With the global economic climate still uncertain, we spoke to some major players in the Australian and New Zealand SAP market to find out how IT investment is holding up, how SAP’s current strategy is playing with customers and why companies are changing the way they conduct projects. Freya Purnell reports.
Our experts:
- Keven Killey – SAP practice executive, IB Global Business Services
- Guhan Bala – Associate partner, IBM Global Business Services
- Iain Macleod – ERP solutions director, CSC
- Hernus Carelsen – Chairman, Innogence
ISAP: What impact have market conditions had over the last 12 months on CIOs’ priorities for IT spending?
KK & GB: Our experience has been that CIOs have been asked by their organisations to focus on investments that deliver return on investment (ROI) in the short- to medium-term horizon rather than longer term, more strategic initiatives. The only exception has been in the mining industry where there is still a long-term focus.
The ‘two-speed economy’ is also very much reflected in how organisations in different industries are making IT decisions in terms of spend and priorities. As the market becomes increasingly competitive, IT spending which acts as an enabler to better customer service is also getting some traction.
IM: I believe that the local market conditions over the last 12 months have been heavily influenced by the wider global economic concerns. While there are a number of industry sectors which are actually showing strong growth, many multinational organisations have had to align with a global/regional cost and risk management focus. The result has been a high drive for cost reduction and operational efficiency for operations and ongoing application management, while the size and volume of projects have been lower and smaller respectively. There has also been evidence of the two-speed economy model within the SAP market – manufacturing, distribution and retail have experienced low demand, whereas the natural resources, government and financial services sectors are much more active. The ROI and total cost of ownership (TCO) focus continues, as has been the approach for the last couple of years, with returns or saving within the financial year often a major factor on decisions to proceed with any projects or investment. From a solution perspective, then the push for on-demand or cloud-based SAP solutions has been very evident, although the adoption rate may not have matched the market hype in reality. There also seems to be a shift to more individual user consumption and solutions, although still within generic enterprise-wide business to business processes, with a focus on business intelligence (BI), mobility and increased multiple device usage by SAP perhaps driving this trend.
HC: Priorities have shifted towards initiatives that will help companies survive the next recession.
ISAP: How do you think this might change in the year to come, and what are the factors that will influence this?
KK & GB: This trend is likely to continue over the next 12 months, with strong IT investments in the growth sectors of the economy. New IT projects in the other sectors are going to be more difficult to get approved as they compete with other investment priorities within organisations. There is already some evidence of some organisations delaying decisions until the global situation becomes clearer.
IM: I am not sure that we will see any dramatic change to this over the next 12 months, with the same financial and efficiency drivers being key across all sectors. There may be a shift from in-house to outsourced or third party service providers for operation and application management support to realise some of these returns, so more demand for tenders and bids for the systems integration and consulting organisations. Accordingly there may be less demand for contractor and internal roles in the market. With regard to solutions and services, I expect there will continue to be a focus on mobility, reporting and analytics, procurement and on-demand areas for the SAP market, with potential for more shared services and common business process solutions in the public sector, to drive efficiency and a consistent solutions adoption approach, across state governments in particular.
HC: It’s hard to say. The global economy is the biggest factor. IT investment will follow global economic sentiment.
ISAP: In terms of technology releases, what is the most significant to come out of SAP recently and why?
KK & GB: Certainly there is a lot of buzz around SAP HANA, although many organisations are still trying to understand what it means to them. The benefit they see is better decision-making with more up to date, even real-time, information. However the return on investment in terms of cost versus benefit is still something many organisations are working through. Hence we’re seeing a focus on a ‘proof- ofconcept’ approach by most organisations considering HANA in order to better quantify potential business value from investments in these new technologies.
IM: With reference back to the early point on the push on mobility and analytics by SAP, the way in which these have been combined for individual tailoring and use within an enterprise business framework has opened up much more targeted and specific solutions for senior and middle management in organisations. I believe this has taken visibility and deployment for many of the solutions into the most senior roles within the commercial and public sector markets. Making SAP solutions relevant to all levels of an organisation, from a transactional, process and business management perspective, has been a consistent ‘go to market’ message.
HC: HANA. This is a real game changer for SAP. It solves two major problems: database speed and data redundancy.
ISAP: What feedback are you getting from your customers regarding SAP’s on-premise, on-device, on-demand strategy – is it resonating with them?
KK & GB: There is certainly a lot of interest from customers in this area especially in certain industry sectors. However many organisations are also of the view that they need to better leverage the ERP investments that they already have in place before expanding the footprint. In some sectors, offerings such as on-device are certainly attracting strong interest as part of many organisations focusing their IT
spend on not only improving but innovating customer service.
