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SCN Podcast: SAP Business ByDesign for Subsidiaries and the Business Case for 2 Tier ERP Print E-mail

podcastlogo_jonerp.gifPodcast: Listen Now!
Vendor Podcast - An Interview with Claus Gruenewald of SAP about two-tier ERP, cloud ERP strategies and SAP Business ByDesign for subsidiaries
An SAP SCN Community Podcast
Hosted by Jon Reed of
Podcast Interview Date: August 10, 2011

One of the growth areas of SAP Business ByDesign is in the subsidiary space, where "two tier ERP strategies" are gaining traction with end customers. In many cases, the smaller subsidiaries in these two tier ERP scenarios are considering cloud ERP. But why is cloud ERP of value to subsidiaries? And what is the business case for integrated ERP systems across a business network? And how should companies handle the tension between the need for flexibility in smaller growth companies and the need for standardization and compliance in larger enterprises? 

To get to the bottom of these questions, Jon talks to Claus Gruenewald and Siva Darivemula of SAP. As the Vice President of SAP Business ByDesign, Claus has been heavily involved in ByDesign for subsidiaries, and Siva has been leading up the ByDesign community on the SAP Community Network. During the 30 minute podcast, the guys dig into the issues of cloud ERP for subsidiaries before digging into SAP's ByDesign plans at TechEd and how to get involved in the ByDesign discussions on SCN. 

Editor's note: this podcast references the Business ByDesign Community at Also check out the ByDesign and On Demand blog categories on SCN. You can check out the 28 TechEd Las Vegas sessions that relate to Business ByDesign in the SAP TechEd session directory.

Podcast Highlights

Jon to Claus: Many of our listeners want to learn what large enterprise networks are all about and how cloud ERP fits in. Claus: When I meet large enterprise companies, they want to know how the two tier ERP strategy fits into their large enterprise network. Typically, they have an ERP solution running with a good industry template, and they run that well on the large enterprise network, but they face challenges when rolling ERP out to smaller units which cannot consume such large software. Large scale ERP is just too big for them, which is not good for speed of deployment and it's not good for the user in the end.

The smaller businesses, if you look at them, they are going into their business network very agile, and as a result, they are looking for something flexible to grow their business. They use IT, but in a different way.

2:50 Jon to Claus: What else is different about small business units? Claus: Large organizations look for standards and need to keep costs under control. They care about governance and compliance as well, they have to fulfill all these regulations, standards and rules- so a standard template is important them. In addition, they need transparency and visibility into the network - this is where analytics and reports are very important. If they aren't fast enough rolling out the standards, then a small subsidiary will look elsewhere for a local solution. Smaller divisions need ERP also - they need to manage their end-to-end processes.

But their core businesses are key, and there, standardization can get in the way, they need room for flexibility, but they still need end-to-end processes because they have to report back to their parent company. This is why the parent company has a stake in the ERP choice of the smaller unit, so you have those two worlds to reconcile: fast growing, fast reacting companies on the one hand, constrasting with the standards, compliance, and efficiency needs from larger enterprises on the other, which need to keep the network under control.

4:10 Jon to Claus: With the potential for standardization to kill innovation, it sounds like a conflict between large and small divisions, so how do you deal with that? Claus: I recommend a two tier ERP strategy, which allows CIOs to approach this isuse in an intelligent way. They shouldn't allow the small company to consume any software they want, as that is not helping them with standards and compliance. So why not combine on-premise solution with an on-demand solution that can be easily deployed? If you look at an SAP Business ByDesign solution which is an end-to-end suite, much more than CRM or purchasing, it's end to end, order to cash, the complete business processes including reporting and analytics.

You have a smaller solution in the subsidiary, but they need some integration with larger enterprises in many transactions, including analytics, GRC, and financial consolidation, as well as orders running through the network. There are standard integration scenarios which are very important. I recommend to smaller companies that their users stay with the business day to day. We don't want to take users out of their work roles for them to run a huge ERP system they don't need and only use 20 percent of on average. So it's important for us that they learn and consume the software as they go.

I want them to stay in the operations, I don't want them sitting in a training class. I want them to run business processes and be supported by technology which comes out of the cloud - in this case, a cloud ERP system.

8:10 Jon to Claus: Can you give us some customer examples of ByDesign in subsidiaries - customer examples. Claus: We have done a couple of projects already and those companies are live and happy with the results. Nokia equipped their Indian sales offices with ERP in the cloud, in this case ByD. This is more than CRM: they run orders, they have the financials on the back end. One after another, they equipped their sales offices where they were up and running every few weeks. On premise is not that fast and agile in rollout. Another example: Dow Chemicals used ByD for their two tier strategy with their R and D shops in the US, which go into niche markets and then develop the niche. Those companies also need to consume software out of the cloud.

