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IDC OPINION

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WHITE P APER
ERP Blueprint Enriches Engineering, Construction, and
Operations Companies
Albert Pang
November 2005

Buoyed by low interest rates and surging wealth in fast-growing countries, the
engineering, construction, and operations (EC&O) industry is experiencing
unprecedented business opportunities. However, those opportunities may be missed
if a company doesn't have the right systems to accommodate advanced project
management, accurate financial reporting, and growing customer/vendor demands for
real-time data exchanges.
Members of the EC&O industry must step up to today's market demands. For example,
homebuilders that invest in integrated systems can better manage their assets, their
supplier and subcontractor relationships, and their core financial management systems.
This investment helps homebuilders lower costs, boost their profitability, and meet
tough corporate compliance standards. Construction companies that are not willing to
part with their current homegrown infrastructures may find themselves failing when their
fundamentals are undermined by years of system overload, limited spending on project
data maintenance, and general indifference to information consistency.
Similar needs exist across the EC&O industry. Homebuilding, plant contracting, and
construction segments have unique needs, but they all are under the same pressure
to adapt to today's market demands at a time when projects are more complex,
business processes are increasingly streamlined, and the velocity of information is
accelerating. A centralized approach to manage data aggregation and dissemination
is needed to ensure the long-term value of these EC&O firms.

IN THIS WHITE P APER


This IDC White Paper examines the challenges facing the EC&O industry as the rules
of the game continually change for EC&O firms that are under constant pressure to
boost profitability without compromising project quality. A solution to this quandary is
to better leverage human capital and other resources in a way that fosters
collaboration with a larger base of suppliers, subcontractors, and project participants.
The findings and observations in this IDC White Paper are based on a combination of
primary and secondary research conducted by IDC. The primary research was
commissioned by SAP and consisted of interviews with SAP product specialists,
partners, and customers. The interview candidates were nominated by SAP. The
interviews were conducted by phone and took between 60 and 90 minutes. Partner
interviews were conducted with senior management. The customer interviews were
conducted with senior IT and operations managers.

A key to meeting the challenges could lie in the adoption of one of the mySAP All-inOne qualified solutions for the EC&O industry. These solutions combine the mySAP
Business Suite (including mySAP ERP), SAP Best Practices, and the industry
expertise and implementation services of EC&O business partners. This potent
combination of SAP software, Best Practices, and implementation services can allow
partners to deliver industry-specific, low-risk, affordable solutions that can be
implemented efficiently. Leveraging this synergy can help EC&O firms achieve
desirable results. The solutions can accommodate the unique requirements of EC&O
companies in the race to control project costs and can boost profitability through
effective management of assets, resources, and business partners.

SITUATION OVERVIEW
Despite the widespread use and acceptance of desktop computing, instant
information access, and mobile communication devices, an integrated technology
solution often takes a backseat to fly-by-wire business management in the EC&O
industry. Some EC&O companies underestimate the value of a standard information
system, choosing instead to continue using standalone applications that have not
evolved to meet today's challenges. Often these applications consist of a hodgepodge
of customer databases and disorganized data from loosely maintained spreadsheets
tied to untraceable email correspondence.
Back-office operations with its assortment of accounting, human resources, and
purchasing applications is often the last thing on the minds of EC&O executives
when they are rushing to complete multimillion-dollar construction projects. Typically,
it is the responsibility of the business managers, rather than the IT managers, to
complete these megaprojects on time and within budget. They are tasked with finding
the most efficient use of such widely divergent resources as excavation equipment on
the one hand to collaboration-centric project management systems on the other.
Project management is another area in which EC&O companies have been searching
for a blueprint that works for both executives and subcontractors who may have
adopted different systems for planning and tracking a project. In some cases, project
participants from CEOs to facilities directors and from foremen to IT leaders are
left with no choice but to collaborate by passing around hardcopy spreadsheets and
project schedules. Often, this approach leads to version control issues, resulting in
loss of control that may lead to project delays and ballooning costs.
With the booming real estate market and increased demands for complex mixed-use
community projects that often spawn a growing number of project participants,
companies are finding that they can no longer use outdated systems to manage the
onslaught of data. Furthermore, the companies that have adopted better ways to
manage and share their project data will be the ones to survive during periods of
slower growth and stagnation.
Among the savvy EC&O companies, business managers working in conjunction with
their IT teams are recognizing the importance of using the latest software technology
from the advanced computer-aided design (CAD) programs to the most versatile
enterprise resource planning (ERP) applications to manage the information
velocity and data synchronization that are necessary to support mission-critical
collaboration among disparate project teams.

