The Bimodal IT And Finance Line Of Business: Reliability In Fast-Changing Times

Christoph Himmel

Digital transformation gets faster every day, and no industry across the globe has been unaffected. Because this ongoing disruption of business models has been enabled mainly by technological innovation, organizations are forced to reimagine the role of their IT functions to stay competitive and relevant.

Specifically, key trends like the Internet of Things (IoT), robotic process automation (RPA), blockchain, artificial intelligence (AI), and virtual reality (VR) provide disruptive approaches. Unlike enterprises that are born digital, traditional companies don’t have the luxury of starting with a clean slate; they must build an architecture designed for the digital enterprise on a legacy foundation.

Gartner urges CIOs to craft a more nuanced IT strategy that is both highly standardized and highly flexible. The analyst firm proposed the concept of the two-speed IT, and recommends that, to maintain business-critical IT operations, strategic planning for an IT department should include a fast track that allows some projects to be implemented quickly.

Using the bimodal approach is a great tool to support a focus on new products, new experiences, and getting things out the door quickly, and there is evidence that this concept is already being widely adopted. As an example, a recent study in Switzerland by SwissQ Consulting showed that 50% of survey participants have established a bimodal IT or planning to do so.

The dangers of creating separate organizations

One of the major pitfalls of applying the concept is to distinguish between a slow and a fast IT – not only in terms of IT systems, but also for skills and culture – and even worse, to create separate organizations. It is common to start new kind of businesses with spinoffs, or at least with a separate organizational unit, to avoid overloading the entrepreneurs with mature, longstanding processes and administrative requirements from the old business. Silverstone Edge, an Australian consulting company, describes – as an example – the evolving complexity of required organizational models throughout the digital service transformation.

However, these approaches to distinct responsibilities and processes have a high risk of undermining all processes of evolving businesses, which still have dependencies and require an even more integrated architecture. As digital transformation brings the customer into sharper focus, many innovators must deal with customer-centricity. This focus is not limited to customer service, web shops, sales optimization, and marketing processes. A perfect front end cannot deliver customer satisfaction when service delivery is not managed to the same level of perfection.

Gartner’s view of the two modes is shown on the following chart and clearly demonstrates that integration is key.


Mode 1 ensures a reliable backbone, while Mode 2 allows highly adaptable and ideally innovative capabilities.

Most interpretations show that core finance processes fall into Mode 1 as the best known “systems of record” to secure funding and governance. But is this the whole truth?

Flexibility to support market dynamics

At least when considering rapidly changing organizational approaches like spinoffs, co-innovation, or collaborations, the backbone must be flexible enough to support the market dynamics. This challenge is one of the major criticisms published by Forrester Research. Interpretation of the stability of Mode 1 as fixed and carved-in-stone processes is therefore the wrong direction. Still, the backbone has to provide flexibility for M&A activities such as changing, merging, and splitting legal entities, yet still be reliable and compliant to act as a platform to deliver live business insights. Trust in the system and hence the numbers is key.

And as Gartner’s Mode 1 shows an arrow into the “systems of innovation” area, this is true for finance as well. The finance function in the digital age has an important presence in the front office. For instance, the finance operations process area with real-time receivables and payables enables immediate reaction to collection efforts and collaboration with business partners. “Live finance” data also supports all sales-related activities with meaningful insights about individual customer or evaluation of the company’s own risk profile while adding each new opportunity or deal.

So, Mode 1 and Mode 2 do not need to be reflected by organizations, but continuous organizational reengineering must be supported by those two modes. The challenge for the IT department is then to provide a flexible, yet reliable backbone with a separately managed, highly integrated front-office innovation platform.

The model company approach

The “model company” approach is one concept that can help. A model company approach helps customers simplify, accelerate, and enable digital transformation by providing a framework based on broad business process expertise and project experience. In particular for finance, the model company approach provides a jump-start to get a new business up and running within a short time frame – for example, a spinoff that requires only simple processes to start.

Learn more
For more information about the model company approach, please comment below, contact me at SAP, or click on this link.

Follow SAP Finance online: @SAPFinance (Twitter)  | LinkedIn | FacebookYouTube

Comments

About Christoph Himmel

Christoph Himmel is the service portfolio manager for finance in the Global Service and Support team at SAP. He has more than 17 years of experience in implementing SAP Finance solutions, developing new customer scenarios (particularly in B2C), and designing services towards finance customer audiences. He has a PhD in Science and an MBA.

