In this day and age, there is no substitute for cash flow.
The path to boardmembers’ bliss is through wage-freeze, budget-cuts and restructuring but it doesn’t have to be that way. A consulting firm has come out with a methodology that could define IT initiatives that increases shareholder’s value.
If you are a CIO who has been implementing ERP within the company and would like to extend it externally to include your suppliers, don’t even think about it if you haven’t done your return-on-investment sums for that ERP extension that you think will save your skin.
In the first place, what are the broad elements that would increase shareholder’s value, and do corporations need a methodology to tell them that?
Before you turn ERP around and say that it is too PRE-sumptious that it will work for your e-business strategy, there are recent successes in the region that could convince you otherwise. Lafarge Cement Philippines has moved beyond the walls of an enterprise to collaborate with partners, vendors, and customers and there are more of such happy customers.
“CateringX has doubled its transaction volume from US$1.5 million in June 2000, to a year-to-year total of US$3.5 million in 12 months by leveraging Oracle’s exchange platform,” says George Huels, CEO of CateringX, a year-old online operator of e-business exchange for the catering industry started by renown Philippines businessman, Bong Tan Jr.
“Companies that have the longest experience with enterprise resource planning (ERP) will understand the repercussions of not squeezing more inefficiency out of their back room operations,” explains Ian McRae, vice president of Cap Gemini Ernst & Young for the ERP Group.
The broad elements that Cap Gemini thinks are essential to deliver on that promise involves an organization alignment, connected processes, extended enterprise and IT architecture. In other words, people, process and an automated computing platform.
In the current economic climate, many companies are deeply concerned about their survival, and one way they can address this is to increase the ROI of their ERP implementations. Cap Gemini Ernst & Young has devised a new initiative called Extended Enterprise Effectiveness, or simply E3. The programme is a methodology to frame accelerated solutions within a business benefits context for Asia Pacific markets such as Singapore, Sydney and India.
“Before we can even meet, CIOs have told us that it is going to be very difficult to justify any IT spending without a compelling reason and I believe our proven methodology, using Holt Value Associate’s software, will help clients to prioritize within three minutes initiatives that can benefit their stock value,” says Joseph Thomas, who is the Global Practice Leader of E3 at Cap Gemini Ernst & Young, with 99 percent confidence level in the safety of the methodology and caliber of his implementers.
“What Cap Gemini Ernst & Young are claiming with their methodology are rather large, similar to Oracle's claim that it saved US$1B using its own applications, resulting in a class action against them,” responds Chan Jee Meng, vice president of sales and marketing for IFS Asia Pacific.
“All IT projects should have a target ROI anyway, with tangible benefits from either increased revenue or efficiency resulting in better bottom line. This would obviously increase shareholders' value. It is, however, usually difficult to attribute a business success to specific projects because of the intricacies and inter-relations of process, people and markets," he argues.
Obviously, the engagement to extend an ERP internally and externally to reach the desired goal will come at a price and it can take the form of either a fixed-price contract tied to a client satisfaction score card or gain-sharing, or a combination of all three.
“The measures that we recommend will have an overall impact that relates to the corporate shareholder’s level but more importantly, it will involve execution consulting where we have to stay with the client all the way,” Joseph avers.
And how long will it take? A lot of it depends on the vendor ERP’s capability plus the hardware’s capacity to support the implementation but it could be a relative short execution if the client is already implementing core ERP and maximizing its value by extending it to internal applications within the company and externally to partners.
In a recent article, it was brought up that much of the problem may be in how to define ROI but contract manufacturers like Flextronics and Celestica acknowledge that financial concerns play a role, but that's not the heart of the issue for them.
That may be because their role is not financial. “How many of them can tell you how sound is the company's cash flow from supplier to customers?” Joseph Thomas asks.
“We are not targeting customers which may have to rationalize its relationship with 2,600 suppliers where less than half of them don’t even have a PC to begin with,” Ian continues, “and the challenges are a bit different from US-based billion dollar companies but the business drivers are probably the same in Asia – how to justify IT spending and what is the return-on-investment.”
Call it value creation or shareholder’s value but the scepticism remains. Isn’t this just another key performance indicator that consultants swear by? Not if they can really show you how to increase your shareholder’s value.
Although the Holt Value ROI software has not been tested in conjunction with an ERP implementation in Asia Pacific, Oracle’s Browyn Hastings is confident that it will be successful. The vice president of channels and marketing for Oracle Asia Pacific clarified that they can vouch for Cap Gemini’s methodology.
From an Asia Pacific perspective, 70 percent of Oracle’s DBA product revenues are from partners and 50 percent of applications revenue are also delivered via partners. Cap Gemini is a Certified Advantage Partner of Oracle and both companies are confident that their combined accelerated solution methodology will appeal to customers who are looking beyond ROI to increase their company’s shareholder values.