1. business and industrial

White Paper
Empowering Finance for E-Business
How to Exploit Technology to Optimize Value
Empowering Finance for E-Business
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This White Paper was prepared by mySAP Financials Program Management in
collaboration with the PricewaterhouseCoopers global Financial Management
Solutions consultancy team
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Empowering Finance for E-Business
Contents
About This Paper
5
New Opportunities for Value Creation
Business Models for the Twenty-First Century
The Importance of Intangible Assets
Managing for Value in an E-Business World
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Challenges for the CFO
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Moving to Virtual Financial Operations
Integrating ERP and E-Business Systems
Redesigning Processes Using the Internet
Accounting Systems for E -Business
Web Enabling Payments and Treasury
Reducing Working Capital
E-Business Risk Management
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Introducing Integrated Analytics
A Framework for Decision Support
Business Analytics
Strategy and Business Performance Management
Strategic Stakeholder Communication
Focusing on Customer Value
Valuing Other Intangibles
Incorporating New Metrics for E-Business
Sharing Knowledge and Improving Personal Productivity through Portals
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The Business Case for Change
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Building a Systems Vision for E-Business
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Next-Generation mySAP Financials
Financial Operations
E-Business Accounting
Business Analytics
Strategy and Business Performance Management
Strategic Stakeholder Communication
Enterprise Portals
Software Services
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Advantages of the SAP Approach
Architecture
Functionality
Ease of Implementation
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Join SAP’s Best Practice Community
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Empowering Finance for E-Business
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Empowering Finance for E-Business
About This Paper
Companies in the Internet age are finding that IT is no
longer a back office support function, but a prime source
of competitive advantage. Technology is essential for
delivering products and services. For growing numbers
of companies, it’s becoming an integral part of their
product and service offerings. As IT and business
strategies become entwined in e-business strategies and
as the competitive environment becomes ever more
complex and turbulent, how can companies stay on track
in their pursuit of cash flow and shareholder value?
The chief financial officer (CFO) and finance – guardians
of company assets – have an important part to play.
Presiding over processes that cut across the business,
they are well placed to help the executive team face
challenging questions:
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How can we reorient our systems and practices toward
attracting and keeping the right customers?
Which of our intangible assets – like our brand equity,
human capital, and corporate reputation – does the
market value most highly?
How can we design a unique business model? How
can we monitor its impact on the company’s
performance?
What does it really mean to be an agile company?
How can we provide our key decision makers with
real-time information that will help them identify and
exploit opportunities to create value?
How can we leverage our investment in existing
systems? How can we integrate new systems inside
and outside the organization – and do so quickly, with
minimal disruption to everyday operations?
This paper explores the benefits of introducing mySAP
Financials — SAP’s next-generation solution that will
help the CFO to measure and manage the value of the
company’s intangible and tangible assets. By linking the
company’s own financial processes and systems with
those of e-business partners and by extending integration vertically to support value-based decision making
and communication, mySAP Financials components
empower finance professionals to play their role in
sustaining optimal performance.
The paper begins by reviewing opportunities for creating
value in the new economy and their impact on the role
of the CFO: essential reading for executives facing the
challenges of e-business. The following two sections,
Moving to Virtual Financial Operations and Introducing
Integrated Analytics, are of particular interest if you want
to understand in more detail the changing requirements
for financial processes and systems. For a solution, see
the sections on developing a business case and delivering
your integrated IT vision using mySAP Financials.
To support their company’s migration to e-business,
leading CFOs reinvent their finance functions wholesale
— structure, processes, systems, and skills. Using
enterprise resource planning (ERP) applications as a
foundation, they progress toward a new vision that
connects virtual operations with advanced analytics to
turn data into information into knowledge for use across
the extended enterprise. At every step along the way,
they manage the risks and returns associated with
systems-driven change.
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Empowering Finance for E-Business
New Opportunities for Value
Creation
Most of the world’s major companies have spent the last
few years pursuing strategies to enhance cash flow and
shareholder value. Their executive teams have been
preoccupied with converging priorities: exploiting IT as
an increasingly important source of competitive advantage, focusing on core competencies by streamlining the
business through shared services and outsourcing, and
participating in globalization and the search for
international partners.
Many new opportunities open up on all these agendas as
companies make the transition to e-business. The result
is continuing dramatic change for the business as a
whole and for the CFO and finance in particular.
Business Models for the Twenty-First
Century
The connectivity made possible by the Internet – and by
new forms of collaborative working for e-business —
leads companies to rethink their business models. Those
already enjoying internal connectivity between business
functions following investment in integrated ERP applications can, with relative ease, extend integration outward to suppliers and customers — creating a networked
extraprise (see Figure 1).
The company links internal operations on the buy side
to suppliers, using e-procurement and other supply chain
management (SCM) applications. Customer relationship
management (CRM) applications, such as sales force
automation and marketing automation software, facilitate connections on the sell side to customers. Both SCM
and CRM applications can enhance processes inside the
organization in conjunction with ERP applications, as do
Figure 1: From enterprise to networked extraprise: Value chain connectivity
Source: PricewaterhouseCoopers
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Empowering Finance for E-Business
new analytical tools that give managers access to
valuable information drawn from transaction systems.
Overall, the aim is to facilitate real-time collaboration
and decision making in order to optimize all supply
chain operations end-to-end, turning them into a
demand-driven value chain. Rather than attempting to
match production and inventory to expected customer
behavior, e-businesses flex their internal processes —
along with those of suppliers and partners — to respond
directly to actual sales.
Because Web-based connectivity enables a rapid, reliable
exchange of information, it is also fuelling the establishment of specialized providers of outsourced services.
Growing numbers of outsourcers can handle noncore
processes, including manufacturing, logistics, HR, and
finance beyond the conventional boundaries of the
organization, extending the networked extraprise.
As traditional companies update their IT capabilities,
these kinds of business-to-business (B2B) models are
expected to dominate the new e-business economy,
triggering an even bigger transformation than the
business-to-consumer (B2C) start-up operations that
flourished — receiving much investor and media
attention – in the first wave of Internet development. But
B2C connectivity will continue to provide an important
direct channel to market for both new and established
companies. Indeed, close links between developments in
B2B and B2C e-business will effectively create businessto-business-to-consumer (B2B2C) models.1
One area of rapid growth is participation in online
trading communities, or marketplaces, which are
expected to account for 75% of all B2B spending by
2010. Offering further value creation benefits through,
for example, aggregated purchasing, process efficiency,
and reduced working capital, electronic marketplaces are
being established to bring together trading partners:
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Within a single company or a consortium of several
partner companies
E-enabled business-to-employee (B2E) operations
feature in the business models of growing numbers of
organizations. These operations were originally designed
to take costs out of the HR function, but lately they have
focused on providing employee self-service applications
via a Web browser — for instance, for benefits enrollment, travel management, or time and expense reporting
– and can be developed into a stand-alone profit center
or even floated off as a separate company.
CFOs should also consider the potential for creating
value using business-to-finance (B2F) connectivity. By
employing best-in-class practices, the outsourced
finance operation may attract customers from other
organizations, first generating revenue and ultimately
becoming a separate company. This new company could
offer either a full range of finance services or specialized
services, such as investor reporting, statutory accounting, or handling interactions with tax authorities.
The Importance of Intangible Assets
Outsourcing manufacturing and other noncore
operations frees up enormous amounts of capital that
can be invested in brand development, customer ownership, network management, and other market-centric
requirements of e-business. As companies construct new
business models to drive value creation, and focus
management attention on customer pull rather than sales
push, the major trend is away from managing physical
assets and working capital toward leveraging intangible
assets, including brand capital and human capital (see
Figure 2).
