deeper IBM Full Economy Model for SAP: reducing total cost of ownership Letting core competencies and organizational value drive business success

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1 IBM Business Consulting Services IBM Full Economy Model for SAP: reducing total cost of ownership Letting core competencies and organizational value drive business success deeper

2 As the global economy continues to experience ups and downs, longterm corporate goals increasing revenue and containing costs remain constant. However, as the economic pendulum swings slowly back into expansion mode, industry executives are again contemplating growth and ways of gaining leadership advantage. In doing so, many have carefully reexamined their business, giving serious consideration to its present value structure and primary focus. Today s C-level leaders see revenue growth, realized through delivery of new, differentiated products and services, as their primary business objective, with cost control running a close second in corporate priorities. 1 As total cost of ownership increases at the expense of developing and implementing successful, new business objectives C-level executives are looking for ways to lower expenses and reinvest savings into revenue growth strategies that can transform the business and boost financial performance. Increasingly, companies are turning to outside experts like IBM to help manage and run non-core business systems and practices. By optimizing and, in some instances, outsourcing nonessential functions, corporate leaders can better focus on, and further develop, core business competencies, while lowering total cost of ownership. Companies concentrate on core competencies to gain competitive edge More and more, companies are redeploying scarce resources, people, capital and, perhaps most important, management attention, to focus on core areas of business. Organizations must somehow strike a balance among driving revenue, improving operating margins, effectively executing fundamental business procedures, and, in parallel, making certain that non-core business areas run efficiently. In addition to all this, in the drive to extend value and benefits, operation optimization must now extend beyond the corporate four walls as companies engage directly with customers, consumers, partners and suppliers. Just like other business organizations, companies like yours that depend on SAP enterprise resource management planning (ERP) tools must pit revenue growth desires against cost realities. You want to take advantage of procedures that will both differentiate your company from the competition and lower total cost of ownership. The IBM Full Economy Model for SAP can help your organization optimize cost savings, integrate information technology (IT) infrastructures and facilitate business process adaptation to unlock hidden value.

3 IT begins to live up to earlier promise by delivering new value IT has always been viewed as a critical business enabler. Over the last 20 years, tremendous change has occurred in technology, software, and business process and organization support models. Companies no longer use IT just to facilitate basic business functions. Today, more organizations count on IT to both help ensure seamless integration over the extended value network and make information available for informed, proactive business decisions. Companies rely on IT to reduce operating and support costs without sacrificing quality and to enable new business processes and functions, such as customer relationship management (CRM) and product lifecycle management (PLM). Increasingly, organizations are moving many back-office support functions, including customer, financial and human resource tasks, to either a shared services or third-party outsourcing provider. The role of IT to drive process, organization and technical change has never been more challenging and important. Heightened technology capabilities have arrived just in time, as increased business complexity makes more demands on companies demands that require increasingly precise business process implementation and follow-through. Additionally, in the wake of stricter international regulatory requirements, like those stipulated under the USA PATRIOT and Sarbanes-Oxley Acts, IT capabilities have become critical to integrating and performing repetitive and time-consuming processes like data gathering, processing and presentation. Companies rely on IT to establish, maintain and meet basic regulatory agency rules. These enhanced needs to drive profitable growth have focused attention on utilizing the integrated and enabling capabilities of SAP to rapidly drive business benefits in areas such as marketing, sales, product innovation and the supply chain. IT outsourcing helps lower the total cost of ownership For a variety of historical reasons, many large companies have implemented ERP in a piecemeal fashion, site-by-site and country-by-country or business unit by business unit. Typically, a large percentage of corporate IT spending goes toward maintenance costs. 2 Any remaining IT funds are generally insufficient to allow companies to achieve the business and technology transformations they desire. By streamlining processes and components, and outsourcing non-core business activities, your company can gain greater IT flexibility, and savings can be redirected to concentrate on business differentiation tactics. By refocusing and reinvesting in areas such as consumer marketing and innovation, as well as by aligning human and working capital with strategic priorities, businesses like yours can begin unlocking revenue and driving growth. IBM s SAP Full Economy is about minimizing long-term TCO. Services synergy decreases total cost of ownership Total cost of ownership Cost of IT implementation Cost of IT operations Cost of Business External Implementation Services Internal Implementation Services Software Licenses Hardware Application Development & Maintenance Software Maintenance Support Internal Administration Shared Services and Outsourced Processes IBM Full Economy Services Implementation Optimization (BCS) Maintenance Optimization (AMS) Optimization (ITS-Hosting) Strategic Outsourcing (SO) Process Outsourcing (BPO/BPMS)

