Boosting Business Value with New IT

Feature Article | April 20, 2005 by admin

Small to midsize businesses (SMBs) generally have to contend with limited budgets and resources. According to a study carried out by Accenture into company success through IT (“Unternehmenserfolg durch IT”), spending on IT is often the first casualty of difficult economic conditions. However, this is the wrong way to go, says Bernhard Holtschke of Accenture, “as there is evidence that the older a system becomes, the more expensive it gets. SMBs that seriously reduce their investments in IT are throwing themselves into a ‘downward spiral’. As the company’s IT ages, operating expenses for IT increase and this in turn puts strain on the IT budget.”
A survey of Swiss SMBs carried out by the University of Applied Sciences Basel in 2002 came to similar conclusions. The study found that SMBs tend to suffer from high operating costs for their current IT infrastructures because existing systems no longer meet the latest requirements, cannot be integrated in Internet-based software and deliver only limited availability as a result of malfunctions and incompatible standards (cf. Diagram 1). “Added to this is the fact that the lifecycles of IT systems and technologies are decreasing at a tremendous rate,” continues Holtschke.

Gap between wish lists and reality

With capped budgets and restrained investment activities, SMBs are headed in the wrong direction. Take the example of the mechanical engineering and manufacturing industries where product lifecycles have to be mapped end-to-end – from the initial idea, development, planning, procurement, manufacture and sales right through to shipping and customer service – to enable companies to comply with agreed delivery deadlines and react quickly to customer requirements. In these sectors, heterogeneous system landscapes are responsible for media changes and high operating costs. That’s why the integration of Customer Relationship Management (CRM), Supply Chain Management (SCM), Product Lifecycle Management (PLM) and CAD systems is so essential. According to a survey of German companies by Capgemini, more than three quarters of businesses polled see the harmonization and therefore the integration of their IT landscapes as one of the most crucial tasks for the future. However, SMBs still tend to lag behind when it comes to putting their plans into action and there is, in the main, a sizeable gap between what they want to achieve and what they actually do.
The shortcomings in the different sectors, e.g. manufacturing, are unmistakable. This industry’s survival depends largely on its ability to innovate. However, a global study of 650 companies in this sector carried out by Deloitte Research found that managers see product innovation within their organizations as problematic. “Many manufacturers are quite clearly not in a position to bring new products and services to market effectively,” concludes Heinz-Josef Hermes, a partner at Deloitte Managementberatung. The reasons for the “innovation paradox” highlighted by Deloitte are many and varied, and range from incomplete information on customer requirements, supply chain costs and a lack of efficient internal cooperation right through to poor collaboration with vendors and suppliers. Often, companies quite simply also lack a successful innovation strategy. In the manufacturing sector, many firms have so far invested too little in the latest technologies and solutions (PLM, SCM, CRM) to enable them to create transparent processes that are integrated across the entire value-added chain.

Threefold benefits

The Accenture study cited initially makes much mention of the close link between investments in IT and improved business processes and greater productivity. Yet, despite these findings, growing cost pressure is forcing many companies to reduce IT expenditure without any clear idea of where they are going. “This ties up the key financial resources that are needed for new acquisitions,” says Bernhard Holtschke. “However, focussed investments enable companies to spend less on maintaining and developing their IT and also improve and speed up business processes such as product development as this can be carried out in conjunction with partners. This ensures faster time-to-market and higher profit margins.”
In the future, small and midsize businesses will not be able to avoid a fundamental rethink of their IT organization models, architectures and infrastructures. Nor will they be able to escape reorganizing their IT so that it is both flexible and geared to the future. Companies that heed this advice and optimize their IT will enjoy direct benefits that can be seen on three levels.

  • Operational benefits: Efficient processes help companies boost their value. For example, if integrated IT applications are leveraged to handle customer queries faster or shorten product development cycles, costs can be cut and processes accelerated.
  • Legislative benefits: Companies with up-to-the-minute IT architectures are capable of meeting legislative requirements much faster and more accurately. This includes general regulations such as the electronic archiving of tax-relevant data (GDPdU – German law regarding access to data and examination of digital documents), KonTraG (German legislation regarding corporate control and transparency), Basel II and the Sarbanes-Oxley Act. But it also extends to special regulations such as batch tracing, which is compulsory in the foodstuffs industry, chemicals and pharmaceuticals industries and for manufacturers of medical products.
  • Strategic benefits: Forward-looking architecture management that is linked to corporate objectives fundamentally improves a company’s ability to innovate. Optimized communication that harmonizes IT and business strategies opens up possibilities for tapping into new field of business, turning IT into a business enabler.

An end to standalone solutions

Analysts at the META Group see the situation in a similar light. A discussion paper produced by the company calls additionally for a “business vision” which is the “fundamental starting point for creating IT strategy that forms the basis of company-wide architectures. This is based on company strategy, the status and primary uses of IT within the company and current industry and technology trends.” Any company that develops business models without these fundamental parameters risks developing an IT strategy of limited relevance to the actual requirements of the various business areas. Bernhard Holtschke also says that company managers have to provide “clear targets that IT departments can respond to.” To this end, Holtschke says that “IT personnel have to be involved in the planning and decision-making processes.” He believes this is important as IT departments can then “take a more or less proactive approach to strategic planning so as to improve business processes through IT.”
If the underlying IT architecture is based on standalone solutions and separate software without clearly defined interfaces, problems are inevitable. This makes seamless data exchange more difficult, costing companies valuable time and possibly endangering their competitive edge. SMBs can avoid this by integrating their applications so as to make lasting improvements to decision-making, value-adding and logistics processes. For instance, even SMBs can adapt and improve business processes quickly and flexibly with a service-oriented IT architecture (SOA). Service-based business-management applications open up new business opportunities and, in conjunction with web services, simplify the integration of existing applications.

Integration improves business processes

“Application integration is currently one of the most critical success factors for companies because it enables them to achieve lower process costs and faster processes,” says Gerhard Schoch, CEO of SAP Business Partner ORGA. The SAP NetWeaver open integration platform means SAP and its partners offer SMBs a future-oriented portfolio of technologies and solutions to harmonize and consolidate their IT landscapes. Added to this are e-business-enabled mySAP All-in-One solutions each with preconfigured industry-specific core processes that improve collaboration along the entire value-added chain. And the SAP Business One solution is an attractive and particularly cost-effective option for smaller companies and subsidiaries. What’s more, the SAP NetWeaver component SAP Exchange Infrastructure (SAP XI) enables standard business-management software to be easily integrated in larger SAP landscapes, either at the parent company or at the customer’s or supplier’s.
This ensures a seamless interplay between planning, procurement, production and sales as well as networked communication and cooperation with suppliers and customers, giving SMBs faster and improved business processes and increased flexibility. And Bernhard Holtschke says there is no doubt in his mind that, “SMBs investing in new technologies will make lasting improvements to their value creation and ultimately their competitiveness.”

For further information:

General: www.soai.org (information portal relating to service-oriented architectures)
Studies: www.accenture.com, www.capgemini.com, www.deloitte.com, www.metagroup.com,
SAP AG: www.sap.com/solutions/netweaver and www.sap.com/solutions/smb

Dr. Andreas Schaffry

Dr. Andreas Schaffry

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