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Business Transformation Initiatives: Unlocking Benefits for Manufacturers
 

Business Transformation Initiatives: Unlocking Benefits for Manufacturers

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The time is ripe for manufacturers to launch business transformation initiatives, enabled by enterprise application optimization, in order to optimize their available cash, streamline the IT ...

The time is ripe for manufacturers to launch business transformation initiatives, enabled by enterprise application optimization, in order to optimize their available cash, streamline the IT infrastructure, create operational efficiencies and add new revenue streams.

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    Business Transformation Initiatives: Unlocking Benefits for Manufacturers Business Transformation Initiatives: Unlocking Benefits for Manufacturers Document Transcript

    • • Cognizant 20-20 InsightsBusiness Transformation Initiatives:Unlocking Benefits for Manufacturers Executive Summary tive costs, by running out-of-date and untuned application portfolios. A business transformation initiative, in whatever form it takes, can deliver real benefits to a man- • Many companies are allowing their business ufacturing organization’s bottom line. Despite processes to lie fallow. Business process im- persistent global economic uncertainty, the time provement, powered by more modern IT tools is right to begin such a transformation effort, par- such as those based on a services-oriented ticularly if your company’s coffers are flowing with architecture (SOA), can drive productivity im- cash, or merger and acquisition activity is high provements as well as cost efficiency. or expected to increase. Process improvements • A flurry of merger and acquisition activity enabled by today’s robust enterprise applications in the U.S. and elsewhere has resulted in an help improve efficiencies and better position your increased push to standardize processes and business to thrive in the new economy. platforms to reduce complexity and operation- al costs. This white paper explores the fundamental issues that plague enterprise application rationaliza- • Benefits of business transformation include reduced costs and improved efficiencies, but tion and business process optimization initia- it also delivers a better understanding of how tives, as well as the strategies that organizations your business is performing vis-à-vis the com- should embrace to overcome them. Key highlights petition and the ability to adopt leading indus- include: try practices. • Most companies’ enterprise application • Organizational buy-in and ownership of portfolios are less than optimal. CIOs tradi- projected benefits are key to the success of a tionally hesitate to upgrade, migrate or opti- business transformation initiative. mize their enterprise applications, wary of not achieving ROI in a period of 12 to 18 months. Most Enterprise Application Portfolios • By some estimates, nearly 30% of compa- are Suboptimal nies rely on enterprise applications that are For many business executives, transformational about to lose vendor support. This makes it activities such as enterprise application optimi- imperative to act, with or without a business zation fall under the heading of “love to hate.” case built on solid financial returns. This is especially true in manufacturing, where it • Organizations are missing out on major is traditionally difficult to attain budget approval business benefits, including increased prof- for IT investments. It can be challenging to build a itability, improvement in on-time delivery strong business case to secure funding for appli- and reduction in operating and administra- cation portfolio upgrades or rationalization. cognizant 20-20 insights | january 2012
    • The most compelling driver is often that the the need for improvement.2 Meanwhile, according application is about to lose vendor support. A to the Computerworld survey, nearly 70% of significant number of companies find themselves respondents have a plan in place for enterprise in just that situation: Constellation Research application modernization, and 30% have plans principal R “Ray” Wang estimates that between to upgrade in the next 12 months. 28% and 30% of North American companies face non-support for their primary enterprise applica- Despite their historic preference to spend on tions in the next year to 18 months. For anyone factory floor technology vs. IT, manufacturers in this boat, the failure to act could imperil the are expected to slowly thaw their IT spending, business, whether or not they including enterprise application upgrades, according to a recent survey by Computer Eco- Organizations are can identify the hard-dollar nomics.3 According to the survey, discrete manu- benefits of upgrading that looking for ways will be achieved within a year facturing companies planned to increase their IT to adapt to ever- or two. operational spending in 2011 by 3.8%. Process manufacturers surveyed, meanwhile, planned to changing business Even organizations that are increase IT operational spending by 2.5% in 