4 Many best-of-breed technology suppliers have attained and can offer outsourcing clients unprecedented efficiencies and operating capabilities. Tier-1 solution providers such as IBM have emerged and are offering full-scale services in most major industry areas. Taking advantage of outsourcing partners allows you to better focus on core functions, reduce costs and leverage more flexible, scalable IT environments, all of which support new business model development. Before you begin, you should first differentiate between core and non-core business segments and identify areas where outside service providers can provide optimum savings. You also need to prioritize how to allocate IT resources across core business components. To achieve these imperatives, you should balance organizational effectiveness and efficiency. Toyota Australia, Toyota Motor Company s first offshore subsidiary, was growing constantly in its car manufacturing and auto parts distribution business. The company wanted to consolidate a fragmented IT infrastructure to better serve its SAP users and reduce its IT systems costs. Toyota Australia worked with IBM Global Services to consolidate and migrate its multiple SAP production systems onto a single, highly scalable IBM ^ pseries 690 platformfeaturing a SAP R/3 operating environment and mysap solutions. Through this consolidation and technology optimization, not only did Toyota Australia improve SAP performance and availability for its customers, the company projects it will save AUS$7 million over four years in hardware and facilities management costs.. Leveraging industry leading SAP technology solutions, IBM can enhance your existing IT systems through consolidation, simplification and automated resource provisioning and management. Through IT optimization, IBM has consistently demonstrated 15- to 30-percent reductions in total costs of ownership, while delivering higher performance and secure, more reliable systems. Ultimately, enterprisewide IT optimization can be the stepping stone to IT outsourcing on your company s journey to becoming an on demand business. Leveraging this holistic, end-to-end portfolio of solutions, IBM professionals can help redesign and enhance your systems to gain flexibility and make the most of current and future ERP investments. IBM Full Economy Model for SAP creates a functional business system by integrating piecemeal, legacy technology with IBM services, software and hardware. In implementing our model, your organization can better cope with the task of transforming core and noncore business operations, optimizing cost savings and reducing total cost of ownership. Opting for IT optimization to reduce total cost of ownership Although they can see the benefits of outsourcing, some business leaders even those heading large companies are not yet ready to outsource enterprise IT systems. However, IBM offers companies relying on SAP an efficient, alternate strategy to reduce the total costs of ownership. Outsourcing and optimization efficiencies foster business growth initiatives The IBM Full Economy Model for SAP strives to foster your company s growth initiatives and bring core business competencies to the forefront by increasing corporate focus on sales, marketing and new product development and innovations. Before launching its Full Economy Model for SAP, IBM will take your company s management team through a four- to eight-week-long, seven-step procedure to map the transformation process. IBM begins by classifying core versus non-core business processes and functions, to create a strategic plan that distinguishes specific, viable tasks that will generate cost savings. IBM also identifies core competency areas that can drive increased revenue opportunities and profitable growth. The approach finishes with a review of the results and verification that the IBM vision matches your corporate expectations.

