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Category Archives: SAP

SAP Insights Replaces Digitalist Magazine

June 29, 2020   SAP
Insights screenshot 1 SAP Insights Replaces Digitalist Magazine

SAP Insights Replaces Digitalist Magazine

Digitalist Magazine

On Monday, June 15, SAP launched SAP Insights (insights.sap.com) – a new website for senior executives and organizational leaders that provides unique and informed points of view that will grow understanding of complex topics and inform decisions.

Although the current Digitalist Magazine remains live, new content will no longer be published to the website. Previously published content will remain available on the archived site (i.e., bookmarked links will still work) or be redirected as appropriate to the new SAP Insights site. The Digitalist Magazine newsletter will also be retired. If you wish to receive the new SAP Insights newsletter please sign-up for it here.

Digitalist Magazine editors and contributors greatly appreciate your readership over the years. We are certain that you’ll find value from the content on the new SAP Insights website, where articles will cover not only what is coming next in digital business, but also what to do about it. Data-driven research will be combined with knowledge from experts and leading thinkers from around the world. The results of this collaboration are new ideas and proven practices that improve the way organizations run.

SAP Insights includes content related to four areas:

  • Research
    Original studies focusing on major issues and emerging trends relevant to the c-suite.
  • Articles
    In-depth articles diving deep into business and tech topics.
  • Fundamentals
    Long-form content that includes explanations of technologies, processes, and techniques to equip executive for decision making.

Please visit the new SAP Insights website at insights.sap.com.


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Innovation: It’s More Than Just A Nice-To-Have

June 7, 2020   SAP
 Innovation: It’s More Than Just A Nice To Have

Our day-to-day lifestyle has significantly changed in this new reality created by the COVID-19 pandemic. Regardless of how tech-savvy you were before, you – like everyone else – now depend on digital tools to manage both your personal and professional life.

A lot of these products, services, and platforms did not exist or were only available to a select audience before the pandemic. Many were considered too innovative or “nice to have” but not necessary. But think about all of the elderly people staying connected to their loved ones through video platforms, the average families using delivery apps for groceries, or the companies hosting large conferences in virtual setups – the list goes on and on. In most cases, there was no (or little) need for those tools before, so they were scarcely used. And yet organizations still invested in and brought them to market. Looking at the demand now, we can see some organizations were a step ahead of the others. What’s their secret to knowing what will be needed in the future? The answer: their drive for innovation.

Innovation: what does it mean?

How many times have you heard or seen the word “innovation” just today? Well, at least four times in this article so far. And beyond? Yes, it’s everywhere, but it is still an abstract idea for many people – just a buzzword. Let’s dig deeper into what innovation is. Here is how several online sources (linked in the References below) define it:

  • Innovation is the process of doing things differently and discovering new ways of doing things.
  • Innovation is adapting to change to better meet demands of products or services.
  • Innovation is improving business processes and models, developing new products or services, adding value to existing products, services, or markets.
  • Innovation’s aim is to provide something original or unique that can have an impact on society.

Understanding and living innovation, especially in times of change

One point that is missing from this list: Innovation spares no one. It is essential for individuals and organizations, for the CEO of a company just as much as the entrepreneur who is just getting started. That said, you do not need to aim be the next Amazon or Airbnb. Small changes can help you foster an innovation mindset to proactively respond to potential disruptions.

Imagine the current pandemic a decade ago: no virtual office meetings, no video calls with family and friends, no 24/7 food delivery to your doorstep. Think about the economic and emotional impact it would have had. By all means, the economic impact today is enormous, but imagine how much worse it could have been in the past. Companies would have stopped operating with no alternatives; there would no e-commerce, no IT infrastructure, and no availability. If there wasn’t an innovative mindset and driven teams that created these products, services, and platforms, we would be in an even less fortunate scenario now.

Write (innovation) history!

“It is only the farmer who faithfully plants seeds in the Spring, who reaps a harvest in the Autumn.”
— B.C. Forbes

At this moment, we are writing history. We are living through the most disruptive period we have ever seen, a time when innovations are needed more than ever. We need to think one step ahead and take this opportunity to reinvent ourselves. We also need to make this an ongoing practice – all of us, from small and midsize businesses to big corporations. Whether you are producing something like face masks and need to rethink your supply chain management due to high demand, or you’re an events company that needs to go fully virtual in a single day, this applies to you.

