This white paper discusses the challenges organizations face in adopting enterprise resource planning (ERP) and the need for operational excellence through enterprise services architecture (ESA). It highlights issues like IT complexity, innovation difficulties, and the limitations of traditional ERP systems while advocating for a services-oriented architecture to support business agility and effectiveness. The document includes strategies for achieving competitive differentiation and suggests outsourcing as a solution to enhance core business capabilities.

1. SAP White Paper
mySAP ERP
DELIVERING OPERATIONAL
EXCELLENCE WITH INNOVATION
Enterprise Services Architecture for Enterprise Resource Planning

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2

3. CONTENTS
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Enterprise Resource Planning: Strategies and Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Why Consolidation Is Difficult. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Why Innovation Is Difficult. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Why Outsourcing Is Difficult . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Solution to Becoming an Adaptive Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Embracing Innovation and Achieving Operational Excellence . . . . . . . . . . . . . . . . . . . . . . . 10
Business and IT Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
– Example: Consolidating HCM as Shared Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Business-Process Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
– Example: Extending the Quotation Process to More Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
– Example: Reengineering the Employee On-Boarding Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
– Example: Reengineering the Procure-to-Pay Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
– Example: Integrating Desktop Productivity Tools with ERP Applications . . . . . . . . . . . . . . . . . 13
Business-Process Outsourcing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
– Example: Outsourcing Logistics Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Unlocking the Potential of ESA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
mySAP ERP and ESA: Aligning IT and Business to Achieve Operational Excellence . . . 17
What’s Next?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
For More Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3

4. EXECUTIVE SUMMARY
Today, islands of automation, growing IT complexity, This white paper is intended for IT executives and line-of-
governance pressures, and budget reductions are IT realities business management. It introduces business strategies, trends,
that hamper the ability of small and large organizations to and issues related to enterprise resource planning (ERP),
embrace new business practices and technological innovation. financial management, operations management, and human
As organizations look for better ways to achieve competitive capital management (HCM) that drive the consideration of
differentiation, market responsiveness, and operational enterprise services architecture (ESA). It also examines the
excellence, they often find their existing IT landscapes too importance of such architecture and the role it plays in guiding
complex, inflexible, and costly to adapt to evolving business organizations to create value, improve efficiency, and respond
conditions. Even if organizations can afford the resources, to evolving business needs in ERP – on any scale and for any
time, and effort it takes to change and enable new practices, industry. The document then illustrates and compares a
all those might prove too extensive to justify the value of the number of deployment examples with and without ESA and
investment. IT – often regarded as a monolithic, rigid, slow- clarifies why businesses are adopting an enterprise services
moving, or foreign entity by many businesspeople – must be approach to compete effectively in a dynamic marketplace.
aligned with business needs and evolve with changing market
demands to enable future innovation, agility, and excellence.
The growing importance of IT architectures has led many IT
executives to rethink traditional approaches and seek better,
smarter, and more efficient ways to serve their organization’s
needs. The adoption of services-oriented architecture (SOA) is
central to becoming more responsive and agile. An SOA not
only helps organizations address short-term needs – such
as lowering IT costs, improving quality of service, and
enhancing existing IT systems – but also, and more importantly,
provides a flexible, adaptive, and open IT foundation that can
accommodate changing business practices, market dynamics,
and competitive challenges.
4

