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Driven to Perform - Can SAP Bridge the Gap Between Strategy and Execution? Print E-mail

jonerp_full_logo.PNG"Driven to Perform" in an ERP World:
Can SAP's GRC and EPM Suites Address the Gap Between Strategy and Execution?
by
Jon Reed
Unabridged Edition, Never Before Released


If you ask veteran IT directors what their biggest beef with ERP is, one of the most common complaints you're going to hear is: "We don't get enough business value." ERP's success in automating transactions is tempered by its struggle to deliver value from that transactional data - especially when executives start asking for actionable, real time information that can support decision-making. Former SAP Vice President Nenshad Bardoliwalla has an answer to this "ERP value problem": align execution with your strategy.

In his recently-released book, Driven to Perform: Risk-Aware Performance Management From Strategy Through Execution, co-authors Bardoliwalla, Stephanie Buscemi and Denise Vu Broady outline a methodology for how to tie strategic, "risk-aware" management approaches into day to day business operations.

As an SAP industry analyst, one of my biggest questions about this book was how it applied to SAP environments, and how it connected to SAP's existing software applications (Driven to Perform was intentionally written as "software agnostic," since these same challenges apply to all companies, regardless of their chosen ERP provider).

To get to the bottom of these questions, I invited Nenshad to do a podcast with me on JonERP.com. That podcast, released on Tuesday, October, 6, was entitled "EPM, GRC, and the Future of SAP in a SaaS World." During the fifty minute podcast, I asked Nenshad's about SAP's readiness to support the vision of Driven to Perform from an application functionality standpoint.

In this article, I will outline the key points in the book and explain how SAP's software, in particular the EPM (Enterprise Performance Management) and GRC (Governance Risk and Compliance) suites, are intended to support the alignment of execution with strategy for SAP users. During his time at SAP, Nenshad was knee-deep in product development and the acquisition strategy in these application areas, so he is the ideal person to provide a realistic take on what SAP has to offer and where SAP has work to do.

Before I dive in, I want to point out that the connection between methodology and the reality of application functionality is a crucial one. Even though much of my work focuses on the "human side of ERP implementations," I have learned that if business software cannot deliver on high-minded business concepts, it's very difficult to put those concepts into use. We can only be as good as systems we have implemented.

Such was the case in the emergence of SAP R/3 in the 1990s, when SAP was implemented by Big Six firms who presented SAP as the way to realize the "business process re-engineering" vision of Hammer and Champy for their clients. In retrospect, we understand that no ERP package of that time was equipped to be truly process driven - the first job was simply to integrate disparate application silos between HR and finance and so on. (for more on this topic, see my article in ERPtips, October/November 2007, "Turning ERP On Its Head: Can eSOA Change the Way Companies Approach SAP?")

Despite those shortcomings, it was the applications that gave teeth to the methodology. Still, lessons learned from the gaps between methodology and application capabilities give us pause. Certainly the budget-minded SAP manager has to investigate this functionality gap very carefully. In this article, we'll look at the Driven to Perform methodology and then take an honest look at what SAP is currently capable of.

1. The Business Context of Driven to Perform

Driven to Perform is written in the context of some significant business shifts. In the podcast interview, Nenshad noted the following trends:

1. Customers are empowered by social networking tools like Twitter, Facebook and YouTube (one example Nenshad cited was the United Airlines debacle, where millions of people watched a damaging YouTube video about United breaking a musician's guitar, which that musician turned into a song that spread virally). Customers have taken back a lot of the power in the dialogue about companies.

2. The workforce is expanding globally and is becoming much more diverse, creating new cultural issues for organizations, and project management obstacles as companies manage an increasingly decentralized workforce. This has caused companies to become much more intentional about their risk management practices.

3. Talent wars for the "best and brightest" are continual, even in the midst of a downturn, and regardless of where we are in the economic cycle. Talent management has become a "must have" for companies who want to cultivate (and measure) internal talent and provide an advancement path for top performers.

4. There is an intense level of competition and a high speed of innovation. The price for bringing innovation to the market has dropped, so you never know where your next serious competition is going to come from. Disruptive technologies can come out of nowhere; Nenshad cited the example of Google, which just nine years ago was "a dream in two PhD students' minds," when the search world was dominated by Alta Vista and Yahoo. The distribution power of the Internet provides a platform for new technologies to emerge quickly and take away market share - the iPod and iPhone being two other recent examples.

