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This White Paper was prepared by mySAP Financials Program Management in collaboration with the PricewaterhouseCoopers global Financial Management Solutions consultancy team
Contents
About This Paper New Opportunities for Value Creation Business Models for the Twenty-First Century The Importance of Intangible Assets Managing for Value in an E-Business World Challenges for the CFO Moving to Virtual Financial Operations Integrating ERP and E-Business Systems Redesigning Processes Using the Internet Accounting Systems for E -Business Web Enabling Payments and Treasury Reducing Working Capital E-Business Risk Management Introducing Integrated Analytics A Framework for Decision Support Business Analytics Strategy and Business Performance Management Strategic Stakeholder Communication Focusing on Customer Value Valuing Other Intangibles Incorporating New Metrics for E-Business Sharing Knowledge and Improving Personal Productivity through Portals The Business Case for Change Building a Systems Vision for E-Business Next-Generation mySAP Financials Financial Operations E-Business Accounting Business Analytics Strategy and Business Performance Management Strategic Stakeholder Communication Enterprise Portals Software Services Advantages of the SAP Approach Architecture Functionality Ease of Implementation Join SAPs Best Practice Community 5 6 6 7 9 10 12 12 13 15 16 18 18 19 19 20 20 21 21 22 23 23 24 26 28 30 30 30 31 31 32 32 32 32 32 33 33
This paper explores the benefits of introducing mySAP Financials SAPs next-generation solution that will help the CFO to measure and manage the value of the companys intangible and tangible assets. By linking the companys own financial processes and systems with those of e-business partners and by extending integration vertically to support value-based decision making and communication, mySAP Financials components empower finance professionals to play their role in sustaining optimal performance. The paper begins by reviewing opportunities for creating value in the new economy and their impact on the role of the CFO: essential reading for executives facing the challenges of e-business. The following two sections, Moving to Virtual Financial Operations and Introducing Integrated Analytics, are of particular interest if you want to understand in more detail the changing requirements for financial processes and systems. For a solution, see the sections on developing a business case and delivering your integrated IT vision using mySAP Financials.
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How can we reorient our systems and practices toward attracting and keeping the right customers? Which of our intangible assets like our brand equity, human capital, and corporate reputation does the market value most highly? How can we design a unique business model? How can we monitor its impact on the companys performance? What does it really mean to be an agile company? How can we provide our key decision makers with real-time information that will help them identify and exploit opportunities to create value? How can we leverage our investment in existing systems? How can we integrate new systems inside and outside the organization and do so quickly, with minimal disruption to everyday operations?
To support their companys migration to e-business, leading CFOs reinvent their finance functions wholesale structure, processes, systems, and skills. Using enterprise resource planning (ERP) applications as a foundation, they progress toward a new vision that connects virtual operations with advanced analytics to turn data into information into knowledge for use across the extended enterprise. At every step along the way, they manage the risks and returns associated with systems-driven change.
new analytical tools that give managers access to valuable information drawn from transaction systems. Overall, the aim is to facilitate real-time collaboration and decision making in order to optimize all supply chain operations end-to-end, turning them into a demand-driven value chain. Rather than attempting to match production and inventory to expected customer behavior, e-businesses flex their internal processes along with those of suppliers and partners to respond directly to actual sales. Because Web-based connectivity enables a rapid, reliable exchange of information, it is also fuelling the establishment of specialized providers of outsourced services. Growing numbers of outsourcers can handle noncore processes, including manufacturing, logistics, HR, and finance beyond the conventional boundaries of the organization, extending the networked extraprise. As traditional companies update their IT capabilities, these kinds of business-to-business (B2B) models are expected to dominate the new e-business economy, triggering an even bigger transformation than the business-to-consumer (B2C) start-up operations that flourished receiving much investor and media attention in the first wave of Internet development. But B2C connectivity will continue to provide an important direct channel to market for both new and established companies. Indeed, close links between developments in B2B and B2C e-business will effectively create businessto-business-to-consumer (B2B2C) models.1 One area of rapid growth is participation in online trading communities, or marketplaces, which are expected to account for 75% of all B2B spending by 2010. Offering further value creation benefits through, for example, aggregated purchasing, process efficiency, and reduced working capital, electronic marketplaces are being established to bring together trading partners:
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E-enabled business-to-employee (B2E) operations feature in the business models of growing numbers of organizations. These operations were originally designed to take costs out of the HR function, but lately they have focused on providing employee self-service applications via a Web browser for instance, for benefits enrollment, travel management, or time and expense reporting and can be developed into a stand-alone profit center or even floated off as a separate company. CFOs should also consider the potential for creating value using business-to-finance (B2F) connectivity. By employing best-in-class practices, the outsourced finance operation may attract customers from other organizations, first generating revenue and ultimately becoming a separate company. This new company could offer either a full range of finance services or specialized services, such as investor reporting, statutory accounting, or handling interactions with tax authorities.
