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Savings, Sustainability, Innovation Drive SAPinsider Conference Keynote
by Davin Wilfrid As the economy begins a long, slow recovery, SAP companies must adapt to the new reality, according to tw o top-level SAP executives. At the keynote address for the HR 2010, Financials 2010, and GRC 2010 events, Richard Campione and Peter Graf laid out their vision for how companies can get the most out of SAP technology in order to grow during prolonged tough times.

No matter w hat industry your business is in or w hat SAP technology you have in place, you’re under increasing pressure to tighten cost controls and boost efficiency. Do it w rong and you’ll be mired in the current economic doldrums or go out of business. Do it right and you’ll ride the w ave of economic recovery to a new era of sustainable expansion. That’s the message attendees at the recent HR 2010, Financials 2010, and GRC 2010 events heard from tw o top-level SAP executives. During the opening keynote address to more than 2,500 attendees, Richard Campione, executive vice president of business suite solution management, and Peter Graf, chief sustainability officer, offered SAP’s take on navigating out of economic unpredictability through meticulous management of both financial and human capital. Draw ing on SAP’s ow n success, and those of its partners, in maximizing profits by controlling costs, Campione suggested a three-part strategy for w eathering the economic unrest: 1. Manage a lean enterprise 2. Adapt your business model 3. Apply management science A lean enterprise, Campione says, is one that capitalizes on every opportunity to improve operations efficiency. One w ay companies can accomplish this is by streamlining business processes through shared services — managing global corporate functions such as human resources and help desk services from a central point. SAP Customer Relationship Management (SAP CRM) includes the necessary capability to create an interaction center from w hich you can deliver strategic access to the central SAP system. Economic upheavals push companies to adapt their business models to a new reality, says Campione. This doesn’t necessarily entail developing a new line of products or going on an acquisition spree. Rather, Campione suggests companies can “shift” their existing business models to capitalize on existing strengths. For example, Asian Paints w as already the largest paint manufacturer in India and third-largest in Asia. How ever, after gaining greater visibility into its customer base through an SAP CRM implementation, the company w as able to expand into painting and consulting services that now make up 60% of the company’s revenues. Similarly, Valero Energy Corporation made its name as a refining company before branching out into retail, w ith more than 6,000 gas stations and stores across the US, Canada, and the Caribbean. Acquisitions are a large part of Valero’s grow th strategy, according to Campione, and by “operationalizing” the process of bringing new companies in line w ith established processes, Valero w as able to cut costs by 30%. “Think of w hat Apple looked like w hen Steve Jobs came in. Now consider that 40% of Apple’s revenue is generated by media and services — not hardw are. There have now been 10 billion songs dow nloaded on iTunes. It’s a fundamentally different company,” says Campione. When adapting business models, Campione says, many companies simply borrow from neighboring industries. Once Apple got into selling media, it simply adopted the processes employed by media companies to generate revenues. The abundance of data stored in modern enterprise systems has increased the need for a scientific management approach, according to Campione. No longer can major decisions be made w ith w hat he calls the “belly rub” technique — companies need softw are tools for sifting, sorting, and presenting data to aid decision-making. For example, Campione says AT&T recently used the data available in SAP ERP Human Capital Management (SAP ERP HCM) to manage and reduce overtime costs for its 320,000 employees. Event ticket broker StubHub w as able to reduce its cost per order by 33% using Web Intelligence, one of the tools in the SAP BusinessObjects business intelligence (BI) portfolio. The company reported a 3,000% ROI on the tool, according to Campione.