2011. conditions and not facing the immediate invest capital in sunsetting of their applica- Opportunity Knocks tions know that failing to The time appears right for companies to take therevenue-generating optimize the underlying code plunge into business transformation enabled by opportunities vs. base that runs their business enterprise application optimization. Increasingback-office support will result in a less than ideal M&A activity and strong corporate cash reserves operating environment. In can serve as catalysts to seize the moment and processes. fact, failing to modernize deploy common business models and platforms their enterprise applications — to achieve business benefits. whether upgrading, migrating or integrating — means the company will miss out on transfor- Business process changes defined during the Y2K mational business capabilities that can reap real ERP implementation boom have become outdated, bottom-line rewards. inefficient and unable to take advantage of new enabling technologies, including SOA and SaaS For example, according to a 2011 survey by (software as a service). In addition, organizations consulting firm Mint Jutras of nearly 900 IT are looking for ways to adapt to ever-changing executives, those organizations that upgraded business conditions and invest capital in revenue- their ERP systems realized benefits ranging generating opportunities vs. back-office support from increased profitability to improvements processes. While many manufacturing executives in on-time delivery, reduction of operating and still struggle to allocate funds for transformation administrative costs, reduction in inventory initiatives, business leaders in many organiza- and faster cycle time.1 According to Mint Jutras tions are looking for ways to simplify the appli- principal Cindy Jutras, the top ERP performers cation landscape to reduce costs and create new surveyed achieved more of these benefits than business capabilities. A business transformation middle-of-the-road performers, chiefly because project can help improve your bottom line and top performers are more like to measure pre- and increase flexibility to adapt to changing economic post-upgrade states and, therefore, have concrete conditions, better or worse. evidence of improvements. Setting the Stage for Transformation Organizations are paying a steep price — in M&A activity has been brisk in the U.S. since business, not technical, terms — for their outdated the Great Recession of 2008. M&A value in the application portfolios and inefficient processes. U.S. increased 39% year-on-year by the middle The most common negative effects include of 2011, according to PricewaterhouseCoopers.4 decreased productivity, increased application According to PwC, corporations continued to use maintenance costs, missed innovation opportu- their strong cash positions and stock prices as nities and employee frustration or attrition. In currency to make acquisitions. Cash on corporate reality, few enterprise application portfolios are balance sheets continues to grow — the available fully optimized and modernized. The need for cash on S&P 500 company balance sheets application modernization is great; seven out currently exceeds $1.1 trillion, according to Factset of 10 respondents in a recent Computerworld Research Systems. Market Pulse survey of U.S. companies report cognizant 20-20 insights 2
    • Many organizations that have grown (or are monizing business processes across disparategrowing) by M&A are revisiting processes and business units?developing standard business process models to • How do we merge processes enabled by multiplebe applied across the entire new organization. ERP solutions into a common model?These models also serve as a template to rapidlyintegrate newly acquired companies and facilities • What is the timeline for benefits capture/real- ization?onto a standard process. Depending on the overallstrategic approach by an organization (i.e., holding • What is the ROI on capital spent to improvecompany vs. fully integrated), scalable enterprise organizational capabilities?applications are crucial to enable integrating and • What are the organizational impacts as a resultsupporting standardized business processes. of transforming business processes? Manufacturers can address most if not all of theseMany organizations are sitting on ample potential questions by undertaking a business transforma-funding for business transformation, especially tion initiative. Figure 1 shows key business processif it will drive increased efficiencies within 12 to transformation enablers.18 months. The uncertain global economy hasencouraged many companies to hold onto cash Transformation’s Impactand other liquid assets in unprecedented quanti- on the Organizationties. Corporate cash has been adding up since atleast 1982 and is now at previously unseen levels, An initial step in understanding the gap betweenaccording to the Big Picture Website.5 The Fed how an organization currently operates and thereported that the 500 largest non-financial firms vision for the future is a “self assessment,” usinghave roughly $1.8 trillion in cash holdings as of information and tools such as benchmarking dataJuly 2010.6 It is likely that companies on an acqui- on competitors and industry/process maturitysition spree will utilize some of these reserves to models. An important task is for business leadersrationalize their acquisitions’ systems. to reach agreement on the organization’s current state and vision for the future. While it is commonAgainst this backdrop is an array of challenges and useful to have outside help in evaluating thefacing organizations of all sizes and across gap between “as is” and “to be,” the future visionindustries. Common questions include: needs to come from inside the company.