July  2015  

 

 

DIVESTITURES:  GROWTH  REDIRECTED  

CAN  CLOUD  ERP  HELP?  

In  Cloud  ERP:  The  Great  Enabler  of  Growth,  Mint  Jutras  examined  how  Enterprise  Resource  Planning  (ERP)  solutions  delivered  as  software  as  a  service  (SaaS)  help  companies  fuel  and  simplify  growth  by  addressing  people  challenges  and  mitigating  risk,  while  maintaining  governance  and  control.  Cloud  solutions  enable  you  to  fail  (or  succeed)  faster,  allowing  you  to  focus  on  the  next  and  best  opportunity  for  growth.  But  with  the  ever-­‐increasing  pace  of  change,  sometimes  growth  leaves  you  too  diversified,  or  with  less  focus  and  efficiency  than  desired.  While  mergers  and  acquisitions  are  quite  common  today,  so  are  divestitures.  These  transactions  have  the  potential  of  being  painful  and  messy.  The  goal  is  to  get  through  them  as  quickly  and  painlessly  as  possible.  Can  cloud  ERP  play  a  significant  role  in  smoothing  these  transitions?    

Because  growth  is  so  often  hailed  as  the  holy  grail  of  businesses  in  general,  a  shrinking  business  is  sometimes  assumed  to  be  a  failing  business.  This  can  be  very  far  from  the  truth.  Growth  aspirations  often  lead  companies  to  expand  and/or  diversify  and  the  accelerated  pace  of  business  today  leads  companies  down  many  different  paths.  As  we  discussed  at  length  in  Cloud  ERP:  The  Great  Enabler  of  Growth,  cloud  solutions  enable  you  to  fail  faster  and  allow  you  to  move  on  to  the  next  (and  better)  opportunity.  Smart  companies  recognize  the  need  for  this  quickly  and  take  action  to  correct  the  course.  They  refocus  efforts  back  to  core  competencies  and  redirect  growth.    

Some  of  the  factors  that  tend  to  add  complexity  to  these  course  corrections  include  the  information  technology  (IT)  infrastructure  and  solutions  that  support  the  entity  being  divested.  These  solutions  need  to  stay  in  place  right  up  until  the  actual  closing  of  the  transaction.  After  all,  the  business  continues  to  run  even  as  preparations  for  its  sale  are  underway.  And  business  doesn’t  stop  on  the  day  of  the  divestiture  either.  Transactions  continue,  but  must  be  removed  from  the  seller’s  balance  sheet  and  profit  and  loss  statement,  and  recorded  on  the  buyer’s.    

Because  acquisitions  and  divestitures  are  typically  cloaked  in  secrecy,  the  IT  department  might  be  one  of  the  last  to  know  and  rarely  has  much  time  to  prepare  for  the  transition.  Very  often  some  arrangement  is  made  for  the  divested  business  to  continue  to  use  solutions  in  place  for  some  period  of  time  after  the  closing.  But  the  clock  is  ticking.  The  divesting  company  is  anxious  to  be  relieved  of  the  administrative  burden.  For  the  acquiring  company,  it  can  be  

Data Source In  this  report,    Mint  Jutras  references  data  collected  from  its  2015  Enterprise  Solution  Study,  which  investigated  goals,  challenges  and  status  and  also  benchmarked  performance  of  enterprise  software  implementations  used  to  actually  run  a  business.  

At  this  time  almost  400  responses  have  been  collected  from  companies  of  all  sizes,  across  a  broad  range  of  industries  

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costly  as  the  cost  of  leaving  these  former  solutions  in  place  is  likely  to  escalate  dramatically  after  a  relatively  short  period  of  time.  

How  can  cloud  ERP  help?  That  question  can  perhaps  best  be  answered  through  the  story  of  one  of  these  real-­‐life  divestitures.  

CASE  IN  POINT:  EVONIK  INDUSTRIES  

Evonik  Industries  is  one  of  the  world's  leading  specialty  chemicals  companies.  Headquartered  in  Germany,  it  employs  about  33,000  employees  in  25  countries  around  the  world  and  generates  sales  of  €12.9  billion.  About  78%  of  sales  are  generated  outside  of  Germany.  

