Está en la página 1de 37

White Paper

Empowering Finance for E-Business How to Exploit Technology to Optimize Value

Empowering Finance for E-Business

Copyright 2001 SAP AG. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed without prior notice. Some software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors. Microsoft, WINDOWS, NT, EXCEL, Word, PowerPoint and SQL Server are registered trademarks of Microsoft Corporation. IBM, DB2, OS/2, DB2/6000, Parallel Sysplex, MVS/ESA, RS/6000, AIX, S/390, AS/400, OS/390, and OS/400 are registered trademarks of IBM Corporation. ORACLE is a registered trademark of ORACLE Corporation. INFORMIX-OnLine for SAP and Informix Dynamic ServerTM are registered trademarks of Informix Software Incorporated. UNIX, X/Open, OSF/1, and Motif are registered trademarks of the Open Group. HTML, DHTML, XML, XHTML are trademarks or registered trademarks of W3C, World Wide Web Consortium, Massachusetts Institute of Technology. JAVA is a registered trademark of Sun Microsystems, Inc. JAVASCRIPT is a registered trademark of Sun Microsystems, Inc., used under license for technology invented and implemented by Netscape. SAP, SAP Logo, R/2, RIVA, R/3, ABAP, SAP ArchiveLink, SAP Business Workflow, WebFlow, all SAP Software Components, SAP EarlyWatch, BAPI, SAPPHIRE, Management Cockpit, mySAP.com Logo, mySAP.com, and the included mySAP Solutions, for example mySAP Marketplace and mySAP Workplace, furthermore mySAP Technology, mySAP Services, mySAP Hosted Solutions are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other products mentioned are trademarks or registered trademarks of their respective companies. Design: SAP Communications Media

This White Paper was prepared by mySAP Financials Program Management in collaboration with the PricewaterhouseCoopers global Financial Management Solutions consultancy team

Empowering Finance for E-Business

Contents
About This Paper New Opportunities for Value Creation Business Models for the Twenty-First Century The Importance of Intangible Assets Managing for Value in an E-Business World Challenges for the CFO Moving to Virtual Financial Operations Integrating ERP and E-Business Systems Redesigning Processes Using the Internet Accounting Systems for E -Business Web Enabling Payments and Treasury Reducing Working Capital E-Business Risk Management Introducing Integrated Analytics A Framework for Decision Support Business Analytics Strategy and Business Performance Management Strategic Stakeholder Communication Focusing on Customer Value Valuing Other Intangibles Incorporating New Metrics for E-Business Sharing Knowledge and Improving Personal Productivity through Portals The Business Case for Change Building a Systems Vision for E-Business Next-Generation mySAP Financials Financial Operations E-Business Accounting Business Analytics Strategy and Business Performance Management Strategic Stakeholder Communication Enterprise Portals Software Services Advantages of the SAP Approach Architecture Functionality Ease of Implementation Join SAPs Best Practice Community 5 6 6 7 9 10 12 12 13 15 16 18 18 19 19 20 20 21 21 22 23 23 24 26 28 30 30 30 31 31 32 32 32 32 32 33 33

Empowering Finance for E-Business

Empowering Finance for E-Business

About This Paper


Companies in the Internet age are finding that IT is no longer a back office support function, but a prime source of competitive advantage. Technology is essential for delivering products and services. For growing numbers of companies, its becoming an integral part of their product and service offerings. As IT and business strategies become entwined in e-business strategies and as the competitive environment becomes ever more complex and turbulent, how can companies stay on track in their pursuit of cash flow and shareholder value? The chief financial officer (CFO) and finance guardians of company assets have an important part to play. Presiding over processes that cut across the business, they are well placed to help the executive team face challenging questions:
s

This paper explores the benefits of introducing mySAP Financials SAPs next-generation solution that will help the CFO to measure and manage the value of the companys intangible and tangible assets. By linking the companys own financial processes and systems with those of e-business partners and by extending integration vertically to support value-based decision making and communication, mySAP Financials components empower finance professionals to play their role in sustaining optimal performance. The paper begins by reviewing opportunities for creating value in the new economy and their impact on the role of the CFO: essential reading for executives facing the challenges of e-business. The following two sections, Moving to Virtual Financial Operations and Introducing Integrated Analytics, are of particular interest if you want to understand in more detail the changing requirements for financial processes and systems. For a solution, see the sections on developing a business case and delivering your integrated IT vision using mySAP Financials.

s s

How can we reorient our systems and practices toward attracting and keeping the right customers? Which of our intangible assets like our brand equity, human capital, and corporate reputation does the market value most highly? How can we design a unique business model? How can we monitor its impact on the companys performance? What does it really mean to be an agile company? How can we provide our key decision makers with real-time information that will help them identify and exploit opportunities to create value? How can we leverage our investment in existing systems? How can we integrate new systems inside and outside the organization and do so quickly, with minimal disruption to everyday operations?

To support their companys migration to e-business, leading CFOs reinvent their finance functions wholesale structure, processes, systems, and skills. Using enterprise resource planning (ERP) applications as a foundation, they progress toward a new vision that connects virtual operations with advanced analytics to turn data into information into knowledge for use across the extended enterprise. At every step along the way, they manage the risks and returns associated with systems-driven change.

Empowering Finance for E-Business

New Opportunities for Value Creation


Most of the worlds major companies have spent the last few years pursuing strategies to enhance cash flow and shareholder value. Their executive teams have been preoccupied with converging priorities: exploiting IT as an increasingly important source of competitive advantage, focusing on core competencies by streamlining the business through shared services and outsourcing, and participating in globalization and the search for international partners. Many new opportunities open up on all these agendas as companies make the transition to e-business. The result is continuing dramatic change for the business as a whole and for the CFO and finance in particular.

Business Models for the Twenty-First Century


The connectivity made possible by the Internet and by new forms of collaborative working for e-business leads companies to rethink their business models. Those already enjoying internal connectivity between business functions following investment in integrated ERP applications can, with relative ease, extend integration outward to suppliers and customers creating a networked extraprise (see Figure 1). The company links internal operations on the buy side to suppliers, using e-procurement and other supply chain management (SCM) applications. Customer relationship management (CRM) applications, such as sales force automation and marketing automation software, facilitate connections on the sell side to customers. Both SCM and CRM applications can enhance processes inside the organization in conjunction with ERP applications, as do

Figure 1: From enterprise to networked extraprise: Value chain connectivity


Source: PricewaterhouseCoopers

Empowering Finance for E-Business

new analytical tools that give managers access to valuable information drawn from transaction systems. Overall, the aim is to facilitate real-time collaboration and decision making in order to optimize all supply chain operations end-to-end, turning them into a demand-driven value chain. Rather than attempting to match production and inventory to expected customer behavior, e-businesses flex their internal processes along with those of suppliers and partners to respond directly to actual sales. Because Web-based connectivity enables a rapid, reliable exchange of information, it is also fuelling the establishment of specialized providers of outsourced services. Growing numbers of outsourcers can handle noncore processes, including manufacturing, logistics, HR, and finance beyond the conventional boundaries of the organization, extending the networked extraprise. As traditional companies update their IT capabilities, these kinds of business-to-business (B2B) models are expected to dominate the new e-business economy, triggering an even bigger transformation than the business-to-consumer (B2C) start-up operations that flourished receiving much investor and media attention in the first wave of Internet development. But B2C connectivity will continue to provide an important direct channel to market for both new and established companies. Indeed, close links between developments in B2B and B2C e-business will effectively create businessto-business-to-consumer (B2B2C) models.1 One area of rapid growth is participation in online trading communities, or marketplaces, which are expected to account for 75% of all B2B spending by 2010. Offering further value creation benefits through, for example, aggregated purchasing, process efficiency, and reduced working capital, electronic marketplaces are being established to bring together trading partners:
s

Within a single company or a consortium of several partner companies

E-enabled business-to-employee (B2E) operations feature in the business models of growing numbers of organizations. These operations were originally designed to take costs out of the HR function, but lately they have focused on providing employee self-service applications via a Web browser for instance, for benefits enrollment, travel management, or time and expense reporting and can be developed into a stand-alone profit center or even floated off as a separate company. CFOs should also consider the potential for creating value using business-to-finance (B2F) connectivity. By employing best-in-class practices, the outsourced finance operation may attract customers from other organizations, first generating revenue and ultimately becoming a separate company. This new company could offer either a full range of finance services or specialized services, such as investor reporting, statutory accounting, or handling interactions with tax authorities.

