Next generation ERP platforms An efficiency booster for the telecommunication industry?

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1 White Paper Next generation ERP platforms An efficiency booster for the telecommunication industry? Marco Marschner Jürgen Paulus 018

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3 Hesitant implementation of next generation ERP systems within telcos Current market observations by Horváth & Partners prove a strong increase in the number of projects focusing on next generation ERP systems. We have also observed a maturity difference throughout the industries: whereas manufacturing companies are fast movers in implementing next generation ERP systems (e.g. SAP S/4HANA), the telecommunication industry is still hesitating to follow the trend. The interest in next generation ERP among telecommunication companies (telcos) is just beginning to grow, and companies are just starting to deal with this topic in more detail. Horváth & Partners has identified two key reasons for this development. Firstly, major functional improvements to next generation ERP systems basically lie within the fields of sales and operations planning, material management, logistics, and warehousing. These functional evolutions are less relevant for telcos than other industries. Secondly, telcos have some very specific ERP requirements deriving from their industry-specific business needs and characteristics. Telco providers ERP issues focus on: Capital-intensive investments Provision of services Distribution of services Invoicing System integration Within this perspective, next generation ERP systems can also lead to clear enhancements within the telecommunication industry. The potentials in the fields of system integration and asset management are substantial in particular. Additionally, improvements within the support functions, such as finance and controlling, are immense and can support telcos as they progress down the digital transformation path of the CFO organization. These essential benefit potentials of migration into next generation ERP technologies such as S/4HANA will be able to boost telcos ERP processes to a much higher level of efficiency and quality. Designing a future ERP model will support the realization of ambitious saving potentials and efficiency targets in a very sustainable manner. A rising interest in next generation ERP systems accompanied by industry-specific maturity levels As mentioned above, Horváth and Partners projects prove that the implementation or migration of next generation ERP systems is currently a high priority for a substantial number of companies. This observation is also supported by the market development of specific ERP vendors, especially SAP S/4 HANA. A closer look at on our related project portfolio and clients confirms a rising interest in next generation ERP strategies, which has resulted in initiatives ranging from feasibility studies to implementation or migration projects. However, one interesting aspect is the maturity difference throughout the industries. Chemical, Oil, Pharma Retail & Consumer Goods Industry Goods & Hightech Media & Telco 16 5 Automotive 6 3 Utilities Fig. 1: Industry breakdown of next generation ERP projects, % Our current next generation ERP projects focus on the manufacturing industry, and the automotive sector in particular, whereas the service industry, including media and telecommunication, is at a much earlier stage. From our point of view, however, the advantages are as relevant for telecommunication as they are for manufacturing industries. In addition, the pure system advantages can be leveraged by further organizational and operational improvements, thus enabling telcos to leverage their digitization transformation path. Substantial end-to-end functionality developments based on new database technology A fundamental innovation within next generation ERPs is the in-memory data base model and data processing approach. Companies can realize major business function advantages due to these elementary technological innovations. Classic SAP approach Calculation Application Data base Calculation SAP S/4 HANA approach Fig : Comparison of relational and in-memory data base technologies (here SAP) This technology enables the databases themselves to execute complex requests and calculations faster. Basic characteristics are column-oriented data storage, ceased aggregation tables and partitioning. Due to the new in-memory technology, ERPs allow major enhancements in terms of business processes, data structure and availability as well as IT architecture and user experience. Besides these general technological evolutions, there are several process-specific functionalities coming with S/4HANA, the current major representative for next generation ERP systems. Horváth & Partners 018 3