Evonik  strives  for  sustained  value  creation  through  profitable  growth  and  efficiency,  while  maintaining  corporate  values.  Developing  ideas  to  market  readiness  as  quickly  as  possible  is  both  a  challenge  and  an  economic  necessity.  The  goal  is  to  offer  the  maximum  benefit  to  customers  and  to  society.  As  a  pioneer  in  specialty  chemicals,  Evonik  actively  follows  high-­‐growth  megatrends,  especially  health,  nutrition,  resource  efficiency  and  globalization.  These  megatrends  tend  to  be  very  volatile,  causing  Evonik  to  periodically  re-­‐evaluate,  re-­‐focus  and  restructure.    

Like  most  companies  today,  Evonik  has  established  corporate  standards  for  enterprise  solutions.  The  2015  Mint  Jutras  Enterprise  Solution  Study  found  those  with  the  highest  performing  ERP  implementations  (those  we  define  as  World  Class)  even  more  likely  to  have  both  established  and  implemented  standards  (Figure  1).  

Figure  1:  Have  you  established  corporate  standards  for  ERP?  

 Source: Mint Jutras 2015 ERP Solution Study

Sometimes  these  standards  are  single-­‐tier  (all  business  units  and  corporate  headquarters  use  the  same  ERP)  and  sometimes  they  are  multi-­‐tier  (operating  units  run  one  or  more  standard  ERP  solutions  that  are  different  from  that  used  at  corporate).  Evonik  has  established  a  single-­‐tier  standard,  running  corporate  

World Class ERP Performance

Mint  Jutras  defines  World  Class  in  the  context  of  an  ERP  implementation.  We  use  a  composite  metric  that  includes:  

üActual  measured  results  experienced  since  implementation  

üProgress  made  in  achieving  company-­‐specific  goals  

üCurrent  performance  in  selected  KPIs  

The  top  20%  of  survey  respondents  comprise  “World  Class.”  The  remaining  80%  are  referenced  as  “All  Others.”  

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headquarters  and  all  its  divisions  and  subsidiaries  on  SAP  ERP.  In  fact  it  runs  the  entire  enterprise  on  a  single  instance  and  in  doing  so,  it  also  imposes  its  “best  practices”  on  all  subsidiaries.  

When  Evonik  decided  to  divest  itself  of  some  of  its  operating  units,  in  order  to  focus  purely  on  chemicals,  it  needed  to  carve  those  business  units  out  of  their  SAP  ERP  implementation.  Initially  the  approach  had  been  to  make  a  copy  of  SAP  ERP  and  run  the  business  unit  from  this  separate  instance  until  the  new  owner  took  responsibility  or  migrated  the  business  off  SAP  ERP  to  a  different  solution.  While  on  the  surface  that  might  sound  fairly  simple,  extricating  the  business  unit  being  sold  from  shared  services  added  complexity  and  Evonik  had  to  make  sure  corporate  data,  and  data  from  other  retained  business  units  was  not  visible  and  available  to  the  new  owner.    

Also  complicating  matters  was  the  fact  that  once  an  operating  unit  was  carved  out,  it  became  a  much  smaller  organization  and  SAP  ERP  was  actually  overkill.  Those  “best  practices”  had  been  imposed  on  all  subsidiaries,  admittedly,  whether  they  were  truly  required  or  not.  In  addition,  Dr.  Marcus  Schiffer  (heading  the  Research  team  of  the  Global  IT  &  Processes  department)  had  vision  enough  to  realize  that  a  cloud  solution  would  lend  itself  much  better  to  this  transition,  providing  increased  secure  transparency  to  all  parties  involved.  But  Evonik’s  SAP  ERP  implementation  was  on-­‐premise.  

These  two  factors  combined  led  Evonik  to  consider  SAP  Business  ByDesign  as  an  interim  solution  for  the  units  being  divested.  The  first  divestiture  to  take  this  approach  was  a  subsidiary  located  in  the  state  of  Arkansas  in  the  United  States.  Instead  of  cloning  the  existing  SAP  ERP,  Evonik  migrated  the  Arkansas  subsidiary  to  SAP  Business  ByDesign  and  managed  to  have  it  all  up  and  running  prior  to  the  close.  