5. ENTERPRISE RESOURCE PLANNING:
STRATEGIES AND TRENDS
In the past, organizations deployed ERP software to gain internal
efficiency in back-office operations, such as manufacturing, Common Experiences When Changing
accounting, HCM, financial management, and purchasing.
Business Practices
Such technological investments helped management reduce
costs. But today’s businesses can no longer rely on automating • Once the competition copies a differentiating activity
back-office processes to achieve top-line growth and bottom- from the core, efficiency and productivity become the
line improvements. primary purpose of the core.
This situation is well described in Living on the Fault Line by • Consolidating common business and IT functions
Geoffrey Moore. In the book, Moore frames the challenges reduces costs and redundancy while it enforces
of achieving continuous business innovation around an global policies.
organization’s “core,” the business processes that differentiate • Outsourcing nonstrategic processes enables an enter-
businesses in the eyes of their customers, and its “context,”
prise to focus on its strategic or core competency.
which is everything else (see Figure 1). The purpose of an
enterprise’s core is to drive business innovation and competitive
differentiation to stimulate growth. The context’s primary
goal, according to Moore, is to operate as efficiently and Businesses might want to leverage their ERP software for
productively as possible. The catch is that core remains core competitive differentiation by finding new ways to achieve
only as long as it differentiates the enterprise from the greater efficiency in previously untried or unsuccessful areas.
competition. Once it has been copied, it becomes context and They might also want to consider outsourcing standard
is no longer an innovation. At that point, the organization processes to free up resources for strategic endeavors that lead
must refocus on improving the efficiency and productivity of to differentiation.
the context.
Examples of business practices that can enhance differentiation
or improve productivity for an organization include the
Core Context following:
Focus on Differentiation Focus on Productivity
• Implementing mass customization with geographically
Innovation Standardization
dispersed contract manufacturers and suppliers to reduce
Mission-
Consolidate
cycle times, rework, and inventory costs in the automotive or
Critical
Activities high-tech industry
Compose
• Extending an existing quotation management process to
Out-Task
Insource
external suppliers to encourage more efficiency and
Scale
responsiveness within the contract manufacturing process
• Improving new hire, employee transfer, termination, and
Enabling other workforce management events to automate the
Invent Retire
Activities exchange of information with third parties in accordance
Invention Commoditization with local and global policies
Courtesy of Geoffrey Moore’s Living on the Fault Line
• Centralizing common operations as a shared service to
Figure 1: Business-Process Innovation – Core and Context enforce global policies and leverage economies of scale
• Outsourcing payroll and human capital management to
third-party agencies
5

6. THE ISSUES
Given the complexity and nature of IT in many enterprises, integration with new applications. Similarly, developing
these operational strategies are difficult to implement. innovative processes from the context into the core is equally
Traditionally, organizations develop custom applications from challenging and expensive, because IT must determine the best
scratch and use various platforms, but then find that they lack way to leverage existing investments. And business-process
the flexibility to accommodate change. Moving from core to outsourcing is difficult and expensive, because it requires
context to consolidate common IT practices, for example, is organizations to manage the performance of the third-party
difficult and expensive. To make the move, enterprises must vendors on service-level agreements, but monitoring and
analyze their IT landscape to determine which assets to replace, enforcing such new policies would require new integrations
upgrade, or make obsolete; acquire new skills; and support with third-party systems that reside beyond existing boundaries.
Core Context Core Context
Custom Development Packaged Applications Custom Development Packaged Applications
on a Tech Platform on a Tech Platform
Innovation Standardization Innovation Standardization
Consolidation Innovation
is extremely can’t easily
difficult: leverage existing
• New platform investments.
• New skills
• New integration
• Time
• ...
Invention Commoditization Invention Commoditization
Core Context
Custom Development Packaged Applications
on a Tech Platform
Innovation Standardization
Outsourcing is
challenging:
• New process
extensions
• Data on different
systems
• Governance
• ...
Invention
Commoditization
Figure 2: Business-Process Innovation Hampered by IT
6

7. Why Consolidation Is Difficult Why Innovation Is Difficult
In many enterprises, consolidating common business and IT To achieve innovation, organizations often attempt to build
functions is difficult and costly for several reasons. For instance, upon existing IT investments. However, a number of issues
applications are often implemented independently to address impede their efforts. For instance, some organizations use
specific needs at a given time. This approach creates islands of enterprise application integration (EAI) tools to integrate
automation that comprise different technologies and propri- independent applications to support new or reengineered
etary code that are too complex to integrate, that are too costly business processes. This approach relies upon proprietary
to adapt to changing business requirements, and that make it interfaces to hardwire different applications. Although EAI
difficult to share critical business information. With evolving tools have been used successfully for such linkage, they require
business conditions – such as mergers and acquisitions, employees with specialized skills who understand the inner
company spin-offs, and reorganizations – fragmented workings of the systems on both sides to create tightly coupled
information, inconsistent user interfaces, additional pockets integration. In addition, skilled employees are also needed to
of automation, and redundant systems not easily used by maintain the integration over the useful life of the applications.
other business units only complicate the IT landscape further. But the costs of up-front development and ongoing mainte-
nance and efforts involved in integration can be avoided.
Consider the example of an enterprise that has grown through
acquisitions and now consists of a few independently operated Consider a second example of the difficulty of process
HCM, financial, procurement, and IT groups, each with its own innovation. In many organizations, the need to reference
system to support local needs. Any policy changes required at structured (or online) data and unstructured (or offline) data
the global level – such as IT security policies, privacy laws, or is not only desirable to increase efficiency, but also mandatory
contractual pricing – must be enforced separately at the local to satisfy regulatory requirements. This situation is especially
level. true in the public sector, where agencies rely on traditional
paper forms to conduct business with smaller companies that
The question? How can organizations in such a situation act might not have online access. Because traditional systems do not
effectively to comply with global and local regulations? The fully address the end-to-end process, the agencies create a wealth
answer? Not easily. Many organizations look for better ways to of offline data through administrative paperwork, e-mail, faxes,
centralize common functions as shared services, rid themselves mail, and other methods of offline communication. The staff
of redundancy, increase their operating efficiency, and enable must then spend non-value-added time sorting the offline
reuse of their existing investments. Unfortunately, the growing information and tying it back to, or reentering the data into,
complexity of the organization’s IT landscape often hampers appropriate systems for compliance purposes. To innovate
these laudable goals. this process and ensure compliance with federal regulations,
agencies must invest in IT staff to develop the custom
integration necessary for data exchange and in a team of
contract administrators to govern the end-to-end process.
7