I strongly believe that we will rise from this crisis with a new appreciation for innovation and change. Innovation should be a mandatory component of your daily experience and strategy instead of being regarded as a luxury – especially now.

References

For more on thriving through today’s disruption and certainty, see the “Navigating Disruption Today, Planning for Tomorrow” series.

Let’s block ads! (Why?)

Digitalist Magazine

Read More

Resilience And Reinvention

June 5, 2020   SAP
 Resilience And Reinvention

The recent pandemic has disrupted almost every sector on a global scale. We are suddenly in a world where auto makers are building healthcare equipment and luxury goods makers are producing hand sanitizer. Most organizations have been forced into sudden survival mode and challenged to adjust to continually unpredictable dynamics. Mass disruption has led to rapid abandonment of established sales targets, marketing strategies, and predictions about how quarterly numbers might pan out.

The current situation has had inconsistent cascading effects on nearly every industry. While some businesses have shut down completely, others are trying to keep up with rapidly changing demands, and those left somewhere in the middle are attempting major adjustments to operations to adapt to uncertain and shifting environments.

Organizations with robust systems in place have a better chance of weathering the storm, and those that are intelligent enterprises are not only more resilient but able to come out of this crisis seizing opportunities that others either could not see or could not execute on.

Resilient leaders make the right decisions quickly, and adapt

Streamlined leadership is crucial during this turbulent time. Business leaders need to ensure that decision makers have the right data, at the right time, to quickly identify shifting priorities and tackle business continuity risks across value chains, such as supply chain disruptions, inconsistent customer demand, employee productivity challenges, and systems resilience.

Systems resilience is based on a system’s ability to operate during a major disruption or crisis with minimal impact on critical business processes and operations. This means preventing, mitigating, or recovering from technology issues within system architecture, networks, software applications, data, cloud connections, and infrastructure. That’s why CIOs and IT leaders play a key role in ensuring businesses can continue to operate during a crisis.

Resilience of business systems and processes

As the impact of the pandemic intensifies, business systems are tested more than ever before. Regardless of what industry – travel, retail, healthcare, manufacturing, technology, or any of the other global industries – all sectors have been impacted in some way, and all businesses must adapt. This means adapting to the current challenges, which could last weeks or months, as well as adjusting to what comes next: a period of recovery that could last months, or even years.

You need to ensure that your systems are resilient enough to maintain your business in this unpredictable environment and support the reinvention of your organization as we move beyond the current crisis.

It is as important as ever to have insight, agility, and control over your operations in order to understand what changes are necessary and make the right decisions on how to apply resources, and how to take action to get the best possible outcomes during challenging times. To help you do this, key technology solutions can be used tactically to help keep supply chains and products moving, control spending, and help your business navigate a path toward recovery.

Emerging stronger

There are lessons to be learned and applied in the current disruption to emerge stronger. How well you navigate this crisis will determine how resilient your organization is when we move beyond the pandemic and define the next normal.

Lay a strong, yet agile, foundation for your organization with the insight and practical strategies shared on this exclusive LinkedIn Live event. Tune in to the SAP Technology LinkedIn channel at 11:00 a.m. EDT / 8:00 a.m. PDT on Wednesday, June 3, to hear David Robinson, senior vice president of Customer Success at SAP, chats with Nathaniel Crook, vice president of Global and Strategic Accounts at Microsoft, and Emma McGuigan, senior  managing director at Accenture Technology.

Let’s block ads! (Why?)

Digitalist Magazine

Read More

Innovation: It’s More Than Just A Nice-To-Have

May 31, 2020   SAP
 Innovation: It’s More Than Just A Nice To Have

Our day-to-day lifestyle has significantly changed in this new reality created by the COVID-19 pandemic. Regardless of how tech-savvy you were before, you – like everyone else – now depend on digital tools to manage both your personal and professional life.

A lot of these products, services, and platforms did not exist or were only available to a select audience before the pandemic. Many were considered too innovative or “nice to have” but not necessary. But think about all of the elderly people staying connected to their loved ones through video platforms, the average families using delivery apps for groceries, or the companies hosting large conferences in virtual setups – the list goes on and on. In most cases, there was no (or little) need for those tools before, so they were scarcely used. And yet organizations still invested in and brought them to market. Looking at the demand now, we can see some organizations were a step ahead of the others. What’s their secret to knowing what will be needed in the future? The answer: their drive for innovation.

