Q: A year ago, most SAP customers were laser-focused on cutting spend, ensuring cash flow, and preserving profits. Now, those same companies are plotting their course to take them out of recession and into recovery. Will it be smooth waters or rough sailing?
A: It’s tough to say, because this particular cycle is more complex than others we’ve been through. Leading economists are sharply divided in their opinions on how and when recovery may appear. Some project a full recovery, while others anticipate it to be flat. Some predict the economy will come roaring back, while others say the return will be extremely slow.
These differences of opinion only compound the doubt in the minds of business leaders, who want to ensure that their businesses can not only withstand the volatility ahead, but also react to growth opportunities quickly. The key is successfully walking the thin line between addressing the challenges of the short term and taking advantage of longer-term opportunities.
From an operations point of view, this leads to questions like: Should companies build up inventory in anticipation of demand, or should they reduce inventory? Should they ramp up production or continue to keep plants idle? Is now the time to bring on new partners? Should they invest in new products, and begin expansion into new market categories?
Simply put, we’re operating in a “New Normal” in which business-as-usual will no longer suffice.
Q: What can businesses do to contend with the New Normal?
A: Despite the challenges I’ve mentioned, there are still significant upside opportunities for businesses in the New Normal. First, recessionary periods afford businesses the opportunity to innovate and make transformational changes to their business models that may not have been possible under ordinary circumstances. It is no coincidence that half of today’s Fortune 500 companies were either founded during recessions or increased market share in the months following a recession. In the context of the New Normal, however, the challenge is to take advantage of these opportunities through incremental change, not expensive, big-bang efforts that span several years.
Second, this period of transition can be an ideal time for companies to leapfrog their competitors. Twice as many firms made the leap from “laggards” to “leaders” (from the bottom quartile of companies in their industry to the top quartile) during the recession of 1991-1992 than during non-recessionary times.1 Many businesses can make this leap by simply improving execution within their existing business operations. Companies that revitalize their operations so that they gain immediate insight into demand signals, supplier deliveries, production line disruptions, or quality issues can drive targeted and precise action across their business, capture new opportunities quickly to increase revenue, and proactively reduce the negative impact of emerging threats.
The business is demanding that IT provide instant value without forsaking long-term integration and standardization needs.
Q: What role will IT play in enabling these business and operational transformations?
A: Not only is IT as important as ever, it is considered by many business leaders to be one of the most important catalysts for success in the future. A recent survey found that 88% of CEOs think that IT’s strategic importance will increase over the next year.2
While the demand remains high for IT investments that can provide integration, standardization, and scalability for growth, these investments must also support quick, modular deployment and fast ROI. In the New Normal, IT must focus on demonstrating clear and compelling value instantly. We’re seeing our customers emphasize self-funding projects, deployments that are more incremental in nature, and projects that focus on providing critical information and decision-making power to line-of-business personnel.
Instead of pursuing all 50 projects that they identified before the recession, IT teams are now focusing on the 10 projects that will deliver the highest value with the shortest turnaround, provide immediate insight to action to improve operational performance, and bring about the forward-looking, transformational change that’s needed to support sustained growth. “Incremental wins with an eye to the future” must be the new mantra, and these wins must all be executed within the constraints of what you accomplish fiscally in the here and now (see Figure 1).
||The unique challenge for IT in this recovery is to provide short-term gains alongside long-term transformation; projects will have to provide “instant” value and “immediate” insight to action for the business, while at the same time help the company achieve its long-term transformational agenda
Q: What is SAP doing to help companies enable these quick wins that don’t lose sight of long-term objectives?
A: The next three articles in this issue of SAPinsider contain examples of how SAP is helping companies fulfill all three requirements of the New Normal: incremental transformation, immediate insight to action, and instant value. Across these examples, our strategy remains grounded in standardized best practices and industry best practices. By consistently working with customers through our Industry Executive Advisory Councils and industry-specific benchmarking and value engineering efforts, we are uniquely positioned to understand the nuances and transformational objectives of each industry we serve.
SAP converts this understanding and knowledge into pre-integrated business processes, which can be deployed step by step. Enhancements to core functionality can be applied selectively and without any disruption to your business. Combined, this approach not only helps our customers increase business efficiency while reducing TCO, but it also provides a standardized platform to help them scale and grow.
To help customers revitalize their operations in the New Normal, we are cross-leveraging the SAP Business Suite and SAP BusinessObjects portfolios to deliver solutions across industries and lines of business, including supply chain and manufacturing. We are delivering modular “packaged” solutions, which include services along with software, that can be deployed in as few as six-to-eight weeks in fixed-price engagement models. This ensures that customers can gain quick wins — particularly in improving operations, delivering immediate insight to action, and providing the fast ROI that companies need as they navigate from recession to recovery.
Our objective is to provide our custom
ers with a choice of deployment options, including on-premise, on-demand, and on-device. Currently, we offer solutions on-demand and on-device across many areas — including procurement, asset management, and CRM — that can improve employee productivity, empower line-of-business personnel, and ensure fast, cost-effective deployments. Regardless of which deployment model customers choose, they are assured the underlying process orchestration, master data management, and lifecycle management that only SAP can provide.
1 Sarabjit Singh Baveja, Steve Ellis, and Darrell Rigby, “Taking advantage of a downturn,” Bain & Company (March 2008). [back]
2 Gartner Research, CEO Survey (December 2009). [back]