The Importance of Intangible Assets


Outsourcing manufacturing and other noncore operations frees up enormous amounts of capital that can be invested in brand development, customer ownership, network management, and other market-centric requirements of e-business. As companies construct new business models to drive value creation, and focus management attention on customer pull rather than sales push, the major trend is away from managing physical assets and working capital toward leveraging intangible assets, including brand capital and human capital (see Figure 2).

On the buy side or the sell side of an industry value chain For intraindustry trading (providing a range of products or services within a specific sector, such as retail, biotechnology, chemicals, or utilities) or interindustry trading (providing the same products or services across a range of sectors) Through open or restricted buyer-supplier membership

Empowering Finance for E-Business

Figure 2: From bricks and mortar to clicks and mortar: Decapitalizing the old economy business to build intangible assets in the new economy business
Source: PricewaterhouseCoopers

From the CFOs viewpoint, intangibles represent the gap between the companys market capitalization and the value of the physical assets reported on the balance sheet. For many companies, more than 80% of their market value is attributable to such unreported intangible assets as customer value, trademarks, R&D, human capital, and business partner relationships. The danger is clear: because these increasingly important assets are difficult to measure and manage, the company may unwittingly underexploit them. What can you do to protect and develop intangible assets? For a start, its helpful to understand the sources of value for an e-business. While the key drivers of shareholder value are important for any business, studies of e-businesses and investor valuations suggest that seven factors dynamically influence these drivers in the new economy (see Figure 3):
s

Customer focus Long-term customer loyalty is hard won on the Internet, where comparison buying is never more than a few mouse clicks away. You must put the customer at the heart of your e-business operations and create shareholder value through customer value. Brand equity Brand equity heavily influences the competitive advantage period (CAP), the timeframe over which the

markets expect your e-business to generate returns in excess of its weighted average cost of capital (WACC). Management and planning Capital markets and venture capitalists always play close attention to the track record and credibility of your management team and your plans for value creation. The spotlight shines even brighter on operations for e-business, which is short of experienced players. Business model Design a business model that focuses on the customer and on your companys unique capabilities. Make sure its robust enough to survive competitive threats. Timing Rapid execution is what a successful e-business is all about. But the complex changes involved mean that you must also be able to apply an appropriate approach at an appropriate pace. Agility An agile company moves fast and first to take advantage of new opportunities to create value. Your processes and systems must be flexible to streamline processes using shared services and outsourcing. Also essential is an adaptive learning culture, together with strong change management capabilities. Content Use the information and relationships created through your CRM processes to build customer profitability by

Empowering Finance for E-Business

personalizing electronic catalogs, advertisements, and other content presented to customers. You should also carefully tailor content presented to other stakeholders.

which the company might leverage its customer base through targeted marketing of other products, such as CDs or toys. In addition, determining the value of options helps explain how much of the market valuation is caused by pure speculation.

Figure 3: Factors influencing value creation for an e-business


Source: PricewaterhouseCoopers

Leading companies are beginning to devise new metrics linked to these sources of value. These new metrics will be described later in this paper.

Figure 4: How does the market value an e-business?


Source: PricewaterhouseCoopers

Managing for Value in an E-Business World


CFOs and investors alike recognize that valuation of e-businesses and e-business projects requires a different approach from that used for many traditional ventures. Real options valuation (ROVTM) is proving useful. This approach builds on the techniques of discounted cash flow (DCF), net present value (NPV), decision tree analysis, and option pricing. What distinguishes ROVTM from more conventional investment appraisal is its facility to consider various uncertain outcomes, each discounted for the corresponding risk profile. Advanced techniques based on cash flow go a long way toward capturing, in economic terms, what makes a company valuable in the eyes of the market by analyzing current cash flows and expected future performance (see Figure 4). ROVTM goes one significant step further by letting you measure the value of the companys strategic options. This means its easier for the calculation to address the volatility of the e-business operating environment and the growing emphasis on creating value from intangibles. For a new online bookseller like amazon.com, for example, ROVTM could explore ways in

Military scenario planning provides an analogy for organizations coping with the disruptive impact of Internet technology. Sticking with one strategy when engaging the enemy is unlikely to lead to victory. What do you do if something unexpected happens? Instead, its wise to identify multiple potential strategies, choose the best one to adopt initially, and then conduct reconnaissance at selected intervals to assess its continued viability. At any point, the chosen strategy could be varied, switched, or replaced with a more attractive option based on new, unforeseen opportunities that have emerged. CFOs battling for competitive advantage in a range of industries in both new and old economy sectors are using the power of ROVTM to enhance strategic decision making for example, when valuing exploration opportunities in the oil industry, R&D portfolios in pharmaceuticals, NPD in consumer products companies, and growth options in the technology sector. Using sophisticated dynamic modeling, they can examine hundreds or even thousands of scenarios and identify flexible ways to manage both the upside and downside.2 Whatever approach you use, its important to remember that your valuation is only as good as the base assumptions you feed into it. Experience suggests that applying the thinking processes associated with ROVTM can in itself provide valuable insights.

Empowering Finance for E-Business

Challenges for the CFO


As the company positions itself for optimizing value in the new economy, the CFO and finance function must redefine their roles within the business (see Figure 5). Presiding over processes that cut across the business, the CFO is well placed to oversee and coordinate enterprisewide and increasingly, extraprisewide improvement initiatives from an economic viewpoint. In particular, as guardians of the companys assets, including its information and knowledge assets, finance professionals have key responsibility for managing risks and returns associated with IT infrastructure development.

To identify how finance professionals can add value to e-business operations, it helps to frame a series of finance value propositions. These propositions should set out shareholder value improvements expected from CFOled change initiatives, taking into account options, risks, and uncertainties. Your value propositions are likely to improve capital utilization, build the networked extraprise, and integrate new technologies:3
s

Improving capital utilization Finance can help to decapitalize the old economy business by shedding physical assets and improving operating efficiencies to build intangible assets in the new economy business. Your role centers on value chain analysis, asset disposals, working capital improvements, increasing intangible asset values, reducing operating costs and, most important, releasing funds for reinvestment in growth.

Figure 5: E-business impacts on the role of finance in three core areas


Source: PricewaterhouseCoopers

10

Empowering Finance for E-Business

Building the networked extraprise Finance can support the company in leveraging networks, working with business partners, entering electronic marketplaces, and developing and participating in new economic models. Your role includes competitive financing, business planning, broadening shared services, outsourcing business processes and IT applications, and attracting and allocating resources. Integrating new technologies Finance can guide the extraprise as it Web-enables business processes, connects transactions and decision support, and exploits Internet technology to help convert data into information into knowledge. Your role includes streamlining financial management processes and connecting e-business strategy to operations via new processes, new analytical applications, and new metrics.

