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SAP SEM Drives Strategies Into Operational Practices: Q&A with Werner Sinzig

by Werner Sinzig | SAPinsider

January 1, 2001

by Werner Sinzig, Vice President, GBU Financials, SAP AG SAPinsider - 2001 (Volume 2), January (Issue 1)

Werner Sinzig, Vice President of SAP SEM, defines the SAP Strategic Enterprise Management (SAP SEM) solution, detailing the relationship with the SAP Business Information Warehouse, and the functions of SEM components (SEM-BIC, SEM-BPS, SEM-BCS, SEM-CPM, and SEM-SRM).

Werner Sinzig is Vice President at SAP AG in GBU Financials, responsible for analytic applications. SAP Strategic Enterprise Management (SAP SEM) is part of his responsibilities. Before joining SAP AG, he worked in the areas of Management Accounting and Databases at Frankfurt University. Werner holds a Ph.D. in business administration. He studied industrial engineering and management at the Technical University of Darmstadt. He is co-editor of the German business magazine Wirtschaftsinformatik.

Q. What is SAP SEM?

SAP SEM stands for SAP Strategic Enterprise Management. It is a relatively new offering from SAP that allows enterprises to conduct strategic enterprise management and planning activities more accurately and effectively, with the ultimate goal of maximizing shareholder value.

SAP SEM has contained the Balanced Scorecard since 1999, and was the first software solution on the market to be certified by the Balanced Scorecard Collaborative at the end of that year. The Balanced Scorecard Collaborative is a company established by the creators of the Balanced Scorecard Concept, Robert Kaplan and David Norton.1 Using value-based management methodologies and Balanced Scorecard techniques, SAP SEM incorporates the requirements of all stakeholders (e.g., shareholders, employees, business partners, and other interested parties) into critical decision-making processes. The solution enables executives to communicate more effectively with stakeholders, assess their business strategies through scenario simulation, perform effective business planning and budgeting, and link strategies with operative target-setting and resource allocation. From there, they can then consolidate financial data according to legal requirements and value-based accounting rules, and monitor results through the Management Cockpit solution and key performance indicators (KPIs).

SAP SEM brings unprecedented relevance and viability to an enterprise's strategic management activities. It ushers in a new concept in strategic business planning, where high-level strategic decision-making becomes part of the day-to-day operation of the company, instead of remaining an annual or quarterly meeting-based process.

Q. Why is there a need for this kind of tool?

A number of significant trends in the way enterprises are organized and how they interact lead us to the conclusion that a tool like SAP SEM is essential for effective strategic enterprise management in today's world:

  • Organizationally, enterprises are becoming more global: markets are rapidly expanding, and at the same time "eco-systems" - comprised of joint ventures, partnering, reselling, cooperatives, associations, etc. - are ballooning. Internal organizational structures are becoming both more decentralized and multidimensional (e.g., by product, region, sector), all of which places increasing demands on the planning and coordination process of an enterprise.

  • Planners are facing the task of digesting and determining the relevance of an unprecedented flood of information, which is often both complex and fragmented. It is becoming more and more difficult to make informed value judgments.

  • Finally, we have seen a huge shift in corporate focus toward customers and investors as they strive for market share and capital investment. Stakeholders have a right to know how their interests will be served by a company's strategic direction, and to demand that the enterprise make sense of the varying interests among those groups.

All of these factors make traditional strategic planning methods, especially on an annual or periodic basis, dangerously obsolete. Today's enterprises need a much more dynamic approach to strategic planning, and SAP SEM provides it.

Q. SAP is typically equated with number-crunching activities, not enterprise management and planning solutions. With SAP SEM, is SAP stepping out of the accounting office and into the boardroom?

Yes, SAP has traditionally been acclaimed for transactional applications: financials, materials management, supply chain management, human resources, and, more recently, customer relationship management. Now, with the SAP Business Information Warehouse, there is a universal platform for all kinds of analytic applications.

The unique innovation introduced by SAP SEM is the consolidated data of all these transactional applications to enable CFOs and their teams to manage strategic enterprise processes in a dynamic manner in a real-time, real-world situation.

In this way, SAP SEM addresses the unique needs of the CFO, who is responsible for performance management. CFOs want a system in which they can describe the enterprise's strategy, evaluate alternatives, integrate operational business plans, measure actual performance with the data out of an ERP system, and have useful feedback in terms such as key performance indicators (KPIs).

The power of SAP SEM is that it brings a corporate financial strategy to life - it closes the gap between creating a "theoretical" high-level strategy and making it operational. SAP SEM translates high-level strategy into the everyday activities of a company by linking strategy to the compensation system, and providing new ways of defining key performance indicators so that they are real, transparent, and measurable.

Q. How does SAP SEM address planning?

SEM-BPS (Business Planning and Simulation), one of the five components that comprise the SAP SEM solution, offers a complete suite of financial planning applications for integrated budgeting, target-settings and simulations. As compared to conventional transactional planning, it is based on flexible data structures to meet the planners' needs in terms of "what-if" analysis and "how-to-achieve" planning. It integrates different planning methods, so you can combine, for example, strategic and operational planning, or short-term budgeting with long-term planning, or combine simulation with target settings.

SEM-BPS offers a number of planning applications for a wide range of purposes. This includes Financial Statement Planning, Investment Planning, Cost Center Planning, Headcount Planning, Profitability Planning, and Portfolio Planning.