On the buy side or the sell side of an industry value
chain
For intraindustry trading (providing a range of
products or services within a specific sector, such as
retail, biotechnology, chemicals, or utilities) or interindustry trading (providing the same products or
services across a range of sectors)
Through open or restricted buyer-supplier membership
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Empowering Finance for E-Business
Figure 2: From bricks and mortar to clicks and mortar: Decapitalizing the old economy business to build intangible assets in the
new economy business
Source: PricewaterhouseCoopers
From the CFO’s viewpoint, intangibles represent the gap
between the company’s market capitalization and the
value of the physical assets reported on the balance
sheet. For many companies, more than 80% of their
market value is attributable to such unreported intangible assets as customer value, trademarks, R&D, human
capital, and business partner relationships. The danger is
clear: because these increasingly important assets are
difficult to measure and manage, the company may
unwittingly underexploit them.
What can you do to protect and develop intangible
assets? For a start, it’s helpful to understand the sources
of value for an e-business. While the key drivers of
shareholder value are important for any business, studies
of e-businesses and investor valuations suggest that
seven factors dynamically influence these drivers in the
new economy (see Figure 3):
Customer focus
Long-term customer loyalty is hard won on the
Internet, where comparison buying is never more than
a few mouse clicks away. You must put the customer
at the heart of your e-business operations and create
shareholder value through customer value.
Brand equity
Brand equity heavily influences the competitive
advantage period (CAP), the timeframe over which the
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markets expect your e-business to generate returns in
excess of its weighted average cost of capital (WACC).
Management and planning
Capital markets and venture capitalists always play
close attention to the track record and credibility of
your management team and your plans for value
creation. The spotlight shines even brighter on
operations for e-business, which is short of
experienced players.
Business model
Design a business model that focuses on the customer
and on your company’s unique capabilities. Make sure
it’s robust enough to survive competitive threats.
Timing
Rapid execution is what a successful e-business is all
about. But the complex changes involved mean that
you must also be able to apply an appropriate
approach at an appropriate pace.
Agility
An agile company moves fast and first to take
advantage of new opportunities to create value. Your
processes and systems must be flexible to streamline
processes using shared services and outsourcing. Also
essential is an adaptive learning culture, together with
strong change management capabilities.
Content
Use the information and relationships created through
your CRM processes to build customer profitability by
Empowering Finance for E-Business
personalizing electronic catalogs, advertisements, and
other content presented to customers. You should also
carefully tailor content presented to other stakeholders.
which the company might leverage its customer base
through targeted marketing of other products, such as
CDs or toys. In addition, determining the value of options
helps explain how much of the market valuation is
caused by pure speculation.
Figure 3: Factors influencing value creation for an e-business
Source: PricewaterhouseCoopers
Leading companies are beginning to devise new metrics
linked to these sources of value. These new metrics will
be described later in this paper.
Managing for Value in an E-Business
World
CFOs and investors alike recognize that valuation of
e-businesses and e-business projects requires a different
approach from that used for many traditional ventures.
Real options valuation (ROVTM) is proving useful. This
approach builds on the techniques of discounted cash
flow (DCF), net present value (NPV), decision tree
analysis, and option pricing. What distinguishes ROVTM
from more conventional investment appraisal is its
facility to consider various uncertain outcomes, each
discounted for the corresponding risk profile.
Advanced techniques based on cash flow go a long way
toward capturing, in economic terms, what makes a
company valuable in the eyes of the market by analyzing
current cash flows and expected future performance (see
Figure 4). ROVTM goes one significant step further by
letting you measure the value of the company’s strategic
options. This means it’s easier for the calculation to
address the volatility of the e-business operating
environment and the growing emphasis on creating value
from intangibles. For a new online bookseller like
amazon.com, for example, ROVTM could explore ways in
Figure 4: How does the market value an e-business?
Source: PricewaterhouseCoopers
Military scenario planning provides an analogy for
organizations coping with the disruptive impact of
Internet technology. Sticking with one strategy when
engaging the enemy is unlikely to lead to victory. What
do you do if something unexpected happens? Instead, it’s
wise to identify multiple potential strategies, choose the
best one to adopt initially, and then conduct reconnaissance at selected intervals to assess its continued
viability. At any point, the chosen strategy could be
varied, switched, or replaced with a more attractive
option based on new, unforeseen opportunities that have
emerged.
CFOs battling for competitive advantage in a range of
industries in both new and old economy sectors are using
the power of ROVTM to enhance strategic decision making
— for example, when valuing exploration opportunities
in the oil industry, R&D portfolios in pharmaceuticals,
NPD in consumer products companies, and growth
options in the technology sector. Using sophisticated
dynamic modeling, they can examine hundreds or even
thousands of scenarios and identify flexible ways to
manage both the upside and downside.2 Whatever
approach you use, it’s important to remember that your
valuation is only as good as the base assumptions you
feed into it. Experience suggests that applying the
thinking processes associated with ROVTM can in itself
provide valuable insights.
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Empowering Finance for E-Business
Challenges for the CFO
As the company positions itself for optimizing value in
the new economy, the CFO and finance function must
redefine their roles within the business (see Figure 5).
Presiding over processes that cut across the business, the
CFO is well placed to oversee and coordinate enterprisewide — and increasingly, extraprisewide – improvement
initiatives from an economic viewpoint. In particular, as
guardians of the company’s assets, including its information and knowledge assets, finance professionals have
key responsibility for managing risks and returns
associated with IT infrastructure development.
Figure 5: E-business impacts on the role of finance in three core areas
Source: PricewaterhouseCoopers
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To identify how finance professionals can add value to
e-business operations, it helps to frame a series of
finance value propositions. These propositions should set
out shareholder value improvements expected from CFOled change initiatives, taking into account options, risks,
and uncertainties. Your value propositions are likely to
improve capital utilization, build the networked
extraprise, and integrate new technologies:3
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Improving capital utilization
Finance can help to decapitalize the old economy
business by shedding physical assets and improving
operating efficiencies to build intangible assets in the
new economy business. Your role centers on value
chain analysis, asset disposals, working capital
improvements, increasing intangible asset values,
reducing operating costs and, most important,
releasing funds for reinvestment in growth.
Empowering Finance for E-Business
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Building the networked extraprise
Finance can support the company in leveraging
networks, working with business partners, entering
electronic marketplaces, and developing and
participating in new economic models. Your role
includes competitive financing, business planning,
broadening shared services, outsourcing business
processes and IT applications, and attracting and
allocating resources.
Integrating new technologies
Finance can guide the extraprise as it Web-enables
business processes, connects transactions and
decision support, and exploits Internet technology to
help convert data into information into knowledge.
Your role includes streamlining financial
management processes and connecting e-business
strategy to operations via new processes, new
analytical applications, and new metrics.
What kind of organizational structure will best allow
finance to fulfill its new role? Already, most finance
functions have made a significant shift – driven by
investment in ERP and shared service centers – toward
being less resource intensive, more efficient teams,
particularly in the area of transaction processing,
allowing increased emphasis on decision support. In the
future, finance will be even leaner (see Figure 6).
To respond rapidly to the changing needs of the business,
the finance function will become increasingly fragmented. With many tasks delegated to business
managers or handled by shared service centers or
external outsourcers, the finance staff will act as
coordinators and offer higher value, adding more
strategic services. Standardized, integrated processes and
systems will be embedded within the business, and they
will be available globally to users who can operate them
Figure 6: Reshaping the finance function to support the extended enterprise
Source: PricewaterhouseCoopers
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Empowering Finance for E-Business
without needing to be aware of where they are located
and maintained. The critical role of decision support may
be fulfilled primarily by managers outside finance.
Finance professionals will adopt a new training and
coaching role to transfer appropriate skills and
techniques.