What kind of organizational structure will best allow finance to fulfill its new role? Already, most finance functions have made a significant shift driven by investment in ERP and shared service centers toward being less resource intensive, more efficient teams, particularly in the area of transaction processing, allowing increased emphasis on decision support. In the future, finance will be even leaner (see Figure 6). To respond rapidly to the changing needs of the business, the finance function will become increasingly fragmented. With many tasks delegated to business managers or handled by shared service centers or external outsourcers, the finance staff will act as coordinators and offer higher value, adding more strategic services. Standardized, integrated processes and systems will be embedded within the business, and they will be available globally to users who can operate them

Figure 6: Reshaping the finance function to support the extended enterprise


Source: PricewaterhouseCoopers

11

Empowering Finance for E-Business

without needing to be aware of where they are located and maintained. The critical role of decision support may be fulfilled primarily by managers outside finance. Finance professionals will adopt a new training and coaching role to transfer appropriate skills and techniques. The following sections focus on new requirements for finance processes and systems in two major areas:
s

Moving to Virtual Financial Operations


As e-business becomes a reality throughout the corporate world, CFOs are under pressure to align operational processes and systems within the finance function with their companies new, more virtual organizational structures. In doing so, they face major challenges.

Operational processes and systems to support successful e-business and to turn transaction data into financial and business performance information Analytical processes and systems to turn information into knowledge for value-based decision making across the extraprise.

Integrating ERP and E-Business Systems


Beginning in the 1990s, companies have successfully integrated back-office process and information flows enterprisewide by replacing functionally oriented legacy systems with a single ERP system. The payoff for significant investment in process reengineering and new hardware and software comes via streamlined transactions and provision of better quality, more consistent financial information. More recently, as new corporate software capable of exploiting the potential of the Internet has proliferated, companies have been implementing SCM, CRM, data warehouses, and other sophisticated systems that help optimize end-to-end operations. And they have been strengthening connections with value chain partners, each with their own diverse technology solutions. The result is a complex extraprise information environment, representing a tough new integration challenge (see Figure 7).

12

Empowering Finance for E-Business

Figure 7: From ERP to e-business: The integration challenge

ERP provides an essential foundation for the evolution of your IT infrastructure. A robust, tightly integrated ERP system is needed to handle, at speed, the volume of transactions generated by successful e-business and to enable timely sharing of accurate information with partners. But if other internal or external systems come from different vendors, they will be difficult to connect without custom interface programming, leaving the company with the question of how to avoid isolated application islands. Some companies have progressed toward integrated enterprise reporting by using a data warehouse to bring together data from ERP, SCM and CRM systems and to deliver associated key performance indicators. But the move to e-business demands full application-to-application integration at a business process level both within and between enterprises. Even companies investing in emerging integration technology, such as enterprise application integration (EAI) middleware, often find that the purchased connectors need a high degree of specification to meet their unique requirements, resulting in delayed implementation and increased set-up and maintenance costs.

To overcome such problems, ready-to-use applications, such as mySAP Financials, are beginning to emerge. These applications enable flexible integration between accounting, operational, and analytic applications and provide standard integration functions embedded in the software, offering the promise of future plug-and-play application integration.

Redesigning Processes Using the Internet


The connectivity made possible by the Internet opens up many more options for business model design, as described earlier. Clearly, new opportunities for generating revenue and reducing costs need to be balanced against the added complexity of establishing and maintaining the right network of value chain partners. The CFO must help with critical decisions. What really are the companys core competencies? In other words, what must it retain and develop internally in order to create a unique business model that drives customer and shareholder value? What processes should be delivered by a shared service center? What can be handled by outsourcing providers?

13

Empowering Finance for E-Business

As the benefits of shared service and outsourcing solutions have been proven, their scope has extended from financial transaction processing and IT services to include procurement, logistics, HR, and a wider range of accounting services. Able to access resources globally over the Web, companies can choose the best site for services. For example, call centers are being set up in countries with a lower cost of doing business and a pool of highly skilled workers. At the same time, new technology is eroding the need to centralize shared services in a single physical location. Of the various models emerging, the most advanced is a virtual shared service center that offers users around the world access to a standard process and system on a 24 x 7 basis (see Figure 8).

These global operating models increase the demand for tightly integrated processes and flexible, open systems that work across legal, tax, and commercial boundaries in a way thats seamless to users. They let companies more easily launch new operations to enter new markets. New users access the services via a Web browser without waiting for a local infrastructure to be established. Increasingly, successful shared service centers are becoming centers of excellence that can offer front- or back-office services to the companys strategic customers and suppliers, then migrate to operating as an independent profit center that serves multiple companies.

Figure 8: Shared service center operating models


Source: PricewaterhouseCoopers

14

Empowering Finance for E-Business

The potential benefits of using the Internet to outsource nonstrategic operations include improved strategic focus and reduced operating costs. The company can free up capital, utilize resources and skills not available internally, access best practices, and share risks with a third party. In the hottest area of development for outsourced services business-to-business marketplaces many providers began by offering e-procurement services. But as they leverage the value of consolidated transaction data passing through the exchange, they are expanding rapidly to offer logistics, order fulfillment, financial services, marketing, and other information services. Growing numbers of companies are faced with opportunities to cooperate with major industry players to develop such an exchange. Before investing company funds, the CFO should apply specialized valuation techniques to assess the viability of the venture. Emerging applications offer capabilities for evaluating results under a range of assumptions and risks, using a variety of approaches to help arrive at a consensus view. In this way, the proposed business model and investment decision can be robustly challenged.4 Its worth pointing out that despite the widespread adoption of more virtual organization structures and aggressive decapitalization strategies, there remains a strong need in many companies for effective management of physical assets, such as offices and plants. Indeed, systems that offer real estate management functions including administration of corporate property, leasing, and rental play an increasingly important role in todays dynamic operating environment. For example, timely penetration of new markets may require the rapid, smooth establishment of local offices and facilities, which is always a challenging task. Clearly, property managers and owners alike want the most from their real estate. To enable effective short-, medium-, and long-term planning, real estate management processes must be integrated into the organizations overall strategy and business processes.

Accounting Systems for E -Business


Early adopters of ERP implemented fully integrated application suites in order to enjoy the benefits of enterprisewide consistency of transaction data. Today, these ERP suites are required to interoperate with SCM, CRM, and other applications, along with the systems of external value chain partners. In such a diverse IT environment, how can the CFO continue to deliver accurate, timely financial and business performance information? The complexity of the task really hits home when it comes to maintaining the integrity of data used to derive detailed financial statements, for example, when valuing COGS for manufacturing companies or risk-adjusted lifetime profitability for banks. It must also be possible to produce reliable data for management decision making and external value communication. These are demanding requirements for financial systems. Historically, companies used data warehouses to facilitate analysis and reporting, but it is unlikely that these will be sufficient to maintain the integrity of statutory accounting records and support integrated analytics in an e-business environment. Whats needed is an e-business accounting engine, capable of bringing together real-time transaction data from disparate sources and converting it into appropriate accounting views to satisfy international GAAP or local standards, as well as cost management requirements (see Figure 9). Generating accounting documents for subsequent auditing, this conversion process must enable automatic account postings in various ledgers, by applying appropriate user-defined business logic, accounting rules, and valuation methods. Shared repositories for master data, metadata, and business functions should ensure full consistency across linked operational, accounting, and analytical systems, enabling the CFO and management team not only to control the business, but to optimize its performance. Clearly, such a system positioned at the heart of the enterprise information architecture must meet the highest expectations for functionality, robustness, and scalability.