Can Fintech Startups Continue To Shake Things Up?

Lucy Thorpe

The financial technology revolution is taking the world by storm – nowhere more so than in the UK, where this red-hot sector directly employs 135,000 people. Britain’s fintech sector generates billions of pounds for the UK economy; London leads the way, but other British cities, including Manchester, Leeds, and Belfast, are up there as well.

Disruptive innovators

Whether operating in areas like international money transfers, loans, or investment management, these agile startups are making a big impression and attracting venture capital investment. Not surprisingly, their influence has attracted the attention of the established banking sector, which, rather than be overtaken, has opened a dialogue with many of them, including discussions about blockchain.

The result has been rapid growth, with the best of the bunch already helping themselves to a healthy slice of market share. But is their maverick reputation as disruptive innovators a cause for concern?

Growing up fast

Making life easier for customers by cutting fees and middlemen is all very well. But do such businesses have the backend support they need to ensure that they can carry on offering a reliable, consistent, and compliant service as they expand? Crucially, can they convince investors that they can scale and grow while remaining compliant in this highly regulated sector?

One consideration is adopting business management software accessed through the cloud, which can help support their scalability. Most solutions are now built on the highest standards of accountancy, reporting, project management, customer relationship management, and talent management, so would prove to be a smart choice for delivering a consistently high standard of service.

Invest to impress

Investors look favorably on those who can show they are taking the future of their businesses seriously. With cloud-based software, businesses can benefit straightaway from real-time insights and analytics from any device at any time. With robust systems in place, fintech entrepreneurs are in a better position to attract investors, who can be more confident that they are protecting their investments.

Want to learn more about how banks can improve customer relationships? Download the report “Engaging the Unengaged Customer.”

Comments

About Lucy Thorpe

Lucy Thorpe is a digital marketer and writer with SAP platinum partner In Cloud Solutions. Based in the UK, she is a former BBC journalist and presenter. Much of her work is now focused on explaining the benefits of digital enterprise resource planning (ERP) systems for small and midsize businesses.

How Lean Is Your (Financial) Supply Chain?

Drew Hofler

Billions of dollars and millions of people-hours are dedicated each year to improving supply chains. From process improvements in manufacturing and just-in-time supply, to technology infrastructure for managing goods in transit and assessing supply and supplier risk, companies are investing like never before in their supply chains. And for good reason! A healthy physical supply chain is the beating heart of every company that produces goods to sell.

But if the physical supply chain is the beating heart of a healthy company, the financial supply chain is its lifeblood.  For every movement of goods in the physical supply chain, there is a corresponding transactional cash flow (often referred to as the procure-to-pay or source-to-settle process) that impacts the working capital and financial health of all participants. And many leading companies are now approaching the financial supply chain with the same rigor as they are applying to the physical.

In fact, in a new report, “The CFO’s Guide to Streamlining the Financial Supply Chain,” published by CFO, an Argyle company, one executive stated that “the CFO and supply chain leadership are both shifting from a backward-looking view to a forward-looking view” of the financial supply chain. This is in order to gain the visibility and capability needed to transform payables from a balance-sheet liability into a strategic asset. They are doing so by addressing the inherent challenges of the P2P process, enabling them to leverage their payables to reduce supply chain liquidity risk, free up working capital and deliver value through collaboration with their suppliers

Addressing current challenges

Too often, the financial supply chain is made up of a disparate collection of systems and processes, which makes it difficult to have complete visibility into payable performance and opportunities to improve cash flow. The first step, therefore, in improving a financial supply chain is often implementing systems and processes built upon a common platform and business network to create efficiencies and enable end-to-end visibility into the entire source to settle process.  With such a platform in place, the right information can now be made available to the right parties at the right time to enable them to make right decisions and so drive the right business results.

Reducing liquidity risks and driving value

The right results in a financial supply chain often include reducing liquidity risk in the supply chain while at the same time delivering significant free cash flow and earnings on cash to the paying organization. More and more companies are pushing out their payment terms in order to improve their working capital and free up cash. Unfortunately, their suppliers often find themselves cash constrained and unable to access the cash flow they need due to those longer payment terms. The result is an increased level of liquidity risk in the supply chain, which ultimately can affect even the physical chain.