Even  after  paying  for  the  user  subscriptions  for  one  year  and  doing  the  migration  themselves,  with  the  assistance  of  iTelligence  (an  SAP  business  partner  and  Business  ByDesign  reseller),  Evonik  says  they  saved  more  than  half  of  the  originally  estimated  (IT)  cost  of  the  transition.  The  savings  came  from  freeing  up  resources  from  shared  services  and  enormously  simplifying  the  implementation  of  the  solution  that  will  be  turned  over  to  the  new  owner.  And  when  they  were  done,  the  implementation  could  stand  on  its  own.  Evonik  provided  support  for  an  additional  six  weeks,  giving  the  new  owner  ample  time  to  also  take  ownership  of  the  implementation.  

According  to  Dr.  Schiffer,  “It  took  three  years  to  get  management  to  agree  to  move  to  the  cloud.  Doing  it  was  easy.”  This  first  divestiture  was  an  experiment.  But  the  experiment  was  deemed  a  success  and  Evonik  is  planning  to  repeat  the  process  with  another  divestiture.  This  one  will  be  in  Germany  and  compliance  requirements  will  be  more  challenging.  With  even  tighter  time  restrictions,  Evonik  will  continue  to  manage  and  run  the  system  for  an  

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additional  two  months  after  the  closing  –  still  an  incredibly  fast  and  efficient  transition.  

Was  there  any  downside  to  using  SAP  Business  ByDesign  for  the  transition?  As  an  admitted  “SAP  bigot,”  Dr.  Schiffer  finds  the  solution  “not  very  configurable,”  citing  that  he  can  configure  the  solution  in  less  than  a  day.  Of  course,  he  is  comparing  SAP  Business  ByDesign  to  SAP  ERP,  for  which  he  projects  there  are  10  80  different  options  for  configuring  orders,  delivery  and  invoicing.    “And  you  can’t  really  customize  the  solution  when  [the  users]  might  wish  they  could  do  something  not  supported.  But  on  the  other  side,  it  is  good  –  discussions  are  short  and  decisions  are  easier.  After  learning  Business  ByDesign,  I  became  a  fan.  Most  processes  can  be  satisfied.”  

Some  others  might  see  this  simplicity  of  configuration  as  a  plus.  In  The  Three  Dimensions  of  SAP  Business  ByDesign  Set  the  Stage  for  Growth  we  emphasized  SAP’s  current  mantra  of  “Run  Simple,”  noting  SAP  Business  ByDesign  can  indeed  help  simplify  the  growth  process  through  its  three-­‐dimensional  design  philosophy  incorporating  simplicity,  flexibility  and  extensibility.  

But  we  also  cautioned  that  you  would  need  to  fight  added  complexity  every  step  of  the  way.  New  generations  of  ERP,  with  new  and  improved  user  experiences,  can  help  you  win  the  battle  of  complexity  and  gain  more  transparency.  By  putting  those  new  generations  of  ERP  in  the  cloud,  you  can  simplify:  Simplify  your  IT;  simplify  your  access  to  data;  simplify  your  business.  And  now,  simplify  mergers  and  acquisitions,  regardless  of  which  side  of  the  transaction  you  sit  on.  Whether  you  are  buying  or  selling  a  business,  consider  the  cloud  as  one  way  to  simplify  that  transition.  

 

 

 

 

 

 

 

 

 

About  the  author:    Cindy  Jutras  is  a  widely  recognized  expert  in  analyzing  the  impact  of  enterprise  applications  on  business  performance.  Utilizing  40  years  of  corporate  experience  and  specific  expertise  in  manufacturing,  supply  chain,  customer  service  and  business  performance  management,  Cindy  has  spent  the  past  9  years  benchmarking  the  performance  of  software  solutions  in  the  context  of  the  business  benefits  of  technology.  In  2011  Cindy  founded  Mint  Jutras  LLC  (www.mintjutras.com),  specializing  in  analyzing  and  communicating  the  business  value  enterprise  applications  bring  to  the  enterprise.