One key benefit of SEM-BPS is its high-level integration of different plan sections, which helps to balance the need for budget information, targets, and analytic insights. This way, both line and top-level management can easily understand the overall business plan and align it with the overall strategy.

SEM-BPS is highly integrated with the other SAP SEM modules and with components. Starting with Release 3.0A, SEM-BPS also includes a number of pre-fabricated best practice planning applications to accelerate implementation.

SEM Components - Delivering Continuos Strategic Management Between Shareholders, Enterprise Management, Middle Management, and Employees

Business Information Collection

SEM-BIC provides functionality for an automated and semi-automated collection of structured and (especially) unstructured business information from internal and external sources for the entire information supply chain - for example, competitor or market information from the Internet, including:

  • Automatic search for relevant business information
  • Editing, structuring, and linking with structured quantitative information
  • Information distribution
Business Planning and Simulations

SEM-BPS supports integrated strategic and operational business planning on multidimensional data structures. These functions include:

  • Creation of dynamic and linear business models n Modeling and simulation of scenarios n Scenario planning
  • Evaluation of scenarios taking into account the business risk
  • Resource allocation as part of business planning and budgeting
  • Cross-functional enterprise planning and rolling forecasting, triggered by strategic key performance indicator (KPI) targets
Business Consolidation

SEM-BCS provides functionality for financial consolidation and value-based accounting. These include:

  • Automated value-based adjustment postings
  • Automated assignments and allocations - e.g., moving from assets to reporting units
  • Currency translation n Inter-unit eliminations
  • Consolidation of investments n Consolidation according to different internal procedures, and according to local and international statutory accounting requirements - e.g., US GAAP, IAS
Corporate Performance Monitor

SEM-CPM supports the definition, analysis, visualization, and interpretation of KPIs. It uses innovative visualization techniques for more effective management.

SEM-CPM provides a comprehensive infrastructure for performance management and related communication processes across the entire organization and with business partners.

It also helps you create your own interpretation models, such as Balanced Scorecards, Value Driver Trees, and Management Cockpit scenarios.

Stakeholder Relationship Management

SEM-SRM supports stakeholder communication: the stakeholders are informed Management regularly and systematically about the business strategy and its effect on enterprise value (their investment), either through push services - e.g., automated e-mails - or through pull services - e.g., a Web-based Enterprise Stakeholder Portal.

SEM-SRM also helps collect feedback from stakeholders in a structured manner and passes this on to other applications (SEM-CPM and SEM-BPS).

Q. What is the relationship between SAP SEM and Business Information Warehouse?

SAP SEM runs on top of the Business Information Warehouse infrastructure as an analytic application that addresses specific questions and issues regarding strategic management. It provides unique views of the "modeled world" - and thus is much simpler to implement than an operational or transactional system.

Q. How does SAP SEM address stakeholder demands for profitability?

SAP SEM assists not just in how a company manages, but in how it communicates its strategy - which is after all a critical part of managing. It is no longer enough to present good financial results in your balance sheet and annual report. You need to report on strategic issues - the "intangibles" of a company. You have to explain the gap between the market valuation and the balance sheet's real value by identifying those intangible values that exist in your company, e.g., the know-how and motivation of your employees.

But SAP SEM Stakeholder Relationship Management goes beyond this. Instead of the traditional one-way communication to inform investors about results, we offer an interactive tool that also allows you to collect structured feedback via questionnaires, and invites investors to perform dynamic simulations of corporate strategy and goals to see the effects on this investment in the company.

Q. What differentiates SAP's offering from competitors' products?

SAP SEM is significantly different in two ways:

  • For one thing, the product is here! Right now! We have customers, we have installations - and we have lots of them. So we can show you systems and customers who use it successfully today.

  • Moreover, SAP SEM is the only offering that covers all facets of strategic enterprise management. Other offerings merely provide reporting, but lack consolidation, budgeting, or planning functions. They only offer partial solutions, while we cover the whole spectrum.

Q. What is the ultimate value of SAP SEM?

SAP customers are already investing a lot in customer relationship management and supply chain management solutions to improve their operational processes. The bottom-line value of both is integrated and measured in SAP SEM. In the past, enterprises focused predominantly on optimizing the operational system. But we feel the future focus will be on strategy - not just on doing things right, but on doing the right things!

SAP SEM allows an enterprise to turn strategy into action! SAP SEM covers the whole strategic process: definition of strategy, simulation, and evaluation of alternatives; to operational planning on the BU level and definition of implementation procedures and initiatives; to measurement; to action items. SAP SEM provides a true value-based management system.

Using SAP SEM, executives can determine precisely which projects are worked on, what initiatives the budget is spent on, where resources are allocated, how they are linked to each other, and how they are linked to compensation plans, budgets, and targets. Executives can define new initiatives and new strategy maps - and can link all existing initiatives to them. They can confidently implement new, more detailed projects. They can see how day-to-day operational activities merge. They can take data and make them into new, more revealing KPIs. They can benefit from new products, faster time to market, and a whole new streamlined efficiency to the organization.

It's not just knowledge, it's understanding - and it doesn't come out of an ERP system, but rather by harnessing the power of SAP Strategic Enterprise Management. In doing so, the inner life of the enterprise, its history, and future prospects all become much clearer, and the connection between "definition" and "execution" is complete.

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