Innovation: what does it mean?

How many times have you heard or seen the word “innovation” just today? Well, at least four times in this article so far. And beyond? Yes, it’s everywhere, but it is still an abstract idea for many people – just a buzzword. Let’s dig deeper into what innovation is. Here is how several online sources (linked in the References below) define it:

  • Innovation is the process of doing things differently and discovering new ways of doing things.
  • Innovation is adapting to change to better meet demands of products or services.
  • Innovation is improving business processes and models, developing new products or services, adding value to existing products, services, or markets.
  • Innovation’s aim is to provide something original or unique that can have an impact on society.

Understanding and living innovation, especially in times of change

One point that is missing from this list: Innovation spares no one. It is essential for individuals and organizations, for the CEO of a company just as much as the entrepreneur who is just getting started. That said, you do not need to aim be the next Amazon or Airbnb. Small changes can help you foster an innovation mindset to proactively respond to potential disruptions.

Imagine the current pandemic a decade ago: no virtual office meetings, no video calls with family and friends, no 24/7 food delivery to your doorstep. Think about the economic and emotional impact it would have had. By all means, the economic impact today is enormous, but imagine how much worse it could have been in the past. Companies would have stopped operating with no alternatives; there would no e-commerce, no IT infrastructure, and no availability. If there wasn’t an innovative mindset and driven teams that created these products, services, and platforms, we would be in an even less fortunate scenario now.

Write (innovation) history!

“It is only the farmer who faithfully plants seeds in the Spring, who reaps a harvest in the Autumn.”
— B.C. Forbes

At this moment, we are writing history. We are living through the most disruptive period we have ever seen, a time when innovations are needed more than ever. We need to think one step ahead and take this opportunity to reinvent ourselves. We also need to make this an ongoing practice – all of us, from small and midsize businesses to big corporations. Whether you are producing something like face masks and need to rethink your supply chain management due to high demand, or you’re an events company that needs to go fully virtual in a single day, this applies to you.

I strongly believe that we will rise from this crisis with a new appreciation for innovation and change. Innovation should be a mandatory component of your daily experience and strategy instead of being regarded as a luxury – especially now.

References

For more on thriving through today’s disruption and certainty, see the “Navigating Disruption Today, Planning for Tomorrow” series.

Let’s block ads! (Why?)

Digitalist Magazine

Read More

Resilience And Reinvention

May 30, 2020   SAP
 Resilience And Reinvention

The recent pandemic has disrupted almost every sector on a global scale. We are suddenly in a world where auto makers are building healthcare equipment and luxury goods makers are producing hand sanitizer. Most organizations have been forced into sudden survival mode and challenged to adjust to continually unpredictable dynamics. Mass disruption has led to rapid abandonment of established sales targets, marketing strategies, and predictions about how quarterly numbers might pan out.

The current situation has had inconsistent cascading effects on nearly every industry. While some businesses have shut down completely, others are trying to keep up with rapidly changing demands, and those left somewhere in the middle are attempting major adjustments to operations to adapt to uncertain and shifting environments.

Organizations with robust systems in place have a better chance of weathering the storm, and those that are intelligent enterprises are not only more resilient but able to come out of this crisis seizing opportunities that others either could not see or could not execute on.

Resilient leaders make the right decisions quickly, and adapt

Streamlined leadership is crucial during this turbulent time. Business leaders need to ensure that decision makers have the right data, at the right time, to quickly identify shifting priorities and tackle business continuity risks across value chains, such as supply chain disruptions, inconsistent customer demand, employee productivity challenges, and systems resilience.

Systems resilience is based on a system’s ability to operate during a major disruption or crisis with minimal impact on critical business processes and operations. This means preventing, mitigating, or recovering from technology issues within system architecture, networks, software applications, data, cloud connections, and infrastructure. That’s why CIOs and IT leaders play a key role in ensuring businesses can continue to operate during a crisis.

Resilience of business systems and processes

As the impact of the pandemic intensifies, business systems are tested more than ever before. Regardless of what industry – travel, retail, healthcare, manufacturing, technology, or any of the other global industries – all sectors have been impacted in some way, and all businesses must adapt. This means adapting to the current challenges, which could last weeks or months, as well as adjusting to what comes next: a period of recovery that could last months, or even years.

