This posted is reproduced in its entirety from the main ERP Expert site.
by Davin Wilfrid, Managing Editor, ERP Expert
No matter what industry your business is in or what SAP technology you have in place, you’re under increasing pressure to tighten cost controls and boost efficiency. Do it wrong and you’ll be mired in the current economic doldrums or go out of business. Do it right and you’ll ride the wave of economic recovery to a new era of sustainable expansion.
That’s the message attendees at the recent HR 2010, Financials 2010, and GRC 2010 events heard from two top-level SAP executives. During the opening keynote address to more than 2,500 attendees, Richard Campione, executive vice president of business suite solution management, and Peter Graf, chief sustainability officer, offered SAP’s take on navigating out of economic unpredictability through meticulous management of both financial and human capital.
Drawing on SAP’s own success, and those of its partners, in maximizing profits by controlling costs, Campione suggested a three-part strategy for weathering the economic unrest:
- Manage a lean enterprise
- Adapt your business model
- Apply management science
A lean enterprise, Campione says, is one that capitalizes on every opportunity to improve operations efficiency. One way companies can accomplish this is by streamlining business processes through shared services — managing global corporate functions such as human resources
and help desk services from a central point. SAP Customer Relationship Management (SAP CRM) includes the necessary capability to create an interaction center from which you can deliver strategic access to the central SAP system.
Economic upheavals push companies to adapt their business models to a new reality, says Campione. This doesn’t necessarily entail developing a new line of products or going on an acquisition spree. Rather, Campione suggests companies can “shift” their existing business models to capitalize on existing strengths.
For example, Asian Paints was already the largest paint manufacturer in India and third-largest in Asia. However, after gaining greater visibility into its customer base through an SAP CRM implementation, the company was able to expand into painting and consulting services that now make up 60% of the company’s revenues.
Similarly, Valero Energy Corporation made its name as a refining company before branching out into retail, with more than 6,000 gas stations and stores across the US, Canada, and the Caribbean. Acquisitions are a large part of Valero’s growth strategy, according to Campione, and by “operationalizing” the process of bringing new companies in line with established processes, Valero was able to cut costs by 30%.
“Think of what Apple looked like when Steve Jobs came in. Now consider that 40% of Apple’s revenue is generated by media and services — not hardware. There have now been 10 billion songs downloaded on iTunes. It’s a fundamentally different company,” says Campione.
When adapting business models, Campione says, many companies simply borrow from neighboring industries. Once Apple got into selling media, it simply adopted the processes employed by media companies to generate re
The abundance of data stored in modern enterprise systems has increased the need for a scientific management approach, according to Campione. No longer can major decisions be made with what he calls the “belly rub” technique — companies need software tools for sifting, sorting, and presenting data to aid decision-making.
For example, Campione says AT&T recently used the data available in SAP ERP Human Capital Management (SAP ERP HCM) to manage and reduce overtime costs for its 320,000 employees. Event ticket broker StubHub was able to reduce its cost per order by 33% using Web Intelligence, one of the tools in the SAP BusinessObjects business intelligence (BI) portfolio. The company reported a 3,000% ROI on the tool, according to Campione.
“All of these companies have figured out ways to deploy technology on their systems to help them make decisions and take action,” says Campione.
During the second half of the keynote, Graf expanded on the role of sustainability in pushing companies toward a new status quo. Current economic conditions have forever changed the way enterprises must operate, he says, because it will be impossible to satisfy consumer demand in the future without reducing operational waste in business processes.
“The moment to articulate your sustainability strategy is now. You can’t avoid it. It’s like globalization and the Internet. It’s happening,” says Graf.
For example, many cars and trucks are crushed and disposed of before the copper wiring is removed — preventing anyone from reclaiming that copper from the tangled mess of steel. This system worked fine when copper was cheap, Graf says, but since copper prices began skyrocketing, it makes little sense to cast so much of it aside.
reased regulatory pressure, from nations increasingly concerned with environmental and social responsibility, will also force a change in how companies do business. Graf asked the assembled crowd how many believed in global climate change (about half raised their hands), before asserting that — in terms of business — its opinion was moot. Business and regulatory pressure would force companies to adapt to new carbon-reduction programs regardless of the validity of the science.
