responsiveness (the ability to quickly adapt and change).

The SAP Center of Excellence requires new methods, tools, and approaches for companies to achieve this level of business performance.  The SAP Center of Excellence at its heart and soul is more about business than it is about applications.  So, with a firm SAP Competency Center framework and management foundation,

“a true SAP Center of Excellence seeks to do the right things the right way.”

In the next post we will look at a first pass at a very high level SAP Center of Excellence framework and model.  Many of these components would also be in the Competency Center, but in a Center of Excellence the ability and need for collaboration and change is much more aggressive.

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Toward an SAP Center of Excellence or SAP Competency Center – PART 1

Explaining the differences between an SAP Competency Center or sometimes referred to as an SAP Center of Expertise and an SAP Center of Excellence.  As Peter Drucker wrote either Do Things Right or Do the Right Things.

Toward an SAP Center of Excellence or SAP Competency Center – PART 2

A more complete and thorough explanation of the differences between the SAP Competency Center (or Expertise Center) and the SAP Center of Excellence (or the Business Transformation Center).  An understanding the operating differences and how the Competency Center is focused on reactive processing of things like help desk tickets, problem resolution, data correction, and knowledge transfer.

Toward an SAP Center of Excellence or SAP Competency Center – PART 3

Business model application of steps, techniques, and methods to produce an SAP Center of Expertise or an SAP Business Transformation Center.  The major business transformation steps on moving from an SAP Competency Center to an SAP Center of Excellence.




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Where do you Start with SAP Return on Investment or SAP ROI?

July 19th, 2010 by

SAP Return on Investment or ROI

See PART 1SAP Implementation is an Investment NOT an Event

How much is it going to cost and how long is it going to take?  That is the classic approach to SAP implementations.  Today it’s not enough and the marketplace is demanding more from their IT dollars.  Now there are questions about measuring cost reductions, process improvements, as well as customer retention and customer acquisition. These are all important discussions.

Your money has to work for you in your business and it should work for you in your SAP investment as well.

If you’re looking to buy a new stock, or mutual fund, or some other investment you do your homework.  If you’re looking at a capital purchase in your business you want to understand the justification and the payback so you build a business case.  If you’re looking to implement SAP then define the business reasons for the implementation and do your homework! 

Take the time and do some research to understand how to avoid many of the sales scams, pitfalls, and ridiculous system integrator tactics.

SAP Cost Based Indicators, Total Cost of Ownership, and Return on Investment

Lagging Indicators and SAP Supported Process Cost Reduction

Using the stock investment analogy, the cost-based ROI component can be seen as the dividends paid by a stock–, generally known, stable, reliable payback, quantifiable and tangible.   In an SAP implementation the “dividends” would represent lagging indicators of performance.  There is a fairly reliable history to consider for the dividend payout. You have a pretty good idea of a number of your costs (or can find out what they are), such as:

  • current legacy systems cost,
  • you know what your man hours are (staffing, personnel, benefits, overhead, etc., etc., etc.),
  • process cycle times,
  • per transaction costs for things like purchase orders, sales orders, production orders, etc.,
  • competitor transaction cost benchmarks,
  • current application license and maintenance costs,
  • etc., etc., etc.

These are all lagging indicators and they are all cost based, cost improvement focused portions of an SAP implementation.

Same Old, Same Old, Everyone at Least Pays Lip Service to Cost Based Process Measures

EVERYONE tries to do this to some extent.  It is not always structured, clearly defined, and then measured after the system is live, but there is a general expectation of improvement.  Even for those companies who buy into this paradigm during the sales process but never see it realized, it is still part of the system integrator pitch.  You are always promised “improvements” by the system integrators.  You always expect processes to speed up and process costs to go down.

The process improvement, automation, and cost reduction approach is no different than everyone in the marketplace who does SAP or some other ERP application–, it is the old “operational excellence” model of business.  It does little or nothing to address the key components that grow business or improve revenue.  And after an initial cost reduction boost it does little to increase profits.  

Leading Indicators, SAP Value Proposition and SAP Value Realization

Unless you are in a commodity market, or have clearly “broken” or significantly inefficient processes, the cost reduction or operational excellence approach to ERP should not be your only focus.  Considering your SAP implementation as an investment for ROI purposes you would understand that this is the first step in a long term system investment program.  After you get the system in, you should press your IT organization to move from an operational excellence paradigm into how to use the system to support corporate innovation and sales growth.

If you want value realization from your SAP or other business application implementation it takes a more rounded and tangible business centered approach or, a real SAP value proposition.  Using the stock analogy, the value realization comes from stock appreciation together WITH the cost saving dividends that are paid.  In your SAP implementation both lagging and leading indicators are used to finally realize value.

This new investment paradigm must focus a significant amount of attention on the end state after the business has started operating in the new SAP world.  And that “end state” focus on value realization from your SAP implementation should begin  before you write your RFP.  This entire site is dedicated to help you transfer critical knowledge needed for success from SAP value proposition all the way through value realization.

Marketplace Winners and Losers in SAP and ERP Investment

Innovation is one of the key and critical value proposition areas that separates winners from losers in the marketplace.  And even though your initial implementation may only consider the initial operational excellence areas that is just the beginning of the journey.