4 Memory Partitioning Big data sets in-memory In-memory technology Data base technology Row- and columnoriented memory + Compression Non-aggregated tables Real-time replication Partitioning; only delta-logs in-memory processing Delta-logs and Backup Persistence Hard drive Fig. 3: In-memory technology Horváth & Partners highlights a number of these functionality improvements: Integration of the major stakeholder customers and vendors by providing sales and supplier collaboration hubs Central business partner approach as the basis for an overall integrated stakeholder management. The business partner approach integrates business partners, customers and supplier data Integration of new data models in terms of predictive analytics and machine-learning functionalities even in business partner data, for example for supplier qualification purposes or default risk determination for customers Opportunity to fully integrate sales and operations planning with financial planning and controlling, which results in faster and optimized coverage of planned orders and reduction of under/over-utilization Integration of extended warehouse management, enabling the central management of company stock and making detailed stock tracking of all warehouses available for analytics in real time Substantial improvements within the field of finance and controlling processes, such as the universal ledger approach, integrating all finance information within accounting (known in SAP as real-time FI-CO integration ) Flexible and intuitive analytical services within planning and data preparation activities to reduce reporting to a minimum. Multidimensional, integrated and real-time self-service analysis for support business representatives as well Transition to cloud-based solutions, leading to significant IT landscape and cost improvements These exemplary functionalities are features of SAP S/4HANA, which is one of the most important representatives of next generation ERP platforms. Alternative platform vendors already offer or at least plan to offer these or similar functionalities as well within their latest and future release versions. Considering all the improvement potentials, it is needless to say that a pure system migration cannot be an option when migrating to a next generation ERP model. On the one hand, there are fundamental differences between data model technologies. Data sets and processes need to be logically transferred and adapted or re-engineered to benefit from the system set-up. Consequently, a re-thinking of the overall IT-architecture and set-up is critical from a sizing and usage model perspective as well as from the perspective of overall system integration. On the other hand, next generation ERP platforms come with different business process logics that reduce time-intensive tasks. More automated business processes are leading to increasingly convenient reporting options and are designed to be self-service applications. The resulting new collaboration model has a strong impact on the organization. Horváth & Partners 018 4

5 A next generation ERP strategy can be a significant driver in the reduction of the complexity of processes, data model and IT architecture. Therefore, we highly recommend identifying and implementing automization opportunities and redesigning business processes and responsibilities to fully leverage the above-mentioned potentials. A clear concept regarding the migration path and target operating model is a key success factor. Properly addressing the specific ERP requirements of the telecommunication industry We identified the manufacturing industry as being a forerunner in ERP projects, but why have telcos not yet taken this promising step? The provision of telecommunication services is based on a unique business model. The network infrastructure of telcos provides the basis for a wide range of voice and data services and is extremely capital-intensive. The operation of networks and the provision of services require extensive network management and build the basis for customer billing and support. In addition, telcos provision of services requires significant and comprehensive internal support functions in order to manage the immense amount of customer data as well as all further related data. Complex processes and technologies for service provision, corresponding production and service processes, complex billing processes and an extremely high amount of data within widely established customized applications lead to highly complex IT infrastructure and system integration. This is a challenge that nearly all telcos face. As mentioned above, capital-intensive investments, the provision and distribution of services, invoicing, and system integration are critical for telcos when they are considering ERP. From a telco providers perspective and in the context of ERP systems, these challenges differ to other businesses and consequently require different ERP solutions. For example, major decision drivers for redesigning ERP systems within the manufacturing business are improved warehousing or supply chain management solutions as well as integrated sales and operations planning. For telco providers, these solutions do not have any impact on ERP implementation-related decisions. Due to the complexity of service provisioning, these functionalities are typically not included in telco-specific ERP solutions. In most cases, the solution is to only establish an interface to transport the relevant information to the ERP system. Billing processes are also based on highly complex production data. As a consequence, telco core customer billing engines are usually stand-alone customized solutions, and only aggregated billing data is transferred to the ERP system for further processing. So, naturally, the specific features of a telco provider s business model when it comes to ERP solutions must include the requirements of extensive network management. By taking the telco-specific business model and translating it into ERP requirements and scope, Horváth & Partners has derived an ERP Reference Model. The specifics of this model compared to other industries in terms of next generation ERP system improvement potentials are as follows: 1 1 R&D Excerpt of new functions Product data models Proposal and order processing Disposition 5 Customer Collaboration Hub 6 8 Production and quality management 7 Purchasing and material management 5 Warehousing and inventory management 8 Integration S&OP and FI/CO Sales and distribution Logistics Customer care 8 Supplier Collaboration Hub Predictive Analytics 4 Variants configuration 6 MRP - Cockpit in Realtime 8 Storage optimization Fig. 4: Some S/4HANA functions along the end-to-end value chain Horváth & Partners 018 5