15

Empowering Finance for E-Business

Figure 9: An e-business accounting engine converts transaction data into business performance information and feeds linked analysis and reporting applications

Web Enabling Payments and Treasury


In a typical traditional finance function, some 60% of costs are attributable to settlement processes, including billing, payment, and financing. CFOs who take advantage of opportunities to outsource such processes using the Web can cut costs and release resources to focus on activities that add more value. In addition, the use of electronic bill presentment and payment (EBPP) systems, together with online dispute resolution and self-service customer support, allows much more effective management of working capital tied up in accounts receivable and cash positions.

A range of service providers are positioning themselves to take on aspects of the settlement role from companies (see Figure 10). Emerging offerings include shared service environments for accounts receivable and accounts payable, as well as services for bill production and presentment, and extraprise netting and financing. Web connections to the companys CRM and SCM systems allow the exchange of relevant data for raising invoices and approving bills for payment. Customer management processes initially retained internally could be considered for outsourcing later. In these sensitive areas, there is a clear role for trusted third party (TTP) service providers.

16

Empowering Finance for E-Business

Figure 10: Moving to outsourced settlement processes

Savvy CFOs limit risks by taking a phased approach to implementation aligned with changes in the companys business model and with the emergence of reliable new software solutions and outsourcers. Development and adoption of payment solutions, for example, has lagged behind other areas like bill presentment because of continuing concerns over security and fraud. In addition, the commercial culture in some countries, such as Scandinavian countries, has been more accepting of electronic payments than in the US, which is currently largely check based. Web-based financing solutions today focused on services, such as invoice discounting or factoring will in the future enable instantaneous payments over the Web via flexible routes with or without involving counter parties banks. A key potential benefit is a reduction in the amount of cash tied up unproductively in the banking system during existing settlement processes.

These and other developments significantly affect how companies provide treasury and cash management services. For example, in the future, disbursements could be consolidated by a centralized payment factory that can link to banks worldwide and provide instructions formatted for local payment systems. An in-house banking service could provide accounts for company affiliates or subsidiaries. Futurists speculate that this disintermediation of the traditional banking role will continue as the exchange of virtual money value that can be earned and spent on the Web erodes the need for banks as authorized holders and settlers of legal tender. As in other areas, there is a trend toward using treasury software services over the Web from an application service provider (ASP) rather than installing and maintaining new software in-house. As the range of hosted applications increases, companies will be able to

17

Empowering Finance for E-Business

access and use treasury workstation software, cash forecasting tools, and other specialized applications through a secure network under a service level agreement (SLA). This will allow more users across the organization to access services via a Web browser.

E-Business Risk Management


The risks of launching e-business operations are numerous: new risks like Internet security, reliability, tax and legal issues, as well as heightened existing risks like maintaining business continuity and controlling currency transaction exposure on a 24x7 basis. The estimated failure rate for e-business projects within traditional companies is an alarming 75%, and for dot-com startups its even higher at 95%. Some 90% of e-businesses have suffered significant disruption since launch; 60% of networks are penetrated more than 30 times a year; and 20% of online credit card transactions are fraudulent. Forward-looking CFOs take on the challenge of integrating traditional financial and business risk management with e-business risk management. In doing so, their role is not only to protect the interests of the company, but to respond to pressures to safeguard customers, shareholders, and other stakeholders, too. Companies that fail to mitigate demonstrably the risks of e-business face the biggest risk of all: being left out of the game.6 Youll need to build in protection of the companys systems and information assets from the outset. E-businesses invest in firewalls to screen and validate information that flows between value chain partners and scan for viruses. Technological advances, such as data encryption and digital signatures, allow other important functions to be performed during electronic transactions, including authentication of parties, protection of confidential information, and non-repudiation of agreements. Trusted third party (TTP) service providers are key operators in this area. At a strategic level, techniques like real options valuation (ROVTM) will help you to assess and manage e-business risks. So, too, will decision-support tools that provide advanced simulation and scenario modeling capabilities. These tools will be discussed later in this paper.

Reducing Working Capital


Initiatives that reduce working capital balances associated with receivables and payables are well worthy of the CFOs attention. Working capital (one of the key drivers of cash flow and shareholder value) typically represents 40% of a companys total assets. Any improvements are directly reflected in published accounts and tend to be seen by external analysts as a sign of good management. Dramatically reduced working capital provided it is not achieved at the expense of customers or suppliers is a highly desirable and realistic goal. Significant progress is being made by companies exploiting technology to optimize supply chain performance in two critical areas:5
s

Consolidating purchasing E-procurement solutions, initially focused on indirect spend, are now being developed for direct materials. Suppliers are establishing portals to transact business, and major customers are setting up private marketplaces with links via an extranet to their selected supply base. Other emerging solutions that contribute to coordinated purchasing include auctions, reverse auctions, and collaborative buying through marketplaces. Eliminating inventory Web-enabled information sharing and collaboration across the extended value chain makes planning, forecasting, logistics, and manufacturing processes faster and more efficient. Companies in the auto industry, for example, are demonstrating how coordinated execution, together with the ability to track orders and shipments in real time, can cut working capital tied up in inventory and safety stocks.

18

Empowering Finance for E-Business

Introducing Integrated Analytics


ERP systems alone generate huge volumes of data. E-business expands and adds an important external focus to corporate data sources. Wise CFOs invest in ways to maximize the companys value performance by leveraging all its information assets, whether drawn from ERP, CRM, SCM, other internal applications, or from external sources via the Internet. To do so, they need to establish processes and systems that can support the information needs of decision makers working across the extraprise in highly dynamic conditions.

A Framework for Decision Support


Experience demonstrates that decision support is most effective when management processes and information strategic, financial, and operational are seamlessly integrated across functions (see Figure 11). Data from the operational systems of the company and its value chain partners is consolidated and compared with targets as part of the performance measurement process, creating management information. Using simulation and scenario modeling, this information is transformed into knowledge to form the basis of strategic planning.

Figure 11: Integrated decision-support processes drive value creation


Source: PricewaterhouseCoopers and SAP

19

Empowering Finance for E-Business

To complete the cycle, plans are translated into targets to drive the management of operational performance supported by appropriate key performance indicators (KPIs) and incentives at all levels. But this style of management remains a distant goal for many companies. Critically, they lack systems capable of delivering the necessary business intelligence analysis. In most cases, disparate, functionally oriented data warehouses and online analytical processing (OLAP) tools serve different parts of the business without adequate connections, providing limited, inconsistent information. For the CFOs of these companies, the business case for introducing integrated analytics should be relatively straightforward to devise. Consider the example of a financial services company whose front-line operators use a customer analytics application to negotiate and finalize contracts in line with overall shareholder value objectives. Two-way communication between the application and transaction systems enables monitoring of payments against contract, informing future negotiations with the customer. In addition, the software can generate an aggregated view of negotiated contracts, which is used for forecasting and target setting. Links with the strategic review process let the company dynamically adjust objectives and incorporate associated new operational requirements into future customer analytics. The functions you need can be broken down into three tiers: business analytics, strategy and business performance management, and strategic stakeholder communication. In all cases, analytical applications should receive consistent, comprehensive data from transaction systems either directly or via your e-business accounting engine. And users, including employees and external stakeholders like business partners or investors, should be given easy access to relevant analytical applications and information via Web-based enterprise portals. You can also use enterprise portals (which are described in more detail later in this paper) to provide access to valueadding content from self-service, operational, and other applications.