• How are we positioned in comparison with our As a result of the assessment, the organization competitors and leading industry practices? will have a list of one or more areas in which a gap• What is the best approach to reduce cost in our exists between the desired best practice and the back-office processes? as-is state. These areas can include technology• Can we capture organizational synergies by har- deficiencies (no business analytics capabilities,Business Process Transformation Enablers Global Business Process Business Models Functional • Consistent Methodology Data Consolidation Analytics • Consistent Tools • Consistent Quality • Integrated Solutions Master BPT Target Edge Data • Reduced Complexity Management Enablers Solutions • Minimized Risk • Drives Cost Reduction Infrastructure/ • Improves Operational Efficiencies Legacy ERP Systems Consolidation • Increases Organizational Performance Shared ServicesFigure 1 cognizant 20-20 insights 3
    • for example) or faulty processes. For example, It is important that each opportunity not only hasyou may discover from your self-assessment and buy-in from all relevant stakeholders throughoutindustry benchmarking that leading companies in the manufacturing organization, but also identifiesyour industry outsource the accounts receivable individuals (i.e., managers from line-of-businessprocess, ensuring payment within a 30-day units) as owners for achieving the business casewindow, while it takes an average of 58 days for objectives and ROI. Too often, in manufacturingyou to receive payment. Your conclusion in this as elsewhere, business case benefits are rarely, ifcase may well be to work on selecting a business ever, tracked and measured and even more rarelyprocess outsourcing provider. achieved. An important step to close the loop of any transformational effort is to evaluate theWith the approval of the executive sponsor, achievement of objectives, which we have foundoften the CFO, the transformation team should is most effective by assigning ownership.prioritize the work bridging those gaps that areconsidered important to achieving key business Your gap analysis should also include animprovement objectives (such as A/R, above). evaluation of your target process maturity andAn assessment of each business process to be which stage of maturity you would like to attain.considered will provide specific opportunities for Let’s say, for example, that your customer-facingmitigating the current gap. Each opportunity will processes are in need of serious help due to theirneed to be evaluated for feasibility and potential relative immaturity (your salespeople have notreturn on investment through a business case established relationships with key customers anddevelopment process. are not proactive in selling new opportunities). Very likely, it is too much of a stretch to expectIn some cases, the effort and investment required to go from this currently immature stage to theto achieve the desired objectives and “best in best-in-class level of maturity (in which sales isclass” end state may not be justifiable. Those led by the executives with broad cross-functionaldeemed acceptable (and therefore approved) support) with no stops in between. Focus yourwould be part of an organization’s overall project goals on what is realistic given your currentportfolio, with an associated roadmap for imple- state, vision for the future, available resourcesmentation. The roadmap would communicate the and, most importantly, your business objectives.expected duration of each of the transformational (See Figure 2 for a schematic of how this decisionopportunities, as well as when the benefit realiza- process might work.)tion is expected to occur.Moving the Ball High Customize • Close, Consolidate & Report Differentiate Strategic • Performance & Decisions Competitive • Strategy & Execution Advantage Level of Investment • Finance Organization Redesign Process Type Improve Tactical • Talent and People • Risk, Controls Be Effective & Capital • Policy & Process Simplify Streamline Foundational • Systems & Information Standardize • Regulation & Governance • Transaction Processing Low Low Cost I II III IV Limited Average Leader Best in Class Target Maturity Zone Maturity Level This chart represents a sample client assessment of a current-state process maturity level for finance process areas. Companies assess where they fall on the maturity model (left point) and then identify where it is reasonable for them to aim (the bulls-eye). It is reasonable to expect to move modestly from left to right, rather than going from immature to mature in one step.Figure 2 cognizant 20-20 insights 4