You need to ensure that your systems are resilient enough to maintain your business in this unpredictable environment and support the reinvention of your organization as we move beyond the current crisis.

It is as important as ever to have insight, agility, and control over your operations in order to understand what changes are necessary and make the right decisions on how to apply resources, and how to take action to get the best possible outcomes during challenging times. To help you do this, key technology solutions can be used tactically to help keep supply chains and products moving, control spending, and help your business navigate a path toward recovery.

Emerging stronger

There are lessons to be learned and applied in the current disruption to emerge stronger. How well you navigate this crisis will determine how resilient your organization is when we move beyond the pandemic and define the next normal.

Lay a strong, yet agile, foundation for your organization with the insight and practical strategies shared on this exclusive LinkedIn Live event. Tune in to the SAP Technology LinkedIn channel at 11:00 a.m. EDT / 8:00 a.m. PDT on Wednesday, June 3, to hear David Robinson, senior vice president of Customer Success at SAP, chats with Nathaniel Crook, vice president of Global and Strategic Accounts at Microsoft, and Emma McGuigan, senior  managing director at Accenture Technology.

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Digitalist Magazine

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Three Supply Chain Trends Accelerate In Response To Current Crisis

May 22, 2020   SAP
 Three Supply Chain Trends Accelerate In Response To Current Crisis

In Episode 33 of the SAP Experts Podcast, Martin Barkman, Senior Vice President & Global Head of Solution Management for Digital Supply Chain at SAP, outlines the supply chain agenda in the age of COVID-19. This post looks at the current state of the discussion among consultancies, SAP experts, and customers about which trends will accelerate throughout the current crisis.

Transparency

In a situation like the current crisis, it is easy to forget where the economy came from. As Hans Thalbauer, then SAP SVP of Digital Supply Chain and Industry 4.0, pointed out in an episode of the SAP Experts Podcast recorded in late 2019, volatile political and social environments were some of the most pressing issues supply chain leaders were facing even before COVID-19 entered the stage. After all, the pre-coronavirus times were those of Brexit, the Sino-American trade wars, and widespread social unrest.

The bad news is: COVID-19 does not replace these types of disruptions, and instead is likely to even exacerbate them. First, the evolving “dance” phase is playing out at different speeds in different countries. Each country is at the constant peril of a second wave necessitating a return of harsh interferences with businesses’ operations (and, as a result, with the supply chains crossing their territory). Second, the crisis is heating up the dynamic of preexisting crises – just take US-China relations or the widening political cleavages within the EU as examples. The good news is: The business world has already learned a great deal about how to handle these types of uncertainties and upheavals. The food supply, for example, has remained stable in most markets even throughout the toughest lockdowns.

This is in part thanks to the visibility into stock levels, demand development, and supply chain constraints afforded by modern business technology. Consultancies like BCG and McKinsey are therefore united in prescribing one concept for handling the uncertainties at hand: A “nerve center” or “control tower” that has visibility over the entire supply chain, rendering the future in alternative scenarios and respective reaction protocols. The phase of volatility and uncertainty ahead, it thus seems, will be a major argument for reinforcing “insight-to-action” capabilities in supply chain management: The ability to act quickly, on the basis of real-time data and predictions.

Automation

Even before COVID-19 entered the scene, automation was high up on the agenda of supply chain leaders, as the promise of producing in a more agile manner with higher transparency and lower costs is a convincing case in itself. Now, reports of consultancies like Kearney and EY highlight that this case was further reinforced by the epidemic.

First, having fewer humans crowded around a given production line reduces the risk of viral transmission among them. This not only serves to protect the workforce but also the continuity of the operations themselves: Regulators keen on enforcing physical distancing rules will have fewer concerns about factories with fewer humans in them, and sick leaves will not have as much of an impact on production plans.

Second, the traumatic experience of the West’s inability to adequately equip its healthcare system with protection equipment and testing kits is reinforcing the political desire to repatriate manufacturing. If this pressure persists (and is perhaps intensified by consumer and/or shareholder preferences), manufacturers could see a paradigmatic shift in the way they operate. As BCG points out, “(artificial intelligence) also allows (manufacturers) to operate a larger number of small, efficient facilities nearer to customers – rather than a few massive factories in low-wage nations – by deploying advanced manufacturing technologies such as 3D printing and autonomous robots that require few workers.”