On the buy side or the sell side of an industry value chain For intraindustry trading (providing a range of products or services within a specific sector, such as retail, biotechnology, chemicals, or utilities) or interindustry trading (providing the same products or services across a range of sectors) Through open or restricted buyer-supplier membership
Figure 2: From bricks and mortar to clicks and mortar: Decapitalizing the old economy business to build intangible assets in the new economy business
Source: PricewaterhouseCoopers
From the CFOs viewpoint, intangibles represent the gap between the companys market capitalization and the value of the physical assets reported on the balance sheet. For many companies, more than 80% of their market value is attributable to such unreported intangible assets as customer value, trademarks, R&D, human capital, and business partner relationships. The danger is clear: because these increasingly important assets are difficult to measure and manage, the company may unwittingly underexploit them. What can you do to protect and develop intangible assets? For a start, its helpful to understand the sources of value for an e-business. While the key drivers of shareholder value are important for any business, studies of e-businesses and investor valuations suggest that seven factors dynamically influence these drivers in the new economy (see Figure 3):
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Customer focus Long-term customer loyalty is hard won on the Internet, where comparison buying is never more than a few mouse clicks away. You must put the customer at the heart of your e-business operations and create shareholder value through customer value. Brand equity Brand equity heavily influences the competitive advantage period (CAP), the timeframe over which the
markets expect your e-business to generate returns in excess of its weighted average cost of capital (WACC). Management and planning Capital markets and venture capitalists always play close attention to the track record and credibility of your management team and your plans for value creation. The spotlight shines even brighter on operations for e-business, which is short of experienced players. Business model Design a business model that focuses on the customer and on your companys unique capabilities. Make sure its robust enough to survive competitive threats. Timing Rapid execution is what a successful e-business is all about. But the complex changes involved mean that you must also be able to apply an appropriate approach at an appropriate pace. Agility An agile company moves fast and first to take advantage of new opportunities to create value. Your processes and systems must be flexible to streamline processes using shared services and outsourcing. Also essential is an adaptive learning culture, together with strong change management capabilities. Content Use the information and relationships created through your CRM processes to build customer profitability by
personalizing electronic catalogs, advertisements, and other content presented to customers. You should also carefully tailor content presented to other stakeholders.
which the company might leverage its customer base through targeted marketing of other products, such as CDs or toys. In addition, determining the value of options helps explain how much of the market valuation is caused by pure speculation.
Leading companies are beginning to devise new metrics linked to these sources of value. These new metrics will be described later in this paper.
Military scenario planning provides an analogy for organizations coping with the disruptive impact of Internet technology. Sticking with one strategy when engaging the enemy is unlikely to lead to victory. What do you do if something unexpected happens? Instead, its wise to identify multiple potential strategies, choose the best one to adopt initially, and then conduct reconnaissance at selected intervals to assess its continued viability. At any point, the chosen strategy could be varied, switched, or replaced with a more attractive option based on new, unforeseen opportunities that have emerged. CFOs battling for competitive advantage in a range of industries in both new and old economy sectors are using the power of ROVTM to enhance strategic decision making for example, when valuing exploration opportunities in the oil industry, R&D portfolios in pharmaceuticals, NPD in consumer products companies, and growth options in the technology sector. Using sophisticated dynamic modeling, they can examine hundreds or even thousands of scenarios and identify flexible ways to manage both the upside and downside.2 Whatever approach you use, its important to remember that your valuation is only as good as the base assumptions you feed into it. Experience suggests that applying the thinking processes associated with ROVTM can in itself provide valuable insights.
To identify how finance professionals can add value to e-business operations, it helps to frame a series of finance value propositions. These propositions should set out shareholder value improvements expected from CFOled change initiatives, taking into account options, risks, and uncertainties. Your value propositions are likely to improve capital utilization, build the networked extraprise, and integrate new technologies:3
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Improving capital utilization Finance can help to decapitalize the old economy business by shedding physical assets and improving operating efficiencies to build intangible assets in the new economy business. Your role centers on value chain analysis, asset disposals, working capital improvements, increasing intangible asset values, reducing operating costs and, most important, releasing funds for reinvestment in growth.