Business Analytics
Within an integrated framework, analytical applications can help you to identify and exploit value-adding opportunities within the day-to-day business, enabling optimization of operational performance. As well as analytics for financial management such as profitability analysis, strategic cost management, activity-based management, and working capital management you need tools to support other specialized areas, with links back to related operational systems. For instance, capabilities are emerging for customer selfservice, pricing of products and services, managing database marketing, and other CRM requirements. Critically, new analytical applications help you to identify and to exploit opportunities for developing value from intangible assets, including customer value, brand equity value, R&D pipeline value, and human capital value. Tools designed to aid supply chain optimization offer functions for value chain diagnostics, strategic sourcing, and measuring responsiveness. Here, collaboration with suppliers and other partners is increasingly important: advanced applications support, for example, collaborative innovation, collaborative planning and scheduling, and collaborative cost management. Marketplace analytics are also being developed, offering functions like analysis of exchange usage, tracking online and offline revenue streams, and real-time profitability analysis for Web auctions. For HR specialists, analytical applications offer benefits, including enhanced recruitment, incentives management, and information to develop competencies matrices, skills mix requirements, and productivity levels.

Strategy and Business Performance Management


To support the information needs of decision makers at all levels, you need a systems solution that connects corporate strategy with operations and the actual value being created by executing managements plans. The solution must use institutionalized feedback loops to coordinate management of value-adding activities and initiatives across the extended enterprise, enabling rapid adaptation of strategies to changing market conditions.

20

Empowering Finance for E-Business

It must be capable of consolidating data from different dimensions and levels within the business so that, via a set of value based KPIs linked to a balanced scorecard, you can see how well the organization is doing in meeting its targets and budgets.7 With the right information base, tools for generating rolling forecasts let you project historical performance forward into the future and adjust strategic objectives accordingly. For effective planning, you also need a simulation capability to allow you to model the effect of various strategic options on the business. Alternative scenarios should be analyzed to determine their impact on the value drivers for both tangible and intangible assets and different assumptions concerning risk should be tested.

Focusing on Customer Value


One aim of integrated CRM systems is to connect all the varied experiences a customer has with the company, both during a transaction including marketing, product selection, purchasing, receiving, and post-sale support and between transactions during the customers lifetime, from initial visitor to long-term partner. This means your solution must be capable of collecting and analyzing data from the full range of sales and customer communication channels, including Web-based direct sales, traditional field sales, and call centers. For the customer, the result is a seamless series of interactions that encourages loyalty. For the company, its a source of information that managers can use to identify how and when to focus resources on key customers.9 Not surprisingly, advanced customer analytics applications focus on providing customer value management (CVM) functionality (see Figure 12). You can continually monitor each customers value to the business for example, using a weighted customer value index, combining financial and nonfinancial measures and direct CRM actions accordingly.

Strategic Stakeholder Communication


CFOs are all too aware that the quality of a companys stakeholder communication can have a significant impact on the way the markets perceive and value the business. For companies that want to make the transition to e-business, professional communication with external decision makers, such as investors and financial analysts, is more important than ever. Because intangible assets are harder to value and manage, you need to take particular care to ensure that the investment community understands your companys strategy and performance. Software to support Web-enabled external value communication with investors and other stakeholders is a key component of your analytics toolkit. Once again, the big issue is integration. Consistent information must be used for communication with the markets, for internal management of the business and for formal presentation in the annual report. In 1998, SAP launched its strategic enterprise management (SEM) suite of analytical applications the first solution on the market to support integrated strategy and business performance management processes, such as strategic planning, forecasting, and budgeting, strategy map and balanced scorecards, financial and management consolidation, KPI monitoring, strategic communication with external stakeholders, and value-based management.8

Figure 12: Building customer value management into your CRM solution

Be prepared to uncover startling findings. In the mobile telephone market, for example, its not unusual for 40% of profits to be generated by fewer than 10% of customers. One large bank discovered 99% of profits came from 1% of its customers! Managers need to know what value may be lost or gained before making decisions about nurturing individual customers or customer segments particularly in business-toconsumer operations where bringing each customer to breakeven point has become a critical discipline.

21

Empowering Finance for E-Business

Options for growing value include targeting your marketing efforts at selected customers, running more effective promotions, developing new products to satisfy specific customer needs, devising more frequent opportunities for cross-selling, and restructuring call centers, for example, by automating the interface with low-value customers.

Valuing Other Intangibles


Customers and customer value come first. But many other important intangible sources of value are receiving attention from the internal management and external investment communities, especially brands and trademarks, reputation, intellectual property and copyright, the R&D pipeline, human capital, and business partner relationships. Business advisors and software developers are responding: analytical techniques are expected to improve rapidly in such areas.

Leading CFOs invest strenuous effort in understanding the value drivers that underlie brand equity, so that they can improve their companies approaches to quantifying and developing this key asset. In turn, investors increasingly look for evidence that companies are managing brand equity effectively and expect detailed disclosure of information. Cash flow based, economic methods of brand valuation are popular because they involve comprehensive assessment of the various factors that might affect the ability of a brand to generate value for its owner. To derive the valuation, market analysis is applied alongside brand financial analysis, with cash flows discounted at a rate adjusted for brand strength. Approaches for valuing other intangibles are currently less advanced. Reputation management, including development of related key performance indicators, has long been a recognized critical component of value based management systems. But formal quantification of reputational value remains a difficult challenge. For

Figure 13: Example set of metrics for an e-business operation


Source: PricewaterhouseCoopers

22

Empowering Finance for E-Business

intellectual property and copyright valuation, a royalty based measurement may be appropriate, involving calculation of the net present value of an estimated royalty stream.

Sharing Knowledge and Improving Personal Productivity through Portals


Enterprise portal technology gives CFOs unprecedented opportunities for extending knowledge to decision makers across the distributed enterprise and for providing employees, professionals within the company, and external stakeholder with a single point of entry to internal and external applications, business content, relevant information, and services. An enterprise portal lets managers quickly and easily access information from analysis, reporting, and other applications via a Web browser, offering one-stop, self-service shopping for decision support. Enterprise portals are modeled on successful Internet consumer portals, such as Yahoo! and Excite, that give users a single point from which to start a search for information within an organizing structure thats simple to understand and navigate. The need for a similar, centralized access point has developed in the corporate world as the amount of information to which employees are exposed has escalated. Indeed, widespread familiarity with Internet portals means employees now expect corporate systems to offer comparable capabilities. A well-designed portal links people to selected applications and helps them to locate, manage, and use valuable information within the context of their jobs. Core capabilities including multimedia, search and retrieval, personalization, and knowledge mapping empower decision makers to get the information they need, when they need it, and displayed in the way they find most useful. In addition, tools like bulletin boards, video conferencing, and virtual team rooms facilitate collaboration and e-training. Companies that create an enterprise portal can leverage their investment in systems by providing larger numbers of users with a gateway onto the IT environment from their desktops or from other devices, such as mobile phones, pagers, or digital TVs. Within the same basic portal design, you can tailor content and functions to the specific needs of different user groups inside or outside the organization as the following examples demonstrate:

Incorporating New Metrics for E-Business


Monitoring e-business performance requires a new, very different set of metrics. Designed to be tracked automatically and reported frequently often daily via integrated extraprisewide processes and systems, todays e-metrics link to old and new, financial and nonfinancial sources of value (see Figure 13). Companies will continue to develop new metrics to help them deliver their e-business strategies within various operating models, including electronic marketplaces, using tried and tested approaches from traditional performance management systems. In order to use new metrics to provide timely business performance information in todays dynamic environment, CFOs will need to build on improvements in closing and reporting processes achieved over recent years. Best-in-class companies achieve a one-day close, with reports available one or two days later. The future promises an e-close and provision of actionable performance information on demand to decision makers inside and outside the organization. This vision brings together tough challenges: standardizing and Web-enabling transaction processing, eliminating manual interventions, automating accruals and closing entries, automating reconciliation, sourcing more types of data from more diverse sources on a continuous basis, and exploiting sophisticated data warehousing and analytical applications to report and communicate results.