8. Why Outsourcing Is Difficult
Outsourcing is often difficult, because organizational bound- Why the Complexity of IT Systems Hinders
aries constrain an organization’s systems and applications,
Excellence and Innovation
neither of which was designed to be interoperable with external
systems. To accommodate outsourcing, organizations often • Impedes the ability of organizations to respond to
build proprietary integration between internal and external business change
systems, which increases the cost of ongoing maintenance and
adds complexity to the IT environment. In addition, changes to
• Requires additional investments to unite scattered
or hidden information
the internal or external systems cause a wave of updates to
development, testing, and documentation. For example, if an • Increases the costs of building and maintaining
organization wishes to outsource its payroll information, it integration
must extend its time and attendance processes in HCM to a • Requires custom integration by personnel with
third party. But doing so is difficult, because success here relies
scarce and expensive skills
upon the ability of multiple systems with different functionalities,
underlying logic, and rules to work well with each other. • Forces employees to work with multiple systems
to accomplish tasks
Consider logistics outsourcing as another example. Extending
an organization’s inventory management system to a third-
party warehouse inventory system requires proprietary integra-
tion and specialized skills unless the systems are built upon
open standards and communication protocols. Subsequent
changes to the tightly coupled systems drive up the costs of
maintenance.
8

9. THE SOLUTION TO BECOMING AN
ADAPTIVE ENTERPRISE
The need to respond rapidly to business demands, support new Furthermore, although Web services are suitable for promoting
strategies, and improve the overall user experience is driving syntax and protocol-level communications, they do not yet
IT organizations to search for new ways to improve IT at a lower provide a way to ensure semantic interoperability. For example,
cost. IT organizations can overcome these challenges by adopting the way a customer is defined in a product from Siebel Systems
SOA. In general terms, SOA is a technical framework for building differs from the way it is defined in a solution from SAP.
software applications that use services available from a network Organizations need a way to resolve the data and process
like the Web. Applications in SOA are designed to use Web disparities between different Web services and to translate
services as the standard means to communicate well-defined syntax and communications into business constructs that can
information with an array of other applications. be reused across different situations. The notion of enterprise
services does exactly that through the “semantic leveling”
Enterprise services architecture, as defined by SAP, is a business- and “right sizing” of individual Web services. For example, an
driven approach to SOA that expands the concept of Web enterprise service can encapsulate incompatible and individual
services into an architecture that supports enterprise-wide, Web services that span the Siebel and SAP® systems into a
service-enabled business architecture. However, SOA and ESA common business concept such as “retrieve customer infor-
are not one and the same. The difference between an SOA and mation.” Various enterprise services can then be assembled to
an ESA comes from service enabling the most common business form a composite application.
processes, such as procure to pay, order to cash, and hire to
retire. Although SOA can be seen as a more technical concept, Composite applications enable the orchestration of new business
ESA can be thought of as the blueprint that enables flexibility, processes that leverage enterprise services from existing applica-
openness, and agility, which are critical elements for success in tions in ESA. Whether a composite application is designed for
an adaptive enterprise. Simply put: ESA is a blueprint for a internal or partner use, it shows how any company can address
business-oriented approach to SOA. new business needs and extend its existing processes by using
existing systems and applications based upon ESA.
9

