Business Transformation Initiatives: Unlocking Benefits for Manufacturers

The time is ripe for manufacturers to launch business transformation initiatives, enabled by enterprise application optimization, in order to optimize their available cash, streamline the IT infrastructure, create operational efficiencies and add new revenue streams.

A business transformation initiative, whatever form it takes, can deliver real benefits to a manufacturing organization's bottom line. Despite persistent global economic uncertainty, the time is right to begin such a transformation effort, particularly if your company's coffers (like some) are flowing with cash and merger and acquisition activity is high (or expected to increase). Process improvements enabled by a new generation of services-oriented enterprise applications help improve efficiencies and better position your business to thrive in the new economy.

But for many manufacturing executives, transformational activities such as enterprise application optimization fall under the heading of “love to hate.” It can be challenging to build a strong business case to secure funding for application portfolio upgrades or rationalization. The most compelling driver is often that the application is about to lose vendor support.

Even those whose organizations are not facing the specter of immediate sunset of their application know that failing to optimize the underlying code base that runs their business means their operating environment is less than ideal. In fact, failing to modernize their enterprise applications – whether upgrading, migrating or integrating – means the company will miss out on transformational business capabilities that can reap real bottom-line rewards.

Despite their historic preference to spend on factory floor technology vs. IT, manufacturers are expected to slowly thaw their IT spending, including enterprise application upgrades, according to a recent survey by Computer Economics. According to the survey, discrete manufacturing companies planned to increase their IT operational spending in 2011 by 3.8%. Process manufacturers surveyed, meanwhile, planned to increase IT operational spending by 2.5% in 2011.

Transformation's Impact on the Organization

As an initial step in understanding the gap between how an organization currently operates and the vision for the future requires a self-assessment using information and tools such as benchmarking data on competitors and industry/process maturity models. An important task is for business leaders to reach agreement as to the organization's current state and vision for the future. While it is common and useful to have outside help in evaluating the gap between “as is” and “to be,” the future vision needs to come from inside.

Your gap analysis should also include an evaluation of process maturity targets and a phased view of how these stages can be attained. Let's say, for example, that your customer-facing processes are in need of serious help due to their relative immaturity (your salespeople have not established relationships with key customers and are not proactive in selling new opportunities). It is likely too much of a stretch to expect to go from this currently immature stage to the best-in-class level of maturity (in which sales Is led by the executives with broad cross-functional support) with no stops in between. Focus your goals on what is realistic given your current state, vision for the future, available resources and, most importantly, your business objectives. (See Figure 1 to understand how this decision process might work.)

Figure 1

Business Transformation at Work

Let's consider a hypothetical example to see how business transformation might work. Assume a $5 billion manufacturer of branded and private branded consumer–packaged goods embarks upon a business process transformation initiative. An aggressive M&A strategy had resulted in a plethora of systems in use across the organization – everything from SAP Financials running on a mainframe to Salesforce.com on mobile devices for salesforce contact management. The opportunity to leverage common systems and processes provided the catalyst to drive a business transformation initiative.

To better understand the opportunities, potential return on investment and roadmap to implementation, an assessment of current and future-state business processes and applications would need to be conducted. To achieve the end-state objective of providing a comprehensive recommendation to the board of directors, the team would utilize a structured methodology and proprietary accelerators.

Several business improvement opportunities could emerge as potential cost savings. These opportunities would then be adopted by the company and included as part of the goals and objectives of the stakeholders responsible for ensuring their implementation. Taking this approach and measuring actual achievement on each of the objectives could yield potential financial benefits that exceed the values for each of the opportunities.

Looking Forward

No company – least of all a manufacturer -- undertakes a business transformation initiative lightly. In the face of continuing economic uncertainty, many companies will wait to act unless they no longer can put it off – in the case of their enterprise application losing the support of its vendor, for example.

On the other hand, business transformation offers undeniable benefits for those bold enough to undertake it, including more effective use of cash (be it through M&A or not), streamlining the IT infrastructure and support, which creates greater operational efficiency. Perhaps most significant is the opportunity to add new business capabilities that either drive new revenue streams or make more effective use of a company's existing portfolio. All of these are welcome in any economic climate.

Learn more about application rationalization or read an expanded version of this white paper Business Transformation Initiatives: Unlocking Benefits for Manufacturers (PDF).