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SAP INSIGHT

THE CASE FOR


INTEGRATED PROCESSES
Table of Contents
CEO Notes 1
What are Integrated Processes? 3
How Do Integrated Processes Create Value? 4
Conclusion 8
THE CASE FOR
INTEGRATED
PROCESSES
by Don Byrnes
CEO NOTES

Most CEOs have developed strategies that push their  The core IT team at a consumer products
companies to achieve the following goals: company has enjoyed an estimated US$3
million in operational savings by integrating 150
 Develop faster time to market of products and
supply chain processes, which improved
services
services, reduced order cycle time, and
 Increase sales, revenue, and income
eliminated 85% of the legacy systems. In
 Improve customer service and customer
addition, the company discovered US$2 million
satisfaction
in “reverse logistics,” efficiencies gained after
 Improve operational efficiency and reduce costs
integrating point-of-sale activities such as
of operations
customer service, field service, and spare-parts
 Improve employee productivity and satisfaction
management.
But few CEOs will attest that their companies have
 A global transportation company has developed
made much progress. Why? Because theirs is a 21st-
integrated processes through its Web portal to
century vision being held back by 20th-century
connect it with partners all along the value
organizational processes and IT systems. The
chain, helping to increase information
missing ingredient: information. It’s information
transparency and process efficiency through
that helps increase speed and productivity, creates a
more productive knowledge management. This
stronger foundation for decision making, cuts out
company developed digital workplaces for
time spent on unproductive tasks, and, over time,
improved end-user productivity, facilitating
produces more efficiency, tighter cost control, and a
technology convergence. A Voice over IP (VoIP)
more effective climate of innovation.
infrastructure supported by the portal platform
The truth is that integrated processes hold the key has reduced employee process costs by up to
by facilitating the flow of that information. 80% through mandatory employee self-services.
Integrated processes provide information access to
end users across the enterprise that’s fit for the right  A large national utility company found that
purpose and delivered in a format they can use. A integrating processes improved its cost-position
more horizontally-structured company, with visibility for finance resources and increased
integrated processes across each value chain, is the user satisfaction with financial reporting. The
wave of the future. But while many executives company is experiencing fewer problems with
realize this fact, few companies have risen above the data integrity from corporate acquisitions and
silo structures that still remain from a myriad of has redeployed finance and HR personnel to
mergers - legacy systems that neither communicate more value-added work, while making
nor integrate with one another, and cultures that improvements in payroll processing and
do not share information or analysis in any reducing hardware and operating system
substantive way. platform costs.
But a few forward-thinking companies have begun
to change this picture in very dramatic ways, as
follows.

1
 A global manufacturing company achieved  Access to and sharing of information across the
significant time savings in transaction-based organization’s end-to-end business processes
processes by an average of between 45 and 65%  Information to provide a holistic view of
(or between €4.50 and €9.00 per transaction). customers, suppliers, partners, and/or business
With an expected annual volume of processes and operations
approximately 30,000 transactions per  Better understanding of business process steps –
integrated process, the company believes its and how each impacts the others - to improve
investment in integrated processes will pay off the overall effectiveness of each business process
in the next two to four years. In addition, the and realize value
company can reduce its application
development costs by 30 to 50% because the This SAP Insight discusses what integrated processes
open technology means that developing and are, how they create value, specific cases of
integrating cost-effective, in-house solutions is companies succeeding with integrated processes, as
much faster and simpler than buying well as a checklist to determine how integrated your
readymade software. own company’s processes are.

Most important, these companies have learned that


achieving their strategic goals requires the following:

2
WHAT ARE INTEGRATED PROCESSES?
CEOs have begun to realize that they can achieve Clearly, the integrated process is designed to
significant benefits, both quantitative and facilitate the flat, more horizontally-structured
qualitative, by leveraging integrated processes. But organization envisioned for some time as the key to
what are integrated processes? How can executives streamlining the workings of the complex modern
move from the conceptual to the concrete in corporation. The basic objectives are increased
understanding the tangible impact that integrated operational productivity and transparency, leading
processes can make on achieving strategic goals? to greater efficiency, control, and, ultimately,
customer satisfaction. To that end, the integrated
By definition, an integrated process is a series of
process provides visibility into the activities of all the
interrelated activities that share and exchange data
partners in the value chain - and into the
to achieve a common purpose. An integrated
information required to complete their steps in the
process leverages a potentially broad ecosystem of
process.
“partners,” such as other internal departments,
customers, suppliers, and vendors, to facilitate
collaboration on these interrelated activities, with
an appreciation of how each step impacts each
partner.
The most common integrated processes are the
following:
 Research to market
 Market to cash
 Procure to pay
 Plan to produce
 Order to cash
 Post to close
 Employee life cycle
 Employee self-service
 Manager self-service
 e-recruitment1

1
www.sixsigmatutorial.com/BPM/BPM.aspx (retrieved August 2004) - Source is cited in the 2005 Consortium Benchmarking Study Conducted by APQC titled “Emerging Best
Practices in Business Process Management.”
3
HOW DO INTEGRATED PROCESSES CREATE
VALUE?
To determine companies’ belief systems, APQC Integrated processes increase productivity. The
conducted a business process management APQC study indicates that the most commonly
benchmarking study in 20052, investigating how reported improvement across all study participants
integrated business processes create value. The is increased productivity. In addition, the study cites
results corroborate and expand upon the premise. “operational savings,” which include technology
improvements.
ntegrating end-to-end processes more positively
In
aligns technology with business needs. Six Sigma Integrated processes decrease costs. Feedback from
experts have determined that process redesign other studies indicates that an integrated ERP
cannot succeed without underlying infrastructure. system can save 20 to 30% of total costs over a
The reason: In order for the company to track the nonintegrated system. The bulk of the incremental
impact of process redesign on productivity, it must total cost of ownership lies in integration (8 to 12%)
have the data about inputs and outputs from the and ongoing infrastructure costs (9 to 13%).3
process so that it can see that the process redesign Consider the example of the high tech company on
has resulted in greater efficiency - according to the the following page.
standard metrics for that efficiency. To put this
Integrated processes help companies realize
another way, companies will now begin “driving
operational gains. Based on the research, the APQC
with the lights on.”
study concluded that an enterprise using integrated
6.1 Which of the following functional areas in your organization are currently integrated processes achieved greater economies of scale than
as part of your BPM initiative?
vertically-oriented companies, and produced larger
Information Technology
72.0%
80.0%
gains from process improvements leveraged across
Research and Development 28.0%
60.0%
the organization, as well.
80.0%
Marketing and Sales 40.0%

Human Resources 52.0%


80.0% Study participants and sponsors commonly
Customer Service 48.0%
100.0% reported that integrated processes led to a 25 to 50%
Supply Chain 60.0%
80.0% improvement in productivity, defects, margins, and
Financial Management 64.0%
80.0% employee competencies. These improvements also
0.0%
None/No response 20.0% covered the areas of customer loyalty, revenue
Partners
0% 20% 40% 60% 80% 100% increase, and operating margins.
Sponsors n=5(Partners)
and Others n= 25 (Sponsors and Others)

Figure 1

2
EMERGING BEST PRACTICES IN BUSINESS PROCESS MANAGEMENT ®, 2005 Consortium Benchmarking Study Conducted by APQC
3
“The Cost of Complexity…and the value of Integration”, IBM Business Consulting Services, March 2005
4
2.a Does your formal BPM initiative impact the entire organization, certain divisions The APQC survey cited other typical operational-
within your organization, or only a single division/business unit?
related benefits, including the following:

Entire organization
80.0%  Improved productivity by eliminating process
55.6%
overlaps and ineffectiveness, reducing
process complexities, and implementing
20.0%
enterprise-wide standards
Multiple divisions
11.1%  Process improvement by applying a consistent
and replicable approach
0.0%
A single division or business unit
33.3%
 Cost reductions by avoiding redundancies in
0% 20% 40% 60% 80% 100%
process improvement
Partners

Sponsors n=5(Partners)
 Productivity increases
and Others n= 25 (Sponsors and Others)
 Additional customer value
 Increased profitability
Figure 2  Increased customer satisfaction