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Building the networked extraprise Finance can support the company in leveraging networks, working with business partners, entering electronic marketplaces, and developing and participating in new economic models. Your role includes competitive financing, business planning, broadening shared services, outsourcing business processes and IT applications, and attracting and allocating resources. Integrating new technologies Finance can guide the extraprise as it Web-enables business processes, connects transactions and decision support, and exploits Internet technology to help convert data into information into knowledge. Your role includes streamlining financial management processes and connecting e-business strategy to operations via new processes, new analytical applications, and new metrics.
What kind of organizational structure will best allow finance to fulfill its new role? Already, most finance functions have made a significant shift driven by investment in ERP and shared service centers toward being less resource intensive, more efficient teams, particularly in the area of transaction processing, allowing increased emphasis on decision support. In the future, finance will be even leaner (see Figure 6). To respond rapidly to the changing needs of the business, the finance function will become increasingly fragmented. With many tasks delegated to business managers or handled by shared service centers or external outsourcers, the finance staff will act as coordinators and offer higher value, adding more strategic services. Standardized, integrated processes and systems will be embedded within the business, and they will be available globally to users who can operate them
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without needing to be aware of where they are located and maintained. The critical role of decision support may be fulfilled primarily by managers outside finance. Finance professionals will adopt a new training and coaching role to transfer appropriate skills and techniques. The following sections focus on new requirements for finance processes and systems in two major areas:
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Operational processes and systems to support successful e-business and to turn transaction data into financial and business performance information Analytical processes and systems to turn information into knowledge for value-based decision making across the extraprise.
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ERP provides an essential foundation for the evolution of your IT infrastructure. A robust, tightly integrated ERP system is needed to handle, at speed, the volume of transactions generated by successful e-business and to enable timely sharing of accurate information with partners. But if other internal or external systems come from different vendors, they will be difficult to connect without custom interface programming, leaving the company with the question of how to avoid isolated application islands. Some companies have progressed toward integrated enterprise reporting by using a data warehouse to bring together data from ERP, SCM and CRM systems and to deliver associated key performance indicators. But the move to e-business demands full application-to-application integration at a business process level both within and between enterprises. Even companies investing in emerging integration technology, such as enterprise application integration (EAI) middleware, often find that the purchased connectors need a high degree of specification to meet their unique requirements, resulting in delayed implementation and increased set-up and maintenance costs.
To overcome such problems, ready-to-use applications, such as mySAP Financials, are beginning to emerge. These applications enable flexible integration between accounting, operational, and analytic applications and provide standard integration functions embedded in the software, offering the promise of future plug-and-play application integration.
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As the benefits of shared service and outsourcing solutions have been proven, their scope has extended from financial transaction processing and IT services to include procurement, logistics, HR, and a wider range of accounting services. Able to access resources globally over the Web, companies can choose the best site for services. For example, call centers are being set up in countries with a lower cost of doing business and a pool of highly skilled workers. At the same time, new technology is eroding the need to centralize shared services in a single physical location. Of the various models emerging, the most advanced is a virtual shared service center that offers users around the world access to a standard process and system on a 24 x 7 basis (see Figure 8).
These global operating models increase the demand for tightly integrated processes and flexible, open systems that work across legal, tax, and commercial boundaries in a way thats seamless to users. They let companies more easily launch new operations to enter new markets. New users access the services via a Web browser without waiting for a local infrastructure to be established. Increasingly, successful shared service centers are becoming centers of excellence that can offer front- or back-office services to the companys strategic customers and suppliers, then migrate to operating as an independent profit center that serves multiple companies.
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The potential benefits of using the Internet to outsource nonstrategic operations include improved strategic focus and reduced operating costs. The company can free up capital, utilize resources and skills not available internally, access best practices, and share risks with a third party. In the hottest area of development for outsourced services business-to-business marketplaces many providers began by offering e-procurement services. But as they leverage the value of consolidated transaction data passing through the exchange, they are expanding rapidly to offer logistics, order fulfillment, financial services, marketing, and other information services. Growing numbers of companies are faced with opportunities to cooperate with major industry players to develop such an exchange. Before investing company funds, the CFO should apply specialized valuation techniques to assess the viability of the venture. Emerging applications offer capabilities for evaluating results under a range of assumptions and risks, using a variety of approaches to help arrive at a consensus view. In this way, the proposed business model and investment decision can be robustly challenged.4 Its worth pointing out that despite the widespread adoption of more virtual organization structures and aggressive decapitalization strategies, there remains a strong need in many companies for effective management of physical assets, such as offices and plants. Indeed, systems that offer real estate management functions including administration of corporate property, leasing, and rental play an increasingly important role in todays dynamic operating environment. For example, timely penetration of new markets may require the rapid, smooth establishment of local offices and facilities, which is always a challenging task. Clearly, property managers and owners alike want the most from their real estate. To enable effective short-, medium-, and long-term planning, real estate management processes must be integrated into the organizations overall strategy and business processes.
