This is part 3 of a 3-part series. For an introduction to the legacy innovator challenge in large multi-business corporations, see [Part 1]
In the last blog post, I discussed a framework for categorizing different types of organizational capabilities according to how well they can be shared across the enterprise. How can this framework be used to make business (and systems) integration decisions?
To make this abstract framework a bit more concrete, let’s fill out the blanks in a way that wouldn’t be uncommon with some generic capabilities. I will then suggest how SAP’s strategy can support each of these categories.
Figure 1. Sample capabilities for a large enterprise (click/tap to enlarge)
One of the key directives of SAP’s Intelligent Enterprise concept is to allow innovation at the edge while maintaining a stable core.
In SAP’s terminology, the “Unique BU capabilities” are most likely supported by extensions built outside of the digital core. These extensions can be developed and run in an agile way using the SAP Cloud Platform or they can be supported by LoB solutions in the cloud that can be integrated with the core in a seamless way.
One of the successful approaches we’ve seen for this layer is to establish a corporate “library” of innovations that allow individual BUs to discover and adopt each other’s extensions/capabilities as they see fit (think: app library). For example: instead of mandating that all companies use the same pricing process, a corporate pricing model can be developed and deployed through a shared platform and individual BUs can decide whether to adopt it based on their fit. This allows reusability across the enterprise without limiting each BU's independence. Or, to go back to our original analogy: see how someone else has filled their pothole before you fill yours.
This is where ERP capabilities usually live. And, in many cases, the benefit of integration only comes when commonality can be found in business factors like: customers, supply chain components, operational steps, or product types. If the distribution channel will be completely different, there’s no need to integrate the distribution process. If the customers don’t overlap, there’s no need to consolidate the order-to-cash process.
From a systems perspective, this is where a discussion around landscape strategy becomes interesting. Although landscape consolidation can provide very real IT TCO savings, it will be hard to get the needed support from business owners to integrate processes that will not benefit from being integrated. Keep in mind, however, that process consolidation and system consolidation do not necessarily come together and there are many ways in which a single SAP system can support multiple processes across different process areas. (again: an interesting discussion)
One concept worth introducing here is the idea of a “global template”. This approach allows a corporation to define the “least common denominator” on which individualized processes should be built (for example: a single corporate chart of accounts). This allows for commonality to exist across disparate processes/systems to facilitate corporate consolidation, but it also introduces an additional layer of governance that must be enforced as the template is adopted and maintained over the years (see Figure 2 below)
Figure 2. Global Template approach for core operations (click/tap to enlarge)
As stated on my previous post, finance, human resources, and global procurement are common candidates for enterprise consolidation. Since these capabilities are intended to be centralized, there are fewer choices to make regarding the level of consolidation, but it is interesting to consider the options available to achieve the desired end state.
From recent experience, there are two approaches worth highlighting in this category that can influence the path to build/adopt centralized operations:
Technical foundation elements can also be independently adopted without interfering with legacy processes and systems. However, it is important to note that the enterprise-wide interplay between all the other layers we have been discussing will be significantly more difficult if these foundational elements are not in place.
Think about master data management. If your definition of a “material” cannot be shared across BUs, it will be very difficult to find global procurement opportunities to aggregate demand and negotiate better prices. If you can’t track the same customer across organizational boundaries, it will be next to impossible to create a single view of that customer at the corporate level.
Another important foundational capability is enterprise analytics. A consistent architectural approach to offering a single source of truth will be the key to unlocking enterprise-wide synergies and might even be needed to enable the shared services layer. Many large enterprises have invested heavily in mapping/consolidation approaches to provide an enterprise-wide view of disparate systems. Although potentially complex, this effort can provide a way to address the legacy innovator dilemma while providing a consolidated view with disparate systems and processes.
Finding synergies and supporting agility in a large multi-business environment requires a consistent vision and a constant focus on the trade-offs of global standardization vs. individual flexibility. Being able to pick apart this problem across the different capabilities that exist in each partition of an enterprise will hopefully go a long way towards finding the right balance.
I also hope that this approach serves to find all relevant answers to the question of “why do we need to transform?” so that everybody gets their potholes fixed while supporting the greater good of the mothership.
In the last blog post, I discussed a framework for categorizing different types of organizational capabilities according to how well they can be shared across the enterprise. How can this framework be used to make business (and systems) integration decisions?
Considering the Options. An SAP point of view.
To make this abstract framework a bit more concrete, let’s fill out the blanks in a way that wouldn’t be uncommon with some generic capabilities. I will then suggest how SAP’s strategy can support each of these categories.
