Tuesday, September 15 2009
While there is little argument that technical consolidation yields significant benefits, business consolidation promises a much broader ROI that impacts not just the IT organization, but the operational and business side of the enterprise as well. As stated above, these benefits come from the ability to go beyond mere cost-reduction to providing significant improvements in business agility, responsiveness, and operations that can only come from a business consolidation. It’s important to bear in mind that the benefits of technical consolidations are not lost in a business consolidation effort: Business consolidations add additional value to technical consolidations, and indeed most efforts at business consolidation will include a technical consolidation effort as well.
The difference, of course, is in the total value of the consolidation efforts. Major IT research firms, like Forrester Research, confirm EAC’s own research into the value-add of moving beyond mere technical consolidation. In a study published in 2005, Forrester analyst Ray Wang addresses this issue directly:
Studies often cite a 20% to 45% savings in moves toward consolidation. The reduction in IT personnel, hardware, and software costs (i.e., license, maintenance, and support) is obvious. However, these factors may be less significant than the exponential leap in days-sales-outstanding (DSO) reductions, inventory reductions, quicker financial close, and other metrics of corporate performance.
Wang contends, rightly, that the requirement for business consolidation is even more acute in the case of mergers, acquisitions, and divestitures:
Nearly two-thirds of all mergers fail to realize their value because of an inability to integrate and/or consolidate… Successful execution is the difference between creating shareholder value and destroying investment.
The potential value of business consolidation is supported by a study of 25 Oracle consolidation projects by research firm Mainstay Partners. In this report, Mainstay separated what it termed “infrastructure consolidation” from “information” and “application” consolidation, the latter two forming the basis for business consolidation.
Mainstay’s research shows a similar value-add from information and application consolidation, with the benefits ranging from significant savings due to increased productivity and reduced procurement costs to improved DSO and closing times.
FINANCIAL HIGHLIGHTS:
- $100,000 savings from faster, more accurate billing made possible by information consolidation.
- $1 million in HR productivity gains by entering data once.
- 8% headcount reduction.
- $11 million savings from improved manufacturing using integrated supply chain application integrated with sales and forecasting.
- 8% reduction in DSO (days sales outstanding.
- 1.1% savings in procurement costs through a centralized application, resulting in millions of dollars in savings.
- 80% reduction in procurement costs via a centralized process.
- 15% cost reduction by moving to a single financial system.
STRATEGIC AND OPERATING HIGHLIGHTS:
- 50% average process improvement through information consolidation.
- 50% faster close time through information consolidation.
- 20% to 50% improved reconciliation process through consolidated information.
- 80% more productive reporting.
- 86% reduced time-and-expense processing time, and speedier reimbursements.
- 50% average improved data accuracy and quality.
- Tenfold journal entry process improvement via consolidated applications.
- 20% improvement in manufacturing process from leveraging integrated supply chain applications linking sales to production.
- 50% to 75% reduction in invoicing time via integrated application and data.
- 50% reduction in order entry time by leveraging integrated application suite (one global customer table).
- 83% reduction in order processing time.
- 87% fewer customer inquiries via improved data quality and availability.
- 86% processing improvement via integrated applications.
Source: Mainstay Partners LLC, adapted from IT Consolidation: The Art and Science of Doing More with Less
Mainstay’s data, though anecdotal, exemplify the wide variety of benefits from business consolidation that impact day-to-day functionality above and beyond those that a technical consolidation can provide. These kinds of results can also be seen in the analysis of shared services data center projects, which often include benefits that fall directly under the same rubric as business consolidation. One such project that EAC is familiar with – a shared services consolidation at a major apparel manufacturer – not only yielded significant benefits in lower IT costs, but also provided a significant improvement in inventory management that was expected to yield annual savings of $80 to $130 million. Another shared services project – this time at a major automotive parts manufacturer – yielded savings in financial operations of over $30 million per year in addition to considerable savings in IT costs.
This two-for-one effect is what makes business consolidation so compelling. Whereas technical consolidation largely benefits the IT department’s budget and priorities, business consolidation brings the benefits of consolidation to the business as a whole. These benefits can be seen in the examples from the Mainstay study, as well as in the ability to support business events, such as mergers and acquisitions, for which technical consolidations alone are not sufficient to meet the post-event business requirements.
The issue of managing the reporting, regulatory, and business requirements of mergers, acquisitions, and other business events presents a particularly rich case for the value of business consolidation. (For a further discussion, see this article.) These business events are common features of the economic landscape, and pose significant problems for both the selling and the buying party. Whether the issue is adding and integrating data from a merged company, centralizing a data center, or operating a shared service center, a consolidation is required, and a technical consolidation won’t result in as well-designed and implemented business and IT environments as would be possible with a business consolidation.