5. Emergent technologies are coming out at a rapid rate. From nanotechnology to RFID, from medical devices to biotech, it's a volatile time to be in business.

Nenshad and his co-authors wrote Driven to Perform to help companies address these business upheavals. In Nenshad's view, the only way to navigate through such an unpredictable business environment is to manage performance and risk by using the techniques in Driven to Perform to bring a greater degree of predictability to the business.

driventoperformfigure1.jpg

Figure 1: Driven to Perform Book Cover

2. The Driven to Perform Methodology: Clearing up the Misconceptions

So with that difficult business background in mind, what are the key principles in Driven to Perform that help companies to develop a plan of action? The goal of the book is to show companies how to achieve measurable business results through risk-adjusted performance management. The book starts by providing an overview of performance management tools and management methods. With that framework in mind, the book shows how to put these concepts into action in nine key business areas, including sales, supply chain, human resources, product development, finance, and IT.

The central point of Driven to Perform is that without a better performance management strategy, a company's ability to achieve industry compliance, manage partner relationships, and design effective business processes will be hampered. In each of the nine business areas covered in Driven to Perform, the reader is guided through specific scenarios that explain which people in each department must be involved, what processes should be tracked through the life cycle, and which metrics should be used to evaluate (and optimize) performance.

With the book on the shelves for a few months by the time of our interview, Nenshad had the opportunity to clear up some misconceptions about the book he has encountered so far, and to summarize the critical points:

1. People mistakenly believe that performance management is primarily about finance. Yes, financial practices are heavily regulated and are often the first area companies turn to for managing risk. But in the book, the authors of Driven to Perform demonstrate that performance management needs to be unified with risk and compliance management and interconnected across every line of business in order to align execution with an organization's strategy. "There are implications for your strategy, for how you plan and forecast, for what you monitor and analyze, and for how you model and optimize, that traverse across all areas of your business," Bardoliwalla said.

2. The processes of performance management, compliance management, and risk management are currently separate, making it impossible to establish effective governance. One part of the organization is worried about internal controls, another part is involved in risk management, another part is setting goals and doing planning, and most of the managers and employees in the organization are oblivious to all of these processes. "We believe in Driven to Perform that these need to be unified into a single process-based framework," said Bardoliwalla. "You can align people and processes through technology, and actually tie together the ability to set your strategy and the corresponding goals, anticipating the risks that are relevant to achieving the strategy and instrumenting them with the appropriate KRIs. Then you can place the internal controls that will let you know if you are effectively mitigating those risks."

Nenshad points out that all these things can then be tied together into a set of management processes, not unlike how SAP's ERP system pulled together transactions into cohesive execution processes in R/3 like order to cash, procure to pay, and hire to retire. The end result? The unification of governance, risk and compliance, business intelligence, and performance management into a set of unified processes - thereby deriving a far greater value than each has been able to achieve in isolation from the other.

3. Nenshad's final point is one that he believes will be of particular interest to SAP users. In order for the Driven to Perform approach to be effective, you have to embed the strategic processes into the execution processes. "Once you have your strategy and your goals and your risks and controls, if you keep them disconnected from your transactive systems, there is very little value that can be realized," said Nenshad. "You want to be able to layer your goals , risks , and controls , and superimpose them on the transactive processes that SAP provides." Nenshad sees BPM as a big piece of this puzzle, because it gives you the flexibility to modify your processes based on your strategic priorities.

driventoperformfigure2.jpg

Figure 2: Driven to Perform Table of Contents

3. SAP's EPM and GRC Suites - Keys to Linking Strategy and Execution

During the podcast, I asked Nenshad how close SAP was to truly integrating strategy and execution from a product direction. His take: SAP, like Oracle and IBM, has developed a phenomenal collection of individual products. The information management and BI tools that came with the Business Objects acquisition (Webi, Crystal Reports, Xcelsius) are outstanding as well. Nenshad felt the same about most of the EPM and GRC tools - SAP now has industry leading consolidation and planning solutions, a great access control solution and a solid global trade solution.

So SAP has strengthened its product portfolio in these areas significantly from its earlier "R/3 ERP" days. Overall, it's an excellent combination of individual parts. But there are obstacles remaining: The gaps come in because very few of these individual parts work seamlessly together. SAP is hardly the only vendor in the EPM/GRC space facing this challenge, but until these products are integrated into a process based framework, there will be limitations.