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However, many fast-growing EC&O companies are prone to allowing synchronization


to slip because they are busy booking projects, hiring subcontractors, and reaching
milestones without finding time to curb maverick buying, erroneous billing, and
system degradation after years of neglect and misuse. The top priority for these rapid
growers is to evaluate operations performance through centralized financial
management in order to strengthen the order-to-cash process.
Given these various challenges, system standardization appears to be a logical step
that EC&O companies can take to ensure their future viability. Standardization can
lead to more efficient, reproducible business processes, improved profitability, and
enhanced operating margins.
Managers need to consider four main objectives if they are serious about revamping
their enterprise project management systems and preparing for the most effective and
controlled growth. These objectives are:
! Policy control and standardization using centralized information for greater
financial and operational efficiency as well as more accurate forecasting
! Real-time information to facilitate intelligent allocation of resources to maximize
productivity
! Streamlined procurement, supply chain, and maintenance functions via improved
supplier relationship management
! Complete project life-cycle management focused on process and transforming
cost components into potential profit centers

Policy Control
As fast-growing construction companies tackle increasingly complex projects, the
routine activities are the ones that often trip up even the most seasoned EC&O
executives. Mistakes such as failing to issue purchase orders, fulfilling customer
orders inaccurately, or allowing runaway inventory levels can cost a company dearly.
The culprit is usually an internal system that has failed to keep up with growing
business needs, resulting in critical customer and supplier data that is erroneous,
outdated, or simply missing.
Asset management, for example, is an area in which many EC&O companies can
and should reassert control. If a company succeeds in putting information about its
assets in a single repository through its intranet, it gains greater control over its
financial picture and asset requirements across the enterprise. By tapping into that
data, a company can enforce proper guidelines on when and how to update its assets
as well as to revise its budgeting and planning processes for mission-critical resource
allocation. Such essential organizational support for maintenance planning,
preventive maintenance, and rapid identification of items needing repair boosts
equipment performance and reduces downtime.

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Real-Time Information
It's one thing to consolidate a wide array of information into a single repository; it's
something else to properly manage and update it on a real-time basis. Not only does
the integrated system have to be scalable enough to handle escalating information
demands, it also needs to sustain an abundance of historical data for EC&O
companies to effectively report against and leverage for future projects. EC&O
companies should start benchmarking themselves against key performance indicators
(KPIs), industry best practices, and degree of compliance with government rules and
regulations. In addition, companies must enable their suppliers and contractors to
access this real-time project information to more quickly respond to supply disruptions
or project changes.
The task becomes inherently more difficult as EC&O companies attempt to diversify
their risks by operating in multiple geographies and in different sectors (for example,
condominium development and shopping mall complexes). Integration of views
across projects through a centralized system, coupled with a healthy dose of decision
support and prescriptive analytics capabilities, may well be the key to attain
consistent information on a real-time basis to enable superior decisions for the
company as a whole.

Supplier Relationship Management


Suppliers come and go, but a high supplier turnover rate can significantly hurt a firm's
business. A solid procurement, asset allocation, and planning strategy can enable a
company to effectively grow supplier relationships into strategic alliances that
translate into mutual advantage. For example, the availability of accurate data in
its asset allocation and planning process will help a company quickly pinpoint
problem areas such as stock availability and help suppliers respond just in time to
address them.
When armed with reliable data, an EC&O company can synchronize its information
with that of its suppliers, allowing them to factor the fluctuations into their own
forecasts so that they know when to raise or lower their own inventories. The results
are stronger supplier relationships that yield market transparency for buyers and
greater profit for sellers. Additional capabilities such as online sourcing, contract
management, and supplier self-service further enhance the purchasing process,
giving every project participant greater certainty in terms of production and
financial planning.