To combat this, many companies are turning to network-based tools like supply chain finance to give their suppliers access to third party funded early payment on approved invoices, while holding on their own cash as long as possible.  The result is an increase their own free cash flow while at the same time reducing liquidity risk in their supply chain.   Others are using their own cash to fund supplier cash flow in exchange for discounts that yield far more than similar cash investment vehicles in today’s low interest rate environment.

Improving the financial supply chain turns payables from liabilities into strategic assets

In a prime example cited in “The CFO’s Guide to Streamlining the Financial Supply Chain,” a Fortune 100 pharmaceutical company was seeking to optimize its working capital without disrupting supply chain cash flow. A combination of payment term extensions and dynamic discount programs were used to achieve that objective. The result was over $300 million in free cash flow and a contribution of more than $10 million to the income statement. The company moved $5 billion in spend from net-45-days to net-60-days payment terms across 38,000 suppliers in 40 countries. And early-payment discounts increased by 12% over the previous year, delivering more than $6.5 million in savings from the discounts.

According to business school textbooks, payables are by definition a balance sheet liability. However, by focusing on improving financial supply chain processes, forward-thinking companies, like the one cited above, can transform their payables into strategic assets that deliver significant value to their bottom lines.

To learn more about this, please join us for a live panel discussion on Tuesday, Oct. 24. Finance executives from a cross-section of industries will discuss “How Finance Leaders Are Looking to the Financial Supply Chain to Optimize Working Capital and Liquidity.” Don’t miss this opportunity to hear firsthand from top-performing financial professionals and ask them your questions. Register now!

Follow SAP Finance online: @SAPFinance (Twitter)  | LinkedIn | FacebookYouTube

Comments

Drew Hofler

About Drew Hofler

Drew Hofler is a Senior Director of Solutions Marketing for SAP Ariba. Mr. Hofler is recognized as an expert in the area of collaborative finance and dynamic discounting. He has been interviewed and quoted widely in finance and supply chain industry publications around the topics of e-invoicing, dynamic discounting, supply chain financing, and working capital management-related issues, and has published a number of articles on these subjects. Mr. Hofler is also a regular contributor to various blogs around the issues of the financial supply chain. Mr. Hofler brings almost 20 years of banking and financial services industry experience to SAP Ariba.

Diving Deep Into Digital Experiences

Kai Goerlich

 

Google Cardboard VR goggles cost US$8
By 2019, immersive solutions
will be adopted in 20% of enterprise businesses
By 2025, the market for immersive hardware and software technology could be $182 billion
In 2017, Lowe’s launched
Holoroom How To VR DIY clinics

Link to Sources


From Dipping a Toe to Fully Immersed

The first wave of virtual reality (VR) and augmented reality (AR) is here,

using smartphones, glasses, and goggles to place us in the middle of 360-degree digital environments or overlay digital artifacts on the physical world. Prototypes, pilot projects, and first movers have already emerged:

  • Guiding warehouse pickers, cargo loaders, and truck drivers with AR
  • Overlaying constantly updated blueprints, measurements, and other construction data on building sites in real time with AR
  • Building 3D machine prototypes in VR for virtual testing and maintenance planning
  • Exhibiting new appliances and fixtures in a VR mockup of the customer’s home
  • Teaching medicine with AR tools that overlay diagnostics and instructions on patients’ bodies

A Vast Sea of Possibilities

Immersive technologies leapt forward in spring 2017 with the introduction of three new products:

  • Nvidia’s Project Holodeck, which generates shared photorealistic VR environments
  • A cloud-based platform for industrial AR from Lenovo New Vision AR and Wikitude
  • A workspace and headset from Meta that lets users use their hands to interact with AR artifacts

The Truly Digital Workplace

New immersive experiences won’t simply be new tools for existing tasks. They promise to create entirely new ways of working.

VR avatars that look and sound like their owners will soon be able to meet in realistic virtual meeting spaces without requiring users to leave their desks or even their homes. With enough computing power and a smart-enough AI, we could soon let VR avatars act as our proxies while we’re doing other things—and (theoretically) do it well enough that no one can tell the difference.

We’ll need a way to signal when an avatar is being human driven in real time, when it’s on autopilot, and when it’s owned by a bot.