23

Empowering Finance for E-Business

CFO portals and workplace portals for other finance professionals You can provide finance professionals with missioncritical performance information that is continually refreshed and combined with relevant, externally sourced information, such as competitor comparisons, media comment, economic indicators, and benchmarks. Users can access operational applications and query data via analytical applications through one role-based portal and benefit from enhanced communication and team building across a fragmented finance organization. Employee portals Employee portals are leading to significant cost savings in many companies by enabling universal employee self-service access to routine HR functions. By providing a link to functions for travel and expense management, for example, you can cut the time spent by employees finding travel arrangements that fit the companys policy and reduce administration costs. External stakeholder portals By allowing external portal access, you can promote collaboration with suppliers and customers across the value chain or deliver timely, tailored reports to shareholders and financial analysts.

The Business Case for Change


What kind of return can you expect from your investment in implementing integrated processes and systems to support e-business? Expert analysis, backed up by observations of the performance of real-life companies, shows that new business models can have a major beneficial impact on the key drivers of cash flow and value. One approach is to build valuation models for a bricksand-mortar company and an equivalent e-business, each with identical market prospects.10 Compared with traditional business models, Web-enabled business-tobusiness processes and communities offer efficiencies that reduce per-unit operating costs, enhancing margin performance by an estimated 2%. Strategies of aggressive decapitalization also boost performance. The faster order-to-cash cycle of an e-business might reasonably be expected to reduce net investment in working capital by 2%. Investment in fixed capital can be reduced, again by 2%, by creating a single, global e-business infrastructure. Most significantly, revenue growth rate rises 5% due to expanded market access. Even using conservative value analysis techniques, overall cash flow improvements mean the e-enabled company achieves a potential market valuation 8.5 times higher than its old economy counterpart (see Figure 14).

Explosive growth in portal technology is likely to continue, fuelled in part by the adoption among software vendors of the extensible markup language (XML) standard to facilitate application-to-application information sharing within and between enterprises. Examples of XML based e-business languages include the extensible business report language (XBRL) for financial reporting and for exchange of financial and business performance information.

Figure 14: Value transformation in a new economy, e-enabled company (illustrative example)
Source: PricewaterhouseCoopers

24

Empowering Finance for E-Business

Developing the detailed business case for technologydriven change is an important task for the CFO. You can use it to justify the investment of needed resources and to generate support across the extraprise from the outset. This way, the initiative gets off the ground smoothly and passes through difficult periods quickly. For example, full realization of potential benefits from ERP implementation is achieved only by companies that pursue the project through to enterprisewide integration of process and information flows across all functions and business units. Of course, the most important benefit of all is the establishment of a sound transaction processing base for the companys IT infrastructure, enabling addition of the new operational and analytical functions needed for successful e-business. The experience of CFOs of major corporations confirms the strong case for linking new e-business systems to existing systems. Here are several examples:
s

Putting finance at the center of a Web of relationships A global oil company found that moving finance and accounting processes to shared service centers cuts associated costs by between 20% and 50%, depending on the region served. Now, the CFO is looking to outsourcing solutions for additional savings: $1.4 billion over 10 years from one region alone. Hell use the Web to commercialize the outsourced centers for other customers, to extend outsourcing to procurement, IT, HR, and real estate functions and to exchange information with partners to aid forecasting. E-enabling customer management and settlement processes A multinational telecommunications company with complex billing requirements has bolstered its redesigned collections process with electronic bill presentment and payment software, and it has upgraded its credit-screening process with a customer behavior modeling tool. The result of these and related systems updates: a 60% reduction in customer dispute resolution cycle time, a 15% reduction in days sales outstanding, and a reduced bad debt charge.

Blowing up the budget A $100 million cost reduction equates to about 0.5% of a drinks manufacturers sales revenue. This is an ambitious goal as the company attempts to globally streamline performance management processes so that targets align with strategic goals and bottom-up reporting of KPIs connects with rolling forecasts, rendering the traditional budgeting process obsolete. The next, exciting step is to create a Web-based enterprise portal that gives managers direct access to valuable new knowledge. Moving to self-service decision support Savings of $825 million a year give the CFO of a global technology company a reputation for getting the most from integrated analytics. Because decision makers access real-time management information via a Web browser with no need for support staff as intermediaries, theres been a 27% productivity improvement. Systems continuously monitor business critical performance information, produce a flash report at noon on day one following the close, and provide complete reporting packages by the end of day two.

25

Empowering Finance for E-Business

Building a Systems Vision for E-Business


Given the compelling benefits, its not surprising that traditional companies everywhere are positioning themselves to compete in the electronic age. As the companys IT strategy becomes a more integral part of its overall business strategy, the CFO and CIO should work with the executive team to develop a vision of the necessary systems infrastructure. In a less enterprise-bounded e-business world, process and information flows beyond the organization assume equal importance to flows within. An effective, demanddriven value chain requires a closed information loop among ERP and e-business systems: front-office applications initiate back-office processes that speed a customer order through to fulfillment and, at every step along the way, provide business intelligence analysis to help the company make and deliver on the next sale.11 Your two-fold challenge is to extend electronic connections horizontally across the extraprise, between the company and its customers, suppliers and partners, and vertically between transaction-oriented systems and higher-level systems for financial, strategy, and business performance management. Both parts of your vision must be assembled simultaneously. Eager to join the e-business revolution, most companies focus IT investment on improving supply chain efficiencies and partnering to boost response times to Internet pace. But unless integrated operational processes and systems are designed to capture valuable information for decision makers by providing real-time input to data warehouses and analytical tools, performance enhancements are unlikely to be sustainable. So how can you be confident that the systems you choose are able properly to support your move to ebusiness? Make sure they have the following features:
s

Open connectivity Today, more than ever, you need open systems that can be integrated with third-party applications. Transactions performed internally on ERP, SCM, CRM, and other systems must be connected with those performed externally on the systems of business partners and service providers. Even once you have

implemented a complete e-business solution, you will need to allow for the addition of new, advanced functions as they become available. Flexibility Successful e-businesses can flex their business models rapidly as the conditions in which they operate change. Systems need to be similarly flexible. You must be able to adapt existing components to reflect changes in organizational structures, processes, and information requirements, for example, when moving from insourcing to outsourcing or vice versa. You must also be able to implement new components with minimum disruption to everyday operations. Accessibility and user friendliness All the relevant information, functions, and services must be easily available when and where they are needed, whether by internal users and applications or by external partners. All end users should be given access through a Web browser preferably built into an enterprise portal that provides a single gateway onto the companys IT environment. Responsiveness Business-to-business and business-to-consumer systems are expected to respond directly to customer demand, whether for information or actual order fulfillment. Increasingly, employees and other stakeholders also expect virtually instantaneous satisfaction of their information and communication needs. Your integrated systems should be dynamic and highly automated to support real-time transactions and decision making and to ensure that changing business conditions trigger appropriate, timely responses. Robustness and scalability In order to interoperate with other systems, components of your e-business solution must be capable of integrating large volumes of data from diverse sources and providing reliable outputs. They must also be able to support simultaneous queries from large numbers of users dispersed across the extraprise. Consistency and data integrity No matter how complex the companys systems infrastructure, nor how numerous its connections with heterogeneous external sources, all users must have confidence in the information and services provided.