Potential Profit Centers


If an EC&O company is able to accomplish the objectives described above, it has
won three-quarters of the battle. The remaining point concerns a company's ability to
exploit new opportunities such as building management, brokerage and financing
services, and infrastructure project management by turning cost components into
profit centers.

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For EC&O companies, property management has become a legitimate and often
lucrative revenue stream. For example, an integrated project management system at
an EC&O company can provide better insights into demographic shifts and
community planning trends, allowing it to make rent adjustments and lower vacancy
rates for company-owned property and for properties belonging to third parties. Such
a system is likely to facilitate faster completion of an infrastructure project, such as a
mixed-use community, and improve rent collection for mall developers.
Similarly a customer-centric strategy by homebuilders would enable them to gather
and analyze data through systematic survey instruments and analytic tools to
standardize on floor plans, building options, and parts purchases to lower costs and
improve profitability.

MYS AP ALL-IN-ONE QUALIFIED SOLUTIONS


FOR THE EC&O INDUSTRY
SAP and its partners offer extensive IT solutions for the EC&O industry by meeting
the process automation and information-sharing requirements of plant contractors,
commercial construction companies, homebuilders, and other project-oriented
businesses. SAP's industry-specific solutions are designed to support and enhance
business processes within project and plant life cycles, positioning organizations to
efficiently manage projects, subcontractors, and employees; to maximize the value of
facility and equipment assets; and to pursue new revenue opportunities.
mySAP All-in-One qualified solutions can address core business processes
commonly found among EC&O companies by supporting them through a standard
ERP platform. With the ERP platform as a foundation, industry expert business
partners select building blocks from SAP's Best Practices for creation of the solutions
that these companies need. Unlike the custom software development process, this
approach does not require the EC&O company to engage in a lengthy process of
defining its problems and tailoring its solution from whole cloth. The expert partner
brings that knowledge so that the developed solution can address the EC&O
company's needs with a rapid implementation. In this way, the EC&O company can
often benefit from solutions already developed to address similar challenges within
the industry.
Project management is the lifeblood of many EC&O organizations. mySAP All-in-One
qualified solutions can help responsible staffs plan, manage, and control all project
parameters including timelines, costs, and resources for projects of any size. By
providing real-time document exchange and status information, these solutions can
ensure that managers have the accurate information they need to evaluate progress
and make informed decisions at every stage of a project. Comprehensive project
overviews can help organizations manage multiple projects simultaneously. Project
management information can be integrated with supply chain management and
procurement systems to guarantee that necessary materials are available at the right
price and at the right time.

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In addition, these solutions can offer seamless integration into complementary


software, such as Microsoft Project, for scheduling purposes; asset, facility, and
maintenance management applications for maintenance, repair, and operations
(MRO) functions; and CAD products for direct access to design systems.
Because of the diversity of EC&O companies, many of which operate in adjacent
markets such as home construction and financing, these solutions have been
designed to automate a series of business processes while maintaining data
consistency from both internal operations and sales automation perspectives.
For example, EC&O companies can use the software to maintain tight control of
project and corporate finances, helping them to centrally track financial accounting
data within an international framework of multiple companies, languages, currencies,
and charts of accounts. mySAP All-in-One qualified solutions also enable the
valuation and recording of financial data for financial reporting as well as greater
visibility of working capital by streamlining cash flow activities and reducing the costs
associated with billing and payment processes.
EC&O companies can use the mySAP All-in-One qualified solutions to implement cost
control, profitability control, cash management processes to facilitate the integration of
profitability analysis. Other cost-control measures can be implemented through better
use of enterprise asset management to ensure all facilities and equipment operate at
peak performance through the asset life cycle from specification, design, procurement,
and deployment to maintenance and eventual disposal.
On the sales side of the equation, the solutions incorporate variant configuration
technology that allows homebuilder sales agents to have greater control over the
selling process from initial inquiries to quotations, sales orders, and billing. Using the
software, the agents can help customers configure the models that suit their needs,
taking into consideration factors such as design rules and supply constraints.
Integration of such data can allow homebuilders to establish tight inventory
management controls leading to improved cash flow.
For EC&O companies that have committed to open technology platforms, or possess
a diversity of point solutions that need integration, SAP offers NetWeaver, which
enables firms to integrate mySAP All-in-One qualified solutions with other third-party
applications. For instance, the order management function can be integrated into
customer relationship management and supply chain management modules to
ensure faster delivery to customers, reduced supplier costs, and optimized resource
utilization. In addition, such functions as customer aftermarket sales and services can
be strengthened because of the availability of customer history information, which can
be matched against asset depreciation and project history records.
mySAP All-in-One qualified solutions can gather valuable data. EC&O companies use
this data to measure themselves against their peers and against metrics derived from
industry best practices. With the help of advanced business intelligence solutions and
KPIs from SAP, EC&O companies can turn process data into powerful insights of
their businesses and improved responsiveness to their markets. SAP also offers
solutions that compile real-time data and immediate analysis through KPIs that are
designed specifically for the EC&O industry.

