The Republic of Kazakhstan has big plans. SAP is part of them, working to help advance the nation’s economic growth.
In June next year, the eyes of the world will be on Kazakhstan. It will be the first time a Central Asian country has played host to a World’s Fair. As you scan the skyline on your journey from Astana Airport to the city center, you can’t help but notice the skeletons of what promise to be imposing buildings springing up on the Expo 2017 exhibition ground.
The flurry of construction work taking place at the exhibition ground, and pretty much everywhere you look, is symbolic of a wave of modernization that is currently sweeping the nation. Due to celebrate 25 years as an independent country later this year, Kazakhstan is, so to speak, “under reconstruction,” and Astana ‒ the country’s capital, its seat of government, and its economic center ‒are setting the pace.
Kazakhstan’s political leaders have announced that they intend their country to be among the world’s top 30 fastest-developing nations by 2050. And work is under way to create the structures necessary to achieve this goal.
At the forefront of this nationwide modernization drive is Samruk-Kazyna. Little more than a modest logo next to a glass-clad skyscraper reveals the location of the headquarters of this sovereign wealth fund in downtown Astana. Samruk-Kazyna controls about 550 companies. Samruk-Kazyna’s portfolio includes all of Kazakhstan’s major business enterprises and, notably, all the state-owned companies operating in the key strategic industries of oil and gas production, utilities, transportation, telecommunications and others.
“If Kazakhstan is to have any chance of reaching its growth goal, then it’s vital that we take the lead,” says Adamas Ilkevicius, who is in charge of the team responsible for Samruk-Kazyna’s ambitious transformation project.
The bottom line is that without a transformation, “Strategy 2050” has no hope of success. The story began about three years ago, when a benchmark revealed that, compared with their foreign peers, Samruk-Kazyna and its subsidiaries achieved considerably less performance for the same level of invested capital. “We looked at our situation from a bird’s-eye view and found that a great deal of key data was either unusable or missing completely,” says Ilkevicius.
“One of the key takeaways from the benchmark,” he adds, “was that we would need reliable data in the future.” It was also clear that it was not enough to focus the efforts on one particular area: They would need to transform the entire company portfolio. And that can’t happen without technology. Every company, particularly if it was established in the last century, needs future-enabled information technology to survive in today’s high-tech-centric world.
New Kind of Partnership
But what exactly does “future-enabled” mean in this context? SAP has operated a subsidiary in Kazakhstan since 1997, and both Samruk-Kazyna and its portfolio companies are among its longer standing customers. Historically, however, each subsidiary interacted with SAP on its own terms and according to its own strategy. With nothing but a range of individual agreements and a disparate collection of transactional ERP solutions to base their impressions on, many companies had come to regard IT (and SAP) more as a cost factor than a business enabler. Consequently, Maxim Lamskov, SAP Kazakhstan’s Managing Director, says “The improvements that are fundamentally feasible with SAP solutions simply couldn’t be achieved.” A comment made by Samruk-Kazyna’s CIO, David Tuganov, emphasizes precisely this point: “We invested a lot of money, but the results didn’t always live up to our expectations.”
Determined to change this situation for the better, Samruk-Kazyna and SAP took their collaboration to a new level at the end of 2015. “We need more than a software provider: We need a partner who will work with us to develop business solutions that will generate added value,” explains Ilkevicius. And this is exactly the point where a customer’s future-oriented strategy converges with the mindset of a new SAP that is committed to taking responsibility for its customers’ success.
Built on mutual trust that has developed over time, the strategic partnership agreement between SAP and Samruk-Kazyna will run for an initial term of five years and cover a variety of individual projects. As part of the planned transformation, Samruk-Kazyna will deploy SAP software, which, according to SAP Global Account Director Ivan Rhyzhkov, “will allow it to enhance its business with the help of end-to-end processes that align with its strategy”. And, since Big Data is a hot topic, he says, SAP HANA will also play a key role – along with solutions for predictive analytics and industry-specific characteristics.