One high-tech company had a systems landscape that incorporated more than 20 systems,
300-plus interfaces between SAP® and non-SAP systems, and over 5,000 discrete business
objects and reports. Driven largely by the need to accommodate legacy system requirements,
the company also had to custom-build hand-coded interfaces with direct calls between
applications, using a different application development team each time.
The company opted to integrate processes to facilitate faster implementations, lower overall
costs, and reduce latency times. The SAP NetWeaver® Exchange Infrastructure (SAP
NetWeaver XI) component would help do away with the manual effort required to custom-
code application and system interfaces. By leveraging SAP NetWeaver XI the team removed
the existing custom infrastructure and application code specifically for integration, while
decoupling interfaces to specific proprietary applications - thereby reducing system
dependencies, improving manageability, and aiding subsequent integration of other systems
and projects. The initial results were impressive, with 19 business processes containing 42
integration points now handled via SAP NetWeaver XI.
The company anticipates the following short- and long-term benefits:
 Moving to a more agile and flexible infrastructure to address future business and
application requirements
 Easier and faster integration and maintenance of existing interfaces
 Promoting skill consolidation (based on Java, XML, and Web services)
 Anticipating reduced risk for system upgrades and tangential application implementations
 Facilitating the development of reusable components and interface
 Increased life-cycle management and control capabilities

How a High-Tech Company Streamlined Its System Landscape

5
Consider how the Utility described in the case below of integrated business processes to increased
improved its recruiting benchmarks - with more customer loyalty. The company measures 54
fully integrated processes. individual characteristics related to customer
loyalty, defining them in two categories: table
Functional activities become collaborative activities
stakes, or the costs of doing business, and key
across the organization and the
drivers, the areas that differentiate the company,
company/customer/supplier ecosystem. One
add value, and increase customer satisfaction.
chemical company has linked the implementation
Increased customer satisfaction leads to a higher

The management of a large regional utility company, buffeted by a number of external and
internal forces, wanted better visibility into company cost structure and tighter integration of
systems and processes. The utility turned to the SAP NetWeaver platform to replace and
augment legacy technologies that were insufficient to meet present and future requirements.

Acknowledging its aging workforce, the company set its number-one priority as the
recruitment and hiring of new talent. But its hiring processes were manual and fraught with
errors, alienating prospective employees.

In this case, here’s how an integrated hiring process works. IT builds templates and user
interfaces for hiring different positions. When an individual is hired, HR staffers enter the
start date. These templates then automatically initiate all the other necessary system
activities. When a developer is hired, for example, the IT department is informed in advance
and sets up the new employee in the system. The facilities operation arranges for new
furniture, office space, phone service, and office systems. By the time the new employee
starts, parking is assigned and security passes are in place. All activities are automatically
triggered by the start date and data is retrieved from the SAP HR application.

But this is only the most visible change. By enabling process integration, the utility improved
transparency and reach, and enhanced user productivity. For example, the portal is now the
new delivery mechanism. Financial reports from the SAP NetWeaver business intelligence
repository are now delivered through the portal. A supervisor can look at his or her costs in
detail - overtime, labor, travel - and make real-time adjustments. With cost information readily
available, the supervisor can exert more control over expenditures.

In addition to the new-hire capabilities, employee and management self-service capabilities


are delivered through the portal. With easy access to their payroll information, for example,
employees and managers no longer need hard copies in the mail, which has achieved
efficiencies and cost reductions for printing and postage. HR personnel are redeployed from
manual administrative tasks to providing consultations and decision support for line
management.

Thanks to the implementation of SAP NetWeaver, the utility’s lines of business achieved the
following benefits:
 Reports once generated 7 to 14 days after month-end close are now available
immediately.
 Real-time interface development costs decreased more than 50%.
 Portal content development time decrease 200 to 300%.
 300% increase in ability to implement concurrent SAP projects