6 ERP responsibility Non-ERP Out of Scope Production Sales/ Services (CRM) Billing Hire to retire Purchase to pay Order to cash Buy to scrap HR Recruiting/ Controlling Procurement Sales Supplier-/ Category mgmt. Recruiting HR management Compensation/ Benefits Evaluation/ Development Lay-off/ Retirement Master Data Contacts Credit check Order Order fulfilment Invoice Asset management Planning/ Authorization Requisition A/ R. accounting Order Asset master record Rating Overdue notice/ Collection Order processing Conflict mgmt. Purchase/ Sale of assets Inventory/ Value allowance Invoice processing Logistics and material management Payment closing Customer inquiry Asset transfer Asset reporting Finance and Controlling Record to report External reporting Consolidation Balancing of accounts Intercompany settlement General ledger mgmt Plan to report Internal reporting Strategic planning, planning, budget, forecasting Master data management Consistent information and data model Fig. 5: Horváth & Partners ERP Reference Model for Telco & Media A strong focus on classical administrative support functions (such as finance and controlling, human resources and procurement), single functionalities within order to cash, buy to scrap and asset management as well as master data processes the key areas where telco companies can leverage business operations through next generation ERP systems Logistics and material management processes are in scope but not significant enough for any next generation ERP system improvements to significantly help telcos in their operations Core business functions, such as production, sales and services (incident, problem and change management) and core customer billing, are typically not in the scope of telco ERP systems. Any major next generation ERP system improvements in these areas do not result in any relevant advantages for telcos Telco providers who steadily manage their operating technical facilities and installations have to ensure network functionality. Next generation ERP maintenance and operations functions improve property management by enabling a simplified search for technical objects. With the help of base stations maintenance notifications, maintenance orders and respective confirmations for maintenance orders in the system, these functions can provide important data for the maintenance plan cycles of all assets. This information helps telcos to optimize asset usage, reduce maintenance efforts and service provision outages, which leads to higher customer satisfaction, lower maintenance costs and obtain a higher return on their investment. Considering the significant investment ratios, general cost pressure and strong competition in the telco market, these next generation ERP system features can leverage telcos business efficiencies significantly. Considering the support processes, the potential benefit for telcos equals the improvements of any other company using ERP functionalities. The integration of accounting and controlling processes within next generation ERP systems is the fundamental basis for eliminating alignments, significantly simplifying processes and thereby strengthening operational steering for any finance department. Since all information is booked on one account only, using additional cost types for internal steering gets irrelevant and reduces heterogeneous data. Information that is booked in finance is directly available within controlling and vice versa. This induces not only the integration of external and internal reporting but also the integration of actual reporting and planning. Accounting data becomes the basis for operational steering. The imaginary wall between accounting and finance is torn down, enabling substantial efficiency potentials within the finance processes of any company. In addition, an integrated finance data model builds the basis for self-learning applications (e.g. predictive analytics) that gain significant attention within planning. Companies are Horváth & Partners 018 6