Samruk-Kazyna began readying itself for the transformation well in advance, including starting a large-scale recruiting drive to ensure that it would have the right people in place for the task at hand. For its part, SAP has signed agreements to localize more of its software and has pledged to increase its investments in training IT professionals for the Kazakhstan market. Among other measures, SAP is currently adding Astana’s Nazarbayev University to its University Alliance Program.
Failure is Not an Option
“The strategic cooperation with Samruk-Kazyna drives our team to a completely new level and gives a lot of new and innovative opportunities for both parties,” explains Ivan, who is at the customer’s beck and call pretty much around the clock. And when you consider the scale of the project ‒ there are some 200 people working only on the IT transformation on the customer side – there’s no getting away from the fact that this is a massive undertaking for the local SAP team. It’s also high-profile. Kazakhstan’s prime minister is the main sponsor; and State President Nursultan Nazarbayev himself announced the program’s official launch back in October 2014.
The total value of the consolidated assets of Samruk-Kazyna group of companies add up to more than US$ 61 billion. A massive 50% of SAP’s annual software revenues in Kazakhstan stem from its business with the Sovereign Wealth Fund and its associated companies.
“By playing a major role in transforming Samruk-Kazyna and its portfolio, we’re actively driving Kazakhstan’s modernization program,” says Maxim. But he is quick to point out that the local SAP colleagues will need support from the CIS region, and beyond, if they are going to meet the customer’s demanding requirements. Samruk-Kazyna will need all the SAP expertise it can get to make the transformation a success. And the stakes are high: Neither side can afford to see the project fail. The pressure on both sides to succeed is immense.
That’s why Ilkevicius and his team placed great value on the importance of thorough preparation from the start, taking care to define processes and make key business decisions ‒ such how to best organize more than 500 treasury units – before even attempting to talk about the technology. Samruk-Kazyna’s motto for the transformation is “people, processes, technology”‒ in that order. At a very early stage, all affected employees were invited to get involved in the project and to take part in discussions about the changes required.
On the IT side, a committee was set up for CIOs from the portfolio companies to exchange their views. For more active IT governance, Tuganov explains that it is important to break down silos, foster a new form of communication, and send out a signal that technology will need to have a different, higher profile in the future: Not as an end in itself, but as a (key) tool and partner for achieving business objectives.
The transformation project is scheduled to progress step by step, with companies being bundled in groups. Samruk-Kazyna, together with three other portfolio companies – Kazakhstan Temir Zholy, Kazpost, and KazMunayGas ‒ were chosen to lead the way. The transformation methodology consists of three phases; “Design” (how do we want to work in the future?), “Planning” (which solutions do we need, and in what order do we want to implement them?), and “Realization” (the implementation itself). While the second group of companies is nearing completion of the design phase, the first group has already progressed as far as the realization step.
Kazakhstan Goes Digital
In a bid to reduce its dependence on oil and gas, and to strengthen its international competitiveness, the world’s largest landlocked country is investing heavily in digitalizing its economy. SAP is playing a key role in supporting the country’s “Digital Kazakhstan 2020” program. According to Maxim Lamskov, SAP Kazakhstan’s Managing Director, SAP is currently conducting intensive discussions with Zerde, the state-owned IT service provider for the public sector.
Implementation during the realization phase is based on a long-term plan. First, the standard solutions that are mandatory for all companies are provided centrally as software-as-a-service components (first layer). Then come the company templates covering the ERP functions. Finally, it’s the turn of the industry-specific applications.
Ilkevicius anticipates exciting and uncertain times ahead. “We’re operating in an unstable environment, so we’ll have a whole lot of unknowns to deal with.” He’s referring of course to the volatile nature of the global economy and, specifically, the oil and gas market. Here, after several boom years, prices have collapsed and left Kazakhstan feeling the pinch, since it is reliant on income from its raw materials exports.
“We can’t say with certainty where our journey will take us,” says Ilkevicius. “But we have no doubt that we’re on the right path.”
Video by John Hunt, supported by Ekaterina Frolova.