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“All of these companies have figured out w ays to deploy technology on their systems to help them make decisions and take action,” says Campione. During the second half of the keynote, Graf expanded on the role of sustainability in pushing companies tow ard a new status quo. Current economic conditions have forever changed the w ay enterprises must operate, he says, because it w ill be impossible to satisfy consumer demand in the future w ithout reducing operational w aste in business processes. “The moment to articulate your sustainability strategy is now . You can’t avoid it. It’s like globalization and the Internet. It’s happening,” says Graf. For example, many cars and trucks are crushed and disposed of before the copper w iring is removed — preventing anyone from reclaiming that copper from the tangled mess of steel. This system w orked fine w hen copper w as cheap, Graf says, but since copper prices began skyrocketing, it makes little sense to cast so much of it aside. Increased regulatory pressure, from nations increasingly concerned w ith environmental and social responsibility, w ill also force a change in how companies do business. Graf asked the assembled crow d how many believed in global climate change (about half raised their hands), before asserting that — in terms of business — its opinion w as moot. Business and regulatory pressure w ould force companies to adapt to new carbon-reduction programs regardless of the validity of the science. “The good new s is that w hen it comes to business, it doesn’t matter,” says Graf. Of course sustainability initiatives are still saddled w ith the perception of environmental and social do-gooderism — rather than as w aste-reducing, cost-saving, business optimization. To combat this, Graf suggests building a business case based one or more of four pillars: 1. Operational risk m anagem ent. The most accessible sustainability initiative is one in w hich your company changes nothing about its products or delivery, yet eliminates excess cost from operations. Valero saved $2 million per year, Graf says, by connecting its compliance processes to its operations processes. As Wal-Mart ratchets up its sustainability standards (the retail behemoth recently announced it w ould put pressure on it suppliers to reduce its overall carbon footprint), operational risk management becomes increasingly important, says Graf. “This type of initiative is not going to create competitive advantage from sustainability, just cost savings,” he says. 2. Resource productivity. By reducing the volume of resources needed to do business, companies can add more to their bottom line in a responsible w ay, says Graf. This is an especially important lesson for bad economic times, w hen demand may be reduced. As an example, Graf cites orange juice producer Tropicana, w hich discovered a multimillion dollar cost savings only after investigating w ays to reduce its carbon footprint. After a thorough accounting, the company discovered that fertilizer used by orange farmers w as the single largest contributor to its carbon footprint (35%) — and that encouraging farmers to be more responsible w ith fertilizer use could save millions in resource costs. “If Tropicana had only looked at its farmers from a cost perspective and not a sustainability perspective, it w ould not have discovered this issue,” says Graf. 3. Sustainable offerings. Business is about nothing more than satisfying consumer demand. And increasingly, Graf says, consumers are demanding sustainable products. Forw ard-thinking companies should incorporate this into their ow n sustainability initiatives to boost the bottom line. Graf estimates that Procter & Gamble has created $13 billion of revenues since 2007 w ith sustainability-friendly products. And he credits Toyota, w hich launched the Prius w orldw ide in 2001, w ith creating the multibillion dollar market for hybrid cars — and forcing competitors to create their ow n. “Companies are really jumping on this as a sales opportunity,” says Graf. “You’re creating an upside because consumers are forcing you to.” 4. Business m odel. As consumer demand for sustainable practices and products increases, many companies w ill need to incorporate large-scale sustainability initiatives into their core business models in order to survive, says Graf. Nike is an example of a company that has had to incorporate sustainability into its business model, says Graf. The company has long outsourced the manufacture of its products, but still must deal w ith the repercussions of negative press about labor law violations at faraw ay factories. Similarly, Coca-Cola has realized it cannot continue bottling in India if overuse of w ater dries out neighboring farms. And Nestle, w hich has draw n severe criticism from environmental groups, has recognized it cannot produce high-quality food w hile destroying the environment that produces the food, says Graf. “All of these companies understand the need to think about these issues,” he says. The key to achieving sustainability is to engage, evolve, and execute, Graf says. Engagement begins by w orking w ith outside community members — including the most vocal critics — to determine the requirements of sustainability. “It means you have to listen to the guys that are protesting outside of your plant,” he says. Evolving and executing mean identifying operational mechanisms to reach sustainability goals and implementing them. SAP has w on praise for its ow n internal sustainability initiatives, w hich resonate beyond the annual sustainability report and help boost

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the softw are company’s bottom line. By measuring several sustainability KPIs, including carbon footprint, total energy use, renew able energy, social investment, employee health, and employee satisfaction, SAP meticulously tracks its ow n progress. The company has even included sustainability updates as part of its earnings calls, partly to demonstrate its commitment to sustainability and partly as an example for its customers of w hat can be achieved, says Graf. “We do that because w e w ant others to see that there is a business case there,” he says. “The beauty is that it earned us 100 points in the Dow Jones Sustainability Index. We’re now the leader. Our CEOs like that because there are $5 trillion w aiting to be invested in sustainability.” Its sustainability efforts also help SAP attract better job prospects, according to Graf. Fully 10% of those w ho dow nload the annual sustainability report from SAP are job-seekers.

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