26

Empowering Finance for E-Business

To enable horizontally and vertically integrated ebusiness systems, SAP launched mySAP.com in 1999. This integrated solutions set including mySAP CRM, mySAP SCM, mySAP PLM (product lifecycle management), mySAP HCM (human capital management), mySAP BI (Business Intellegence), and mySAP Financials (financials and strategic enterprise management) communicates with the R/3 ERP suite. In addition, mySAP Marketplace facilitates opportunities for inter-enterprise business process integration by enabling the extension of internally integrated ERP processes outward into SAPs global customer base, using the Internet and virtual private networks. Electronic buying and selling capabilities offered to participants include business-to-business procurement a package that can connect buyerpurchasing and suppliercatalog modules from different sources as well as dynamic pricing and the architecture to build open or closed market sites.

27

Empowering Finance for E-Business

Next-Generation mySAP Financials


SAP continues to develop software and service solutions to support trends in the emerging e-business environment. In particular, new mySAP Financials will help CFOs to maximize company performance by leveraging both intangible and tangible assets. This next-generation solution links the companys own financial processes and systems horizontally with those of business partners, and it extends integration vertically to support value-

based decision making and communication in a highly dynamic world (see Figure 15). Based on SAPs work with major organizations and experts worldwide to identify the requirements for financial processes and systems in the e-business world, the mySAP Financials solution has a component-based architecture. This offers outstanding degrees of flexibility and openness. With minimal disruption to existing IT investment, you can deploy new functions step-by-step as needed and quickly reconfigure processes and systems when

Figure 15: Integrating financial processes and systems horizontally across the extraprise and vertically between management levels

28

Empowering Finance for E-Business

changing market conditions trigger changes in your business model. While mySAP Financials components can operate on a stand-alone basis, they also interoperate easily with other SAP or third-party applications and services within an organization and across the wider business network. Critically, shared repositories allow master data and metadata to be exchanged in real time between operational, accounting, and analytical applications and business functions such as currency translation rules, allocations, valuations, and tax calculation to be shared between these different application components.

Because communication between these repositories and linked applications is based on standard XML protocols, services from third-party providers can be connected at runtime, for example, for sourcing business partner master data or payment details. This component architecture also means mySAP Financials can be used in a marketplace or shared service center or via an ASP.

Figure 16: The mySAP Financials component architecture facilitates step-by-step integration of new e-business functions with the organizations existing IT infrastructure

29

Empowering Finance for E-Business

The mySAP Financials solution covers seven functional areas:


s s s s s s s

Business Information Warehouse infocubes to feed analysis and reporting applications.

Financial operations E-business accounting Business analytics Strategy and business performance management Strategic stakeholder communication Enterprise portals Software services.

Business Analytics
Business analytics capabilities allow end users to monitor operations, and they support analytic tasks, such as modeling and simulation based on external information and operative data from different internal and external systems. Business analytics support decision support and a comprehensive range of analytic tasks related to finance, including profitability analysis (by market, organizational unit, business process, or legal entity), strategic and collaborative cost management, activity-based management, working capital optimization, overhead cost management, fixed asset analysis, and capital investment management. It also provides tools to help ensure that operational decision making in other parts of the business aims at optimizing value from both intangible and tangible assets. Critically, the software offers CRM analytics for customer lifetime value management and SCM analytics for supply chain optimization, as well as analytics to support product lifecycle management, human capital management and participation in electronic marketplaces. This component offers integration through shared functions and data between the various analytical applications and with other mySAP Financials components.

Financial Operations
The financial operations features of mySAP Financials span all areas of financial transaction processing, including electronic bill presentment and payment (EBPP) and other settlement processes, management of accounts receivable (AR) and accounts payable (AP), credit risk and limit management, cash pooling, cash management, and liquidity planning. It also offers functions for travel and expense management, such as online booking of travel services and posttrip administration and processing of travel expenses. In addition, it handles real estate management including real estate administration, leasing, rental, and portfolio management with links to financial and other business process applications.

E-Business Accounting
The mySAP Financials e-business accounting engine provides general ledger and cost management functions, enabling automatic accounting processing of transaction data originating from a variety of sources including ERP, CRM, SCM, HRM, and industry-specific or legacy systems. It automatically converts original transaction data into auditable accounting documents and into different parallel and reconciled accounting views to support international GAAPs, local GAAPs, management reporting, or project accounting using appropriate methods, such as user configurable valuation or allocation methods. The task of the e-business accounting is to provide standardized and reconciled sets of financial data automatically to support financial reporting, cost management, and analytic tasks. Output from e-business accounting is therefore passed to predefined SAP

30

Empowering Finance for E-Business

Strategy and Business Performance Management


To enhance strategy and business performance management, mySAP Financials provides capabilities for strategic and dynamic scenario modeling and simulation, business planning, strategy mapping (creation and electronic distribution of a strategy map, including strategic objectives and cause-effect linkages), as well as definition of related measures, benchmarks, initiatives, and responsibilities. Management and KPI reporting capabilities include balanced scorecards, value driver trees, and a Management Cockpit. In addition, functions cover business risk management, financial and management consolidations, budgeting, and rolling forecasts.

These features build on SAPs existing strategic enterprise management (SEM) functions (business information collection, business planning and simulation, business consolidation and sourcing, and corporate performance monitor).

Strategic Stakeholder Communication


The mySAP Financials solution addresses the growing requirement for stakeholder management (using stakeholder analysis and stakeholder master and contact databases), for stakeholder Web publishing (using specialized reporting tools, balanced scorecards, value driver trees, and simulation models) and for two-way stakeholder communication (for example via e-mail, mailing, Web feedback, and questionnaires). These features build on SAPs existing strategic enterprise management (SEM) functions for stakeholder relationship management.

Figure 17: New mySAP Financials key capabilities

31

Empowering Finance for E-Business

Enterprise Portals
By giving individuals or groups of users easy access to valuable information and services via a Web browser, a mySAP Financials enterprise portal can improve the depth and quality of knowledge sharing with key stakeholders inside and outside the company. Portals can draw on mySAP Financials and on related content from other sources. A CFO or finance portal can speed access to financial information, transactions, analytics, and business performance data. A portal for managers can help meet the specific information needs of decision makers in middle and line management. And an investor portal can provide features designed to enhance investor relations. SAP will use the mySAP Financials portal capabilities to facilitate communication with participants in the global Financial and Strategic Enterprise Management Best Practice Community, described in the final section of this paper.

Advantages of the SAP Approach


Even in the dizzying world of e-business, savvy CFOs know that systems rollout must be an evolutionary, not revolutionary, process. The mySAP Financials solution has major advantages over other available solutions.