“The good news is that when it comes to business, it doesn’t matter,” says Graf.
Of course sustainability initiatives are still saddled with the perception of environmental and social do-gooderism — rather than as waste-reducing, cost-saving, business optimization. To combat this, Graf suggests building a business case based one or more of four pillars:
1. Operational risk management. The most accessible sustainability initiative is one in which your company changes nothing about its products or delivery, yet eliminates excess cost from operations. Valero saved $2 million per year, Graf says, by connecting its compliance processes to its operations processes. As Wal-Mart ratchets up its sustainability standards (the retail behemoth recently announced it would put pressure on it suppliers to reduce its overall carbon footprint), operational risk management becomes increasingly important, says Graf.
“This type of initiative is not going to create competitive advantage from sustainability, just cost savings,” he says.
2. Resource productivity. By reducing the volume of resources needed to do business, companies can add more to their bottom line in a responsible way, says Graf. This is an especially important lesson for bad economic times, when demand may be reduced.
As an example, Graf cites orange juice producer Tr
opicana, which discovered a multimillion dollar cost savings only after investigating ways to reduce its carbon footprint. After a thorough accounting, the company discovered that fertilizer used by orange farmers was the single largest contributor to its carbon footprint (35%) — and that encouraging farmers to be more responsible with fertilizer use could save millions in resource costs.
“If Tropicana had only looked at its farmers from a cost perspective and not a sustainability perspective, it would not have discovered this issue,” says Graf.
3. Sustainable offerings. Business is about nothing more than satisfying consumer demand. And increasingly, Graf says, consumers are demanding sustainable products. Forward-thinking companies should incorporate this into their own sustainability initiatives to boost the bottom line.
Graf estimates that Procter & Gamble has created $13 billion of revenues since 2007 with sustainability-friendly products. And he credits Toyota, which launched the Prius worldwide in 2001, with creating the multibillion dollar market for hybrid cars — and forcing competitors to create their own.
“Companies are really jumping on this as a sales opportunity,” says Graf. “You’re creating an upside because consumers are forcing you to.”
4. Business model. As consumer demand for sustainable practices and products increases, many companies will need to incorporate large-scale sustainability initiatives into their core business models in order to survive, says Graf.
Nike is an example of a company that has had to incorporate sustainability into its business model, says Graf. The company has long outsourced the manufacture of its products, but still must deal with the repercussions of negative press about labor law violations at faraway f
actories. Similarly, Coca-Cola has realized it cannot continue bottling in India if overuse of water dries out neighboring farms. And Nestle, which has drawn severe criticism from environmental groups, has recognized it cannot produce high-quality food while destroying the environment that produces the food, says Graf.
“All of these companies understand the need to think about these issues,” he says.
The key to achieving sustainability is to engage, evolve, and execute, Graf says. Engagement begins by working with outside community members — including the most vocal critics — to determine the requirements of sustainability.
“It means you have to listen to the guys that are protesting outside of your plant,” he says.
Evolving and executing mean identifying operational mechanisms to reach sustainability goals and implementing them.
SAP has won praise for its own internal sustainability initiatives, which resonate beyond the annual sustainability report and help boost the software company’s bottom line. By measuring several sustainability KPIs, including carbon footprint, total energy use, renewable energy, social investment, employee health, and employee satisfaction, SAP meticulously tracks its own progress.
The company has even included sustainability updates as part of its earnings calls, partly to demonstrate its commitment to sustainability and partly as an example for its customers of what can be achieved, says Graf.
“We do that because we want others to see that there is a business case there,” he says. “The beauty is that it earned us 100 points in the Dow Jones Sustainability Index. We’re now the leader. Our CEOs like that because there are $5 trillion waiting to be invested in sustainability.”
sustainability efforts also help SAP attract better job prospects, according to Graf. Fully 10% of those who download the annual sustainability report from SAP are job-seekers.