10. EMBRACING INNOVATION AND
ACHIEVING OPERATIONAL EXCELLENCE
ERP solutions that adopt a services-oriented approach enable In a centralized scenario, a self-service portal for employees is
organizations to achieve competitive differentiation by allowing introduced globally to allow employees to perform simple
them to implement a variety of IT and business strategies, HCM tasks or use an online employee handbook and other
including business and IT consolidation, business-process knowledge tools. The portal serves as an automated first line
innovation, and business-process outsourcing. This section of support. The HCM department is readily accessible if the
illustrates the value of an ERP system built upon ESA for employee needs assistance with the task at hand or with using
helping organizations implement a number of processes under the portal. This new approach liberates the local HCM repre-
the following strategies: sentative from a significant number of routine administrative
tasks to focus on more strategic initiatives that can further
Strategies Used to Achieve Competitive Differentiation improve employee satisfaction and reduce operating costs.
Strategy Examples
Existing Employee On-Boarding Process
• Business and IT consolidation • Consolidating HCM as shared services Deployment of the employee self-service portal requires
• Business-process innovation or • Extending the quotation process to
extensive proprietary integration with back-end systems. For
reengineering more suppliers example, to register an employee home address change, the
• Reengineering the employee update must need to be reflected across multiple systems, as
on-boarding process
• Reengineering the procure-to-pay shown in the following table.
process
• Integrating desktop productivity tools
Information Used by Multiple Systems
• Business-process outsourcing • Outsourcing logistics operations Type of Information System Involved
Employee master information ERP system
Business and IT Consolidation Travel profile Third-party travel system
By consolidating business processes, organizations can reduce 401(k) Third-party financial services system
redundancy and increase cost savings. Organizations avoid the
Employee stock purchase plan Third-party investment system
complexity and costs of a fragmented, heterogeneous environ-
ment by consolidating redundant applications and systems into American Express card Third-party credit and banking system
a single technology platform based upon ESA.
Payroll ERP system and third-party payroll
processing
Example: Consolidating HCM as Shared Services
Tax services Third-party tax services
Consider the example of centralizing HCM functions for all
employees. In a distributed scenario, local HCM teams are on-
site to address specific issues and administrative tasks. The tasks Integration of an HCM solution without ESA requires the
might be as simple as executing an address change, enrolling design, testing, deployment, and documentation of a multitude
in a 401(k) plan, or managing direct payroll deposits. But the of custom proprietary interfaces. Changes to a given interface
tasks might also be as complex as managing benefits planning result in yet another wave of development, testing, and docu-
through different providers using different systems on several mentation. In time, this task becomes insupportable, because it
continents. is overly complex, cost prohibitive, and highly inefficient.
10

11. Enhanced Employee On-Boarding Process The process starts with the receipt of a request for quotation
An HCM solution built upon ESA can use enterprise services (RFQ) from the end customer. The account manager enters
to exchange employee data securely and reliably with multiple the information into the CRM system and then assesses the
systems. For example, when an employee submits a home opportunity. The internal team is notified of the opportunity
address change through the self-service employee portal, and assembles pricing and material information from multiple
the appropriate change home address service is invoked to internal and external sources. Depending upon the sourcing
communicate real-time information to third-party systems. needs, the internal team might produce an RFQ to source more
Several systems can use the enterprise services developed upon competitive quotations from suppliers. This situation can occur
open standards–based interfaces in the enterprise services when insufficient manufacturing capacity exists or when more
repository. This flexibility reduces the time, effort, and cost competitive prices can be obtained.
required to build and maintain tightly coupled integration.
Existing Quotation Management Process
Business-Process Innovation The contract manufacturer relies upon its internal team as
By reengineering existing processes and by composing and human integrators to bridge the flow of information manually
extending new applications, organizations can enable new between multiple systems and parties. The extended quotation
business processes. Doing so is difficult without ESA, because management process requires extensive offline communication,
innovation or changing existing business processes would paperwork processing, data reentry, and other administrative
require the IT organization to understand the inner workings of tasks, all of which result in poor process governance and
the underlying applications. With ESA, IT organizations can fragmented data. The process is clearly ineffective, reactive,
compose applications that leverage existing IT investments and unreliable, time-consuming, and difficult to manage for all
accelerate the rate of change while eliminating the need for parties involved. Changes to the original RFQ require a wave
proprietary integration. of updates to the existing applications, which compromises
responsiveness and data accuracy. The contract manufacturer
Example: Extending the Quotation Process can automate the process through hardwired integration
to More Suppliers between its internal ERP systems and the supplier’s systems, but
Consider the example of a contract manufacturer that must this approach is complex and difficult – especially considering
extend the quotation management process to external suppliers the vast number of suppliers and proprietary systems with which
to improve efficiency and responsiveness. Today, the process the manufacturer might have to connect. And even worse,
spans the line of organizational silos – the end customer, the this type of integration increases the total cost of ownership
internal team, and the external suppliers. Numerous internal by making the IT landscape more and more complex.
and external systems – including homegrown, third-party,
and legacy systems – are in place to help address ERP, customer
relationship management (CRM), supplier relationship
management (SRM), HR, supply chain management (SCM),
and financials.
11