How a Utility Improved Recruitment and Hiring


6
percentage of business gained from these customers approach to assessing and improving processes
as well as referrals. The company found that the that align with business outcomes
integrated processes increased the percentage of  Increase customer satisfaction by defining and
business gained from customers as well as referrals. aligning end-to-end business processes with
measures that reflect customer needs
For a look at a transportation company that
 Reduce costs by avoiding redundancies in
increased its customer effectiveness through
process improvement
integrated processes, see the case below
 Improve productivity by eliminating process
Companies that implement integrated processes overlaps and ineffectiveness, reducing process
measure, track, and report performance in complexities and implementing enterprise-wide
alignment with business goals and objectives. One standards
of the biggest challenges to the modern company is
statistical: how to better measure performance, and The APQC also reported that companies believe
translate that measurement into shareholder value? integrated processes help them to comply with the
Integrated processes help a company measure by U.S. Sarbanes-Oxley Act, as well as the certification
simplifying the measurement process. requirements of the International Standards
Organization. Integrated processes help smooth the
Companies installing integrated processes typically way in merger adjustment, allow more effective
measure, track, and report performance relentlessly shared services, help with outsourcing, and enable a
to determine appropriate alignment with business stronger focus on resource utilization.
outcomes. As a result of these efforts, they
accomplish the following objectives: In the main, integrated processes will improve a
company’s overall efficiency. Consider the
 Achieve better results in process improvement transportation company’s increased efficiency
efforts by applying a consistent and replicable obtained through greater process integration.

Digitizing business processes was a key objective for a transportation company as a way to
increase efficiency, harmonize business processes across the group, and standardize Web
application management. One particularly important process was knowledge management for
its widely dispersed divisions - the exchange of information about projects, skills, and
customers. Better management of this process would help consultants speed up their daily
work and increase profit margin in fixed-price projects.

The project transformed a multitude of homegrown intranets to an integrated, central


platform. Now, content is dynamic, giving end users the information they need to make
decisions. The project also allows more flexible business processes through integration with
back-end business applications. Single-sign-on functionality and a comprehensive role
concept enable a “digital workplace:” once authenticated, employees have access to
personalized information and business applications with a single point of entry for daily work.
The inherent integration of processes has allowed exchange of information and knowledge.
Collaborative work scenarios are realized across working groups and project teams.
Employees can more easily retrieve information thanks to a standardized content
management process. Finally, the company has realized economies of scale by standardizing
processes across divisions, reducing operating costs.

How a Transportation Company Improved Efficiency


7
CONCLUSION

Based on research and documented case studies, it is CHECKLIST FOR INTEGRATED


clear that companies are realizing significant value PROCESSES
by developing integrated processes across the 1. Do you integrate the design and management of
enterprise. These integrated processes are a end-to-end, customer-driven processes with
combination of redesigned processes based on functional activities and goals (including strategic
workflow, supported by underlying state-of-the-art objectives and business imperatives)?
information technology, that ultimately benefit
people - whether via employee productivity, 2.Do you take a comprehensive view of the
collaboration with suppliers and customers, or organization that considers suppliers, the
providing better returns to shareholders. connectivity among the organization’s functional
roles, and customers?
The following “Checklist for Integrated Processes” is
a quick assessment tool to help you determine 3.Do you allow your organization to benefit from
whether your company has enough critical success the use of standardized global process definitions
factors to achieve the benefits we’ve uncovered for in your ERP implementation?
integrated processes. Those companies that can 4.Do you use a set of clearly-defined measures to
answer yes to the majority of questions are already assess process performance and maturity?
on the road to success with integration. Those that
cannot should consider re-evaluating the costs  For example, do your executive process owners
versus the benefits of integrated processes. articulate a process vision with key metrics?
 Do you drive down costs by focusing on cycle
time and rework?
 Do your executive process owners ensure that
the output of their processes delivers the right
value to customers and business owners?

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5.Can you say that your IT is aligned with business 9.Do your process improvement methodologies
needs? Can you say that IT is supporting and drive progress, support change, and track the
automating your strategic business processes? impact on the business?
6.Do you receive the data you need to determine 10. Are your executive leaders actively involved in
whether your process efficiency efforts have taken the design and implementation of new integrated
hold? processes?
7. Do your IT tools and systems facilitate process
modeling, systems integration, measurement
efficiencies, and information access by process
owners and users?
8.Is your human performance management focused
on the change toward integrated processes with
appropriate levels of training on change
management?

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January 2006