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Balancing Scale, Scope, and Risk


The greater the number of resources that a project requires and the higher the
project's complexity, the greater the associated risks. Depending on the scale and
scope of a project, an EC&O company may be forced to modify or even radically
change its customary business processes. For example, the more subcontractors the
company engages, the greater the amount of paperwork required to manage and
coordinate those working relationships and therefore the greater the pressure to
automate that data. Similarly, as scope broadens, an EC&O company may need to
extend its responsibilities beyond basic procurement and scheduling to include
contingency plans to minimize environmental impact, avoid breaking penalty clauses,
and proceed with the operations despite adverse weather conditions.
A company's customary business processes describe the area within which the
company operates with the lowest sense of risk. The farther a company must reach
beyond this comfort zone, the greater the risk. But if a company's internal systems are
flexible enough to accommodate abrupt or unexpected changes, such systems
mitigate risks and provide the company with a wider area within which it can
confidently excel. Adopting such a system means viewing technology as an
investment rather than an expense a shift for many within the EC&O industry.
Because of the capital-intensive nature of their business coupled with the boom-tobust cycle of the real estate industry many EC&O executives are cautious about
investing in state-of-the-art systems. What's needed is a modular approach, in which
today's adequate system can be quickly and seamlessly augmented to meet
tomorrow's challenges.
A significant number of EC&O firms depend on packaged, off-the-shelf project
management solutions, and in some cases, these firms may desire to customize or
extend the packaged solution. The firms may choose to make such solution
modifications in-house, but often third-party partners offer prebuilt solution add-ons
and custom development. One of the criteria such an EC&O company may look for
in a project management solution, therefore, concerns the ease of adaptability of
the solution and an inherent design to help perpetuate modifications through
version upgrades.
SAP provides a solid framework through its mySAP All-in-One qualified solutions that
allows partners to build on SAP Best Practices and standardized capabilities but
provides the level of adaptation via partner configuration and specificity needed to
meet the needs of individual EC&O companies. Further software preconfiguration by
the partner means that industry and microvertical best practices can be incorporated
into a solution that is scaled appropriately to meet a specific business environment in
a way that still allows solutions to be implemented in only a matter of months. SAP
partners and customers interviewed indicate that having an affordable and quickly
implemented industry-specific solution can support both a quick return on investment
and a stable foundation for ongoing operations.
Scaling for efficiency and price is important for EC&O companies, but SAP-based
solutions allow them to grow at their own pace. mySAP All-in-One qualified solutions
are designed for midsize firms, but they are flexible and scalable enough to handle
larger needs.