IM: I think that the message has been very clear and consistent to the market by SAP over the last 12 months, but I am not so sure that has translated into deployed solutions, projects and real investment as yet, or at least not the volume expected. The on-device aspect appears to have been the most successful in terms of market understanding and the implementation of projects or solutions. We have seen this in our own customer portfolio, with a number of SAP and mobility projects being deployed. The on-demand I see as part of the wider cloud-based services model that is being pushed generically across the whole IS market.
My view is that this is more likely to be adopted as part of an enterprise-wide on-demand model, rather than for just the SAP landscape and solutions. Where there is a very large SAP infrastructure footprint, or perhaps as a proof of concept, there could be an earlier adoption for just the SAP solutions. The on-premise component is probably more aligned to the majority of existing customers, and how to leverage more from their investment in SAP, with additional solutions and products and improvements for already implemented functionality. I would expect the outlook to be similar for the next 12 months, with customers aligning more with ondevice and on-premise than the on-demand direction.
HC: Yes, it is in line with their own priorities.
ISAP: What are the key challenges your customers are facing at the moment, and what are you doing from a technology perspective to help them tackle these?
KK & GB: Our experience with clients is that many organisations have a dual focus of driving cost savings and revenue growth through increased customer focus or production capacity (depending on the organisation). CIOs, like everyone else in the organisation, are having to demonstrate that their spend has a strong link to facilitating achievement of objectives in these focus areas or the money is going to be spent somewhere else. The challenge is that CIOs also have a requirement in many organisations to rebuild basic infrastructure, which is increasingly difficult to justify because of the longer return on investment horizon.
How are we helping customers tackle the challenges? Well, most customers are aware of the breadth of capability and technologies that IBM offers in addressing their enterprise IT challenges, so let’s mention an important area that may not be quite so visible. Many SAP systems were developed years ago, even the ‘dot com’ businesses are now dealing with systems that are 10 years old and based on outdated technologies. As a result, CIOs are delivering a wider portfolio of projects and often larger, transformational projects to rejuvenate the business. However, managers are very aware that their teams are already working long hours, and adding more people increases complexity. Tackling this complexity requires real-time responsiveness in governance and project management techniques that flies in the face of traditional hierarchical decision-making processes. So to tackle that issue from a technology perspective, for example, we offer a platform based on our rational technologies that allows for faster peer-to-peer, in-context collaboration across the business and information technology project members, independent of where they are based or what role they perform.
IM: The key challenges are really not that different from the same challenges that have been in many businesses for the last three years. Streamlining and improvement in core business processes, with IS solutions being a key component of realising this goal, but not a silver bullet on their own to achieving it.
The economic conditions continue to challenge organisations to ‘do more with less’, so reduce operational and cost bases while improving efficiency or productivity. From an IS and SAP perspective, this is probably focused on increased use of tools, automation and low-cost resource models to drive operational costs down. Technology in itself will not address these, but adoption of technologies such as mobile platform-based solutions, increased reporting and analytics across KPIs and business operations, as well as the adoption of industry best practice solutions for procurement, inventory management, logistics and management of assets can. However, adoption of these must be undertaken with strong business process alignment, data quality focus and organisational change management to be successful.
HC: Our customers are storing excessive amounts of data and yet they feel they have limited access to quality information. We turn data into sensible information. As an example, we help our customers to identify the sets of data that are critical for decision-making, and then we implement systems and processes to guarantee the accuracy of the relevant data. We also help our customers to archive the less important data.
ISAP: Are you seeing a willingness in the market to take on major projects, or are customers favouring smaller projects instead?
KK & GB: We are seeing two levels of activity. The mature clients with stable ERP platforms are expanding and organically growing their footprint through smaller projects in areas such as SAP BusinessObjects and mobility. In addition, there are those organisations that have not started the ERP journey or have ‘first generation’ ERP platforms that are in the process of considering large-scale transformation programs. The jury is out as to whether some of the larger programs in early stages are likely to be impacted by the global economic issues. Some of the larger programs are in the government sector and therefore potentially less impacted by these macro issues.
IM: There has been reduction in the volume of large, complex SAP implementation projects that were being undertaken through the late ‘90s and early 2000s, and that has been the case for a quite a period now. However, in the last two or three years, there have been a number of very large SAP and SI projects for major business transformation programs across a number of large multinationals, large enterprise and federal and state government agencies. These are usually resulting from a significant business change or review, such as merger, divestment or a major shift in the business model for the organisation. So projects of this nature that have been launched are actually larger and more holistic than in the past, but in smaller numbers than perhaps in the past. There does appear to be a big leap from these to smaller, shorter and higher volume of projects targeted at a specific business process or domain.
These smaller projects often have very tight scope, cost and schedules which are hard-wired to business outcomes and objectives. So there is a return to the 12-month realisation of a ROI and TCO reduction type of business case.
HC: Our customers are clearly trending towards smaller projects.
ISAP: Are you seeing any trends in terms of engagement models and resourcing SAP projects?