The following sections focus on new requirements for
finance processes and systems in two major areas:
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Operational processes and systems to support
successful e-business and to turn transaction data into
financial and business performance information
Analytical processes and systems to turn information
into knowledge for value-based decision making
across the extraprise.
Moving to Virtual Financial
Operations
As e-business becomes a reality throughout the
corporate world, CFOs are under pressure to align
operational processes and systems within the finance
function with their companies’ new, more virtual
organizational structures. In doing so, they face major
challenges.
Integrating ERP and E-Business Systems
Beginning in the 1990s, companies have successfully
integrated back-office process and information flows
enterprisewide by replacing functionally oriented legacy
systems with a single ERP system. The payoff for
significant investment in process reengineering and new
hardware and software comes via streamlined transactions and provision of better quality, more consistent
financial information.
More recently, as new corporate software capable of
exploiting the potential of the Internet has proliferated,
companies have been implementing SCM, CRM, data
warehouses, and other sophisticated systems that help
optimize end-to-end operations. And they have been
strengthening connections with value chain partners,
each with their own diverse technology solutions. The
result is a complex extraprise information environment,
representing a tough new integration challenge (see
Figure 7).
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Empowering Finance for E-Business
Figure 7: From ERP to e-business: The integration challenge
ERP provides an essential foundation for the evolution
of your IT infrastructure. A robust, tightly integrated ERP
system is needed to handle, at speed, the volume of
transactions generated by successful e-business and to
enable timely sharing of accurate information with partners. But if other internal or external systems come from
different vendors, they will be difficult to connect without custom interface programming, leaving the company
with the question of how to avoid isolated application
islands.
Some companies have progressed toward integrated
enterprise reporting by using a data warehouse to bring
together data from ERP, SCM and CRM systems and to
deliver associated key performance indicators. But the
move to e-business demands full application-to-application integration at a business process level both within
and between enterprises. Even companies investing in
emerging integration technology, such as enterprise
application integration (EAI) middleware, often find that
the purchased connectors need a high degree of specification to meet their unique requirements, resulting in
delayed implementation and increased set-up and
maintenance costs.
To overcome such problems, ready-to-use applications,
such as mySAP Financials, are beginning to emerge.
These applications enable flexible integration between
accounting, operational, and analytic applications and
provide standard integration functions embedded in the
software, offering the promise of future plug-and-play
application integration.
Redesigning Processes Using the Internet
The connectivity made possible by the Internet opens up
many more options for business model design, as
described earlier. Clearly, new opportunities for
generating revenue and reducing costs need to be
balanced against the added complexity of establishing
and maintaining the right network of value chain
partners.
The CFO must help with critical decisions. What really
are the company’s core competencies? In other words,
what must it retain and develop internally in order to
create a unique business model that drives customer and
shareholder value? What processes should be delivered
by a shared service center? What can be handled by
outsourcing providers?
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Empowering Finance for E-Business
As the benefits of shared service and outsourcing
solutions have been proven, their scope has extended
from financial transaction processing and IT services to
include procurement, logistics, HR, and a wider range of
accounting services. Able to access resources globally
over the Web, companies can choose the best site for
services. For example, call centers are being set up in
countries with a lower cost of doing business and a pool
of highly skilled workers. At the same time, new
technology is eroding the need to centralize shared
services in a single physical location. Of the various
models emerging, the most advanced is a virtual shared
service center that offers users around the world access
to a standard process and system on a 24 x 7 basis (see
Figure 8).
Figure 8: Shared service center operating models
Source: PricewaterhouseCoopers
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These global operating models increase the demand for
tightly integrated processes and flexible, open systems
that work across legal, tax, and commercial boundaries
in a way that’s seamless to users. They let companies
more easily launch new operations to enter new markets.
New users access the services via a Web browser without
waiting for a local infrastructure to be established.
Increasingly, successful shared service centers are
becoming centers of excellence that can offer front- or
back-office services to the company’s strategic
customers and suppliers, then migrate to operating as an
independent profit center that serves multiple
companies.
Empowering Finance for E-Business
The potential benefits of using the Internet to outsource
nonstrategic operations include improved strategic focus
and reduced operating costs. The company can free up
capital, utilize resources and skills not available internally, access best practices, and share risks with a third
party.
In the hottest area of development for outsourced
services – business-to-business marketplaces – many
providers began by offering e-procurement services. But
as they leverage the value of consolidated transaction
data passing through the exchange, they are expanding
rapidly to offer logistics, order fulfillment, financial
services, marketing, and other information services.
Growing numbers of companies are faced with
opportunities to cooperate with major industry players
to develop such an exchange. Before investing company
funds, the CFO should apply specialized valuation
techniques to assess the viability of the venture.
Emerging applications offer capabilities for evaluating
results under a range of assumptions and risks, using a
variety of approaches to help arrive at a consensus view.
In this way, the proposed business model and investment
decision can be robustly challenged.4
It’s worth pointing out that despite the widespread
adoption of more virtual organization structures and
aggressive decapitalization strategies, there remains a
strong need in many companies for effective management of physical assets, such as offices and plants.
Indeed, systems that offer real estate management
functions – including administration of corporate
property, leasing, and rental – play an increasingly
important role in today’s dynamic operating environment. For example, timely penetration of new markets
may require the rapid, smooth establishment of local
offices and facilities, which is always a challenging task.
Clearly, property managers and owners alike want the
most from their real estate. To enable effective short-,
medium-, and long-term planning, real estate management processes must be integrated into the organization’s overall strategy and business processes.
Accounting Systems for E -Business
Early adopters of ERP implemented fully integrated
application suites in order to enjoy the benefits of
enterprisewide consistency of transaction data. Today,
these ERP suites are required to interoperate with SCM,
CRM, and other applications, along with the systems of
external value chain partners. In such a diverse IT
environment, how can the CFO continue to deliver
accurate, timely financial and business performance
information? The complexity of the task really hits home
when it comes to maintaining the integrity of data used
to derive detailed financial statements, for example,
when valuing COGS for manufacturing companies or
risk-adjusted lifetime profitability for banks. It must also
be possible to produce reliable data for management
decision making and external value communication.
These are demanding requirements for financial systems.
Historically, companies used data warehouses to facilitate analysis and reporting, but it is unlikely that these
will be sufficient to maintain the integrity of statutory
accounting records and support integrated analytics in
an e-business environment.
What’s needed is an e-business accounting engine,
capable of bringing together real-time transaction data
from disparate sources and converting it into appropriate
accounting views to satisfy international GAAP or local
standards, as well as cost management requirements (see
Figure 9). Generating accounting documents for subsequent auditing, this conversion process must enable
automatic account postings in various ledgers, by
applying appropriate user-defined business logic,
accounting rules, and valuation methods. Shared repositories for master data, metadata, and business functions
should ensure full consistency across linked operational,
accounting, and analytical systems, enabling the CFO
and management team not only to control the business,
but to optimize its performance. Clearly, such a system
— positioned at the heart of the enterprise information
architecture — must meet the highest expectations for
functionality, robustness, and scalability.
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Empowering Finance for E-Business
Figure 9: An e-business accounting engine converts transaction data into business performance information and feeds linked
analysis and reporting applications
Web Enabling Payments and Treasury
In a typical traditional finance function, some 60% of
costs are attributable to settlement processes, including
billing, payment, and financing. CFOs who take advantage of opportunities to outsource such processes using
the Web can cut costs and release resources to focus on
activities that add more value. In addition, the use of
electronic bill presentment and payment (EBPP) systems,
together with online dispute resolution and self-service
customer support, allows much more effective management of working capital tied up in accounts receivable
and cash positions.
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A range of service providers are positioning themselves
to take on aspects of the settlement role from companies
(see Figure 10). Emerging offerings include shared
service environments for accounts receivable and
accounts payable, as well as services for bill production
and presentment, and extraprise netting and financing.