What Is Immersion?

A completely immersive experience that’s indistinguishable from real life is impossible given the current constraints on power, throughput, and battery life.

To make current digital experiences more convincing, we’ll need interactive sensors in objects and materials, more powerful infrastructure to create realistic images, and smarter interfaces to interpret and interact with data.

When everything around us is intelligent and interactive, every environment could have an AR overlay or VR presence, with use cases ranging from gaming to firefighting.

We could see a backlash touting the superiority of the unmediated physical world—but multisensory immersive experiences that we can navigate in 360-degree space will change what we consider “real.”


Download the executive brief Diving Deep Into Digital Experiences.


Read the full article Swimming in the Immersive Digital Experience.

Comments

Kai Goerlich

About Kai Goerlich

Kai Goerlich is the Chief Futurist at SAP Innovation Center network His specialties include Competitive Intelligence, Market Intelligence, Corporate Foresight, Trends, Futuring and ideation. Share your thoughts with Kai on Twitter @KaiGoe.heif Futu

Tags:

Blockchain: Much Ado About Nothing? How Very Wrong!

Juergen Roehricht

Let me start with a quote from McKinsey, that in my view hits the nail right on the head:

“No matter what the context, there’s a strong possibility that blockchain will affect your business. The very big question is when.”

Now, in the industries that I cover in my role as general manager and innovation lead for travel and transportation/cargo, engineering, construction and operations, professional services, and media, I engage with many different digital leaders on a regular basis. We are having visionary conversations about the impact of digital technologies and digital transformation on business models and business processes and the way companies address them. Many topics are at different stages of the hype cycle, but the one that definitely stands out is blockchain as a new enabling technology in the enterprise space.

Just a few weeks ago, a customer said to me: “My board is all about blockchain, but I don’t get what the excitement is about – isn’t this just about Bitcoin and a cryptocurrency?”

I can totally understand his confusion. I’ve been talking to many blockchain experts who know that it will have a big impact on many industries and the related business communities. But even they are uncertain about the where, how, and when, and about the strategy on how to deal with it. The reason is that we often look at it from a technology point of view. This is a common mistake, as the starting point should be the business problem and the business issue or process that you want to solve or create.

In my many interactions with Torsten Zube, vice president and blockchain lead at the SAP Innovation Center Network (ICN) in Potsdam, Germany, he has made it very clear that it’s mandatory to “start by identifying the real business problem and then … figure out how blockchain can add value.” This is the right approach.

What we really need to do is provide guidance for our customers to enable them to bring this into the context of their business in order to understand and define valuable use cases for blockchain. We need to use design thinking or other creative strategies to identify the relevant fields for a particular company. We must work with our customers and review their processes and business models to determine which key blockchain aspects, such as provenance and trust, are crucial elements in their industry. This way, we can identify use cases in which blockchain will benefit their business and make their company more successful.

My highly regarded colleague Ulrich Scholl, who is responsible for externalizing the latest industry innovations, especially blockchain, in our SAP Industries organization, recently said: “These kinds of use cases are often not evident, as blockchain capabilities sometimes provide minor but crucial elements when used in combination with other enabling technologies such as IoT and machine learning.” In one recent and very interesting customer case from the autonomous province of South Tyrol, Italy, blockchain was one of various cloud platform services required to make this scenario happen.

How to identify “blockchainable” processes and business topics (value drivers)

To understand the true value and impact of blockchain, we need to keep in mind that a verified transaction can involve any kind of digital asset such as cryptocurrency, contracts, and records (for instance, assets can be tangible equipment or digital media). While blockchain can be used for many different scenarios, some don’t need blockchain technology because they could be handled by a simple ledger, managed and owned by the company, or have such a large volume of data that a distributed ledger cannot support it. Blockchain would not the right solution for these scenarios.

Here are some common factors that can help identify potential blockchain use cases:

  • Multiparty collaboration: Are many different parties, and not just one, involved in the process or scenario, but one party dominates everything? For example, a company with many parties in the ecosystem that are all connected to it but not in a network or more decentralized structure.
  • Process optimization: Will blockchain massively improve a process that today is performed manually, involves multiple parties, needs to be digitized, and is very cumbersome to manage or be part of?
  • Transparency and auditability: Is it important to offer each party transparency (e.g., on the origin, delivery, geolocation, and hand-overs) and auditable steps? (e.g., How can I be sure that the wine in my bottle really is from Bordeaux?)
  • Risk and fraud minimization: Does it help (or is there a need) to minimize risk and fraud for each party, or at least for most of them in the chain? (e.g., A company might want to know if its goods have suffered any shocks in transit or whether the predefined route was not followed.)