A recession boosting the adoption of such automation technologies would not be without historical precedent. In fact, it would rather be the norm. According to the Economist Intelligence Unit, it has been in recessions that the adoption of automated processes has really spiked alongside the pressure to lower costs. It would not be a surprise if this historical pattern repeats itself in this crisis.

New business models

Until there is a vaccine against the coronavirus, the economy will be held in an artificially suppressed state – a condition the Economist aptly terms the “90% economy.” As consumers are deprived of income and spending options, a drought in revenue will eat its way up the value chain, creating a shortfall in cash flow on all levels. When it comes to spending and investments, businesses will have to find ways to do more with less. For suppliers, this implies that being able to service increasingly cash-strapped customers will become a competitive advantage.

In the short term, this usually takes the form of more generous payment terms – offering the option to defer payments or to pay in installments, for example. But as the economy will likely persist in dire straits for an extensive period of time, new business models could emerge that more closely align spending and consumption.

Take what KAESER KOMPRESSOREN has been doing for quite some time as an example: Instead of selling its compressors (which would require a considerable upfront investment on the part of its clients), it installs the compressors on clients’ sites while retaining ownership. Then, they charge for the compressed air – a classic pay-per-use model. This allows KAESER KOMPRESSOREN’s customers to upgrade their compressors while aligning their cash outflows with their cash inflows, alleviating their liquidity situation. Another variant on the same theme is the addition of services to an existing product.

Hoval, for example, sells predictive maintenance as a value-added service on top of its heating systems. This adds a revenue stream to Hoval’s business that ensures customer loyalty while not requiring too high of a startup investment.

What’s next

Imagine supply chains once this crisis has abated: There is a good chance that future companies will have deeper insight into their operations thanks to increased transparency, they will do more with less, thanks to a higher level of automation, and they will deliver value to their customers in entirely new ways.

Regardless of how bad the recession is going to play out, the companies that master these three points will be more resilient and more profitable down the line. Yes, the future may be uncertain, but we will surely see some interesting times ahead in supply chain management.

Explore “Global Supply Chain Management For A Rapid And Dynamic Transformation Environment.”

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Digitalist Magazine’s Top Posts Of The Week [May 18, 2020]

May 19, 2020   SAP

Digitalist Magazine’s Top Posts Of The Week [May 18, 2020]

Shelly Dutton

Digitalist Magazine, online edition, covers a variety of topics around the challenges businesses face in the digital economy. Whether you’re interested in the future of work, customer experience, digital economy, the Internet of Things, or digital supply networks, we provide a vast array of thought leadership and real-life stories on the practical application of digital technology.

Each week on Digitalist Magazine, we publish a list of the top posts of the week from across our content categories. We hope you find these articles valuable, informative, and interesting.

Three Priorities For HR In The “New Normal” And Beyond

Enterprise Data Strategy Driven By Business Outcomes

DevOps For ERP: Laying The Foundations For Success

Employee Experience Matters In A Work-From-Home World

The State Of Industry 4.0 In 2020: Smart Products

Why Digital Asset Management Is Fundamental To Brand Experience

Business As Unusual: Why Your Organization Needs A Business Continuity Plan

The State Of Industry 4.0 In 2020: Plants And Processes

How To Define And Use Metrics Effectively

The Impact of Intense Disruption On Business Models: Strategic Alternatives (Part 2)


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The Digitalist Magazine is your online destination for everything you need to know to lead your enterprise’s digital transformation.

Read the Digitalist Magazine and get the latest insights about the digital economy that you can capitalize on today.

Let’s block ads! (Why?)

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The Impact of Intense Disruption On Business Models: Strategic Alternatives (Part 2)

May 17, 2020   SAP
278184 278184 l srgb s gl The Impact of Intense Disruption On Business Models: Strategic Alternatives (Part 2)

The Impact of Intense Disruption On Business Models: Strategic Alternatives (Part 2)

Nitin Singh

Part 2 of a three-part series

Once you understand the key parameters that impact your business model, it is time to dive deep into how to leverage existing capabilities to navigate through the new economic scenario. Additionally, if the capability does not exist or exists only partially, what should you do to resolve those gaps? Let’s analyze the typical business capabilities required to run a consumer products company like XYZ, using the capability model in the following figure.

