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 Research
8 June 2011 | ITSM
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Challenges to Business Transformation
SAP takes a look beyond the glamorous side of L'Oreal and explains how their five-year integrated supply chain transformation program requires a value partnership in order to safeguard quality and reduce risks...

Businesses today face constantly changing market conditions caused by technological innovation, globalization, issues of sustainability, as well as a changing workforce.

To survive and prosper against global competition, companies need to proactively and continuously transform their core business. Transformation programs can range from changes to the business model, enterprise-wide IT projects, corporate transactions (such as mergers), outsourcing, to value chain optimization initiatives. When dealing with any transformation project, companies face the complexity that comes with the task in hand – multifaceted and interrelated domains such as business and IT, change management, leadership management, processes and governance, all have to be aligned to successfully transform the enterprise. However, many projects fail because people underestimate the complexity or take an incomprehensive approach to the transformation.

     

        Figure 1: growing pressure to transform businesses

The most prominent challenge with continuous business transformation is to develop compatible IT systems that can support these changes. Business requirements must be translated into IT systems in order to maximize the value of software usage. Many companies pursuing business transformation struggle to realize the full value of their IT investments. The reasons for these struggles often include complicated processes, a disjointed organizational structure, and a complex IT landscape.

In their struggle to realize higher value from IT investments and deployments, companies may turn to process re-engineering or IT landscape simplification, but these complex endeavours often introduce new challenges and rarely deliver the desired benefits easily. Therefore, companies must address the root causes that prevent their business and IT from achieving their potential. These fundamental roadblocks include:

1. Global business and IT transformations involving various subsidiaries or regions, with ineffective models of local engagement

2. Business and IT transformations involving multiple system integrators and partners, with ineffective delivery models

3. Incomplete models that fail to consider the full engagement life cycle, from planning, implementing, and optimizing processes and IT landscapes

4. Engagements that lack value management focus, methodologies, tools and experience

5. IT-focused implementations that ignore the impact on business value

Past research has shown that companies who engage with software providers who focus on short-term problem solving without measuring success and defining goals, make it difficult to address the root causes, by simply dealing with the symptoms. SAP’s solution to this problem is to form long-term relationships with customers and assist them step-by-step throughout the business transformation. Building this long-term relation is what SAP calls a Value Partnership service.

Value Partnership service was initiated in January 2010 by the SAP Business Transformation Services Group, part of SAP Consulting. Through a value-based engagement model, the group draws upon a combination of SAP services, knowledge and expertise, helping customers to optimize the total cost of investments through their software and to determine how IT can be used to enable, manage, and realize tangible value.

One of the most attractive aspects of the Value Partnership service is that it helps companies wishing to improve their return on investment by taking advantage of industry specific, value management best practices. Results from surveys of those who have attended the SAP Value Academy, show that companies who consistently apply value management best practice achieved a 173% ROI, while those who have low application achieve only 72%. Meantime, 71% of the former group are on or below budget, while only 29% of the latter can achieve this. Most companies, lack holistic knowledge on best practices in business transformation, in process optimization or solution implementations. Their knowledge is often limited to their particular industry functional areas, markets or territories. In our view, SAP makes it possible for them to gain knowledge they would otherwise find hard to acquire.

As many businesses have learned, creating a true partnership is based on trust. For this to happen, companies need to not only share knowledge and expertise with customers but also let their customers learn from each other. Our observations suggest that SAP facilitates this learning process within its Value Partnership service.

The Integrated Supply Chain Program at L’Oréal

Behind L’Oréal’s glamorous products lies a vast and complex supply chain that links marketing and sales on one side and production on the other. A new organization was recently put in place to optimize the Supply Chain and to reinforce the vision of an end-to-end supply chain management. In order to properly manage this change, L’Oréal launched in January 2010 a five-year Integrated Supply Chain Program.

Considering the complexity of such a program, L’Oréal needed the best partners to help them safeguard quality and reduce risks. L’Oréal decided to partner with SAP in this program. “For one thing, we were already using SAP solutions so we just went for the same people we knew,” said Xavier Rodriguez, L’Oréal IT project director. “For another, we wanted to communicate to our stakeholders that we are in good hands.”