The ultimate vision of linking strategy to execution is embedding strategic analytics into your transactive systems to drive informed decision-making. With Business Suite 7, SAP has begun that integration process by embedding reports and dashboards into the Business Suite. This is a good start, but this can be taken much further by layering the EPM and GRC products on top of the Business Suite to drive execution based on strategic needs , which would allow the full breadth of the "Driven to Perform" methodology to be realized. Before we take a look at how well these suites can realize the book's methodology, let's take a step back and understand the current state of this product line.

We could write an entire book tracing the origins of SAP's EPM and GRC products, but the quick version is that all the products now reside as part of the SAP BusinessObjects portfolio. Some of the products were acquired by SAP prior to SAP's acquisition of BusinessObjects (Nenshad's team led the purchase of the Pilot Software and OutlookSoft acquisitions by SAP, which took place prior to the BusinessObjects deal in October of 2007). With the purchase of BusinessObjects came additional EPM and GRC products, some of which complemented SAP products and some of which overlapped. SAP is still fine tuning that roadmap.

Here's the current EPM lineup, along with its product origin:

Strategy - SAP BusinessObjects Strategy Management (formally Pilot Software, an SAP acquisition)

Planning - SAP BusinessObjects Planning and Consolidation (formerly OutlookSoft, an SAP acquisition)

Consolidation - SAP BusinessObjects Planning and Consolidation (formerly OutlookSoft) and SAP BusinessObjects Financial Consolidation (formerly Cartesis)

Profitability - SAP BusinessObjects Profitability and Cost Management (formerly ALG Software)

Spend- SAP BusinessObjects Spend Performance Management (built by SAP)

Supply Chain - SAP BusinessObjects Supply Chain Performance Management (built by SAP)

BusinessObjects Planning and Consolidation is the hardest one to get a handle on given the many SAP products historically that have addressed some of this functionality. Historically, SAP customers have been invested in SEM-BCS, formerly EC-CS. Going forward, SAP is no longer rolling out new functionality in SEM-BCS, but SAP has made the decision to continue to enhance both its own Business Planning and Consolidation product (formerly OutlookSoft) and Business Object's consolidation offering (formerly Cartesis). There is similar complexity on the planning side, with customer investments in SEM-BPS and BI-IP.

And here's the GRC suite overview:

Risk Management - SAP BusinessObjects Risk Management allows companies to manage business opportunities within the context of financial, legal, and operational issues, with the goal of minimizing corporate exposure. More than 200 Key Risk Indicators are used to identify and analyze risk factors.

Process Control - SAP BusinessObjects Process Control provides 70 out-of-the-box process controls to provide SAP users with a means of monitoring key controls to ensure process compliance for cross-enterprise IT systems.

Access Control - Based on the Virsa acquisition, SAP BusinessObjects Access Control tools allow companies to monitor system access in cross-enterprise IT systems and prevent fraud.

Global Trade Services (GTS) - SAP has been developing SAP BusinessObjects GTS functionality for many years now, so GTS already has some buy-in from companies that have a complex foreign trade operation. GTS is tightly integrated with the SAP Sales and Distribution module, and represents an advance over the SAP SD-FT (Foreign Trade) functionality.

EH&S - One of SAP's most successful industry verticals, SAP's Environmental Health and Safety Management is a well-developed solution that addresses environmental, occupational, and product safety regulations.

Data Privacy Composite Application - One of the newest pieces of the GRC Suite, this application is a partnership with SAP and Cisco that was announced in October of 2008. The SAP-Cisco Data Privacy application extends privacy controls by monitoring network traffic.

4. EPM and GRC - Readiness Assessment and Upskilling Potential

During the podcast, I asked Nenshad to tell us about the maturity level of these various product offerings and their readiness for the realization of the "Driven to Perform" vision of strategy to execution. I also asked him about the skills companies should be cultivating - in other words, to what extent can SAP users develop skills competencies in these areas by upskilling existing employees?

As it turns out, few of these products are immature; most are already functionally rich. Where the maturity is lacking is in the integration between the products within each suite. Some of the products are embedded tightly into the core ERP 6.0 components, but for most, there is work to do too.