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SAP software supports a broad spectrum of EC&O firms' needs from suppliers to
customers. While mySAP All-in-One qualified solutions start with the basic core
processes that EC&O companies need, such as financials and project management,
these solutions can leverage all that mySAP ERP offers with follow-on or concurrent
implementations. Easy integration of additional features provides system scalability
that ensures any explosive growth of an organization can be met by adding new
users, transaction processing capabilities, and complementary modules from SAP
and its partners to form a complete solution with competitive advantage.
In addition to core processes, EC&O companies can examine their operations and
processes for "squeaky wheels" or outright looming disasters and implement
additional modules that make sense at a particular moment. As the capabilities of the
system expand to address additional priorities, EC&O companies can phase in other
functionality as desired to implement a full range of short-term tactical solutions and
longer-term strategic solutions.
SAP and its Business Partner network are well versed in helping EC&O customers
make the right choices and choose the right sequences for staged implementation.
Helping companies make the right selection is a value-add offered by SAP and
mySAP qualified solution providers.

Business Partner Contributions


With their industry experience, implementation methodologies, and best practices
knowledge, SAP business partners are fast becoming an important factor for
successful projects at a host of EC&O companies.
SAP's partners have built expertise in specific niches of the EC&O industry. They
have experience in the nuances and special needs of companies serving the
homebuilding, plant contracting, and construction segments. They know how to "talk
the talk and walk the walk" to help specific niche companies succeed. They combine
pragmatic methodologies, proven preconfigurations, and extensive documentation to
limit risk, accelerate implementation, and deliver solutions cost efficiently.
SAP business partners understand SAP software and Best Practices; have specific
industry expertise; implement using proven preconfigurations, building blocks, and
methodologies; and offer their support throughout the solution life cycle. Interviews
with end users indicate that SAP's partners are often thought of as "trusted advisors"
based on their expertise, experience, and dedication to meeting requirements on
time, on budget, and according to specification.
SAP industry Best Practices employed by SAP business partners derived from
years of industry experience and from a platform of reusable and layered content out
of which fully functioning end-to-end scenarios are composed can also save the
EC&O firm time and money by compressing every step along the way of software
implementation from project preparation to go-live and support. SAP business
partners such as et alia have already developed best practices that cover numerous
scenarios specific to the needs of EC&O firms ranging from business
development/sales to engineering and project planning and from procurement to
project and claims management.

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The Web site of SAP business partner et alia LLC, located in Milwaukee, Wisconsin,
captures the company's approach and what seems to be a common position among
the SAP business partners with which IDC spoke:
"When working with software as robust and functional as SAP's
many solutions, it is extremely important to find a partner who is as
concerned for your business as they are for theirs. When that same
partner can close the gap between knowing the power of SAP and
using the power of SAP, the possibilities are endless."
Many of et alia's implementations have been completed within 16 weeks and under
budget because of et alia's implementation methodologies, including Remote Online
Consulting Service (ROCS), which enables customers to proceed with their day-today operations independent of the software installation. Under the ROCS approach,
et alia has developed remote configuration capabilities to handle the bulk of the
rollout while delivering continued application support through both onsite and
offsite consulting. Some et alia customers indicated that such methods have lowered
their consulting expenses by as much as 60% because they don't need to keep
the consultants on site and therefore pay only for the actual amount of time the
consultants spend configuring their systems remotely.
et alia adds value by becoming the de facto IT department for its clients, handling
such tasks as hardware design and purchase as well as network setup and support.
This service can be particularly valuable to midsize EC&O companies, which typically
have limited budgets for IT operations and dispatch most of their people to the field.
et alia and SAP have completed more than 200 implementations for a variety of
engineering and construction firms and service providers in the telecommunications
and real estate sectors. The et alia implementations are built on an integrated mySAP
All-in-One qualified solution called CREW, which is designed to deliver a real-time
integrated view into the projects, people, and performance that drive profitability for
EC&O companies.
CEO Dana Barron of HB Communications Inc., an et alia customer and a specialty
contractor, fabricator, and installer of custom solutions for audiovisual, video, and
professional audio needs headquartered in North Haven, Connecticut, stated the
following:
"During our selection process, we investigated many software
solutions touting industry-specific project management and job
costing functionality. It wasn't until we investigated et alia CREW, a
qualified mySAP All-in-One solution, that we found the best
integrated solution with substantial industry Best Practice
experience."
CREW meets the needs of fast-growing construction companies by providing their
employees, suppliers, and third-party vendors with an array of data consolidation and
complex reporting functions addressing requirements ranging from rudimentary
access by field workers to the most demanding reporting request from team leaders
and corporate executives.