Web connections to the company’s CRM and SCM
systems allow the exchange of relevant data for raising
invoices and approving bills for payment. Customer
management processes initially retained internally could
be considered for outsourcing later. In these sensitive
areas, there is a clear role for trusted third party (TTP)
service providers.
Empowering Finance for E-Business
Figure 10: Moving to outsourced settlement processes
Savvy CFOs limit risks by taking a phased approach to
implementation – aligned with changes in the company’s
business model and with the emergence of reliable new
software solutions and outsourcers. Development and
adoption of payment solutions, for example, has lagged
behind other areas like bill presentment because of
continuing concerns over security and fraud. In addition,
the commercial culture in some countries, such as
Scandinavian countries, has been more accepting of
electronic payments than in the US, which is currently
largely check based. Web-based financing solutions –
today focused on services, such as invoice discounting
or factoring – will in the future enable instantaneous
payments over the Web via flexible routes with or
without involving counter parties’ banks. A key potential
benefit is a reduction in the amount of cash tied up
unproductively in the banking system during existing
settlement processes.
These and other developments significantly affect how
companies provide treasury and cash management
services. For example, in the future, disbursements could
be consolidated by a centralized payment factory that
can link to banks worldwide and provide instructions
formatted for local payment systems. An in-house
banking service could provide accounts for company
affiliates or subsidiaries. Futurists speculate that this
disintermediation of the traditional banking role will
continue as the exchange of virtual money – value that
can be earned and spent on the Web — erodes the need
for banks as authorized holders and settlers of legal
tender.
As in other areas, there is a trend toward using treasury
software services over the Web from an application
service provider (ASP) — rather than installing and
maintaining new software in-house. As the range of
hosted applications increases, companies will be able to
17
Empowering Finance for E-Business
access and use treasury workstation software, cash
forecasting tools, and other specialized applications
through a secure network under a service level agreement (SLA). This will allow more users across the
organization to access services via a Web browser.
Reducing Working Capital
Initiatives that reduce working capital balances
associated with receivables and payables are well worthy
of the CFO’s attention. Working capital (one of the key
drivers of cash flow and shareholder value) typically
represents 40% of a company’s total assets. Any
improvements are directly reflected in published
accounts and tend to be seen by external analysts as a
sign of good management.
Dramatically reduced working capital – provided it is not
achieved at the expense of customers or suppliers – is a
highly desirable and realistic goal. Significant progress
is being made by companies exploiting technology to
optimize supply chain performance in two critical areas:5
■
■
Consolidating purchasing
E-procurement solutions, initially focused on indirect
spend, are now being developed for direct materials.
Suppliers are establishing portals to transact business,
and major customers are setting up private
marketplaces with links via an extranet to their
selected supply base. Other emerging solutions that
contribute to coordinated purchasing include
auctions, reverse auctions, and collaborative buying
through marketplaces.
Eliminating inventory
Web-enabled information sharing and collaboration
across the extended value chain makes planning,
forecasting, logistics, and manufacturing processes
faster and more efficient. Companies in the auto
industry, for example, are demonstrating how
coordinated execution, together with the ability to
track orders and shipments in real time, can cut
working capital tied up in inventory and safety stocks.
18
E-Business Risk Management
The risks of launching e-business operations are numerous: new risks like Internet security, reliability, tax and
legal issues, as well as heightened existing risks like
maintaining business continuity and controlling currency transaction exposure on a 24x7 basis. The
estimated failure rate for e-business projects within
traditional companies is an alarming 75%, and for
dot-com startups it’s even higher at 95%. Some 90% of
e-businesses have suffered significant disruption since
launch; 60% of networks are penetrated more than 30
times a year; and 20% of online credit card transactions
are fraudulent.
Forward-looking CFOs take on the challenge of integrating traditional financial and business risk management
with e-business risk management. In doing so, their role
is not only to protect the interests of the company, but
to respond to pressures to safeguard customers, shareholders, and other stakeholders, too. Companies that fail
to mitigate demonstrably the risks of e-business face the
biggest risk of all: being left out of the game.6
You’ll need to build in protection of the company’s
systems and information assets from the outset. E-businesses invest in firewalls to screen and validate
information that flows between value chain partners and
scan for viruses. Technological advances, such as data
encryption and digital signatures, allow other important
functions to be performed during electronic transactions,
including authentication of parties, protection of confidential information, and non-repudiation of agreements.
Trusted third party (TTP) service providers are key
operators in this area.
At a strategic level, techniques like real options valuation
(ROVTM) will help you to assess and manage e-business
risks. So, too, will decision-support tools that provide
advanced simulation and scenario modeling capabilities.
These tools will be discussed later in this paper.
Empowering Finance for E-Business
Introducing Integrated Analytics
ERP systems alone generate huge volumes of data.
E-business expands and adds an important external
focus to corporate data sources. Wise CFOs invest in
ways to maximize the company’s value performance by
leveraging all its information assets, whether drawn from
ERP, CRM, SCM, other internal applications, or from
external sources via the Internet. To do so, they need to
establish processes and systems that can support the
information needs of decision makers working across the
extraprise in highly dynamic conditions.
A Framework for Decision Support
Experience demonstrates that decision support is most
effective when management processes and information
– strategic, financial, and operational – are seamlessly
integrated across functions (see Figure 11). Data from the
operational systems of the company and its value chain
partners is consolidated and compared with targets as
part of the performance measurement process, creating
management information. Using simulation and scenario
modeling, this information is transformed into knowledge to form the basis of strategic planning.
Figure 11: Integrated decision-support processes drive value creation
Source: PricewaterhouseCoopers and SAP
19
Empowering Finance for E-Business
To complete the cycle, plans are translated into targets
to drive the management of operational performance
supported by appropriate key performance indicators
(KPIs) and incentives at all levels.
But this style of management remains a distant goal for
many companies. Critically, they lack systems capable of
delivering the necessary business intelligence analysis.
In most cases, disparate, functionally oriented data warehouses and online analytical processing (OLAP) tools
serve different parts of the business without adequate
connections, providing limited, inconsistent information.
For the CFOs of these companies, the business case for
introducing integrated analytics should be relatively
straightforward to devise.
Consider the example of a financial services company
whose front-line operators use a customer analytics
application to negotiate and finalize contracts in line
with overall shareholder value objectives. Two-way
communication between the application and transaction
systems enables monitoring of payments against
contract, informing future negotiations with the
customer. In addition, the software can generate an
aggregated view of negotiated contracts, which is used
for forecasting and target setting. Links with the strategic
review process let the company dynamically adjust
objectives and incorporate associated new operational
requirements into future customer analytics.
The functions you need can be broken down into three
tiers: business analytics, strategy and business performance management, and strategic stakeholder communication. In all cases, analytical applications should
receive consistent, comprehensive data from transaction
systems either directly or via your e-business accounting
engine. And users, including employees and external
stakeholders like business partners or investors, should
be given easy access to relevant analytical applications
and information via Web-based enterprise portals. You
can also use enterprise portals (which are described in
more detail later in this paper) to provide access to valueadding content from self-service, operational, and other
applications.
20
Business Analytics
Within an integrated framework, analytical applications
can help you to identify and exploit value-adding
opportunities within the day-to-day business, enabling
optimization of operational performance.
As well as analytics for financial management – such as
profitability analysis, strategic cost management,
activity-based management, and working capital
management – you need tools to support other specialized areas, with links back to related operational systems.
For instance, capabilities are emerging for customer selfservice, pricing of products and services, managing
database marketing, and other CRM requirements.