12. Enhanced Quotation Management Process 7. Initiate facilities request for office, phone, furniture, and
Using enterprise services, ERP systems can exchange business- wiring to support TCP/IP (automated)
critical information between different systems, including SRM 8. Provision services, including facilities, IT procurement,
and third-party CRM systems, and even with other ERP office space, and so on (automated)
systems. Examples of enterprise services include purchase order 9. Schedule new-hire orientation (hiring manager)
and contract status tracking, costing updates, sourcing, vendor 10. Enroll in benefits, submit W-4 forms, and so on (employee
quotes status tracking, and PO creation. through third party)
The new approach enables different systems to communicate With the composite application, activities can be automated and
using a common language and reduces the need for data reentry information can be exchanged in real time. Furthermore, the
and offline communication. For example, the document composite application provides a consistent look and feel that
controller receives supplier quotation information through makes it simpler for employees to access the enterprise services
vendor quotes developed specifically for a third-party CRM of the ERP system and other systems.
solution. Information is then automatically communicated to
the manufacturer’s system with enterprise services. Example: Reengineering the Procure-to-Pay Process
Consider the example of a federal agency in the United States
Example: Reengineering the Employee that acquires goods and services from suppliers. Today, federal
On-Boarding Process agencies are mandated to use standard forms to conform to
Consider the employee on-boarding process that affects personnel Federal Acquisitions Regulations (FAR). Depending upon certain
in a number of departments, including the hiring manager, criteria, such as acquisition value and type, specific contractual
human resources and facilities employees, IT administrators, and provisional clauses must be presented on any forms
and so on. submitted to suppliers and contractors for bidding. (Agencies
still rely upon standard forms to accommodate suppliers and
With ESA, organizations can compose new business processes by contractors who might not have online or Internet access.)
orchestrating and rearranging existing enterprise services into a
composite application that automates the new-hire process as With ESA, agencies can submit standard forms as Adobe PDF
follows: files to suppliers and contractors (see Figure 3). Suppliers and
1. Initiate new-hire request (hiring manager) contractors can print a form and fill it out offline, or enter
2. Approve request (approver) the information directly into the PDF file and submit it.
3. Generate offer letter and employee contract (automated)
4. Accept or reject offer (candidate) Using enterprise services, the unstructured data in the PDF
5. Initiate service request to provision users on IT systems document is easily transported to ERP systems and stored as
(automated) structured data. The benefit of this approach is that agencies
6. Initiate purchase request to acquire new laptop and other can reuse existing online and offline forms to comply with
supplies (automated) federal requirements. At the same time, the competitive bidding
process is simplified for contractors and suppliers.
12

13. real-time information between a desktop tool and a financials
system in the context of managing appointments with Microsoft
Outlook.
Time Recording Plan Execute Control
Schedule Assign Submit and
Appointment Project Charge Time
Figure 3: Sample RFQ in Adobe PDF Format
Example: Integrating Desktop Productivity Tools
with ERP Applications
ESA Integration
Time and attendance management offers a prime example of • Real-Time Access and Updates
from Desktop Tools to ERP
the need for a services-oriented approach. To manage time and • Data Integrity
attendance, employees must record their activities in HCM • Corporate Governance
• Real-Time Insight
and financials systems and maintain the same information
using desktop tools such as Microsoft Outlook and Microsoft Figure 4: Enhanced Time Management Process
Project. An abundance of information that, for compliance
and control purposes, is scattered throughout the universe of Business-Process Outsourcing
available systems and is unnecessarily difficult to track further By outsourcing context activities, organizations enable their
complicates the process. IT and business employees to focus on the next differentiating
practice and still ensure proper governance of service levels.
Using enterprise services, time and attendance information is Organizations can use enterprise services based upon open
automatically exchanged between third-party desktop tools, standards to communicate and exchange information between
HCM systems, and financials systems, thus saving employees internal and third-party systems rather than building
time and effort and greatly improving the accuracy of reporting. proprietary, costly integration with third-party systems.
Figure 4 illustrates how employees can improve productivity Because multiple systems can reuse enterprise services, this
while meeting corporate compliance requirements by exchanging approach significantly reduces IT complexity.
13