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Figure 9: An e-business accounting engine converts transaction data into business performance information and feeds linked analysis and reporting applications
A range of service providers are positioning themselves to take on aspects of the settlement role from companies (see Figure 10). Emerging offerings include shared service environments for accounts receivable and accounts payable, as well as services for bill production and presentment, and extraprise netting and financing. Web connections to the companys CRM and SCM systems allow the exchange of relevant data for raising invoices and approving bills for payment. Customer management processes initially retained internally could be considered for outsourcing later. In these sensitive areas, there is a clear role for trusted third party (TTP) service providers.
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Savvy CFOs limit risks by taking a phased approach to implementation aligned with changes in the companys business model and with the emergence of reliable new software solutions and outsourcers. Development and adoption of payment solutions, for example, has lagged behind other areas like bill presentment because of continuing concerns over security and fraud. In addition, the commercial culture in some countries, such as Scandinavian countries, has been more accepting of electronic payments than in the US, which is currently largely check based. Web-based financing solutions today focused on services, such as invoice discounting or factoring will in the future enable instantaneous payments over the Web via flexible routes with or without involving counter parties banks. A key potential benefit is a reduction in the amount of cash tied up unproductively in the banking system during existing settlement processes.
These and other developments significantly affect how companies provide treasury and cash management services. For example, in the future, disbursements could be consolidated by a centralized payment factory that can link to banks worldwide and provide instructions formatted for local payment systems. An in-house banking service could provide accounts for company affiliates or subsidiaries. Futurists speculate that this disintermediation of the traditional banking role will continue as the exchange of virtual money value that can be earned and spent on the Web erodes the need for banks as authorized holders and settlers of legal tender. As in other areas, there is a trend toward using treasury software services over the Web from an application service provider (ASP) rather than installing and maintaining new software in-house. As the range of hosted applications increases, companies will be able to
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access and use treasury workstation software, cash forecasting tools, and other specialized applications through a secure network under a service level agreement (SLA). This will allow more users across the organization to access services via a Web browser.
Consolidating purchasing E-procurement solutions, initially focused on indirect spend, are now being developed for direct materials. Suppliers are establishing portals to transact business, and major customers are setting up private marketplaces with links via an extranet to their selected supply base. Other emerging solutions that contribute to coordinated purchasing include auctions, reverse auctions, and collaborative buying through marketplaces. Eliminating inventory Web-enabled information sharing and collaboration across the extended value chain makes planning, forecasting, logistics, and manufacturing processes faster and more efficient. Companies in the auto industry, for example, are demonstrating how coordinated execution, together with the ability to track orders and shipments in real time, can cut working capital tied up in inventory and safety stocks.
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To complete the cycle, plans are translated into targets to drive the management of operational performance supported by appropriate key performance indicators (KPIs) and incentives at all levels. But this style of management remains a distant goal for many companies. Critically, they lack systems capable of delivering the necessary business intelligence analysis. In most cases, disparate, functionally oriented data warehouses and online analytical processing (OLAP) tools serve different parts of the business without adequate connections, providing limited, inconsistent information. For the CFOs of these companies, the business case for introducing integrated analytics should be relatively straightforward to devise. Consider the example of a financial services company whose front-line operators use a customer analytics application to negotiate and finalize contracts in line with overall shareholder value objectives. Two-way communication between the application and transaction systems enables monitoring of payments against contract, informing future negotiations with the customer. In addition, the software can generate an aggregated view of negotiated contracts, which is used for forecasting and target setting. Links with the strategic review process let the company dynamically adjust objectives and incorporate associated new operational requirements into future customer analytics. The functions you need can be broken down into three tiers: business analytics, strategy and business performance management, and strategic stakeholder communication. In all cases, analytical applications should receive consistent, comprehensive data from transaction systems either directly or via your e-business accounting engine. And users, including employees and external stakeholders like business partners or investors, should be given easy access to relevant analytical applications and information via Web-based enterprise portals. You can also use enterprise portals (which are described in more detail later in this paper) to provide access to valueadding content from self-service, operational, and other applications.
