What Old School ERP and Shared Services Can Teach Us About Digital
by Lyndon Hedderly
I recently came across a social media post that read:
- In 2015 Uber, the world largest taxi company, owns no vehicles.
- Facebook, the world’s most popular media owner, creates no content.
- Alibaba, the most valuable retailer, has no inventory.
- Airbnb, the world’s largest accommodation provider, owns no real estate.
As the digital movement increases in momentum, with little sign of a slow-down, I’ve started to wonder: how can existing global enterprises, including some 150-year-old companies, adapt and acquire the capabilities they need to optimise digital?
Many enterprises have business units that manage their websites independently. This includes managing web content through multiple heterogeneous technologies and multiple hosting services. Even digitally mature enterprises, with group level Centres of Digital Excellence (CoDEs), often oversee surprisingly siloed teams with multiple, fragmented, and disparate technologies.
I’ve recently met with organisations with 50, 60, or even over 70 content management systems (CMSs).
So, at the risk of delivering a shocking and uncomfortable truth, my message to many enterprises is, "No, you’re not optimised for digital, yet." The common reason (excuse?) is these enterprises are decentralised, with control distributed to the business units, or operating groups, or brands, or affiliates, or regions.
What to do
I’ve been around for long enough to witness a few business trends come and go. The good news is, we can learn from history.
I started my career in ’96 just before the dot-com boom and subsequent bust. Despite some spectacular fails (and lost investments), a couple of emerging business trends have clearly stood the test of time: Enterprise Resource Planning (ERP) systems and Shared Services.
Why have both ERP and Shared Services endured? Because they make sense - practically and economically. And what do they have to do with digital? In short, they save time, expense, and result in better ways of working. My key argument here is that large enterprises should now follow the same philosophy of a hard drive towards a single enterprise system for digital (just like we did for ERP), whilst implementing common Digital Shared Services.
What if you’re happily decentralised?
This recommendation still stands. ERP and Shared Service models gained momentum back in the 2000’s for both centralised and decentralised organisations. A number of organisations I’ve met use their decentralised business model as a justification for their digital fragmentation. Whilst they're right in seeing digital (and marketing) as core to their business function, they’re wrong in dismissing a potential drive towards a single system and Shared Services. This shouldn’t be confused with a shift towards a centralised business model.
I understand, the business reasons for decentralisation remain sound.
- It allows for diversification of products, activities, and marketing.
- It provides product and market emphasis, and enables innovations and agility around price, quality, delivery, novelty, etc.
- It promotes personal motivation: people are closer to their business units.
- It empowers local decision making.
I recently met a drinks company passionate about its decentralised nature. Their allocation of responsibility at the operating level ensures a commercial presence that is closer to the markets and to consumer needs. And this works. The company states their decentralised nature "allows for a flexible and responsive structure which is proven by the company's ability to boost individual motivation and overall business performance".
But even decentralised organisations tend to spend hundreds of thousands, if not millions, of dollars on strategy consultants to help leverage synergies across their groups. I know. I’ve been there and done it. Sometimes leveraging synergies means progressing towards a more regional organisation structure. Other enterprises have implemented a ‘lean centre’ or ‘centre of excellence' to encourage the use of shared resources and best practices.
These moves towards shared resources are usually motivated by a strong drive to increase levels of consolidation, standardisation, and simplification. That makes sense. I’ve personally seen multiple, successful operating model projects seek synergies and efficiencies - driving improved ways of working whilst reducing costs. So, why not digital - one of the most important business transformations we’ve ever seen!
The change is imperative
Let’s dig into the benefits and lesson’s learned from ERP and Shared Services a little more - and why they’re relevant to digital today.
ERP includes the integration and management of core business processes. Single systems eliminated the need to synchronise changes between multiple systems—resulting in consolidation of finance, human resources, and manufacturing applications. Data became visible across the organisation. The centralised nature also protected sensitive data by consolidating multiple security systems into a single structure. Good for compliance and good for security. Overall, this enabled management to make decisions faster, with fewer errors.
So Shared Service Centres had two driving forces:
- To reduce costs through economies of scale. By sharing, you use fewer overall resources: fewer managers, IT systems, buildings etc.
- To leverage industrialisation to create improved ways of working. Consolidation, standardisation, and simplification resulted in reduced costs and quality improvements.
ERP and Shared Services helped improve the quality and efficiency of businesses, whilst reducing costs. Transformations weren't easy but few enterprises would now argue against ERP systems and Shared Services being a force for good.
- By 2016 global revenue for ERP software will reach $32.6 billion.
- According to the English Institute of Chartered Accountants, more than 30% of Fortune 500 companies have implemented a shared-service centre, and are reporting cost savings of up to 46%.
Just like ERP and Shared Services before it, the opportunity for Digital Operating Model Transformations is enormous, potentially worth millions of Dollars for many large enterprises. I estimate it’s worth up to $2.5 billion a year across the Fortune 500 companies alone.
It’s time to Think Ahead. If you want to talk to me to see how we can help assess your digital effectiveness, please send me an email.
This is the first part of a three-blog series. In the subsequent blogs I will cover examples of organisations - decentralised and centralised - and what they’re doing in this space; and what you need to do (hint: think big, start small, and act fast).
photo credit: the SHARE conference