Architecture
Built on the latest Internet technology and communication standards, mySAP Financials can process huge volumes of information, handle heavy transaction loads, and provide rapid reactions and decision support. Unlike other solutions on the market, SAPs solution offers high levels of functional and data integration by synchronizing information and business logic between mySAP Financials and complementary internal and external systems. This open connectivity allows business components to interact with multiple business systems.

Functionality
Building on SAPs experience as the market leader in financial systems design and implementation, the mySAP Financials solution helps companies to maximize their value performance in the new economy. It provides functions for managing financial operations including those commonly outsourced to service providers, such as settlement and for travel and expense management and real estate management. It enables e-business accounting in a heterogeneous systems environment and offers state-of-the-art financial analytics, along with analytics for CRM, SCM, product lifecycle management, human capital management, and marketplace participation. End-to-end SEM processes are supported by advanced strategy and business performance management capabilities including scenario modeling and simulation, business planning, forecasting and KPI reporting linked to the strategic stakeholder communication component. Using a Web-based enterprise portal, you can give users inside and outside the organization easy access to selected mySAP Financials components, transactions and information, as well as related value adding content.

Software Services
SAP offers third-party services that link automatically into mySAP Financials components at execution point, such as services for business partner catalogs, credit scoring, external cash pooling and netting (Orbian), and worldwide sales and use tax calculation.

32

Empowering Finance for E-Business

In addition, services offered by SAPs partners for example, provision of credit scoring or tax information, cash pooling and netting services, and other finance related services can be tightly integrated into mySAP Financials, allowing a high degree of automation.

Join SAPs Best Practice Community


SAP recognizes that the transition to e-business is a radical change for any established company, requiring a great deal more than advanced computing technology and solutions. Companies implementing mySAP Financials and other components to improve their value performance in todays dynamic economy must adopt new structures and practices, and ensure that people develop new skills. As part of our continuing commitment to the success of our customers, SAP will host and organize the global Financial and Strategic Enterprise Management Best Practice Community. Its mission is to provide a forum for learning and knowledge sharing by bringing together our customers, partners, and other financial and SEM experts to exchange ideas and experiences. It will also help organizations to find the right business partners and service providers to support their systems driven change programs. The Financial and Strategic Enterprise Management Best Practice Community builds on the popularity of our SEM customer advisory councils in North America and Europe. Extending SAPs work as a leading provider of client education services, it combines our own outstanding business, organizational and industry expertise with leading-edge thinking from our network of partners. It will offer conferences and focus groups geared to executive decision-makers, managers, and financial and IT specialists, along with a series of modular courses for practitioners including business analysts, controllers, and management or corporate accountants. With this initiative, SAP ensures a common understanding of best practices among all participants in the implementation of solutions for optimizing value from e-business, including SAP consultants, partners and customers.

Ease of Implementation
Because SAP uses standard component architectures and state-of-the-art, object-oriented techniques, you can deploy mySAP Financials functionality incrementally, as you need it. You can deploy those components needed to support todays business model and, when market conditions change, rapidly integrate other components to help you gain first mover advantage. At each stage, minimal changes will be needed to existing components and structures. The mySAP Financials open architecture means components integrate seamlessly into an existing ERP environment and work together easily with R/3 applications.

33

Empowering Finance for E-Business

1 For a more detailed explanation of emerging business models, see Grady Means and David Schneider, MetaCapitalism: The E-Business Revolution and the Design of 21st Century Companies and Markets, Wiley, 2000. 2 For guidance on conducting an ROV analysis, see Grant Norris, James R Hurley, Kenneth M Hartley, John R Dunleavy and John D Balls, E-Business and ERP: Transforming the Enterprise, Wiley, 2000. 3 For more detailed discussion of finance value propositions, see PricewaterhouseCoopers Financial Management Solutions Team, eCFO: Sustaining Value in the New Corporation, PricewaterhouseCoopers, 2000. 4 For more information on valuation methods for business-to-business marketplaces, see PricewaterhouseCoopers Financial Management Solutions Team, eCFO: Sustaining Value in the New Corporation, PricewaterhouseCoopers, 2000. 5 For a deeper exploration of the impact of e-business on supply chain strategies, see PricewaterhouseCoopers, E-supply chain: Revolution or e-volution? , Euromoney Institutional Investor, 2000. (Part of the Information and technology in the supply chain series.) 6 Martin V Deise, Conrad Nowikow, Patrick King and Amy Wright, Executives Guide to E-Business: From Tactics to Strategy, Wiley, 2000. 7 Information systems for operationalizing value strategies, by connecting topdown communication of targets with bottom-up reporting of performance, are described in more detail in our white paper SAP Strategic Enterprise Management: Translating Strategy into Action The Balanced Scorecard, SAP, 1999. 8 For more information on SAP SEM, see our white papers SAP Strategic Enterprise Management: Enabling Value Based Management, SAP, 1998, and SAP Strategic Enterprise Management: The Functions A Closer Look, SAP, 1999. 9 PricewaterhouseCoopers Financial Management Solutions Team, eCFO: Sustaining Value in the New Corporation, PricewaterhouseCoopers, 2000. 10 See Grady Means and David Schneider, MetaCapitalism: The E-Business Revolution and the Design of 21st Century Companies and Markets, Wiley, 2000. 11 PricewaterhouseCoopers Financial Management Solutions Team, eCFO: Sustaining Value in the New Corporation, PricewaterhouseCoopers, 2000.

34

Empowering Finance for E-Business

35

SAP AG Neurottstrasse 16 69190 Walldorf, Germany Mailing address 69189 Walldorf, Germany SAP information service Tel. +49 (180) 5 34 34 24 Fax +49 (180) 5 34 34 20 www.mySAP.com

THE BEST-RUN E-BUSINESSES RUN mySAP.com


You can find this and other current literature on our home page in the media centers for each subject.

50 043 875 (0101/13)

Printed on environmentally friendly paper.

This white paper was written by PricewaterhouseCoopers Global Financial and Cost Management Team (Cendric Read) and by Juergen H. Daum, former Director Program Management for mySAP Financials, SAP AG, in November 2000
Find more information and additional articles about New Finance and related topics at Juergen Daums website at http://www.juergendaum.com

Book recommendation:
Introducing the enterprise management concept for the knowledge and information age The first book on the market that summarizes in a synopsis all relevant aspects of the new 21st century corporate performance management model and that describes the steps for its implementing English Edition German Edition

Intangible Assets and Value Creation by Juergen H. Daum


John Wiley & Sons Ltd, Chichester, 2002 ISBN 0470845120

Intangible Assets oder die Kunst, Mehrwert zu schaffen von Jrgen H. Daum Galileo-Press, Bonn, 2002
ISBN 3-89842-112-0

Working with some of the main contributors to a new model of enterprise and performance management as well as of accounting and corporate reporting and communications, Juergen H. Daum developed in his book the foundation for a new enterprise management system and introduces it from a very practical perspective. He is citing many examples and is describing concrete steps that companies must take to implement the management system for the 21st century. This is complemented with interviews with some of the leading experts like David Norton, coauthor of the Balanced Scorecard, Leif Edvinsson, pioneer and thought leader in intellectual capital management, and with Baruch Lev, the worlds leading expert in intangibles accounting. This book aims at a paradigm change in management and names good reasons and arguments for it. It belongs into the management discussion of today. Juergen Daum proves great thought leadership. (Controller Magazin, Germany, issue 5/2002)

You will find more information about this book at http://www.juergendaum.com/mybook.htm