7 already implementing promising prototypes in collaboration with the Horváth & Partners Steering Lab, a specific department that focuses on developing and implementing analytics as well as predictive and robotics models to optimize performance management. This further improves FC services in terms of accuracy and cost efficiency an essential module for the future CFO organization. Furthermore, typical proprietary developments in telco-specific areas such as asset accounting or billing can be reduced significantly. This strongly supports our general Horváth & Partners strategy back to ERP standard, leading to a substantial reduction in IT systems and interfaces and thus enabling material cost savings for ERP maintenance and operations in general. So, the re-thinking must be that new ERP models are very capable of also supporting telcos within their specific operating model. Although some major features cannot be leveraged, redesigned ERP models help telecommunication industries improve their asset/property management, which leads to better service provisioning and cost reductions. They help streamline telcos IT infrastructure, subsequently reduce interfaces and reduce complexity within a typically highly complex IT landscape. This helps lower IT costs for maintenance activities. Enabling telcos to fully leverage their next generation ERP potential Undoubtedly, ERP migration programs are currently top-priority activities in many mid-size and large companies. We observed that the actual majority of ERP transformation initiatives have not been set up by the telco industry, but rather the manufacturing industry. In this context, there is a fundamental question that must be asked: Is the extensive effort running these longterm projects justified? Based on our project experience, the first-wave companies have clearly said Yes. In most cases, the companies were faced with inadequate and historically grown steering models, complex and non-flexible ERP architectures, a high degree of individual solutions and a large number of critical interfaces and system integrations. Consequently, performance has been poor regarding transactions and reporting as well as a disproportionate effort for operations and maintenance. Most companies seem to use the opportunity presented by next generation ERP technologies to rightsize their traditional ERP model and increase the efficiency of affected business and IT processes. From our point of view, two often-stated top project objectives are the adjustment and alignment of steering and performance measurement models and the back to standard idea, which means covering most of the specific requirements with one of the ERP platform s standard solutions. There are several major drivers for doing this: Mandatory announced release change by ERP vendors to next generation technology solutions (e.g. S/4HANA, Oracle Fusion, et al.) Realization of remarkable saving targets in ERP processing and operations Alignment, adjustment, partially fundamental redesign of company performance measurement models and adequate integration into ERP scope Significant increase of information quality in terms of real-time performance, integration of external information sources and avoidance of manual interfaces connecting ERP processes Getting ready for an upcoming digital ERP agenda in terms of integrated analytics and predictive application as well as potentially complete process automatization targets (e.g. transactional accounting) The essential question is: Are the aforementioned advantages and benefit potentials relevant or crucial for telcos as well, and are complex ERP migration programs in this industry sector really reasonable? Giving a short and clear answer: We are convinced that these essential benefit potentials of migration into next generation ERP technologies are able to boost telcos ERP processes to a much higher level of efficiency and quality. The reduction of current telcos highly complex interfaces to related and critical ERP processes and the integration potentials such as billing, financial reporting, asset management, customer and technical service or material management will be substantial improvement drivers. So, designing a future ERP model will support the realization of ambitious saving potentials and efficiency targets in a very relevant and sustainable manner for the telco industry as well. Nevertheless, we do not recommend setting up large migration programs without clearly outlining and determining the future business needs as well as the technical requirements in terms of unchangeable release upgrades. Horváth & Partners recommends starting with a suitable fit/ gap analysis to obtain an adequate, realistic target picture of the future ERP architecture, including a clear roadmap of what is feasible for customers organizations to execute. Have we sparked your interest in ERP? If you are interested in having a detailed discussion on this topic with our experts, or if you have any questions or comments, please do not hesitate to contact us. We are happy to discuss with you the relevance of new ERP technology for the development of your organization. Horváth & Partners 018 7

8 Imprint/Contact Editor Horváth & Partner GmbH Phoenixbau Königstraße Stuttgart, Germany Phone: info@horvath-partners.com Horváth & Partners Management Consultants Horváth & Partners are independent, international management consultants with over 900 highly qualified employees. Founded in 1981 and headquartered in Stuttgart, Germany, we have offices at locations in Germany, Austria, Hungary, Romania, Saudi Arabia, Switzerland and the United Arab Emirates. Moreover, Horváth & Partners are a proud member of the Cordence Worldwide global management consulting partnership, which strengthens our ability to undertake consulting projects in important economic regions of the world with the highest professional expertise and precise knowledge of local circumstances. Our core competences lie in the fields of Corporate Performance Management and Performance Optimization both for the entire company and for the business and functional areas of Strategy, Innovation, Organization, Sales, Operations, Controlling, Finance and IT. Horváth & Partners stand for project results which create sustainable benefit, which is why we accompany our clients through the entire process from developing the business concept through to anchoring via integration into processes and systems. Marco Marschner Competence Center Media & Telecom MMarschner@horvath-partners.com Jürgen Paulus Competence Center Media & Telecom JPaulus@horvath-partners.com