Critically, new analytical applications help you to
identify and to exploit opportunities for developing
value from intangible assets, including customer value,
brand equity value, R&D pipeline value, and human
capital value.
Tools designed to aid supply chain optimization offer
functions for value chain diagnostics, strategic sourcing,
and measuring responsiveness. Here, collaboration with
suppliers and other partners is increasingly important:
advanced applications support, for example, collaborative innovation, collaborative planning and scheduling,
and collaborative cost management. Marketplace
analytics are also being developed, offering functions
like analysis of exchange usage, tracking online and
offline revenue streams, and real-time profitability
analysis for Web auctions.
For HR specialists, analytical applications offer benefits,
including enhanced recruitment, incentives management, and information to develop competencies
matrices, skills mix requirements, and productivity
levels.
Strategy and Business Performance
Management
To support the information needs of decision makers at
all levels, you need a systems solution that connects
corporate strategy with operations and the actual value
being created by executing management’s plans. The
solution must use institutionalized feedback loops to
coordinate management of value-adding activities and
initiatives across the extended enterprise, enabling rapid
adaptation of strategies to changing market conditions.
Empowering Finance for E-Business
It must be capable of consolidating data from different
dimensions and levels within the business so that, via a
set of value based KPIs linked to a balanced scorecard,
you can see how well the organization is doing in
meeting its targets and budgets.7 With the right
information base, tools for generating rolling forecasts
let you project historical performance forward into the
future and adjust strategic objectives accordingly.
For effective planning, you also need a simulation
capability to allow you to model the effect of various
strategic options on the business. Alternative scenarios
should be analyzed to determine their impact on the
value drivers – for both tangible and intangible assets –
and different assumptions concerning risk should be
tested.
Strategic Stakeholder Communication
CFOs are all too aware that the quality of a company’s
stakeholder communication can have a significant
impact on the way the markets perceive and value the
business. For companies that want to make the transition
to e-business, professional communication with external
decision makers, such as investors and financial analysts,
is more important than ever. Because intangible assets
are harder to value and manage, you need to take
particular care to ensure that the investment community
understands your company’s strategy and performance.
Software to support Web-enabled external value
communication with investors and other stakeholders is
a key component of your analytics toolkit. Once again,
the big issue is integration. Consistent information must
be used for communication with the markets, for internal
management of the business and for formal presentation
in the annual report.
In 1998, SAP launched its strategic enterprise management (SEM) suite of analytical applications – the first
solution on the market to support integrated strategy and
business performance management processes, such as
strategic planning, forecasting, and budgeting, strategy
map and balanced scorecards, financial and management consolidation, KPI monitoring, strategic communication with external stakeholders, and value-based
management.8
Focusing on Customer Value
One aim of integrated CRM systems is to connect all the
varied experiences a customer has with the company,
both during a transaction – including marketing, product
selection, purchasing, receiving, and post-sale support –
and between transactions during the customer’s lifetime,
from initial visitor to long-term partner. This means your
solution must be capable of collecting and analyzing
data from the full range of sales and customer communication channels, including Web-based direct sales,
traditional field sales, and call centers. For the customer,
the result is a seamless series of interactions that
encourages loyalty. For the company, it’s a source of
information that managers can use to identify how and
when to focus resources on key customers.9
Not surprisingly, advanced customer analytics applications focus on providing customer value management
(CVM) functionality (see Figure 12). You can continually
monitor each customer’s value to the business – for
example, using a weighted customer value index,
combining financial and nonfinancial measures – and
direct CRM actions accordingly.
Figure 12: Building customer value management into your
CRM solution
Be prepared to uncover startling findings. In the mobile
telephone market, for example, it’s not unusual for 40%
of profits to be generated by fewer than 10% of
customers. One large bank discovered 99% of profits
came from 1% of its customers! Managers need to know
what value may be lost or gained before making
decisions about nurturing individual customers or
customer segments – particularly in business-toconsumer operations where bringing each customer to
breakeven point has become a critical discipline.
21
Empowering Finance for E-Business
Options for growing value include targeting your
marketing efforts at selected customers, running more
effective promotions, developing new products to satisfy
specific customer needs, devising more frequent opportunities for cross-selling, and restructuring call centers,
for example, by automating the interface with low-value
customers.
Valuing Other Intangibles
Customers – and customer value – come first. But many
other important intangible sources of value are receiving
attention from the internal management and external
investment communities, especially brands and trademarks, reputation, intellectual property and copyright,
the R&D pipeline, human capital, and business partner
relationships. Business advisors and software developers
are responding: analytical techniques are expected to
improve rapidly in such areas.
Figure 13: Example set of metrics for an e-business operation
Source: PricewaterhouseCoopers
22
Leading CFOs invest strenuous effort in understanding
the value drivers that underlie brand equity, so that they
can improve their companies’ approaches to quantifying
and developing this key asset. In turn, investors
increasingly look for evidence that companies are
managing brand equity effectively and expect detailed
disclosure of information. Cash flow based, economic
methods of brand valuation are popular because they
involve comprehensive assessment of the various factors
that might affect the ability of a brand to generate value
for its owner. To derive the valuation, market analysis is
applied alongside brand financial analysis, with cash
flows discounted at a rate adjusted for brand strength.
Approaches for valuing other intangibles are currently
less advanced. Reputation management, including
development of related key performance indicators, has
long been a recognized critical component of value
based management systems. But formal quantification of
reputational value remains a difficult challenge. For
Empowering Finance for E-Business
intellectual property and copyright valuation, a royalty
based measurement may be appropriate, involving
calculation of the net present value of an estimated
royalty stream.
Incorporating New Metrics for E-Business
Monitoring e-business performance requires a new, very
different set of metrics. Designed to be tracked automatically and reported frequently – often daily – via
integrated extraprisewide processes and systems, today’s
e-metrics link to old and new, financial and nonfinancial
sources of value (see Figure 13). Companies will continue
to develop new metrics to help them deliver their
e-business strategies within various operating models,
including electronic marketplaces, using tried and tested
approaches from traditional performance management
systems.
In order to use new metrics to provide timely business
performance information in today’s dynamic environment, CFOs will need to build on improvements in
closing and reporting processes achieved over recent
years. Best-in-class companies achieve a one-day close,
with reports available one or two days later. The future
promises an e-close and provision of actionable
performance information on demand to decision makers
inside and outside the organization.
This vision brings together tough challenges:
standardizing and Web-enabling transaction processing,
eliminating manual interventions, automating accruals
and closing entries, automating reconciliation, sourcing
more types of data from more diverse sources on a
continuous basis, and exploiting sophisticated data
warehousing and analytical applications to report and
communicate results.
Sharing Knowledge and Improving
Personal Productivity through Portals
Enterprise portal technology gives CFOs unprecedented
opportunities for extending knowledge to decision
makers across the distributed enterprise and for providing employees, professionals within the company,
and external stakeholder with a single point of entry to
internal and external applications, business content,
relevant information, and services. An enterprise portal
lets managers quickly and easily access information
from analysis, reporting, and other applications via a
Web browser, offering one-stop, self-service shopping
for decision support.
Enterprise portals are modeled on successful Internet
consumer portals, such as Yahoo! and Excite, that give
users a single point from which to start a search for
information within an organizing structure that’s simple
to understand and navigate. The need for a similar,
centralized access point has developed in the corporate
world as the amount of information to which employees
are exposed has escalated. Indeed, widespread familiarity
with Internet portals means employees now expect
corporate systems to offer comparable capabilities.
A well-designed portal links people to selected
applications and helps them to locate, manage, and use
valuable information within the context of their jobs.
Core capabilities – including multimedia, search and
retrieval, personalization, and knowledge mapping –
empower decision makers to get the information they
need, when they need it, and displayed in the way they
find most useful. In addition, tools like bulletin boards,
video conferencing, and virtual team rooms facilitate
collaboration and e-training.