Business Analytics
Within an integrated framework, analytical applications can help you to identify and exploit value-adding opportunities within the day-to-day business, enabling optimization of operational performance. As well as analytics for financial management such as profitability analysis, strategic cost management, activity-based management, and working capital management you need tools to support other specialized areas, with links back to related operational systems. For instance, capabilities are emerging for customer selfservice, pricing of products and services, managing database marketing, and other CRM requirements. Critically, new analytical applications help you to identify and to exploit opportunities for developing value from intangible assets, including customer value, brand equity value, R&D pipeline value, and human capital value. Tools designed to aid supply chain optimization offer functions for value chain diagnostics, strategic sourcing, and measuring responsiveness. Here, collaboration with suppliers and other partners is increasingly important: advanced applications support, for example, collaborative innovation, collaborative planning and scheduling, and collaborative cost management. Marketplace analytics are also being developed, offering functions like analysis of exchange usage, tracking online and offline revenue streams, and real-time profitability analysis for Web auctions. For HR specialists, analytical applications offer benefits, including enhanced recruitment, incentives management, and information to develop competencies matrices, skills mix requirements, and productivity levels.
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It must be capable of consolidating data from different dimensions and levels within the business so that, via a set of value based KPIs linked to a balanced scorecard, you can see how well the organization is doing in meeting its targets and budgets.7 With the right information base, tools for generating rolling forecasts let you project historical performance forward into the future and adjust strategic objectives accordingly. For effective planning, you also need a simulation capability to allow you to model the effect of various strategic options on the business. Alternative scenarios should be analyzed to determine their impact on the value drivers for both tangible and intangible assets and different assumptions concerning risk should be tested.
Figure 12: Building customer value management into your CRM solution
Be prepared to uncover startling findings. In the mobile telephone market, for example, its not unusual for 40% of profits to be generated by fewer than 10% of customers. One large bank discovered 99% of profits came from 1% of its customers! Managers need to know what value may be lost or gained before making decisions about nurturing individual customers or customer segments particularly in business-toconsumer operations where bringing each customer to breakeven point has become a critical discipline.
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Options for growing value include targeting your marketing efforts at selected customers, running more effective promotions, developing new products to satisfy specific customer needs, devising more frequent opportunities for cross-selling, and restructuring call centers, for example, by automating the interface with low-value customers.
Leading CFOs invest strenuous effort in understanding the value drivers that underlie brand equity, so that they can improve their companies approaches to quantifying and developing this key asset. In turn, investors increasingly look for evidence that companies are managing brand equity effectively and expect detailed disclosure of information. Cash flow based, economic methods of brand valuation are popular because they involve comprehensive assessment of the various factors that might affect the ability of a brand to generate value for its owner. To derive the valuation, market analysis is applied alongside brand financial analysis, with cash flows discounted at a rate adjusted for brand strength. Approaches for valuing other intangibles are currently less advanced. Reputation management, including development of related key performance indicators, has long been a recognized critical component of value based management systems. But formal quantification of reputational value remains a difficult challenge. For
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intellectual property and copyright valuation, a royalty based measurement may be appropriate, involving calculation of the net present value of an estimated royalty stream.
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CFO portals and workplace portals for other finance professionals You can provide finance professionals with missioncritical performance information that is continually refreshed and combined with relevant, externally sourced information, such as competitor comparisons, media comment, economic indicators, and benchmarks. Users can access operational applications and query data via analytical applications through one role-based portal and benefit from enhanced communication and team building across a fragmented finance organization. Employee portals Employee portals are leading to significant cost savings in many companies by enabling universal employee self-service access to routine HR functions. By providing a link to functions for travel and expense management, for example, you can cut the time spent by employees finding travel arrangements that fit the companys policy and reduce administration costs. External stakeholder portals By allowing external portal access, you can promote collaboration with suppliers and customers across the value chain or deliver timely, tailored reports to shareholders and financial analysts.
Explosive growth in portal technology is likely to continue, fuelled in part by the adoption among software vendors of the extensible markup language (XML) standard to facilitate application-to-application information sharing within and between enterprises. Examples of XML based e-business languages include the extensible business report language (XBRL) for financial reporting and for exchange of financial and business performance information.