L’Oréal’s relationship with SAP extends back to 1997. Over the years, L’Oréal had implemented several SAP solutions for their business activities and also for their factories. The solutions were delivered on negotiated commercial terms. By the time L’Oréal was starting this new program they were looking to deepen their engagement with SAP – L’Oréal needed SAP to monitor the full cycle of SAP solutions and their integration to ensure nothing would go wrong. SAP answered by proposing a Value Partnership service. “In the late 2009, we were just about to launch the Value Partnerships service in France, so we had an offer which exactly matched L’Oréal’s requirements,” says Jan-Hendrik Stricker, Principal at SAP Business Transformation Services. At the same time, Xavier Rodriguez adds "My goal is to build long-term, value-based partnerships with all my counterparts. SAP was the first one that proposed such an idea. We met at the right moment." SAP offered to dedicate three consultants to the Integrated Supply Chain Program, two onsite to handle functional and technical matters and Jan-Hendrik Stricker himself as a relay between the two companies.

The program started with the design phase. The teams from both companies - L’Oréal and SAP - worked as one to define a clear set of objectives, identify roles and responsibilities, determine governance structures and communication channels develop an IT roadmap, and identify Key Performance Indicators (KPIs) to measure progress. The first thing Jan-Hendrik Stricker did was to get his team actively listen to what the L’Oréal people said – what their critical business issues were and how well they understood SAP solutions. Then the two teams went into interactive mode, with L’Oréal making sure SAP was represented in all governance bodies at different levels, as well as in its program management and integration team.

The quality of such a program depends on many factors, with two standing out in particular: the degree of mutual commitment and the degree of information transparency. In order to provide SAP access to the information needed to provide timely services, L’Oréal welcomes Jan-Hendrik Stricker and his team to all of their internal meetings. “All doors are open to SAP,” says Xavier Rodriguez. “They are even allowed to poke around in ‘out-of-scope’ areas.” This has led to unexpected discoveries. According to Xavier Rodriguez, every day the teams discover new win-win situations that they have never thought of before.

The SAP team proved their expertise, winning L’Oréal’s confidence and more business requests. As a next step, SAP expanded the team to include another 22 experts from different departments who are familiar with the concept of Integrated Supply Chain and who can be consulted ad hoc or on-demand basis depending on customer needs.

Moving Beyond the Integrated Supply Chain Program

As one of the earliest adopters of the Value Partnership service, L’Oréal had the chance to measure the success and reflect on their partnership with SAP. The two companies jointly defined 14 KPIs, including the number of issues to be addressed, treated, finalized and the time it takes to handle each topic. “These KPIs give me an idea whether we have enough capacity onsite and whether we are efficient at taking up new assignments,” Jan-Hendrik Stricker says. He also asks his consultants to make sure that their advice is well understood and applied. “If we don’t do so, we may end up in a situation where we have given our opinions but our customers store the documents somewhere and read them only when they finally get the time. We need to have an impact on their decision making.”

Xavier Rodriguez and Jan-Hendrik Stricker meet once a month to review work progress and adjust priorities. Every two to three months they meet with L’Oréal’s CIO Jean-Christophe Sautory for a similar review. Last year, L’Oréal and SAP had a mid-term review of the Value Partnership service. Especially SAP’s extensive knowledge best practices has proved to add value. “We talked with L’Oréal people how specific issues had been tackled in a similar context with other SAP customers of the consumer products industry. This contributes to ongoing value-based discussions that L’Oréal likes very much,” Jan-Hendrik Stricker says.  

                         Figure 2: the six pillars of the Value Partnership service

The design phase of the program has drawn to a successful conclusion that can be attributed to three factors:

1. Good consultants: “the backbone of the Value Partnership service is still the quality of consultants,” in Jan-Hendrik Stricker’s words.

2. Clear governance: each partner’s role and responsibilities, the delivery methods, the evaluation measures and the report structure are all clearly defined. Jan-Hendrik Stricker being the single contact point for L’Oréal is also crucial. “SAP is a complex organization but all the complexity disappears given that one contact point,” Xavier Rodriguez explains.

3. Effective communication: the teams keep to dedicated meetings, share what has been achieved, and maintain close knowledge exchange at all levels. SAP’s involvement in all aspects of the program also helps to uncover new win-win solutions.

For the next phase, L’Oréal and SAP intend to raise their collaboration to a new level of co-innovation. “We want SAP to understand our needs so well that it can pre-empt us in identifying what is good for us,” said Xavier Rodriguez. Nevertheless, it is not the end of the story. As people working on other programs saw what was being achieved there, they approached Jan-Hendrik Stricker with their plans to expand the engagement. “I’m confident we can extend the Value Partnership service to other areas of L’Oréal’s interest,” he says, “so that we have a strong footprint and reinforce the partnership between L’Oréal and SAP."


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