Companies that create an enterprise portal can leverage
their investment in systems by providing larger numbers
of users with a gateway onto the IT environment from
their desktops or from other devices, such as mobile
phones, pagers, or digital TVs. Within the same basic
portal design, you can tailor content and functions to the
specific needs of different user groups inside or outside
the organization – as the following examples demonstrate:
23
Empowering Finance for E-Business
■
■
■
CFO portals and workplace portals for other finance
professionals
You can provide finance professionals with missioncritical performance information that is continually
refreshed and combined with relevant, externally
sourced information, such as competitor comparisons,
media comment, economic indicators, and benchmarks. Users can access operational applications and
query data via analytical applications through one
role-based portal and benefit from enhanced communication and team building across a fragmented
finance organization.
Employee portals
Employee portals are leading to significant cost
savings in many companies by enabling universal
employee self-service access to routine HR functions.
By providing a link to functions for travel and
expense management, for example, you can cut the
time spent by employees finding travel arrangements
that fit the company’s policy and reduce
administration costs.
External stakeholder portals
By allowing external portal access, you can promote
collaboration with suppliers and customers across the
value chain or deliver timely, tailored reports to
shareholders and financial analysts.
Explosive growth in portal technology is likely to
continue, fuelled in part by the adoption among software
vendors of the extensible markup language (XML)
standard to facilitate application-to-application information sharing within and between enterprises.
Examples of XML based e-business languages include
the extensible business report language (XBRL) for
financial reporting and for exchange of financial and
business performance information.
The Business Case for Change
What kind of return can you expect from your
investment in implementing integrated processes and
systems to support e-business? Expert analysis, backed
up by observations of the performance of real-life
companies, shows that new business models can have a
major beneficial impact on the key drivers of cash flow
and value.
One approach is to build valuation models for a bricksand-mortar company and an equivalent e-business, each
with identical market prospects.10 Compared with
traditional business models, Web-enabled business-tobusiness processes and communities offer efficiencies
that reduce per-unit operating costs, enhancing margin
performance by an estimated 2%. Strategies of
aggressive decapitalization also boost performance. The
faster order-to-cash cycle of an e-business might
reasonably be expected to reduce net investment in
working capital by 2%. Investment in fixed capital can
be reduced, again by 2%, by creating a single, global
e-business infrastructure. Most significantly, revenue
growth rate rises 5% due to expanded market access.
Even using conservative value analysis techniques,
overall cash flow improvements mean the e-enabled
company achieves a potential market valuation 8.5 times
higher than its old economy counterpart (see Figure 14).
Figure 14: Value transformation in a new economy,
e-enabled company (illustrative example)
Source: PricewaterhouseCoopers
24
Empowering Finance for E-Business
Developing the detailed business case for technologydriven change is an important task for the CFO. You can
use it to justify the investment of needed resources – and
to generate support across the extraprise from the outset.
This way, the initiative gets off the ground smoothly and
passes through difficult periods quickly. For example,
full realization of potential benefits from ERP
implementation is achieved only by companies that
pursue the project through to enterprisewide integration
of process and information flows across all functions and
business units. Of course, the most important benefit of
all is the establishment of a sound transaction processing
base for the company’s IT infrastructure, enabling
addition of the new operational and analytical functions
needed for successful e-business.
The experience of CFOs of major corporations confirms
the strong case for linking new e-business systems to
existing systems. Here are several examples:
■
■
Putting finance at the center of a Web of relationships
A global oil company found that moving finance and
accounting processes to shared service centers cuts
associated costs by between 20% and 50%, depending
on the region served. Now, the CFO is looking to
outsourcing solutions for additional savings: $1.4
billion over 10 years from one region alone. He’ll use
the Web to commercialize the outsourced centers for
other customers, to extend outsourcing to procurement, IT, HR, and real estate functions and to
exchange information with partners to aid
forecasting.
E-enabling customer management and settlement
processes
A multinational telecommunications company with
complex billing requirements has bolstered its
redesigned collections process with electronic bill
presentment and payment software, and it has
upgraded its credit-screening process with a customer
behavior modeling tool. The result of these and
related systems updates: a 60% reduction in customer
dispute resolution cycle time, a 15% reduction in days
sales outstanding, and a reduced bad debt charge.
■
■
Blowing up the budget
A $100 million cost reduction equates to about 0.5%
of a drinks manufacturer’s sales revenue. This is an
ambitious goal as the company attempts to globally
streamline performance management processes so
that targets align with strategic goals and bottom-up
reporting of KPIs connects with rolling forecasts,
rendering the traditional budgeting process obsolete.
The next, exciting step is to create a Web-based
enterprise portal that gives managers direct access to
valuable new knowledge.
Moving to self-service decision support
Savings of $825 million a year give the CFO of a
global technology company a reputation for getting
the most from integrated analytics. Because decision
makers access real-time management information via
a Web browser with no need for support staff as
intermediaries, there’s been a 27% productivity
improvement. Systems continuously monitor business
critical performance information, produce a flash
report at noon on day one following the close, and
provide complete reporting packages by the end of
day two.
25
Empowering Finance for E-Business
Building a Systems Vision for
E-Business
■
Given the compelling benefits, it’s not surprising that
traditional companies everywhere are positioning themselves to compete in the electronic age. As the company’s
IT strategy becomes a more integral part of its overall
business strategy, the CFO and CIO should work with the
executive team to develop a vision of the necessary
systems infrastructure.
In a less enterprise-bounded e-business world, process
and information flows beyond the organization assume
equal importance to flows within. An effective, demanddriven value chain requires a closed information loop
among ERP and e-business systems: front-office applications initiate back-office processes that speed a
customer order through to fulfillment and, at every step
along the way, provide business intelligence analysis to
help the company make and deliver on the next sale.11
Your two-fold challenge is to extend electronic
connections horizontally across the extraprise, between
the company and its customers, suppliers and partners,
and vertically between transaction-oriented systems and
higher-level systems for financial, strategy, and business
performance management.
Both parts of your vision must be assembled simultaneously. Eager to join the e-business revolution, most
companies focus IT investment on improving supply
chain efficiencies and partnering to boost response times
to Internet pace. But unless integrated operational
processes and systems are designed to capture valuable
information for decision makers by providing real-time
input to data warehouses and analytical tools, performance enhancements are unlikely to be sustainable.
■
■
■
So how can you be confident that the systems you
choose are able properly to support your move to ebusiness? Make sure they have the following features:
■
Open connectivity
Today, more than ever, you need open systems that
can be integrated with third-party applications.
Transactions performed internally on ERP, SCM, CRM,
and other systems must be connected with those
performed externally on the systems of business
partners and service providers. Even once you have
26
■
implemented a complete e-business solution, you will
need to allow for the addition of new, advanced
functions as they become available.
Flexibility
Successful e-businesses can flex their business models
rapidly as the conditions in which they operate
change. Systems need to be similarly flexible. You
must be able to adapt existing components to reflect
changes in organizational structures, processes, and
information requirements, for example, when moving
from insourcing to outsourcing or vice versa. You
must also be able to implement new components with
minimum disruption to everyday operations.
Accessibility and user friendliness
All the relevant information, functions, and services
must be easily available when and where they are
needed, whether by internal users and applications or
by external partners. All end users should be given
access through a Web browser – preferably built into
an enterprise portal that provides a single gateway
onto the company’s IT environment.
Responsiveness
Business-to-business and business-to-consumer
systems are expected to respond directly to customer
demand, whether for information or actual order
fulfillment. Increasingly, employees and other
stakeholders also expect virtually instantaneous
satisfaction of their information and communication
needs. Your integrated systems should be dynamic
and highly automated to support real-time transactions and decision making and to ensure that
changing business conditions trigger appropriate,
timely responses.