    • Applications Rationalization Roadmap Business Application Deployment Specific Option Process Architecture Strategies, Options, Plan & Budget Workshops Alternatives Costs Evaluation DevelopmentFigure 3Business Transformation at Work However, a structured approach to business transformation increases the realization ofLet’s consider a hypothetical example to see how benefits by “contracting” with stakeholders toa business transformation might work. Assume a deliver expected improvements. Continuing the$5 billion manufacturer of branded and private- CPG company example, several business improve-branded consumer-packaged goods embarks ment opportunities were evaluated for potentialupon a business process transformation initiative. cost savings. These opportunities were adoptedAn aggressive M&A strategy had resulted in a by the company and included as part of the goalsplethora of systems in use across the organiza- and objectives of the stakeholders responsibletion — everything from SAP Financials running on for ensuring their implementation. Taking thisa mainframe to Salesforce.com on mobile devices approach and measuring actual achievement offor salesforce contact management. The opportu- each of the objectives yielded potential financialnity to leverage common systems and processesprovided the catalyst to drive a business transfor-mation initiative. Gauging SuccessTo better understand the opportunities, potentialreturn on investment and roadmap to implemen- Success of Organizations Achieving ROItation, a consulting organization led the company in the Timeframe Expectedthrough an assessment of current and future-state business processes and applications. Toachieve the end-state objective of providing a Somewhatcomprehensive recommendation to the board of successfuldirectors, the team utilized a structured method- 45%ology and proprietary accelerators. An exampleof the phases of this approach is depicted in Very successfulFigure 3. 30%Several key deliverables were developed utilizing Not verythis approach, including business process improve- successfulment opportunities, a plan to adopt new function- 12%ality and applications, creation of business casedefinitions and identification of an implementa- Extremely Not at alltion roadmap. successful Don’t know successful 7% 2% 4%As noted earlier, one of the main concerns of topmanagement prior to embarking on a major trans- Q: Historically, how successful has your organization beenformation effort is the investment to achieve the in achieving financial returns on its efforts to modernize,expected end results. Too often, business case optimize and upgrade its enterprise application portfolio in the timeframe expected?ROI projections are not realized (see Figure 4).This is usually the result of a lack of management Base: 81 ROI expectedbuy-in and ownership by the stakeholders mostcapable of providing the expected return. Figure 4 cognizant 20-20 insights 5
    • Exceeding Objective-Benefit Synchronicity Minimum Opportunity Description Annual Potential Benefits Savings The current accounts payable $1,000,000 • Productivity improvements process is spread over multiple sites • Stronger financial and process controls AP and systems and across various • Increased amount of payment discounts Consolidation organizational structures. received (i.e., 27 days to process invoices on average) • Reduce late payment penalties Lot tracking for finished goods $500,000 • Reduced obsolete and dated inventory and raw material inventory lacks • Increased fill rate and customer service visibility for sales ordering, planning through accurate inventory availability and manufacturing, which can lead • Reduced manufacturing “rush” orders to increased obsolescence and • Operational efficiency with the demand shortages. Lot Tracking revenue manager’s planners and schedulers • Increased lot visibility to reduce obsolescence costs • Improved customer satisfaction • Product traceability, regulatory requirements or reduced recall costs Every EDI customer order is $1,000,000 • Operational efficiency manually reviewed for accuracy prior • Improved customer service Order to being moved to available-to-pick • Increased profitability Management status; on average, clients process 80% of orders through EDI (across all divisions).Figure 5benefits that exceeded the values for each of the process was carried out across the brands. Theseopportunities (see representative examples in process inconsistencies were negatively affectingFigure 5). customer service, which was a major concern.Real-World Results Along with the client, we conducted a multi-We have helped companies across various man- stage analysis, studying existing processes (theufacturing sub-industries achieve the business “as-is”) and defining what a streamlined andtransformation results they desired. For example, unified process would look like (the “to-be”). Wewe worked on a multi-year engagement with a conducted multiple rounds of interviews with line-subsidiary of one of the largest global industrial of-business users and held