Figure 3 1024x279 The Impact of Intense Disruption On Business Models: Strategic Alternatives (Part 2)

It is important to identify the key capabilities that should be augmented to handle this situation. It is also imperative to understand the business capabilities that are negatively impacted. Based on the typical challenges highlighted in the previous article, the following capability heatmap was drawn that highlights the key capabilities that were impacted.

Figure 4 1024x279 The Impact of Intense Disruption On Business Models: Strategic Alternatives (Part 2)

This provides a high-level view of which capabilities XYZ should augment. Different approaches could be leveraged, such as partnerships, build capacity, outsourcing, etc. For example, to run a business remotely, there might be a need to license or rent remote application tools for effective working.

Now, let’s look at which capabilities should be augmented to resolve issues of supply-chain disruption, as discussed in the previous blog. We realized that identifying alternate sources of supply and developing those suppliers quickly could be one such solution for XYZ. Now with the help of the capability model, let’s look at the related capabilities that XYZ needs to build to make the best use of alternate sources of supplies. Please refer to the previous figure, where you can see three key capabilities highlighted with red arrows.

  1. Sourcing: Identifying alternate sources of supply requires a robust strategic sourcing process that helps in reaching out to alternate suppliers quickly and qualifying them according to product-quality standards. One of the sources for potential suppliers could be the B2B business networks that already have registered and qualified suppliers. In addition, the ability to integrate XYZ’s systems with those networks would help XYZ place requests for quotes electronically and make this process real-time.
  1. Commodity management: Commodity or category management is also an essential capability to make sure XYZ can quickly reimagine its procurement strategy to leverage the discounts and/or tap into the best sources of supply. This includes analyzing the strategy for the short, mid, and long term. Some categories would show exponential growth, while other categories might see a dip in demand, and this is true for many of the large fast-moving consumer goods (FMCG) companies whose portfolio includes many different SKUs. A structured commodity strategy also includes price-negotiation guidelines and identifying subsequent procurement processes. So, this capability certainly is an important one to make sure XYZ can tap into alternate sources of supply for critical products.
  1. Available to promise and allocations: Once XYZ has developed or augmented capabilities for sourcing and commodity management, it is essential to update its available-to-promise (ATP) logic by taking the supplier capacity into consideration to ensure an accurate order-delivery timeline. ATP logic should also be able to consider incoming shipments for the new supplier so that XYZ can promise its customers accordingly. If XYZ can connect to the business network of the newly onboarded supplier, it would make it much easier to get timely advanced ship notices, which can help make accurate predictions on promise dates to XYZ’s customers. In addition, XYZ can connect with retailers to identify key commodities that have rapidly shifting demand patterns (e.g., cleaning supplies, toilet paper, sanitizers, etc.).

In this post, we examined analyzing the impact of uncertain events by leveraging a capability heat map. In the next and final part, we will explore how to restructure your portfolio strategy to mitigate risks to your business from unforeseen events.

Join us in our exclusive webinar session on May 19 to get an overview of the SAP Readiness Check tool, which gives a first analysis of your existing SAP ERP application, highlighting key project activities.


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The Digitalist Magazine is your online destination for everything you need to know to lead your enterprise’s digital transformation.

Read the Digitalist Magazine and get the latest insights about the digital economy that you can capitalize on today.

10462 The Impact of Intense Disruption On Business Models: Strategic Alternatives (Part 2)

About Nitin Singh

Nitin Singh works with SAP’s strategic customers as Principal Enterprise Architect to orchestrate the complex transformation programs. He also leads the Practice for Intelligent Enterprise Innovations at Business Transformation Services, SAP America. He is an expert in planning & executing complex digital transformations and has delivered more than 80 engagements with SAP strategic customers over the last 15 years. He speaks frequently at internal & external forums and is an author of a SAP press book.

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How To Define And Use Metrics Effectively

May 15, 2020   SAP
 How To Define And Use Metrics Effectively

We live in a world that – more than ever – is filled with data. Collecting data of all kinds has become fashionable, and this has led to the proliferation of key performance indicators (KPIs). We measure all kinds of things, and it has slowly but steadily become common practice to move to pay-for-performance models in every sphere of life including businesses, policing, healthcare, education, non-profits, government, and more.