Figure 14: Value transformation in a new economy, e-enabled company (illustrative example)
Source: PricewaterhouseCoopers
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Developing the detailed business case for technologydriven change is an important task for the CFO. You can use it to justify the investment of needed resources and to generate support across the extraprise from the outset. This way, the initiative gets off the ground smoothly and passes through difficult periods quickly. For example, full realization of potential benefits from ERP implementation is achieved only by companies that pursue the project through to enterprisewide integration of process and information flows across all functions and business units. Of course, the most important benefit of all is the establishment of a sound transaction processing base for the companys IT infrastructure, enabling addition of the new operational and analytical functions needed for successful e-business. The experience of CFOs of major corporations confirms the strong case for linking new e-business systems to existing systems. Here are several examples:
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Putting finance at the center of a Web of relationships A global oil company found that moving finance and accounting processes to shared service centers cuts associated costs by between 20% and 50%, depending on the region served. Now, the CFO is looking to outsourcing solutions for additional savings: $1.4 billion over 10 years from one region alone. Hell use the Web to commercialize the outsourced centers for other customers, to extend outsourcing to procurement, IT, HR, and real estate functions and to exchange information with partners to aid forecasting. E-enabling customer management and settlement processes A multinational telecommunications company with complex billing requirements has bolstered its redesigned collections process with electronic bill presentment and payment software, and it has upgraded its credit-screening process with a customer behavior modeling tool. The result of these and related systems updates: a 60% reduction in customer dispute resolution cycle time, a 15% reduction in days sales outstanding, and a reduced bad debt charge.
Blowing up the budget A $100 million cost reduction equates to about 0.5% of a drinks manufacturers sales revenue. This is an ambitious goal as the company attempts to globally streamline performance management processes so that targets align with strategic goals and bottom-up reporting of KPIs connects with rolling forecasts, rendering the traditional budgeting process obsolete. The next, exciting step is to create a Web-based enterprise portal that gives managers direct access to valuable new knowledge. Moving to self-service decision support Savings of $825 million a year give the CFO of a global technology company a reputation for getting the most from integrated analytics. Because decision makers access real-time management information via a Web browser with no need for support staff as intermediaries, theres been a 27% productivity improvement. Systems continuously monitor business critical performance information, produce a flash report at noon on day one following the close, and provide complete reporting packages by the end of day two.
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Open connectivity Today, more than ever, you need open systems that can be integrated with third-party applications. Transactions performed internally on ERP, SCM, CRM, and other systems must be connected with those performed externally on the systems of business partners and service providers. Even once you have
implemented a complete e-business solution, you will need to allow for the addition of new, advanced functions as they become available. Flexibility Successful e-businesses can flex their business models rapidly as the conditions in which they operate change. Systems need to be similarly flexible. You must be able to adapt existing components to reflect changes in organizational structures, processes, and information requirements, for example, when moving from insourcing to outsourcing or vice versa. You must also be able to implement new components with minimum disruption to everyday operations. Accessibility and user friendliness All the relevant information, functions, and services must be easily available when and where they are needed, whether by internal users and applications or by external partners. All end users should be given access through a Web browser preferably built into an enterprise portal that provides a single gateway onto the companys IT environment. Responsiveness Business-to-business and business-to-consumer systems are expected to respond directly to customer demand, whether for information or actual order fulfillment. Increasingly, employees and other stakeholders also expect virtually instantaneous satisfaction of their information and communication needs. Your integrated systems should be dynamic and highly automated to support real-time transactions and decision making and to ensure that changing business conditions trigger appropriate, timely responses. Robustness and scalability In order to interoperate with other systems, components of your e-business solution must be capable of integrating large volumes of data from diverse sources and providing reliable outputs. They must also be able to support simultaneous queries from large numbers of users dispersed across the extraprise. Consistency and data integrity No matter how complex the companys systems infrastructure, nor how numerous its connections with heterogeneous external sources, all users must have confidence in the information and services provided.
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To enable horizontally and vertically integrated ebusiness systems, SAP launched mySAP.com in 1999. This integrated solutions set including mySAP CRM, mySAP SCM, mySAP PLM (product lifecycle management), mySAP HCM (human capital management), mySAP BI (Business Intellegence), and mySAP Financials (financials and strategic enterprise management) communicates with the R/3 ERP suite. In addition, mySAP Marketplace facilitates opportunities for inter-enterprise business process integration by enabling the extension of internally integrated ERP processes outward into SAPs global customer base, using the Internet and virtual private networks. Electronic buying and selling capabilities offered to participants include business-to-business procurement a package that can connect buyerpurchasing and suppliercatalog modules from different sources as well as dynamic pricing and the architecture to build open or closed market sites.
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based decision making and communication in a highly dynamic world (see Figure 15). Based on SAPs work with major organizations and experts worldwide to identify the requirements for financial processes and systems in the e-business world, the mySAP Financials solution has a component-based architecture. This offers outstanding degrees of flexibility and openness. With minimal disruption to existing IT investment, you can deploy new functions step-by-step as needed and quickly reconfigure processes and systems when
Figure 15: Integrating financial processes and systems horizontally across the extraprise and vertically between management levels
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changing market conditions trigger changes in your business model. While mySAP Financials components can operate on a stand-alone basis, they also interoperate easily with other SAP or third-party applications and services within an organization and across the wider business network. Critically, shared repositories allow master data and metadata to be exchanged in real time between operational, accounting, and analytical applications and business functions such as currency translation rules, allocations, valuations, and tax calculation to be shared between these different application components.
