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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January Puzzle
A traveler gets lost on a deserted island and finds himself surrounded by a group of n cannibals.
Each cannibal wants to eat the traveler but, as each knows, there is a risk. A cannibal that attacks and eats the traveler would become tired and defenseless. After he eats, he would become an easy target for another cannibal (who would also become tired and defenseless after eating).
The cannibals are all hungry, but they cannot trust each other to cooperate. The cannibals happen to be well versed in game theory, so they will think before making a move.
Does the nearest cannibal, or any cannibal in the group, devour the lost traveler?
Solution
The short answer is the traveler’s fate depends on the parity of the group. If there is an odd number of canibals, the traveler will be eaten, but if there is an even number, the traveler will survive.
To prove this, we will consider small groups and use mathematical induction to explain the solution for larger groups.
Case n = 1: this is an obvious case. If there is one cannibal, the traveler will be eaten. It doesn’t matter that the cannibal will get tired because there are no other cannibals around as a threat.
Case n = 2: this is a more interesting case. Each cannibal wishes to each the traveler, but each knows he cannot. If either cannibal eats the traveler, then he will become defenseless and the other one will eat him. So each cannibal uses backwards induction to realize that the only strategy is to not eat the traveler. The hapless traveler finds a bit of luck, therefore, and actually survives.
Case n = 3: this is where the problem gets interesting. The best strategy is for the closest cannibal to make a move and eat the traveler. The cannibal will be defenseless after eating, but ultimately he will be safe. Why is that? The reasoning is due to induction: once the cannibal eats the traveler, the resulting situation has 2 unfed cannibals and the 1 defenseless cannibal. But as we just showed above, when there are 2 unfed cannibals, neither will make a move for fear of being eaten by the other! Thus the first cannibal to make a move will be safe as the remaining 2 cannibals block each other.
We can prove the higher cases using mathematical induction. If the number n is odd, then the closest cannibal can safely eat the traveler because the remaining number of unfed cannibals is even (and by induction, with an even number of unfed cannibals no one makes a move). If the number n is even, then no cannibal will eat the traveler, for if he did, the remaining number of cannibals would be odd, meaning he will get eaten by the induction hypothesis.
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."