5 Business Consulting & Implementation Management Application Maintenance Process Outsourcing Outsourcing Servers Storage Software SW on demand Financing Optimization Value levers are key to enabling a full economy model IBM Full Economy Model for SAP has a variety of IT service and capability levers that can be employed to achieve your company s value transformation. While corporate needs vary, your company s unique situation dictates a different mix of levers, depending upon whether your goal is to: Reduce SAP or other ERP implementation and maintenance costs by bundling next-generation hardware, software and storage solutions Reduce non-core business function costs through consolidation and outsourcing Enable and integrate core business processes by utilizing the latest SAP technologies and software, such as Customer Relationship Management, Product Lifecycle Management, search engine marketing or business intelligence Selecting the right lever is critical to the level of value that can be unlocked in your organization. Specific levers in IBM Full Economy Model for SAP can be used to target opportunities within your organization. IBM helps by projecting benefit and cost savings for each combination of levers. You can choose to implement as few as one or as many as ten levers to achieve enterprisewide transformation. Because each lever builds on the others, when you implement all ten levers you can realize the full economy of scale and achieve the greatest possible value proposition and cost savings over time. The Full Economy Model for SAP allows your management team to fund core initiatives by improving non-core business efficiencies, so you can reduce costs and potentially increase revenues. By unlocking multiple transformational goals in parallel and helping to revamp operations, IBM Full Economy Model for SAP can help you drive competitive advantage and best-inclass innovation. The IBM Full Economy Model for SAP can save a US$10-billion company millions Based on our experience as one of the leading SAP implementation companies, IBM has found that a typical US$10-billion company spends the majority of its IT money on application and infrastructure support. Human efforts, as well as hardware and software technology, are often duplicated throughout the enterprise, dramatically increasing overhead. Technology obsolescence and insufficient capacity for storage or processing, heterogeneous applications and application complexity, in addition to the difficulties of achieving core process functionality, are but a few of the myriad problems such organizations face. Selecting the right levers of Full Economy Model will be critical to unlocking the value in your organization. Transform Focus on Differentiated Capabilities (Business Value) Full Economy: Implementation through Operate Cost to deliver Integration, Efficiency, Variable on demand Operate The Full Economy Model provides the complete transformation platform Specific Full Economy levers can be utilized to target opportunities within the organization Benefit and cost savings can be projected for each combination of levers. A transformational roadmap and business case can be developed in 4-8 weeks, outlining benefit and cost savings opportunities Integrate

6 However, technology outsourcing offers a tremendous opportunity to improve cost efficiencies. A US$10- billion company might begin by refining focus and identifying savings in any number of places, whether reducing headcount, rationalizing software and hardware use and purchases, or restructuring applications and enabling core process functionality. By applying all ten levers of the IBM Full Economy Model for SAP, a US$10-billion organization, after project expenditures, can generate approximately US$90 million in IT savings by: Making hardware and software accessible on demand Reducing and consolidating applications Tailoring SAP implementations to enable core strategic projects Facilitating activities such as software scaling, help desk access and network consolidation by taking advantage of a utility management infrastructure.

7 In addition, for the average US$10- billion company, savings of over US$1.2 billion through non-core business process transformation can often be identified and achieved. Ultimately, significant savings can be realized no matter how many Full Economy Model for SAP levers are implemented. The key remaining questions become where and when do you want to begin transforming your business s core competency functionality, and how are those non-core operations best addressed to generate cost reduction and gain efficiencies? Why IBM? By combining our broad understanding of how technology can be used to facilitate your company s business process with our leadership position in hardware, software, services and SAP implementation, IBM is in a prime position to create solutions that can unlock the value of your enterprise s IT investments. We can enable your business to become more efficient and effective and can help you on your drive toward business growth. With our extensive industry expertise and in-depth understanding of business processes and information technology, we are uniquely qualified to work with companies that want to get out of the IT business and return their focus to core business competencies. The IBM Full Economy Model for SAP leverages existing technology; helps tailor the infrastructure and applications required to provide the flexibility necessary to successfully meet new challenges and customer needs; and supports future growth. Our solution also helps deliver on the promise of e-business on demand capabilities, helping enable your company to become more responsive to market demand and more resilient to market change. IBM can help SAP clients realize currently untapped cost-savings potential. IBM and SAP have had a relationship in excess of 30 years, and we share more than 8,000 customers at 10,000 sites worldwide. Our combined experience and expertise mean we can deliver cost-effective solutions capable of enhancing your company s competitive advantage so you can get back to business. For more information To learn more about IBM Business Consulting Services and the IBM Full Economy Model for SAP, please contact your IBM representative, or visit: ibm.com/bcs References 1 IBM Business Consulting Services. IBM Strategy and Change Practice Your Turn: The Global CEO Study IBM Business Consulting Services Total cost of ownership im provements through on demand for SAP customers.

8 Copyright IBM Corporation 2004 IBM Global Services Route 100 Somers, NY U.S.A. Produced in the United States of America All Rights Reserved IBM, the IBM logo, the eserver logo, e-business on demand and pseries are trademarks or registered trademarks of International Business Machines Corporation in the United States, other countries, or both. Other company, product and service names may be trademarks or service marks of others. References in this publication to IBM products or services do not imply that IBM intends to make them available in all countries in which IBM operates. G