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As manufacturers seek to raise the bottom line through improved performance, other challenges, including increased competition and customer demand, are driving many of them toward a strategic transformation into a new business model. These companies are no longer following tradition and just selling products to their customers; they are also offering value-added services. To enable these services, the manufacturer becomes the center of a solution provider network – a global ecosystem of suppliers and other partners working together to bring continuous value to customers. The strategic transformation of an industrial machinery and components manufacturing company into a valuedriven solution provider network and the impact this has on productivity and efficiency are the topics of this white paper. It explores how the implementation of enterprise business software in pursuit of a value-driven strategy can result in increased labor productivity, greater inventory efficiency, and improved asset utilization for your company. It also acquaints you with SAP® software solutions designed specifically to enhance your company’s performance. These include SAP Interactive Forms software by Adobe to improve communications; Duet™ software to let you use Microsoft Office with SAP applications; and SAP NetWeaver® Business Intelligence Accelerator software to speed information management.
Almost all industrial machinery and components (IM&C) companies, but particularly small to midsize manufacturers, think about investing in IT as a means to increase productivity and efficiency. However, at some point, most of them wonder if the investment is worth the effort and expense. That is precisely what Dr. Sinan Aral, professor at Massachusetts Institute of Technology Sloan School of Management and New York University Stern School of Business, wanted to discover. Dr. Aral spent 7 years studying over 700 companies in several different industries to determine whether an investment in enterprise software actually improves business efficiency and productivity. The results of this intensive study were revealed in an interview with Dr. Aral conducted on December 13, 2007, as part of the SAP Thought Leadership podcast series.
Quantifiable Performance Improvements
In Dr. Aral’s study, approximately a third of the companies analyzed were small businesses and midsize companies with less than US$1 billion in annual revenue. Data was gathered and analyzed from various public sources, yielding significant quantitative results. “For the first time,” says Dr. Aral, “we were able to quantify the impact of enterprise software on bottom-line business results.”
Does investing in IT convert to improved business performance? Can enterprise software really make a difference in productivity and efficiency? The study confirmed that the answer is yes. “We found that these performance improvements were causal, meaning adopting ERP [enterprise resource planning] actually improves performance rather than high-performing firms adopting ERP.”
ERP and the Bottom Line
According to the study results, even companies that invest minimally in enterprise software reap productivity and efficiency gains. For example, Dr. Aral says, “Firms that implement enterprise business software, such as ERP, experience 10% greater labor productivity, 13% higher inventory efficiency, 15% higher asset utilization, and 9% greater payment collection efficiency than firms who do not implement enterprise business software.”
The Value of Extended Enterprise Software
The study generated quantitative evidence that investments in extended enterprise business software, such as supply chain management (SCM) and customer relationship management (CRM) applications, derive still further gains. “Firms that implement extended enterprise software, such as SCM and CRM,” says Dr. Aral, “experience additional benefits above and beyond those provided by ERP, including greater labor productivity (~37% greater), inventory efficiency (~13% higher inventory turnover), asset utilization (~6% higher), and payment collection efficiency (~16% greater) than firms who do not implement these solutions.” The study also confirmed the value of a full enterprise software implementation. “Firms that implement both ERP and extended enterprise business software, such as SCM and CRM,” says Dr. Aral, “outperform those that adopt only ERP, only an extended enterprise system, or nothing at all.”
The “Virtuous Cycle” of IT and Productivity
In companies that already have some form of enterprise software like ERP, why is it that some succeed with it and some do not? What can you do to get the most out of your enterprise software investment in terms of increased performance? Dr. Aral recommends the following: “Try what former Federal Reserve Bank chairman Alan Greenspan refers to as the ‘virtuous cycle’ of IT and productivity.”
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