Robustness and scalability
In order to interoperate with other systems, components of your e-business solution must be capable of
integrating large volumes of data from diverse
sources and providing reliable outputs. They must
also be able to support simultaneous queries from
large numbers of users dispersed across the extraprise.
Consistency and data integrity
No matter how complex the company’s systems
infrastructure, nor how numerous its connections
with heterogeneous external sources, all users must
have confidence in the information and services
provided.
Empowering Finance for E-Business
To enable horizontally and vertically integrated ebusiness systems, SAP launched mySAP.com in 1999.
This integrated solutions set – including mySAP CRM,
mySAP SCM, mySAP PLM (product lifecycle
management),
mySAP
HCM
(human
capital
management), mySAP BI (Business Intellegence), and
mySAP Financials (financials and strategic enterprise
management) – communicates with the R/3 ERP suite.
In addition, mySAP Marketplace facilitates opportunities
for inter-enterprise business process integration by
enabling the extension of internally integrated ERP
processes outward into SAP’s global customer base,
using the Internet and virtual private networks.
Electronic buying and selling capabilities offered to
participants include business-to-business procurement –
a package that can connect buyer–purchasing and
supplier–catalog modules from different sources – as
well as dynamic pricing and the architecture to build
open or closed market sites.
27
Empowering Finance for E-Business
Next-Generation mySAP
Financials
SAP continues to develop software and service solutions
to support trends in the emerging e-business environment. In particular, new mySAP Financials will help
CFOs to maximize company performance by leveraging
both intangible and tangible assets. This next-generation
solution links the company’s own financial processes
and systems horizontally with those of business partners,
and it extends integration vertically to support value-
based decision making and communication in a highly
dynamic world (see Figure 15).
Based on SAP’s work with major organizations and
experts worldwide to identify the requirements for
financial processes and systems in the e-business world,
the mySAP Financials solution has a component-based
architecture. This offers outstanding degrees of
flexibility and openness.
With minimal disruption to existing IT investment, you
can deploy new functions step-by-step as needed and
quickly reconfigure processes and systems when
Figure 15: Integrating financial processes and systems horizontally across the extraprise and vertically between management levels
28
Empowering Finance for E-Business
changing market conditions trigger changes in your
business model. While mySAP Financials components
can operate on a stand-alone basis, they also interoperate easily with other SAP or third-party applications
and services within an organization and across the wider
business network.
Critically, shared repositories allow master data and
metadata to be exchanged in real time between
operational, accounting, and analytical applications and
business functions – such as currency translation rules,
allocations, valuations, and tax calculation – to be
shared between these different application components.
Because communication between these repositories and
linked applications is based on standard XML protocols,
services from third-party providers can be connected at
runtime, for example, for sourcing business partner
master data or payment details. This component
architecture also means mySAP Financials can be used
in a marketplace or shared service center or via an ASP.
Figure 16: The mySAP Financials component architecture facilitates step-by-step integration of new e-business functions with the
organization’s existing IT infrastructure
29
Empowering Finance for E-Business
The mySAP Financials solution covers seven functional
areas:
■
■
■
■
■
■
■
Financial operations
E-business accounting
Business analytics
Strategy and business performance management
Strategic stakeholder communication
Enterprise portals
Software services.
Financial Operations
The financial operations features of mySAP Financials
span all areas of financial transaction processing,
including electronic bill presentment and payment
(EBPP) and other settlement processes, management of
accounts receivable (AR) and accounts payable (AP),
credit risk and limit management, cash pooling, cash
management, and liquidity planning.
It also offers functions for travel and expense management, such as online booking of travel services and posttrip administration and processing of travel expenses. In
addition, it handles real estate management – including
real estate administration, leasing, rental, and portfolio
management – with links to financial and other business
process applications.
E-Business Accounting
The mySAP Financials e-business accounting engine
provides general ledger and cost management functions,
enabling automatic accounting processing of transaction
data originating from a variety of sources – including
ERP, CRM, SCM, HRM, and industry-specific or legacy
systems. It automatically converts original transaction
data into auditable accounting documents and into
different parallel and reconciled accounting views to
support international GAAPs, local GAAPs, management
reporting, or project accounting using appropriate
methods, such as user configurable valuation or
allocation methods.
The task of the e-business accounting is to provide
standardized and reconciled sets of financial data
automatically to support financial reporting, cost
management, and analytic tasks. Output from e-business
accounting is therefore passed to predefined SAP
30
Business Information Warehouse infocubes to feed
analysis and reporting applications.
Business Analytics
Business analytics capabilities allow end users to
monitor operations, and they support analytic tasks, such
as modeling and simulation based on external information and operative data from different internal and
external systems.
Business analytics support decision support and a
comprehensive range of analytic tasks related to finance,
including profitability analysis (by market, organizational unit, business process, or legal entity), strategic
and collaborative cost management, activity-based
management, working capital optimization, overhead
cost management, fixed asset analysis, and capital
investment management.
It also provides tools to help ensure that operational
decision making in other parts of the business aims at
optimizing value from both intangible and tangible
assets. Critically, the software offers CRM analytics for
customer lifetime value management and SCM analytics
for supply chain optimization, as well as analytics to
support product lifecycle management, human capital
management and participation in electronic marketplaces.
This component offers integration through shared
functions and data between the various analytical
applications and with other mySAP Financials components.
Empowering Finance for E-Business
Strategy and Business Performance
Management
To enhance strategy and business performance
management, mySAP Financials provides capabilities for
strategic and dynamic scenario modeling and simulation, business planning, strategy mapping (creation
and electronic distribution of a strategy map, including
strategic objectives and cause-effect linkages), as well as
definition of related measures, benchmarks, initiatives,
and responsibilities. Management and KPI reporting
capabilities include balanced scorecards, value driver
trees, and a Management Cockpit. In addition, functions
cover business risk management, financial and management consolidations, budgeting, and rolling forecasts.
These features build on SAP’s existing strategic enterprise management (SEM) functions (business information collection, business planning and simulation,
business consolidation and sourcing, and corporate
performance monitor).
Strategic Stakeholder Communication
The mySAP Financials solution addresses the growing
requirement for stakeholder management (using stakeholder analysis and stakeholder master and contact
databases), for stakeholder Web publishing (using
specialized reporting tools, balanced scorecards, value
driver trees, and simulation models) and for two-way
stakeholder communication (for example via e-mail,
mailing, Web feedback, and questionnaires).
These features build on SAP’s existing strategic enterprise management (SEM) functions for stakeholder
relationship management.
Figure 17: New mySAP Financials key capabilities
31
Empowering Finance for E-Business
Enterprise Portals
By giving individuals or groups of users easy access to
valuable information and services via a Web browser, a
mySAP Financials enterprise portal can improve the
depth and quality of knowledge sharing with key stakeholders inside and outside the company. Portals can draw
on mySAP Financials and on related content from other
sources.
A CFO or finance portal can speed access to financial
information, transactions, analytics, and business
performance data.
A portal for managers can help meet the specific
information needs of decision makers in middle and line
management.
And an investor portal can provide features designed to
enhance investor relations.
SAP will use the mySAP Financials portal capabilities to
facilitate communication with participants in the global
Financial and Strategic Enterprise Management Best
Practice Community, described in the final section of this
paper.
Software Services
SAP offers third-party services that link automatically
into mySAP Financials components at execution point,
such as services for business partner catalogs, credit
scoring, external cash pooling and netting (Orbian), and
worldwide sales and use tax calculation.
32
Advantages of the SAP
Approach
Even in the dizzying world of e-business, savvy CFOs
know that systems rollout must be an evolutionary, not
revolutionary, process. The mySAP Financials solution
has major advantages over other available solutions.