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Database management is also expected to be a major issue for EC&O companies


with the proliferation of project data and CAD files as well a litany of transaction and
compliance records. Increasingly, they are warming up to the online database access
and retrieval process and a more streamlined approach to database management.
Hence, SAP business partners, many of which have experience dealing with multiple
database technologies, from partitioning to unified data model, can be particularly
effective during that transition.
Fundamentally, the value of SAP business partners such as et alia is in leveraging
those assets on behalf of an EC&O company by acting as a repository of diverse skill
sets from IT management to front-line technology support and providing
specialized expertise in such software areas as ABAP, Java, Visual Basic, and
Web services.

CHALLENGES
All IT vendors that offer solutions for the EC&O midmarket are faced with a number of
challenges such as offering affordable, yet comprehensive products and services;
ensuring that channel partners have the necessary resources and qualifications; and
overcoming buyer resistance to change.
Partners typically have fewer resources at their disposal than vendors such as SAP,
so all vendors must offer programs that meet a myriad of partner needs. These
programs leverage vendor expertise and address partner needs for education,
marketing and sales support, event planning and execution, and the like. As with
other vendors, SAP must continue to focus on assisting its partners in bringing new
solutions and offerings to the market, deriving a more rapid return on investment, and
helping them communicate more effectively with their customers.
End customers often need to engage in change management to adapt to new
business processes and technology solutions. SAP business partners are therefore
given the tough job of not just bringing SAP software and/or solutions to an
organization but of making sure that users are proficient enough with the technology
that they see it as a key ingredient to their success.
Additionally, SAP's success in the large enterprise space has given it the reputation of
offering solutions that are complicated and expensive and that take a good deal of time
to implement. The combination of mySAP All-in-One qualified solutions and its business
partner network, focused on delivering industry-specific, defined scope solutions with a
reasonable price tag and timely implementation, should help change this perception in
the eyes of EC&O organizations with direct exposure to these alliances. SAP has been
finding a welcome reception as it targets midsize enterprises, and it must continue to
press its message of success among this untapped market.
With a long track record of selling into the EC&O industry, integration technologies
such as NetWeaver, and a wide array of business partners, SAP should be well
positioned to leverage its expertise and address the challenges it faces. The
introduction of SAP's PartnerEdge strategy earlier this year is a step in the right
direction to make the indirect approach more successful. Customers as well as
partners should benefit from SAP's investments.

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CONCLUSION
Like a symphony, complex engineering and construction projects can be performed
only when everyone involved is playing off the same sheet of music, which is what
an integrated ERP system such as one of the mySAP All-in-One qualified solutions
can deliver.
Integrated ERP systems have been replacing homegrown and single-purpose
accounting, project management, and maintenance support applications in many
asset-intensive industries, and the EC&O sector is fueling the trend. Integrated
systems can create a standardized platform for project stakeholders as well as enable
engineering and construction firms to share information, track and monitor progress to
enhance collaboration, and break down communication barriers that often result in
cost overruns and maintenance delays.
The increased volume of data that flows from project members to outside partners,
from crew members to project leads, and from customers to account managers needs
to be timely, accurate, and consistent. More importantly, an EC&O company needs a
standardized and robust system to handle and harness this cascading data. A lack of
will to create such an integrated environment could spell trouble for many EC&O
companies in the long run.
As a result, the mySAP All-in-One qualified solutions for the EC&O industry, which
have been adopted by many engineering, construction, and operations companies,
may represent one of the easiest ways to start taking advantage of business process
automation and collaborative project management. Key components are industryleading software, preconfigured functionality, prebuilt industry best practices, stable
architecture, and well-oiled implementation services.
The advantages that can be delivered by this combination can include quick
implementation times, reduced user training, optimized usage throughout the
organization, reliable performance throughput, and consistent system interoperability.
Adoption of the right ERP-based solution can serve as a blueprint to simplify an
EC&O company's business processes, tackle operational inefficiencies, and
ultimately establish higher returns on its projects.

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