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© 2009 EAC
Joshua Greenbaum has over 25 years of experience in the industry as a computer programmer, systems analyst, author, consultant, and industry analyst. He spent three years in Europe as an industry analyst and as European correspondent for Information Week and other industry publications.
In his role as an industry analyst, Josh regularly consults with leading public and private enterprise software, database, and infrastructure companies, and advises end-users on technology infrastructure and applications selection, development, and implementation issues.
An award-winning columnist, Josh is widely quoted in the trade and business press, blogs on ZDNet, and is a regular columnist for Managing Automation, Datamation.com, NetWeaver Magazine, and Redmond Channel Partner magazine. Other opinions by Josh may be found on his blog at http://ematters.wordpress.com/ or on his website http://www.eaconsult.com/.
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May Puzzle
David is often referred to as Rainman due to his peculiar ability to effortlessly figure out a certain date's day of the week. He recently displayed this talent when I asked him if there was a conflict with the upcoming Fuzzy Dice Conference and our weekly court-ordered community service. He asked the date of the convention. It was April 20th, 2012.
"Oh, that’s a Friday," he said, effortlessly. "And your sentences have you committed for the next few dozen Wednesdays so you'll be able to go." And of course he was right.
One day a few weeks ago I asked out loud in the office about the date June 5th. And of all people, my brother Tommy piped up and said "Oh, that's a Tuesday."
"That's right," said David.
Well how about Otcober 3rd?
"That's a Wednesday," said Tommy. Then I asked about Christmas Day 2012.
"Oh, that's a Tuesday." David nodded in agreement.
Do we now have two rainmen? Or had Tommy figured something out?
Solution
Here's what was going on. Tommy was using something called anchor dates. And these dates apply to each and every year. April 4th, or 4/4 we’ll call it from now on, June 6th or 6/6, 8/8, 10/10, 12/12, are all the same day of the week, each and every year.
So too are 5/9 and 9/5, May 9th and September 5th. So too are 7/11 and 11/7, and all the above dates are the same day of the week, as is the last day in February, Leap Year or not. And they’re all the same day as January 4th, it would otherwise be January 3rd, but this was a leap year, and that’s changes the anchor day from January 3rd to January 4th.
Tommy also knew that New Year's Day was a Sunday. He was sobered up by then. And he knew it was a Sunday because Christmas was a Sunday in 2011, so New Year's Day is a Sunday, so the Anchor Day for 2012, January 4th, has to be a Wednesday!
So if that's a Wednesday, then 4/4, 6/6, 8/8, 10/10, 12/12, 5/9, 9/5, 7/11, 11/7, and February 29th are all the same day of the week, and they're all Wednesdays. So when I ask for example, about October 3rd, he knew October 10th was a Wednesday, 10/10. So 10/3 must also be a Wednesday. 12/12 is a Wednesday in 2012, so it’s 12/26, which is two weeks later. So 12/25, or Christmas Day, must be a Tuesday.
Success Tips for Oracle Project Management
- Create a standard for documentation at the beginning of your project, and hold team members accountable for completing documentation requirements as well as keeping them at and above the standards required.
- Before promulgating user documentation or training, it’s also a good idea to choose a representative from the among the business users base to review materials first.
- If you are not sure about the resources and budget required, obtain several estimates from people that have experience with the same size and scope of your project.
- Be explicit, before beginning the project, what internal resources are required for execution. This includes people, infrastructure, hardware, and software.
- Help the project champion understand the impact your project will have on the organization and how its successful completion will make him or her an internal hero or heroine for supporting it.
- Break up your project into smaller projects (try for projects that can be completed in 4-6 months, especially early on) to get success and demonstrate momentum.
- Make sure that your testing includes reports, upstream and downstream interfaces, customizations, enhancements, and workflows.
- Ensure that comprehensive transition reports and meetings between departing and incoming personnel are completed.
- Instead of spending time and resources implementing third-party reporting, consider consolidating multiple instances, moving to a global chart of accounts (CoA), and/or standardizing on a consistent calendar.
- Include governance, risk, and compliance management as part of the project plan.
- Finally, celebrate the successes. Too many projects focus on defects, failures, or small cost over-runs without looking at the big picture and what was accomplished.
The Analyst Corner
John Van Decker, Research VP of Gartner, states:
"A single chart of accounts allows consistency in financial reporting across the enterprise by standardizing on common metrics and reporting structures, reduces dependencies on a separate financial consolidation system, and significantly reduces the costs incurred with ongoing, complex conversions and translations."
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