Figure 1. Sample capabilities for a large enterprise (click/tap to enlarge)
Business Specific Capabilities
One of the key directives of SAP’s Intelligent Enterprise concept is to allow innovation at the edge while maintaining a stable core.
In SAP’s terminology, the “Unique BU capabilities” are most likely supported by extensions built outside of the digital core. These extensions can be developed and run in an agile way using the SAP Cloud Platform or they can be supported by LoB solutions in the cloud that can be integrated with the core in a seamless way.
One of the successful approaches we’ve seen for this layer is to establish a corporate “library” of innovations that allow individual BUs to discover and adopt each other’s extensions/capabilities as they see fit (think: app library). For example: instead of mandating that all companies use the same pricing process, a corporate pricing model can be developed and deployed through a shared platform and individual BUs can decide whether to adopt it based on their fit. This allows reusability across the enterprise without limiting each BU's independence. Or, to go back to our original analogy: see how someone else has filled their pothole before you fill yours.
Core Operations
This is where ERP capabilities usually live. And, in many cases, the benefit of integration only comes when commonality can be found in business factors like: customers, supply chain components, operational steps, or product types. If the distribution channel will be completely different, there’s no need to integrate the distribution process. If the customers don’t overlap, there’s no need to consolidate the order-to-cash process.
From a systems perspective, this is where a discussion around landscape strategy becomes interesting. Although landscape consolidation can provide very real IT TCO savings, it will be hard to get the needed support from business owners to integrate processes that will not benefit from being integrated. Keep in mind, however, that process consolidation and system consolidation do not necessarily come together and there are many ways in which a single SAP system can support multiple processes across different process areas. (again: an interesting discussion)
One concept worth introducing here is the idea of a “global template”. This approach allows a corporation to define the “least common denominator” on which individualized processes should be built (for example: a single corporate chart of accounts). This allows for commonality to exist across disparate processes/systems to facilitate corporate consolidation, but it also introduces an additional layer of governance that must be enforced as the template is adopted and maintained over the years (see Figure 2 below)
Figure 2. Global Template approach for core operations (click/tap to enlarge)
Enterprise Capabilities – Shared Services
As stated on my previous post, finance, human resources, and global procurement are common candidates for enterprise consolidation. Since these capabilities are intended to be centralized, there are fewer choices to make regarding the level of consolidation, but it is interesting to consider the options available to achieve the desired end state.
From recent experience, there are two approaches worth highlighting in this category that can influence the path to build/adopt centralized operations:
- SAP Central Finance. Even if each independent financial systems and processes are maintained, many corporations choose to establish a separate “central finance” system for financial reporting and centralized finance-owned operations like AR and AP. It is worth noting that this approach is not without challenges as the consolidation and integration of independent systems (with or without a common chart of accounts) is usually not trivial. However, this is an attractive option for organizations that consider it as a first step towards further integration of other shared services in the same system.
- Cloud-based adoption of intelligent suite SAP’s “best of suite” strategy allows for independent adoption of cloud-based solutions for specific lines of business that require different levels of integration. For example: a corporate-wide supply chain strategy can be initiated from a top-down approach supported by SAP Integrated Business Planning (IBP) where market demand is aggregated in a consolidated view while individual BU plans are fed to separate organizations that operationalize that plan in different ways (and, with different systems). The integration that you would come to expect from SAP allows such plans to be disseminated across the enterprise, as long as the foundational components that guarantee interoperability are in place…
Foundational Capabilities
Technical foundation elements can also be independently adopted without interfering with legacy processes and systems. However, it is important to note that the enterprise-wide interplay between all the other layers we have been discussing will be significantly more difficult if these foundational elements are not in place.
Think about master data management. If your definition of a “material” cannot be shared across BUs, it will be very difficult to find global procurement opportunities to aggregate demand and negotiate better prices. If you can’t track the same customer across organizational boundaries, it will be next to impossible to create a single view of that customer at the corporate level.
Another important foundational capability is enterprise analytics. A consistent architectural approach to offering a single source of truth will be the key to unlocking enterprise-wide synergies and might even be needed to enable the shared services layer. Many large enterprises have invested heavily in mapping/consolidation approaches to provide an enterprise-wide view of disparate systems. Although potentially complex, this effort can provide a way to address the legacy innovator dilemma while providing a consolidated view with disparate systems and processes.
Filling the Potholes
Finding synergies and supporting agility in a large multi-business environment requires a consistent vision and a constant focus on the trade-offs of global standardization vs. individual flexibility. Being able to pick apart this problem across the different capabilities that exist in each partition of an enterprise will hopefully go a long way towards finding the right balance.
I also hope that this approach serves to find all relevant answers to the question of “why do we need to transform?” so that everybody gets their potholes fixed while supporting the greater good of the mothership.
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