Does your system integrator have any ideas or methods for improving engineering, design, and delivery collaboration efforts?  Maybe you are not there yet, and that is fine, but it must be considered as part of your initial assessment of the path you are on with SAP.

Ask your system integrators how to use your SAP implementation to improve concept to market cycle times and for other innovation methods that will impact your marketplace.  Drill into the details, don’t accept “sales fluff,” ask for specifics and don’t settle for less. 

SAP Implementation Measurement of Return on Investment

To this day I am still surprised by how few companies define success criteria for their SAP implementations.  Fewer still do the up front due diligence to determine where they will have business benefit in terms of cost based lagging indicators:

  • process improvements,
  • cost reductions,
  • automation,
  • reduced transaction processing costs,
  • reduced licensing for legacy systems,
  • reduced system maintenance for legacy systems,
  • improved cycle times,
  • etc.

Even if there is some consideration of these categories or classes of cost savings, few companies quantify them and try to understand current costs and how they might be improved BEFORE bringing in a system integrator. 

During the selection process few companies ask the tough questions and demand the details of their integrators to validate their saving assumptions, and then even fewer hold the integrator accountable for them.  Few businesses attempt to tie incentives, compensation, or other means of achieving these results to their system integrator contracts. 

Talk about caveat emptor, or buyer beware!

Some companies consider legacy systems, and the cost savings for eliminating them, but beyond that there is not a lot of due diligence done to support long term cost reductions.  Key details are generally lacking.

Few companies, and fewer system integrators ever consider leading indicators of business performance such as:

Customer retention

  • service processing
    • reducing overall service requests / requirements,
  • repair and response turnaround times,
  • first time fixes,
  • solution databases,
  • interactive response forums,
  • etc., etc., etc. (come on, you didn’t expect me to tell you ALL the secrets of an ERP customer retention program did you?)

Customer acquisition

  • target markets
    • by geography,
    • product line,
    • customer strata,
    • customer segment,
  • promotion options
    • special product mixes,
    • offers,
    • promotion execution,
    • promotion cost tracking,
    • buy “x” get “y” at a discount or free,
    • buy “xyz” product mix and get “abc” mix at discount or free or both,
    • etc., etc., etc. (again, feel free to contact me if your system integrator has NO IDEA how to do all of this in the BASE SAP ERP system ;)  It is possible!)
  • Customer analysis
    • stratification,
    • buying analysis,
    • product mix / popular combinations,
    • promotion integration,
    • segmentation
      • by region,
      • dollar value,
      • product mix,
      • product line,
      • customer group or product line profitability
    • overall profitability,
    • etc., etc., etc.  (again, feel free to contact me if your system integrator has NO IDEA how to do all of this is the BASE SAP ERP system ;)  It is possible!)
  • And MANY more options…

Why is this lacking?  Because you, as the customer, do not demand it of the system integrators.  As a result the system integrator develops technicians.  And the cheaper they can develop those “technicians” rather than experts the greater their margins are. 

System integrators generally have little interest in promoting the idea that you should actually see a genuinely measurable business improvement.  If they did, those system integrators would be forced to bring in more competent, more highly skilled, and more seasoned veterans who understand business as well as the technology.  See for example, CRM, ERP, BI, and IT Investment — Where Do You Find the Business Benefit?  Using mostly a CRM example for illustration, that post helps you gain some insight on the types of consultants and insight you need for business success.

Short Term (operational excellence), Mid-Term (innovation), Long-Term (customer focus)

Relying on the investment analogy, your SAP portfolio should include several items or components of the application to implement.  And just like stock market investments, there must be some short-term, mid-term, long term, and business hedges built into a healthy implementation. 

Some items, such as “Wave II” or add-on functionality may be planned for at a later date but should be considered from the beginning.

For a long term successful SAP implementation it must become part of a business program, not just a system installation.

What does this mean?  This means that your thinking about SAP and its role in your enterprise must change.  As I’ve written before, Change How You Look at SAP to Create ROI.  SAP must be seen as a tool that enables the enterprise to change, to grow, and to spot opportunities and execute on those opportunities sooner than your competitors.  To do so requires a change in culture and thinking that companies often struggle with, however, SAP can enable these changes when SAP is seen as a business investment requiring regular adjustment, focus, balancing and change.  Just like your stock portfolio.

Use a Business Focused SAP Implementation for Business Transformation

If you want to see true competitive advantage it will take adding a real business imprint, real business insight, and key success metrics to create a long term business program.  That long-term business program is business transformation with SAP enabling the enterprise to be more competitive, more agile, and more robust.

At the the end of the day if you do not define what you want from SAP to consider it a SUCCESS, and if you do not have a focus on business drivers you will NEVER see the success you want from your implementation.  Worse still, if you don’t focus on these items from the beginning you will not have a good baseline to evaluate your system integrator or SAP implementation partner in the early RFI or RFP project stages.  Without that critical evaluation you may end up sinking your budgets in a “money pit” where you will NEVER see a return on investment.  Worse still, without these critical measures you may end up having a long term negative return that is dangerous for your long term prospects.  And it is NOT a shortcoming of the software!




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