They rely on financials, order management, and especially in the case of Dow Chemicals, they require reporting and analytics, this supports the needs of the smaller labs as well as the needs of headquarters which requires regular reporting. Another example is divestiture. Johnson Products in the US used to be a subsidiary of Proctor and Gamble. But a year and a half ago when they spun off, they lost access to the P and G ERP system, so they had 29 days to move from being part of a very large company to going live on their own systems. CEO Eric Brown is satisfied with the move they made to ByD ERP. They are in a fast growing consumer products company that has to grow with the market.

12:00 Jon to Claus: Let's talk ByD deployment - cloud ERP may be faster, but you don't snap your fingers, what is deployment like? Claus: with the usual deployment of ERP on-premise, you start with the blueprint and put industry requirements in there as well. The blueprint is a long phase and you go through customization of that blueprint, which makes a lot of sense if you want to model a very large organization's requirements into one cohesive blueprint. But with smaller organizations, we interviewed many of them to understand the 20-25 percent that all companies need. That's what we call the core ByD system, this is basically pre-configured.

Then you have a role and a work center aspect. This is how a given person actually works. With that in place, you can actually speed up the implementation. If you make the infrastructure available to many customers, you can deploy it and bring it up quickly. In two hours we can have a new tenant available, and a ByD project runs between one week and twelve weeks depending on the scope. If it's just CRM it's very quick. If it's the whole business process, CRM, HR, Financials and purchasing plus project systems, it can be three months, but in that time frame, they are totally up and running.

14:30 Jon to Claus: For large enterprises evaluating the cloud, issues include speed of deployment, flexibility, and security - what are the other decision factors? Claus: I see two more for large organizations: one is integration. If you have loosely coupled systems in a large network, integration aspects are required. You always try to have mapping tables in between, which gets very costly and takes much more time. Then there is financial consolidation, which means at the subsidiary level, once a week, or once a quarter, you have to consolidate it back to headquarters in some fashion. However, this electronic way of doing central reporting makes things much faster. Imagine you have subsidiaries which run their own warehouse and they now get orders to fulfill. Where do you deliver those orders? The order can be handled with an on-premise solution via demand integration, once it's delivered, the subsidiaries send the invoice. That's what I mean with real order to cash scenarios.

The standard integration aspect is a key decision factor for many enterprises. The world between on premise, mobile and on-demand must be integrated. The second factor is the platform. You also need to make sure it can be easily adjusted and adapted by partner add ons and by industry add ons from a partner or maybe a customer itself. You need an entire software environment that comes out of the cloud. This allows partners to develop on this non-costly development infrastructure with new solutions. That platform is substantial for large companies, they can develop on their own on a platform they can consume out of the cloud. That enables SAP to come up with new on-demand solutions in a quicker way, it's not just ByDesign, it's also Sales OnDemand, Career OnDemand, Travel OnDemand, and all run on the same platform. This gives the customer a choice, between the ERP suite or the particular cloud solutions on the platform.

20:05 Siva to Claus: Do you see geographical differences in Europe, US, Asia? Claus: there are some. The biggest difference I see is the countries where large enterprises have their network and look for support. In North America, that means Middle America, Latin America and China. So they want to support in China, Mexico, and sometimes India. By contrast, European companies do a lot of business in eastern Europe including Poland and Russia, this is where their fast growing startups are and their fast growing sales organizations are, so that's a major difference, in terms of where the businesses make their money and achieve their growth. From a business process view, I see a lot of similarities. Usually they start with order-to-cash. That plays directly into revenue growth and margin growth. A second similarity I see is in the project offices. They need flexibility - they don't want to have to set up IT shops in all these areas, so the cloud is appealing, but from the process point of view, project offices are to be supported by on-demand software, so they have experts that can be service people on the ground to support these business. In those cases, they need HR, and they need project functionality to report back, and they need P and L capabilities. That's very similar to North America and Europe.

23:15 Siva to Claus: As traditional businesses expand to on-demand, are there any organizational competencies or skills needed to get the most out of cloud ERP? Claus: it's not so much about the skills, it's about trust in on-demand. Put yourself in the shoes of the large enterprise customer: they run their own data centers, if something goes wrong, they think they know who is responsible. This can be a paradigm shift for the data coming out of the cloud, so the trust in security and robustness of such a data center, that is a big thing that SAP has invested in. What I always tell my customers is that security and quality of the software solutions is number one, not just for our own systems. We know we run mission critical processes for our customers, we did it on premise and now we do it on the cloud. This is what SAP does. That's where customers trust us, they look to us for security and robustness.

25:30 Siva on ByD Community plans
- for those of you who haven't been on the Business ByDesign Community, it's on the BPX community on SCN, in a section called cloud and on-demand solutions, and there's a lot going on there. You can get hands-on experience to get a handle on how these solutions fit together; there's blogs and a ton of information we are adding to on a regular basis. The best place to ask questions and get them addressed is on the forums. If you go to the community page, you can see what's going on there and you can join the forums there as well. Also, we are getting close to TechEd, there's a ton of stuff folks can expect from SAP there, including many hands-on workshops and sessions. We hope to see you there.


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