14. Example: Outsourcing Logistics Operations parties to exchange product, bill-of-material, order, inventory
Consider the outsourcing of logistics management for a global availability, pricing, and customer information. The interfaces
high-tech original equipment manufacturer. The company has are required to ensure that the third-party provider can share
manufacturing plants, logistics centers, and third-party ware- real-time information at any time on shipments, including
houses located across Europe, the Middle East, Africa, the Asia- those in transit and held up at customs, such as details on
Pacific region, and North America. Each location has varying expected delivery dates, damaged shipments, inventory at
inventory levels of finished goods, from 0 to over 120 days of distribution centers, and so on.
supply, to meet service-level agreements (SLAs) with customers.
Now, suppose the company decides to establish a new process to
A key objective for the company is to reduce the finished goods monitor and enforce SLAs with the third-party logistics provider.
inventory across its distribution centers and warehouses. How- Because of the existing complexity of IT and the inflexibility
ever, the staff is consumed by the day-to-day activities of tactical of the tightly coupled systems, the organizations will face chal-
logistics and warehouse management related to global ship- lenges in decomposing existing functionality and composing
ments, such as working with logistics carriers, custom agents, a new application that can span business and IT boundaries.
and third-party warehouse providers.
Platform For Packaged Business Processes
As a result, the manufacturer decides to outsource its logistics Flexible Packaged Business Applications
and warehouse operations to a third-party provider with Custom and SAP® xApps™ mySAP™
specialized expertise in multimodal transportation and planning, Composite Applications Powered by
Powered by SAP NetWeaver
contract negotiation, competitive pricing, insurance manage- SAP NetWeaver®
ment, import and export, taxation, warehouse management, Innovation Standardization to Pay
Procure
and so on. These activities are clearly mission critical for the
Mission- Order to Cash
business, but the company recognizes that it does not have the Critical
Activities
core competency in-house to differentiate itself. Manufacture to Inventory
Enterprise
Services
Existing Logistics Outsourcing Process
Commoditization
The company uses an ERP system for sales and distribution
and materials management, legacy systems for HR and CRM, Enabling
Activities Enterprise SAP NetWeaver
Services
and third-party solutions for warehouse management. The IT Repository
environment is complicated by a myriad of unique business Invention
processes and proprietary, tightly coupled integrations.
Custom
CRM
SCM
SRM
PLM
ERP
The outsourcing initiative requires interoperability of the
company’s internal ERP and legacy systems with the home-
grown, sophisticated transportation and warehouse manage- Figure 5: IT Landscape Before Logistics Outsourcing
ment tools of the third-party provider. Without proper ESA,
the company will be forced to build and maintain custom,
proprietary interfaces between its ERP system and all third
14

15. Enhanced Logistics Outsourcing Process What’s more, enterprise services enable organizations to compose
In ESA, ERP, HCM, financials, and operations software can use and fine-tune business processes more easily. In the case of build-
enterprise services to communicate and exchange information ing a process that governs an SLA across company boundaries,
with the external systems of the third-party logistics provider. the use of enterprise services can ensure that business-critical
Both parties can leverage their existing IT systems and publish information is exchanged in real time between the third-party
enterprise services that can be found and invoked over a provider and the manufacturer. For example, the manufacturer
network. Some of the services might include product details, can monitor the actual service levels of deliveries from order
pricing, inventory availability checks, delivery status checks, receipt (in the ERP system), to shipment in transit (in the third-
purchase order details, purchase order changes, partial party system), and ultimately to shipment delivered (in the third-
shipments, and bill-of-lading details. party system), even though the process spans different systems.
Platform For Custom Business Processes
Compose Differentiating Processes . . . by Leveraging Packaged Solutions
Custom and SAP® xApps™ mySAP™
Composite Applications Powered by
Powered by SAP NetWeaver
SAP NetWeaver®
Innovation Standardization
Source Procure Procure
Mission- to Pay
Critical
Activities Order Ship Order
to Cash
Order to Cash (with Logistics Outsourcing) Plan Manufacture Inventory Manufacture
to Inventory
Enterprise
Services
Commoditization
SAP NetWeaver
Enterprise
Services
Invention Repository
Tracking
Custom
Mgmt.
house
Trans-
Ware-
Third-
Third-
tation
CRM
SCM
Party
Party
SRM
PLM
ERP
por-
Figure 6: IT Landscape Enabling Logistics Outsourcing
15