Because communication between these repositories and linked applications is based on standard XML protocols, services from third-party providers can be connected at runtime, for example, for sourcing business partner master data or payment details. This component architecture also means mySAP Financials can be used in a marketplace or shared service center or via an ASP.
Figure 16: The mySAP Financials component architecture facilitates step-by-step integration of new e-business functions with the organizations existing IT infrastructure
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Financial operations E-business accounting Business analytics Strategy and business performance management Strategic stakeholder communication Enterprise portals Software services.
Business Analytics
Business analytics capabilities allow end users to monitor operations, and they support analytic tasks, such as modeling and simulation based on external information and operative data from different internal and external systems. Business analytics support decision support and a comprehensive range of analytic tasks related to finance, including profitability analysis (by market, organizational unit, business process, or legal entity), strategic and collaborative cost management, activity-based management, working capital optimization, overhead cost management, fixed asset analysis, and capital investment management. It also provides tools to help ensure that operational decision making in other parts of the business aims at optimizing value from both intangible and tangible assets. Critically, the software offers CRM analytics for customer lifetime value management and SCM analytics for supply chain optimization, as well as analytics to support product lifecycle management, human capital management and participation in electronic marketplaces. This component offers integration through shared functions and data between the various analytical applications and with other mySAP Financials components.
Financial Operations
The financial operations features of mySAP Financials span all areas of financial transaction processing, including electronic bill presentment and payment (EBPP) and other settlement processes, management of accounts receivable (AR) and accounts payable (AP), credit risk and limit management, cash pooling, cash management, and liquidity planning. It also offers functions for travel and expense management, such as online booking of travel services and posttrip administration and processing of travel expenses. In addition, it handles real estate management including real estate administration, leasing, rental, and portfolio management with links to financial and other business process applications.
E-Business Accounting
The mySAP Financials e-business accounting engine provides general ledger and cost management functions, enabling automatic accounting processing of transaction data originating from a variety of sources including ERP, CRM, SCM, HRM, and industry-specific or legacy systems. It automatically converts original transaction data into auditable accounting documents and into different parallel and reconciled accounting views to support international GAAPs, local GAAPs, management reporting, or project accounting using appropriate methods, such as user configurable valuation or allocation methods. The task of the e-business accounting is to provide standardized and reconciled sets of financial data automatically to support financial reporting, cost management, and analytic tasks. Output from e-business accounting is therefore passed to predefined SAP
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These features build on SAPs existing strategic enterprise management (SEM) functions (business information collection, business planning and simulation, business consolidation and sourcing, and corporate performance monitor).
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Enterprise Portals
By giving individuals or groups of users easy access to valuable information and services via a Web browser, a mySAP Financials enterprise portal can improve the depth and quality of knowledge sharing with key stakeholders inside and outside the company. Portals can draw on mySAP Financials and on related content from other sources. A CFO or finance portal can speed access to financial information, transactions, analytics, and business performance data. A portal for managers can help meet the specific information needs of decision makers in middle and line management. And an investor portal can provide features designed to enhance investor relations. SAP will use the mySAP Financials portal capabilities to facilitate communication with participants in the global Financial and Strategic Enterprise Management Best Practice Community, described in the final section of this paper.
Architecture
Built on the latest Internet technology and communication standards, mySAP Financials can process huge volumes of information, handle heavy transaction loads, and provide rapid reactions and decision support. Unlike other solutions on the market, SAPs solution offers high levels of functional and data integration by synchronizing information and business logic between mySAP Financials and complementary internal and external systems. This open connectivity allows business components to interact with multiple business systems.
Functionality
Building on SAPs experience as the market leader in financial systems design and implementation, the mySAP Financials solution helps companies to maximize their value performance in the new economy. It provides functions for managing financial operations including those commonly outsourced to service providers, such as settlement and for travel and expense management and real estate management. It enables e-business accounting in a heterogeneous systems environment and offers state-of-the-art financial analytics, along with analytics for CRM, SCM, product lifecycle management, human capital management, and marketplace participation. End-to-end SEM processes are supported by advanced strategy and business performance management capabilities including scenario modeling and simulation, business planning, forecasting and KPI reporting linked to the strategic stakeholder communication component. Using a Web-based enterprise portal, you can give users inside and outside the organization easy access to selected mySAP Financials components, transactions and information, as well as related value adding content.