Architecture
Built on the latest Internet technology and communication standards, mySAP Financials can process huge
volumes of information, handle heavy transaction loads,
and provide rapid reactions and decision support. Unlike
other solutions on the market, SAP’s solution offers high
levels of functional and data integration by synchronizing information and business logic between mySAP
Financials and complementary internal and external
systems. This open connectivity allows business components to interact with multiple business systems.
Functionality
Building on SAP’s experience as the market leader in
financial systems design and implementation, the
mySAP Financials solution helps companies to maximize
their value performance in the new economy.
It provides functions for managing financial operations
– including those commonly outsourced to service
providers, such as settlement – and for travel and
expense management and real estate management. It
enables e-business accounting in a heterogeneous
systems environment and offers state-of-the-art financial analytics, along with analytics for CRM, SCM,
product lifecycle management, human capital management, and marketplace participation. End-to-end SEM
processes are supported by advanced strategy and
business performance management capabilities —
including scenario modeling and simulation, business
planning, forecasting and KPI reporting – linked to the
strategic stakeholder communication component. Using
a Web-based enterprise portal, you can give users inside
and outside the organization easy access to selected
mySAP Financials components, transactions and
information, as well as related value adding content.
Empowering Finance for E-Business
In addition, services offered by SAP’s partners — for
example, provision of credit scoring or tax information,
cash pooling and netting services, and other finance
related services — can be tightly integrated into mySAP
Financials, allowing a high degree of automation.
Ease of Implementation
Because SAP uses standard component architectures and
state-of-the-art, object-oriented techniques, you can
deploy mySAP Financials functionality incrementally, as
you need it. You can deploy those components needed to
support today’s business model and, when market
conditions change, rapidly integrate other components
to help you gain first mover advantage. At each stage,
minimal changes will be needed to existing components
and structures. The mySAP Financials open architecture
means components integrate seamlessly into an existing
ERP environment and work together easily with R/3
applications.
Join SAP’s Best Practice
Community
SAP recognizes that the transition to e-business is a
radical change for any established company, requiring a
great deal more than advanced computing technology
and solutions. Companies implementing mySAP Financials and other components to improve their value
performance in today’s dynamic economy must adopt
new structures and practices, and ensure that people
develop new skills.
As part of our continuing commitment to the success of
our customers, SAP will host and organize the global
Financial and Strategic Enterprise Management Best
Practice Community. Its mission is to provide a forum for
learning and knowledge sharing by bringing together
our customers, partners, and other financial and SEM
experts to exchange ideas and experiences. It will also
help organizations to find the right business partners and
service providers to support their systems driven change
programs.
The Financial and Strategic Enterprise Management Best
Practice Community builds on the popularity of our SEM
customer advisory councils in North America and
Europe. Extending SAP’s work as a leading provider of
client education services, it combines our own outstanding business, organizational and industry expertise
with leading-edge thinking from our network of
partners. It will offer conferences and focus groups
geared to executive decision-makers, managers, and
financial and IT specialists, along with a series of
modular courses for practitioners including business
analysts, controllers, and management or corporate
accountants.
With this initiative, SAP ensures a common understanding of best practices among all participants in the
implementation of solutions for optimizing value from
e-business, including SAP consultants, partners and
customers.
33
Empowering Finance for E-Business
1 For a more detailed explanation of emerging business models, see Grady
Means and David Schneider, MetaCapitalism: The E-Business Revolution and
the Design of 21st Century Companies and Markets, Wiley, 2000.
2 For guidance on conducting an ROV™ analysis, see Grant Norris, James R
Hurley, Kenneth M Hartley, John R Dunleavy and John D Balls, E-Business
and ERP: Transforming the Enterprise, Wiley, 2000.
3 For more detailed discussion of finance value propositions, see
PricewaterhouseCoopers Financial Management Solutions Team, eCFO:
Sustaining Value in the New Corporation, PricewaterhouseCoopers, 2000.
4 For more information on valuation methods for business-to-business
marketplaces, see PricewaterhouseCoopers Financial Management Solutions
Team, eCFO: Sustaining Value in the New Corporation,
PricewaterhouseCoopers, 2000.
5 For a deeper exploration of the impact of e-business on supply chain strategies,
see PricewaterhouseCoopers, E-supply chain: Revolution or
e-volution? , Euromoney Institutional Investor, 2000. (Part of the Information
and technology in the supply chain series.)
6 Martin V Deise, Conrad Nowikow, Patrick King and Amy Wright, Executive’s
Guide to E-Business: From Tactics to Strategy, Wiley, 2000.
7 Information systems for operationalizing value strategies, by connecting topdown communication of targets with bottom-up reporting of performance,
are described in more detail in our white paper SAP Strategic Enterprise
Management: Translating Strategy into Action – The Balanced Scorecard,
SAP, 1999.
8 For more information on SAP SEM, see our white papers SAP Strategic
Enterprise Management: Enabling Value Based Management, SAP, 1998,
and SAP Strategic Enterprise Management: The Functions – A Closer Look,
SAP, 1999.
9 PricewaterhouseCoopers Financial Management Solutions Team, eCFO:
Sustaining Value in the New Corporation, PricewaterhouseCoopers, 2000.
10 See Grady Means and David Schneider, MetaCapitalism: The E-Business
Revolution and the Design of 21st Century Companies and Markets, Wiley,
2000.
11 PricewaterhouseCoopers Financial Management Solutions Team, eCFO:
Sustaining Value in the New Corporation, PricewaterhouseCoopers, 2000.
34
Empowering Finance for E-Business
35
SAP AG
Neurottstrasse 16
69190 Walldorf, Germany
Mailing address
69189 Walldorf, Germany
SAP information service
Tel. +49 (180) 5 34 34 24
Fax +49 (180) 5 34 34 20
www.mySAP.com
THE BEST-RUN E-BUSINESSES RUN mySAP.com
You can find this and other current literature on our home page in the media centers for each subject.
50 043 875 (0101/13)
Printed on environmentally friendly paper.
This white paper was written by PricewaterhouseCooper’s Global
Financial and Cost Management Team (Cendric Read) and
by Juergen H. Daum, former Director Program Management for
mySAP Financials, SAP AG, in November 2000
Find more information and additional articles about “New Finance” and related topics
at Juergen Daum’s website at
http://www.juergendaum.com
Book recommendation:
Introducing the enterprise management concept for the knowledge and information age
The first book on the market that summarizes in a synopsis all relevant aspects of the new 21st century corporate performance
management model and that describes the steps for its implementing
English Edition
German Edition
Intangible Assets
and Value Creation
by Juergen H. Daum
Intangible Assets
oder die Kunst, Mehrwert zu schaffen
von Jürgen H. Daum
Galileo-Press, Bonn, 2002
John Wiley & Sons Ltd, Chichester, 2002
ISBN 0470845120
ISBN 3-89842-112-0
Working with some of the main contributors to a new model of enterprise and performance management as well as
of accounting and corporate reporting and communications, Juergen H. Daum developed in his book the
foundation for a new enterprise management system and introduces it from a very practical perspective. He is
citing many examples and is describing concrete steps that companies must take to implement the management
system for the 21st century. This is complemented with interviews with some of the leading experts like David
Norton, coauthor of the Balanced Scorecard, Leif Edvinsson, pioneer and thought leader in intellectual capital
management, and with Baruch Lev, the worlds leading expert in intangibles accounting.
“This book aims at a paradigm change in management and names good reasons and arguments for it. It belongs
into the management discussion of today. Juergen Daum proves great thought leadership.”
(Controller Magazin, Germany, issue 5/2002)
You will find more information about this book at http://www.juergendaum.com/mybook.htm
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