Connecting blockchain with the Internet of Things

This is where blockchain’s value can be increased and automated. Just think about a blockchain that is not just maintained or simply added by a human, but automatically acquires different signals from sensors, such as geolocation, temperature, shock, usage hours, alerts, etc. One that knows when a payment or any kind of money transfer has been made, a delivery has been received or arrived at its destination, or a digital asset has been downloaded from the Internet. The relevant automated actions or signals are then recorded in the distributed ledger/blockchain.

Of course, given the massive amount of data that is created by those sensors, automated signals, and data streams, it is imperative that only the very few pieces of data coming from a signal that are relevant for a specific business process or transaction be stored in a blockchain. By recording non-relevant data in a blockchain, we would soon hit data size and performance issues.

Ideas to ignite thinking in specific industries

  • The digital, “blockchained” physical asset (asset lifecycle management): No matter whether you build, use, or maintain an asset, such as a machine, a piece of equipment, a turbine, or a whole aircraft, a blockchain transaction (genesis block) can be created when the asset is created. The blockchain will contain all the contracts and information for the asset as a whole and its parts. In this scenario, an entry is made in the blockchain every time an asset is: sold; maintained by the producer or owner’s maintenance team; audited by a third-party auditor; has malfunctioning parts; sends or receives information from sensors; meets specific thresholds; has spare parts built in; requires a change to the purpose or the capability of the assets due to age or usage duration; receives (or doesn’t receive) payments; etc.
  • The delivery chain, bill of lading: In today’s world, shipping freight from A to B involves lots of manual steps. For example, a carrier receives a booking from a shipper or forwarder, confirms it, and, before the document cut-off time, receives the shipping instructions describing the content and how the master bill of lading should be created. The carrier creates the original bill of lading and hands it over to the ordering party (the current owner of the cargo). Today, that original paper-based bill of lading is required for the freight (the container) to be picked up at the destination (the port of discharge). Imagine if we could do this as a blockchain transaction and by forwarding a PDF by email. There would be one transaction at the beginning, when the shipping carrier creates the bill of lading. Then there would be look-ups, e.g., by the import and release processing clerk of the shipper at the port of discharge and the new owner of the cargo at the destination. Then another transaction could document that the container had been handed over.

The future

I personally believe in the massive transformative power of blockchain, even though we are just at the very beginning. This transformation will be achieved by looking at larger networks with many participants that all have a nearly equal part in a process. Today, many blockchain ideas still have a more centralistic approach, in which one company has a more prominent role than the (many) others and often is “managing” this blockchain/distributed ledger-supported process/approach.

But think about the delivery scenario today, where goods are shipped from one door or company to another door or company, across many parties in the delivery chain: from the shipper/producer via the third-party logistics service provider and/or freight forwarder; to the companies doing the actual transport, like vessels, trucks, aircraft, trains, cars, ferries, and so on; to the final destination/receiver. And all of this happens across many countries, many borders, many handovers, customs, etc., and involves a lot of paperwork, across all constituents.

“Blockchaining” this will be truly transformational. But it will need all constituents in the process or network to participate, even if they have different interests, and to agree on basic principles and an approach.

As Torsten Zube put it, I am not a “blockchain extremist” nor a denier that believes this is just a hype, but a realist open to embracing a new technology in order to change our processes for our collective benefit.

Turn insight into action, make better decisions, and transform your business. Learn how.

Comments

Juergen Roehricht

About Juergen Roehricht

Juergen Roehricht is General Manager of Services Industries and Innovation Lead of the Middle and Eastern Europe region for SAP. The industries he covers include travel and transportation; professional services; media; and engineering, construction and operations. Besides managing the business in those segments, Juergen is focused on supporting innovation and digital transformation strategies of SAP customers. With more than 20 years of experience in IT, he stays up to date on the leading edge of innovation, pioneering and bringing new technologies to market and providing thought leadership. He has published several articles and books, including Collaborative Business and The Multi-Channel Company.