KK & GB: Engagement models vary across organisations but certainly one big criteria for many organisations are models which reduce risk and are outcome focused. The engagement models are also more structure towards a ‘partnership model’ between the client and the SI rather than models where the clients cede all control to the SI in how projects are structured and managed.
IM: Trend in industry sectors are quite different from a resourcing perspective, with a new skills shortage emerging in WA and ACT around natural resources and public sector projects, while in others such as manufacturing and retail potentially the opposite over the next 12 months. Where skills or people are scarce, there is an increased contractor or market rate ahead of inflation trend, but not across all skill sets. So the skills shortage seems to be in more niche, specialist and new product areas, rather than across the board. This is not necessarily a new trend, but just a different cycle of the usual peak and trough model, although more granular and in different phases across industries and skill sets. There has also been a shift to more fixed price, fixed scope and fixed schedule tendering by both commercial organisations and government for procurement of solutions and services, so pushing risk and accountability out of the business to consulting firms, SIs and outsourcing organisations.
HC: We have noticed two opposite trends. Either complete outsourcing, or customers priming their own projects while engaging multiple niche consultancies. We are also noticing a trend towards shared risk/reward projects.
ISAP: Looking at the availability of SAP skills in the Australian and New Zealand market, what challenges do you face with this and has there been any change over the last 12 months?
KK & GB: Our experience has been that the market for good skills is very tight, and has tightened over the last few months. There are a lot of people claiming to be
SAP consultants but the good experienced ones are hard to find. Many organisations have been forced to search internationally for skills especially in the newer niche areas of SAP. This has also contributed to instability within organisations as good talent is cannibalised. Organisations are increasingly being forced to be more imaginative in how they attract and retain good staff.
IM: I would probably highlight the previous observations on resourcing as a continuing trend over the next 12 months, some skills in high demand and with limited availability, but very specific to certain locations and industry sectors. Recognising this is one thing, addressing it is more of a challenge! Flexibility with staff on travel and working models has to be tailored more at an individual level, rather than a generic organisational policy, while looking at ways to bring in new people and skills from overseas is also a good avenue given the economic issues in the US and Europe. So getting highly skills and experienced people in the market from these locations is proving more effective than in the past.
Most importantly though is looking after the key and talented staff that are already in the organisation, ensuring they are engaged and motivated to stay with you. This is probably the most effective resourcing approach to take at present, and again must be much more targeted and specific to an individual, and their career, skill needs and aspirations, than the common ‘broad brush’ approach that may have been adopted in the past.
HC: As SAP BusinessObjects is taking off, we are experiencing a shortage of skills in this area. Otherwise the demand/supply situation has remained fairly stable over the last 12 months.
ISAP: What’s the next big thing in enterprise IT?
KK & GB: What is extremely clear is that any ‘next big thing’ – be it evolutionary such as the maturing and escalating application of technologies like HANA, on-device mobility and cloud, or indeed revolutionary – must be both enablers and drivers to support organisations’ objectives to adapt to change, competition and complexity. To find out what that enterprise IT agenda is, or put another way, what will drive ‘the next big thing in IT’, IBM recently conducted face-to-face interviews with 3018 CIOs in 71 countries and 18 industries, including 181 respondents from ANZ.
Through these conversations and by applying rigorous statistical and textual analysis of CIO responses, we have gained deep insight into the issues that technology leaders are facing and that enterprise IT evolution must address. The 2011 IBM Global CIO Study that shares this insight is available at www.ibm.com/theessentialcio.
IM: Well we keep being repeatedly told that it is cloud-based
services and solutions which will change the way the whole IS market, not just SAP, will be positioned in the market. So I fully expect that to be the major shift over the next five years. However I do think the pace of adoption to this model is still unclear. The challenge with it is making it a viable business and commercial model which will work for both providers and consumers, not just consumers.
The technology is not an issue, that is already there and will continue to mature, but I am less convinced of the commercial viability for all the stakeholders. One way that it could get much quicker adoption and market is where generic and non-competitive industry- or sector-wide solutions can be adopted by multiple organisations. This will provide the volume for the commercial viability, and yet also remove any concerns or reservations from a date, security or loss of competitive edge perspective from individual organisations. Government and the public sector would seem to be a potential target, as would perhaps industry areas such as training and certification, safety, standards adoption or adherence, and so on.
In addition to everything cloud, I believe there will be a continued trend to move enterprise solutions and applications to be more flexibly and specifically consumed to meet individual roles and devices. Therefore there will be a continued increase in deployment of applications and business process to mobile devices, tablets, and so on, where they can be configured at source to fit with an individual’s user interface or usage preference.
I think sustainability is also going to see rapid market growth and increased focus in Australia, with the introduction of the carbon tax, and the various compliance, reporting and financial implications that will have across all organisations over the next three to four years.
HC: In-memory computing.
This article was first published in Inside SAP Yearbook 2012.