Software Services
SAP offers third-party services that link automatically into mySAP Financials components at execution point, such as services for business partner catalogs, credit scoring, external cash pooling and netting (Orbian), and worldwide sales and use tax calculation.
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In addition, services offered by SAPs partners for example, provision of credit scoring or tax information, cash pooling and netting services, and other finance related services can be tightly integrated into mySAP Financials, allowing a high degree of automation.
Ease of Implementation
Because SAP uses standard component architectures and state-of-the-art, object-oriented techniques, you can deploy mySAP Financials functionality incrementally, as you need it. You can deploy those components needed to support todays business model and, when market conditions change, rapidly integrate other components to help you gain first mover advantage. At each stage, minimal changes will be needed to existing components and structures. The mySAP Financials open architecture means components integrate seamlessly into an existing ERP environment and work together easily with R/3 applications.
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1 For a more detailed explanation of emerging business models, see Grady Means and David Schneider, MetaCapitalism: The E-Business Revolution and the Design of 21st Century Companies and Markets, Wiley, 2000. 2 For guidance on conducting an ROV analysis, see Grant Norris, James R Hurley, Kenneth M Hartley, John R Dunleavy and John D Balls, E-Business and ERP: Transforming the Enterprise, Wiley, 2000. 3 For more detailed discussion of finance value propositions, see PricewaterhouseCoopers Financial Management Solutions Team, eCFO: Sustaining Value in the New Corporation, PricewaterhouseCoopers, 2000. 4 For more information on valuation methods for business-to-business marketplaces, see PricewaterhouseCoopers Financial Management Solutions Team, eCFO: Sustaining Value in the New Corporation, PricewaterhouseCoopers, 2000. 5 For a deeper exploration of the impact of e-business on supply chain strategies, see PricewaterhouseCoopers, E-supply chain: Revolution or e-volution? , Euromoney Institutional Investor, 2000. (Part of the Information and technology in the supply chain series.) 6 Martin V Deise, Conrad Nowikow, Patrick King and Amy Wright, Executives Guide to E-Business: From Tactics to Strategy, Wiley, 2000. 7 Information systems for operationalizing value strategies, by connecting topdown communication of targets with bottom-up reporting of performance, are described in more detail in our white paper SAP Strategic Enterprise Management: Translating Strategy into Action The Balanced Scorecard, SAP, 1999. 8 For more information on SAP SEM, see our white papers SAP Strategic Enterprise Management: Enabling Value Based Management, SAP, 1998, and SAP Strategic Enterprise Management: The Functions A Closer Look, SAP, 1999. 9 PricewaterhouseCoopers Financial Management Solutions Team, eCFO: Sustaining Value in the New Corporation, PricewaterhouseCoopers, 2000. 10 See Grady Means and David Schneider, MetaCapitalism: The E-Business Revolution and the Design of 21st Century Companies and Markets, Wiley, 2000. 11 PricewaterhouseCoopers Financial Management Solutions Team, eCFO: Sustaining Value in the New Corporation, PricewaterhouseCoopers, 2000.
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SAP AG Neurottstrasse 16 69190 Walldorf, Germany Mailing address 69189 Walldorf, Germany SAP information service Tel. +49 (180) 5 34 34 24 Fax +49 (180) 5 34 34 20 www.mySAP.com
This white paper was written by PricewaterhouseCoopers Global Financial and Cost Management Team (Cendric Read) and by Juergen H. Daum, former Director Program Management for mySAP Financials, SAP AG, in November 2000
Find more information and additional articles about New Finance and related topics at Juergen Daums website at http://www.juergendaum.com
Book recommendation:
Introducing the enterprise management concept for the knowledge and information age The first book on the market that summarizes in a synopsis all relevant aspects of the new 21st century corporate performance management model and that describes the steps for its implementing English Edition German Edition
Intangible Assets oder die Kunst, Mehrwert zu schaffen von Jrgen H. Daum Galileo-Press, Bonn, 2002
ISBN 3-89842-112-0
Working with some of the main contributors to a new model of enterprise and performance management as well as of accounting and corporate reporting and communications, Juergen H. Daum developed in his book the foundation for a new enterprise management system and introduces it from a very practical perspective. He is citing many examples and is describing concrete steps that companies must take to implement the management system for the 21st century. This is complemented with interviews with some of the leading experts like David Norton, coauthor of the Balanced Scorecard, Leif Edvinsson, pioneer and thought leader in intellectual capital management, and with Baruch Lev, the worlds leading expert in intangibles accounting. This book aims at a paradigm change in management and names good reasons and arguments for it. It belongs into the management discussion of today. Juergen Daum proves great thought leadership. (Controller Magazin, Germany, issue 5/2002)