Every company deals with the ups and downs of the economy, but the most recent cycle is testing everyone’s limits. How do some business leaders navigate unpredictable extremes such as global trade wars, volatile oil markets, and a lingering pandemic?
The answer lies in building an intelligent enterprise.
When planning for a rapid shift, organizations often focus on three aspects of their operations: building up cash reserves, working with a different workforce landscape, and more diverse customer channels. But today’s economic disruption is proving such aspects are only part of the story.
According to McKinsey partners Kevin Laczkowski and Mihir Mysore, “To assure some measure of resiliency, [businesses] should start now to assess the degree of exposure they have to slow down, identify initiatives that can help to mitigate the exposure, and establish a ‘nerve center’ to monitor progress on those initiatives.”
And it seems that this approach is paying off for these resilient companies. In their Harvard Business Review article, “What Companies Should Do to Prepare for a Recession,” Laczkowski and Mysore revealed that “resilients” reduce their debt during a full-scale recession by more than US$1 for every $1 of total capital on their balance sheet. Meanwhile, “nonresilients” accrue $3 of additional debt from every dollar.
Seizing an Edge as an Intelligent Enterprise
By definition, an intelligent enterprise senses change quickly, connects deeply with business networks, and manages an evolving landscape of supply chains, business models, workforce dynamics, and capital constraints. More importantly, they can realign each of those aspects of their business with a level of excellence that meets new customer demand.
To become an intelligent enterprise, businesses need a new system – intelligent enterprise resource planning (ERP) – that is structured for processing speed, business agility, and enterprise-wide visibility. This view, which is the opposite of the inward focus of traditional ERP, is natively integrated to deliver real-time insights and deep industry knowledge.
As change becomes more intense and disruptive, intelligent ERP enables businesses to listen intently, operate more intelligently, and stay connected to suppliers, customers, and employees. Doing so safeguards the business from missing out on unexpected demand spikes, much-needed investments, and evolving buying habits and preferences.
But resilient companies go a step further with this technology. They use this information – often captured, processes, and analyzed in intelligent ERP such as SAP S/4HANA – to focus on their core competencies and make investments that strengthen it. For example, Apple has diversified its revenue streams, offering value-added intelligence services and emerging as a high-traffic retailer. But its leadership team knows that most of their core competencies and long-term value comes from conceptualizing, selling, and marketing technology innovation, which is where most of their investments are now dedicated.
So, where do resilient companies invest their capital spend? Laczkowski and Mysore have identified seven critical areas:
- Enhance customer intimacy by creating new business models that resonate with ever-evolving buying habits and preferences
- Adopt artificial intelligence to automate repetitive processes and make decisions faster and more accurately
- Drive supply chain agility to get ahead of potential disruptions that can result in lost sales, lower stakeholder confidence, and escalating operational costs
- Focus on core competencies by relying on a network of third-party partners to manage secondary proficiencies such as production, logistics, sales, and services
- Mitigate risk and ensure compliance to avoid paying unnecessary costs and safeguard operations before, during, and after turbulent times
- Build the balance sheet to optimize spend to see the company through the recession and beyond
- Maintain and secure a systems platform to close any gaps in the data chain from capture and processing to reporting, analysis, and insights
While each of the areas mentioned may be overwhelming, SAP S/4HANA can enable a business to understand today’s challenges better, consider what matters most, and start the path to resiliency.
In the coming weeks, this series will cover how resilient companies leverage SAP S/4HANA to strengthen core competencies with seven areas of digital investment, and will offer insights as well as practical strategies to help keep a company running today while preparing for better times ahead.
David Sweetman is senior director of Cloud Global Marketing, SAP.