16. UNLOCKING THE POTENTIAL OF ESA
To address the business context in communication between SAP NetWeaver also enables delivery of role-based user inter-
applications, SAP elevates Web services to enterprise services faces through an enterprise portal that allows organizations to
through its Enterprise Services Architecture Adoption Program, structure business processes and deliver relevant financial,
which helps companies develop a blueprint for their ESA. operational, HCM, and other business information tailored to
Through the program, organizations can expand the concept a specific role. This approach improves user productivity and
of Web services into an architecture that supports an enterprise- provides a more consistent user experience. With SAP NetWeaver,
wide, service-enabled business architecture. organizations can provide their users with access to structured
and unstructured information scattered throughout an enter-
The mySAP™ ERP solution, the mySAP Business Suite family of prise, including information stored in SAP and third-party
business solutions, and many partner solutions are powered by systems, databases, data warehouses, desktop documents, and
the SAP NetWeaver® platform – the open integration and Web content.
application platform that provides the best way to integrate all
systems running SAP or non-SAP software. SAP NetWeaver Rather than establishing, managing, and maintaining a myriad
unifies integration technologies into a single platform and is of IT systems, organizations can cut costs and reduce IT
preintegrated with business applications, enabling change and complexity by consolidating their infrastructure. SAP intends to
reducing the need for custom integration. SAP NetWeaver develop SAP NetWeaver into a business-process platform, or
enables customers, partners, and SAP to unlock the potential “applistructure,” that helps organizations merge enterprise
of ESA. Based upon open standards like Web services, Java, and applications with infrastructure technology. This approach
XML, SAP NetWeaver unites information and functionality allows business analysts to compose applications by assembling
from SAP applications and offers them as enterprise services for enterprise services from the enterprise services repository, a
communication with SAP, third-party, and legacy systems. central repository for modeling enterprise services and storing
metadata as defined by customers, SAP, and partners. SAP plans
Traditionally, organizations have had two options when it comes to make the repository an integral part of both SAP NetWeaver
to IT infrastructure: build or buy. With ESA, organizations have and mySAP ERP as they evolve to enable an ESA. Figure 7 illus-
a third choice: compose. Organizations that leverage ESA can trates the different components enabling the evolution of
develop applications more quickly and with less effort to support mySAP ERP and mySAP Business Suite to ESA.
next or evolving business practices.
Portal Devices Office RFID
Organizations with an ESA can use the SAP NetWeaver Visual
Composer tool to compose applications. In the past, teams of
business analysts and application developers have translated
Composite Applications
business requirements into detailed, procedural logic. With ESA,
the language of business becomes the language of IT. Enterprise
services within mySAP ERP are defined with simplicity and at a
granularity that allows business analysts to understand them Enterprise
Services SAP NetWeaver®
easily. Thus, business analysts can leverage the appropriate Repository
enterprise services for composite applications that support new
mySAP™
business scenarios.
Existing Systems
Figure 7: mySAP ERP in ESA
16

17. mySAP ERP AND ESA: ALIGNING IT AND BUSINESS
TO ACHIEVE OPERATIONAL EXCELLENCE
The following table illustrates the difference between pursuing
business strategies using a traditional IT environment and doing
so with an ESA in place.
Adopting ESA Enables Operational Excellence
Business Strategy ERP Examples Traditional IT Environment With Enterprise Services Architecture
in Place
Consolidate common ERP and legacy Accounting Different applications might have differ- Enterprise services can be used by
systems to provide shared services and • Time and expense management ent technology platforms and proprietary multiple applications, so consolidation
reduce total cost of ownership • Credit and debt analysis interfaces – difficult and complex. will be more efficient and effective.
• Collections
• Invoicing
• Accounts payable
• Billing dispute resolution
Self-services
• Employee interaction center for
centralized management of IT and HR
Compose applications to support unique HCM Custom-built applications with Enterprise services are modular and can
business needs • Employee on-boarding proprietary code are not designed for be easily rearranged to support composite
reuse by other systems. applications.
Extend existing applications to drive Supply management and procurement Special skills and proprietary interfaces Enterprise services are modular and can
further operating efficiency beyond • Procurement are required to integrate multiple be orchestrated to enable other business
existing boundaries • Logistics management systems, meaning higher costs and effort. processes by other systems.
• Warehouse management Changes would also drive total cost of
ownership higher as a result of additional
coding, testing, documentation, and
training.
Outsource core business processes and Human capital management Core business processes are difficult to Business-process outsourcing is simplified
their IT systems • Payroll outsource because the underlying IT because enterprise services are modular
• Benefits enrollment systems are tightly integrated. and loosely coupled and can be more
• Benefits management easily out-tasked without affecting the
• Training rest of the IT landscape.
Supply management and procurement
• Procurement
• Logistics management
• Warehouse management
Demand management
• Call center operations
• Analytics
17