validation workshopsdistributors of plumbing and heating products with representatives across brands to communi-in the UK. This company had pursued a growth cate the future-state business process and gainstrategy driven primarily by M&A, which resulted buy-in from the various stakeholders and constit-in over 18 independent brands in its portfolio. uents. In total, we met with 140 business staff and more than 200 subject matter experts on currentIn addition, the group we worked with featured business processes.over 50 brands within the group, each havingdisparate front-office processes with varying Upon examining the current mode of operations,degrees of flexibility and inefficient back-office we identified the pain points, as well as thesystems. The order-to-cash and procure-to- potential improvements. We defined a unifiedpay business processes were not centralized, process set and helped the businesses identifyso there were variations in the way a particular common and unique processes. cognizant 20-20 insights 6
    • Our client saw a number of distinct benefits. We were then incorporated into the implementa-helped obtain buy-in from the dispersed brands tion plan, along with assignment of stakeholderon a future mode of operations, acting as change ownership.agents for the business. Working with the client,our team created a process ownership hierarchy • The detailed usability requirements will ensure faster user acceptance and provide an intuitiveto define the to-be state process set. We con- user interface for the future system.solidated and prioritized the business processimprovement opportunities, created detailed Looking Forwardbusiness process documentation and identified No company — least of all a manufacturer —process key performance indicators (KPIs) to undertakes a business transformation initiativemeasure efficiencies post-implementation. lightly. In the face of continuing economic uncer-In summary, we helped our client achieve the tainty, many companies will wait to act unlessfollowing benefits: they no longer can put it off — in the case of their enterprise application losing the support of its• The detailed business process documentation vendor, for example. that the team created will accelerate blueprint- ing and configuration of business processes on On the other hand, business transformation whatever technology enabler is selected. offers undeniable benefits for those bold enough to undertake it, including more effective use of• The client can use our assessment of its current cash (be it through M&A or not), streamlining and future-state requirements for software package evaluation, benefiting projects in the the IT infrastructure and support, which creates short and medium terms. greater operational efficiencies. Perhaps most significant is the opportunity to add new business• The use of maturity models identified gaps from capabilities that either drive new revenue streams industry best practices. These were addressed or make more effective use of a company’s by defining the various process opportunities existing portfolio. All of these are welcome in any to close the gaps, and these improvements economic climate.Footnotes1 Interview with Mint Jutras principal Cindy Jutras, Nov. 30, 2011.2 “Enterprise Application Modernization: Enabling Next-Generation Business Capabilities,” Computerworld Custom Solutions Group. http://resources.idgenterprise.com/original/AST-0047635_ fujitsu-modernization_v7FINAL.pdf3 Jeff Moad, “Manufacturing Spending: Is it Time to Pick Up the Pace?” Manufacturing Executive, July 8, 2011. http://www.manufacturing-executive.com/thread/18344 “PwC Mid-Year M&A Outlook 2011,” PricewaterhouseCoopers, June 2, 2011. http://www.pwc.com/us/en/press-releases/2011/PwC-US-Mid-Year-M-and-A-Outlook-2011.jhtml5 Barry Ritholtz, “Corporate Cash has been Piling Up Since 1982,” The Big Picture, July 12, 2010. http://www.ritholtz.com/blog/2010/07/corporate-cash-has-been-piling-up-since-1982/6 Barry Ritholtz, “Corporate Cash: Top 20 Firms = $635 Billion,” The Big Picture, July 12, 2010. http://www.ritholtz.com/blog/2010/07/corporate-cash-top-20-firms-635-billion/About the AuthorMark Hadler is a Consulting Partner within Cognizant Business Consulting who has led numerousERP systems-enabled global business transformation projects across a full spectrum of businessprocesses. He also directed several multinational, full-suite ERP implementations. Mark has over 23years of combined industry and consulting experience advising clients on transforming and optimizingtheir processes. Prior to joining Cognizant, Mark held various leadership positions at DeloitteConsulting and Harley-Davidson. He holds an MBA from Marquette University. He can be reached atMark.Hadler@cognizant.com. cognizant 20-20 insights 7
    • About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 130,000 employees as of September 30, 2011, Cognizant is a member ofthe NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performingand fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: inquiry@cognizant.com Email: infouk@cognizant.com Email: inquiryindia@cognizant.com© Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.