The assumption is that if the KPIs are achieved and trending in the right direction (usually up and to the right corner) over time, everything is good. But in reality, the assumption is far from true. When people are paid for performance, and their performance is measured via metrics or KPIs that are far removed from reality – and those metrics are used to dole out rewards or punishment, people find creative ways to game the system. In the short term, it appears that everything is good because the goals are met and trending in the right direction, but in the medium to long term, using these metrics has an adverse impact on the organization.

We have known this intuitively for a long time. We have many examples – Enron, Wells Fargo, Volkswagen, spiraling costs of healthcare and education, policing (where big crimes are reported as smaller crimes because the frontline policing staff wants to show they are reducing the crime rate – as their jobs might depend on it), etc. We even see this happening in our homes. If you have teenagers, you know that they can be extremely creative in achieving the goals that you set for them without actually doing what you want them to do.

What can we do about this? We still need metrics to measure how we are performing so that we can continue to monitor and improve performance. And yet, we don’t want to fall in the trap of measuring either the wrong things or pushing people to game the metrics.

I recently read The Tyranny of Metrics by Jerry Z. Mueller. In the book, he elegantly explains all the different ways that metrics fixation has negatively impacted organizations and society at large and how the fixation on metrics can create chaos.

I have written about KPIs and metrics here, here, and here. I already knew that KPIs need to be defined with a lot of intention and in partnership with the people who will be held responsible for them, and I also knew about gaming of KPIs in business contexts, but I was not aware that gaming KPIs is so prevalent across all kinds of organizations.

Data vs. judgment

There are two ways to measure any particular performance: with data or by having someone who knows the job judge the performance. In the recent past, as it has become easier to collect data, we have moved towards collecting a lot of data and using it as the primary way to measure performance.

What we need to understand is that measured data is almost never an alternative to judgment. In fact, measurement demands judgment – judgment about whether to measure, what to measure, how to evaluate the significance of what is being measured, how to decide if rewards and penalties need be attached to the results, and last, judgment about who should have access to the measured data.

Guidelines on measurements

At the end of the book, Jerry Mueller provides a checklist on when and how to create performance metrics and what we need to keep in mind when analyzing them.

Below are some guidelines based on his checklist, with my perspectives added.

1. What do you plan to measure?

The kind of information you plan to measure has an important impact on how you design your metrics. The more the object to be measured resembles inanimate matter, the more likely it is measurable (natural sciences or engineering).

When the objects being measured are influenced by the process of measurement, then the measurement becomes less reliable. It’s even more unreliable if the measurement is about human activity.

People are conscious and will respond to the process of being measured. And if rewards and punishments are involved, they will react in a way to skew the validity of the measurements.

2. What will the measures be used for?

Metrics are more useful when they’re used by people to track performance to compare themselves with their peers and to identify potential areas of improvement.

When metrics are used by external parties (including senior management, government, etc.) who may not recognize their limitations to dish out rewards or punishments, this leads to behavior to game the system and are more harmful in the mid-to-long term.

It is good to offer recognition to those who excel and assistance to those who are behind.

KPIs that help accentuate the internal motivations of the people being measured, so they can continue to improve, tend to be better than KPIs designed to get people to behave in ways that they are not intrinsically motivated by or that appeal to extrinsic motivations.

Low-stakes metrics are almost always better than high-stakes metrics.

If the performance being measured does not require or has the potential for any intrinsic rewards, pay for performance might work really well.

3. How useful is the measurement?

Just because something is measurable doesn’t mean that it is worth measuring. In some cases, the ease of measurement could be inversely proportional to the significance or usefulness of what is being measured.

Is what you are measuring a proxy for what you really want to know?

If the metric is not useful nor a proxy for what you really want to know, you are better off not measuring it at all.

4. How useful are more metrics?

Performance measurements, when useful, are more effective in finding outliers, especially poor performers or true misconduct. They might not be very useful in distinguishing people in the middle or at the top of the ladder.

The more you measure, the marginal cost of measuring will become more than the marginal improvements you gain through measurement. So, the fact that metrics are helpful doesn’t mean that more metrics are more helpful.

In fact, it is easier, simpler, and faster to use fewer metrics but to use ones that are relevant to drive behavior and improve performance. You can change the KPI, depending on the maturity of performance, instead of having the same KPI to measure everyone’s performance (regardless of how mature the person or process doing the activity is).