18. WHAT’S NEXT?
In 2005, SAP announced its ESA preview system with more than To demonstrate its continued leadership in helping customers
500 live enterprise services. Developed and deployed on the move toward SOA and build upon its commitment to provide
latest version of mySAP ERP, the preview system offers partners, the partner community with a development platform, SAP’s
developers, and customers an opportunity to test the enterprise road map for ESA includes the following milestones:
services, and more importantly, to influence the definition and • SAP plans to publish an inventory of its enterprise services
development of service-enabled solutions that help enterprises that customers and partners can use for planning.
run business-critical processes more efficiently. Customers’ and partners’ composite applications and longer-
term planning can leverage the list. Additional service-
The following are just a few examples of the ways that the enabled functionality will be made available, focusing on
enterprise services can be used: business-process flexibility and anticipating the needs of new
• A third-party provider of tendering software uses enterprise composite applications.
services to extend the purchasing functionality in mySAP ERP • In 2006, SAP intends to create an enterprise services repository
to address the public sector’s unique regulatory requirements. based upon the next release of SAP NetWeaver. The purpose is
Enterprise services from mySAP ERP help the company to make all relevant enterprise services actively available from
verify budget availability before the release and publication the repository for use by selected partners and customers.
of RFQs. Once the award is determined and the tendering
process between the customer and supplier is complete, the
company uses enterprise services to generate purchase order
information and pass the information to mySAP ERP for
invoicing and payment processing.
• Using enterprise services, another third-party software and
services company integrates its time and attendance tracking
application with the mySAP ERP Human Capital Management
solution some 90% faster than it could with traditional methods.
Enterprise services enablement of mySAP ERP allows the
vendor to provide its customers with comprehensive and
real-time insight into time and attendance status in a fraction
of the time it would have taken otherwise.
• A large infrastructure management software company is
working to extend its asset management and infrastructure
monitoring systems into the purchasing functions available
in the mySAP ERP Operations solution. Traditionally, these
systems have been implemented independently, without
integration with SAP systems. ESA will enable the company
to use enterprise services from SAP to exchange asset details,
pricing, and contract terms and conditions from the
purchasing functions to its asset management systems.
The company also plans to trigger an event from its infra-
structure management tool to automate the procurement
process in the purchasing module.
18

19. CONCLUSION FOR MORE INFORMATION
Today, enterprises are burdened by complex IT landscapes that For more information about how ESA can help your
drive up the cost of innovation and slow down the pace of organization deliver operational excellence and realize new
change. With rapidly shifting business conditions – such as levels of innovation, please contact your account executive
mergers and acquisitions, business consolidations, new business or visit us on the Web at www.sap.com/erp,
ventures, new partnerships, and changing market dynamics – www.sap.com/solutions/esa/index.epx, or
enterprises must find a better way to effect change and employ www.sap.com/contactsap.
innovation.
There is a better way. The market is recognizing the value and
potential of SOA – a new approach to help organizations make
their IT operations leaner, more responsive, and more easily
adaptive to enterprise solutions. SAP is among the first to
recognize this vision and is leading the market with an ESA
vision to support the next generation of ERP innovation.
mySAP ERP, powered by SAP NetWeaver, is evolving into an
ESA with a new repository of enterprise services developed
upon open standards for exchanging information with a variety
of systems, such as ERP, HCM, SRM, CRM, and SCM. The
evolution will enable customers and their trading partners to
seek greater efficiency and differentiation as they become
empowered to implement new business strategies with less IT
complexity, lower total cost of ownership, and increased agility.
With ESA, mySAP ERP enables organizations to increase
efficiency and growth by doing the following:
• Extending existing processes across new business boundaries
• Consolidating business and IT to leverage economies of scale
and eliminate redundancy
• Innovating existing business processes by developing
composite applications that leverage existing investments
• Replacing custom programming with model-driven
composition of applications
• Delivering flexible and highly productive user interfaces
• Simplifying the IT landscape and reducing the costs and effort
associated with integrating internal and external applications
Organizations of all sizes around the world now have the choice,
flexibility, and freedom to evolve into adaptive enterprises
using an enterprise services approach that keeps them open to
innovation and responsive to change.
19

20. www.sap.com /contactsap
50 077 977 (06/02)