On the EPM side, around 35-40% of the EPM market is made up of planning budgeting and forecasting. The SAP BusinessObjects Planning and Consolidation product (formerly OutlookSoft) is a rich solution in this area that many companies are implementing. Due to the high demand for skilled SAP/OutlookSoft resources, it makes sense to look at how existing SAP skill areas could be transitioned into SAP BPC. There are logical transition points from both functional and business intelligence roles.

BPC is a natural fit for folks with SAP FI skills, as well as NetWeaver BI skills. For the FI person, there are connections between the financial skills needed for FI and EPM-BPC, such as managing accounts, time, and entity categories -all of which fit into planning functions. For the BI person, especially those with back end BI skills, there is a need inside BPC for expertise on how cubes are modeled and how planning functions are built. These skills translate directly into BPC, and are a nifty way of bringing forward skilled BW/BI employees into a BPC context.

Another emerging EPM area that many companies are looking at is Profitability and Cost Management (PCM). This is the product that was acquired by BusinessObjects from ALG Software prior to the SAP acquisition. PCM is an activity-based costing product. For those companies who are reckoning with the down economy who want to cut costs, but to do it in an intelligent way, this is an important area, so we are seeing some implementation activity here. In terms of upskilling existing talent, if your company has employees who know CO-PA (Profitability Analysis) or CO-ABC (Activity-Based Costing), they should be able to pick up on the capabilities of PCM very quickly.

On the GRC side, the flagship product is Access Control (acquired from Virsa in 2006). This product provides a very important function for companies - the ability to control roles and segregation of duties capabilities. This is particularly important for role-based Sarbanes Oxley compliance. Access Control has hundreds of active deployments, no doubt because it addresses an immediate pain point for SAP customers. The other product in the GRC suite that is supply chain specific, but prominent for SAP users with a global supply chain to manage, is Global Trade Services (GTS). Environmental Health & Safety is another mature product that was initially developed by SAP as an industry solution as was eventually pulled into the GRC product line.

From the Driven to Perform vantage point, there are two other products in the GRC suite that are especially relevant. One is Risk Management, a product that SAP itself uses internally, and the other is SAP's Process Control product. These are strong products from a functionality perspective, but have not seen widespread customer adoption as yet.

In terms of GRC skills development, for those SAP users planning to implement Access Control, one obvious skills extension comes from employees who are already well versed in SAP Security and Identity Management (IDM). Another skills connection to GRC comes from those employees who understand the core ERP business processes around procure-to-pay and order-to-cash. Those who grasp the financial processes involved in those transactions will be trainable in areas pertaining to fraud protection and segregation of duties.

At this point, we can expect companies to implement EPM and GRC components selectively in order to address pressing strategic and compliance problems. Until the economy shifts and/or the full integration between the suite components improves, we'll see more "spot deployments" of these products. However, it still make sense to ensure that any EPM or GRC rollouts are managed in the context of an overall strategy-to-execution approach along the lines of the method detailed in Driven to Perform. Those SAP users who implement EPM or GRC apps are smart to understand the origins (as well as the future roadmaps) of the products we have described here, as well as how existing employee skill sets can fit into the future plans for these products.

Conclusion

EPM and GRC represent a class of products that speak to the agendas of a higher level of executive than we have traditionally seen with ERP applications. Those companies who take pro-active steps to pursue "strategic apps" should have an advantage over companies who "wing it" when it comes to formally linking strategy and execution. On the product side, SAP has work ahead providing a fully embedded suite of products to allow companies to realize this vision, but it's clear that SAP is following the Driven to Perform roadmap in its own product portfolio. Forward-thinking SAP users are advised to do the same.

Readers looking for more information on Driven to Perform should check out the publisher's page at Evolved Technologist.

Site Editor's note: this article appeared in a modified format in the October/November 2009 edition of ERPtips, formerly SAPtips.

Jon Reed, JonERP.com. Jon Reed is an independent SAP analyst who writes on SAP consulting trends. He is the President of JonERP.com, an interactive Web site that features Jon's SAP Career Blog and his podcasts for SAP professionals. Jon has been publishing SAP career and market analysis for more than a decade, and he is the author of the SAP Consultant Handbook. From 2003 to 2006, Jon was the Managing Editor of SAPtips. Recently, Jon was named a "PAC Fellow" to formalize his contributions to PAC's SAP Services Research Program, and he is a frequent blogger on PAC's "Feeding the SAP Ecosystem" blog. Jon serves as an SAP Mentor, a highly selective initiative which recognizes those individuals who are making an outstanding contribution to the SAP community.

 

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