5. What are the costs of measurement?

There is always a cost of acquiring the data for the metrics. Every moment that we devote to producing metrics is time not spent on doing what is being measured. So, before we initiate a new metric, we need to identify the costs of measuring.

We can also look to see if there are other sources of information about performance that can be used that are based on the judgment and experience of customers or someone else.

6. Who develops the metrics and what do they mean?

How and by whom are the measures of performance developed? Measurements are more likely to be beneficial if developed from the bottom up with inputs from the people who will be measured (experience and judgment).

KPIs defined by people who don’t have context on the performance being measured are typically the ones that are gamed or manipulated, as they may neither add value nor increase the difficulty of performing the activity.

In conclusion

KPIs are effective to the extent that the people being measured believe in their worth and effectiveness. We need to remember that even the best KPIs are subject to gaming and corruption. Keep an eye on the result of what is being measured.

Sometimes, recognizing the limits of the possible is the beginning of wisdom. Not all problems are solvable, and even fewer are soluble by metrics. It’s not true that everything can be improved by measurement nor that whatever can be measured can be improved.

We need to exercise judgment, which comes from experience, before introducing any new metrics. Metrics should inform judgment and vice versa.

As Jerry Mueller concludes in his book, sometimes the best use of metrics is not to use them at all.

For more insight on leadership, see Leadership And The Importance Of Being Fully Present In The Moment.

This post was originally published on “Leading Transformation” and has been republished here with permission.

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The Future Plant: Current Challenges In Asset Performance

May 12, 2020   SAP
 The Future Plant: Current Challenges In Asset Performance

Part 1 of a three-part series

When Horst started his work as a machine technician at a manufacturing plant 20 years ago, asset management looked very different than it looks today. Having climbed up the career ladder to become an asset manager, Horst has created a modern maintenance environment that tackles many of the major problems German manufacturing companies are concerned with.

Horst no longer has to do a daily tour through the plant to note downed-machine issues or check on maintenance-due dates. Instead, Horst uses asset management software that provides him a constant overview of all assets, right from his desk. Every asset is digitally represented by its digital twin and can permanently be monitored via a visual display.

By continuously collecting relevant data, designated devices automatically enrich an asset’s digital twin with information about its current performance and condition. Data analytics algorithms can use this information to generate a set of relevant KPIs throughout each asset’s entire lifecycle.

For Horst, it is crucial to always be prepared for any possible machine breakdown. Therefore, he is especially interested in knowing an asset’s mean time to failure (MTTF) or mean time between failures (MTBF), as well as the frequency of these incidents.

Knowing particular failures, and how often they typically occur with certain assets, helps Horst classify machine problems to common failure modes and get an understanding of when a failure is likely to happen. It also supports him in grouping his assets into certain risk categories depending on how often, how severe, and how detectable failures are occurring with an asset. This entire process is called Failure Mode Analytics – an important analysis for strategic asset management that is strongly enabled by the ability to monitor each asset’s performance.

Two other important KPIs are relevant once a predicted failure occurs: mean time to repair (MTTR) and mean downtime. As the main measures of machine availability, these KPIs are supposed to be relatively low to enable a maximum level of production continuity.

Following the principles of lean management, Horst is constantly engaged in putting appropriate measures in place to reduce the time a machine is down for repair. In this context, respective breakdown costs also play a meaningful role in managing asset performance.

Last, but not least, an asset’s comprehensive performance can be evaluated in the Overall Equipment Effectiveness KPI. This KPI indicates the percentage of time in which an asset is producing only good parts (quality) as fast as possible (performance) with no stop time (availability). Combining the aspects of quality, performance, and availability makes this measure a very powerful tool for Horst in assessing his assets and in gaining data-based knowledge about his overall plant productivity.

The variety of different KPIs makes it possible to have continual, real-time insight into all assets and their performance. For Horst, who always needs to have a profound overview of his assets’ current state, this really makes life easier. More importantly, the asset performance software equips him with a reliable base for decision-making.

While in the past, most decisions were made based on gut feeling, today the digital twin and its KPIs serve as the source for making machine diagnoses and determining asset maintenance routines. Also, standardized KPIs allow comparisons between several groups of assets or across different plants. This makes processes more transparent and more reliable, therefore helping Horst achieve the best possible asset operation.

By enabling technologies for the smart factory, companies are achieving Mission Unstoppable: making facilities management a transparent, manageable process.

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