As we navigate the first month of 2022, how did companies fare with their transformation initiatives of 2021 and what were some lessons learned? To answer those questions, Riz Ahmed, Chief Research Officer for SAPinsider, opened the January Executive Meeting by sharing some critical insights from our  “The CIO’s Transformation Report Card” research report that surveyed executives from around the world. According to Ahmed, “The number one driver for transformation was the business need for flexibility and faster innovation. The same dated, highly customized system no longer meets the needs of the enterprise.” “We live in different times with impacts of a pandemic, supply chain disruption, raw material shortages, and the like. With so much change, companies need to react and manage across it, with respondents saying they need a different way to achieve that,” he added. What were some approaches? Executive respondents reported that changing their organization where business and integrated IT came together in different ways was crucial, as was prioritizing new skill sets to help empower employees using technology. The move to SAP S/4HANA was the leading transformational project cited by executive respondents, followed by the need to evolve and transform security and governance with the same approach as technology innovation to ensure systems and the organization are protected. “If you look at technology investments that CIOs are making, things are not happening chronologically. It’s about addressing issues around core systems such as SAP S/4HANA and cloud,” said Ahmed. “How do I standardize and automate my business processes? How do we create modern digital experiences that attract employees and customers to my company? How do we provide visibility as the change occurs into what’s happening and the impacts?” Ultimately, to solve these business challenges requires change management. As Ahmed pointed out, resistance to change is the biggest barrier to strategy execution. Understanding how to foster and manage change management is imperative. During our January Executive Meeting, we were privileged to have two technology leaders share their stories of transformation and innovation, and how they executed on their strategies and gained employee support:

• Marty Menard, CIO, Pacific Coast Companies, Inc.
• Alan Yang, VP and Interim CIO, MSC Industrial Supply Co.

Drive Toward Standardization and Innovation

When Pacific Coast Companies, Inc. (PCCI), a provider of business services and support to the Pacific Coast Building Products family of companies, decided to implement a single ERP across the company in 2018, the choice was SAP. A year later, PCCI committed to migrating from its legacy SAP ERP Central Component (ECC) system to SAP S/4HANA to help the company evolve its capabilities and innovate for the future. Menard said for a mid-sized company, PCCI needed to ensure the resources were available to help in the solution conversion and to focus on the customization that occurred over several years. It was the customization that was holding the company back, said Menard. In October 2020, PCCI went live with SAP S/4HANA and BW/4HANA. Menard and his team focused on platform innovation and new capabilities, reducing 56% of its total customizations during the transition. The result was greater agility as well as utilization of customizations that provided business value.

Standardization Through Mindset Change

How did PCCI gain a 56% customization reduction among its employees? Menard credits the subsidiary presidents and chief financial officers who are part of the governance process. Knowing the impact would affect them and their organizations, they understood the criticality of removing customizations as part of the SAP S/4HANA program and what it meant for the overall strategy. A second factor that led to success with the standardization initiative was the evaluation process of asking “why.” Menard said his team had to be sensitive to this approach. People can take a defensive stance when asked why they do what they do. The key, said Menard, was asking about the importance of particular customizations, which opened the door to insightful conversations. In many cases, employees realized through the discussion that certain customizations were unnecessary. Often, it came down to value. What is the value of keeping or eliminating a customization? Menard posed the question of going standard and the potential impact on business value. Conversely, some customizations were novel in what they provided the business, offering speed and efficiencies — functionalities that were lacking within SAP. Menard said the team developed a program to revisit remaining customizations as other projects move forward.

The Road Ahead 

What is on the horizon for PCCI? Menard said the strategy over the next five years will focus on three large categories: transformation, stabilization, and optimization, with the goal of establishing a reliable IT environment. If the help desk is overwhelmed and people can’t get their work done, Menard said nothing else matters in the business until those issues are resolved. One such transformative project took place in 2021 when the company implemented SAP Transportation Management for its logistics and freight group. The project significantly improved the group’s visibility into its work, leading to more hauled loads, greater efficiencies, and more revenue as a result. Before those results could be achieved, the IT environment needed to be stabilized to ensure a functional solution. While there were some initial startup challenges, the issues were minimal, said Menard. Removing the customizations within the logistics and freight group helped to stabilize that category of the business, especially as it implemented SAP Logistics Business Network — the logistics carrier hub for the third parties that PCCI works with. Exploring this project from the third category of optimization, the group wants to implement the solution at a second location that was acquired prior to the transportation management rollout. There are also plans to evaluate a warehouse management solution at the second location since it also serves as a freight forwarder. Menard reported this would be a new transformation project, requiring stabilization and optimization as PCCI explores innovation within the platform.

Transform to What Your Customers Need

As an 80-year-old company with a founder’s culture, MSC Industrial Supply Co. has gone through many transformations in its history. Serving as a value-added distributor of industrial maintenance, repair, and operations products and services, MSC understands supply chain dynamics with its 300,000 customers, 1.5 million products, and 6,000 suppliers. The company developed a distribution network composed of warehouse automation that supported same-day shipping and next-day delivery before Amazon Prime existed. Yang said the company experienced a major transformation when it converted a 3,000-page hardcopy catalog to a web-based catalog that offers real-time pricing and availability. Today, the company is focused on pivoting to the next leg of its transformation journey — what the company calls becoming mission critical on the shop floor. Over the past 10 years, Yang said SAP has been an integral partner in the company’s journey as it transitioned to the cloud and various SaaS solutions. With the beginning of 2022, much of the same agenda and challenges from 2021 are carrying over — remote work optimization, war for talent, and cybersecurity threats. Yang cited the following as leading areas of focus for MSC in the coming months. Business consolidation. Throughout the COVID-19 pandemic, Yang said MSC has focused on removing structural costs to the business, such as consolidating and simplifying its branch network of approximately 80 locations by providing salespeople with digital tools and capabilities out in the field. The pandemic also accelerated MSC’s migration of its SAP S/4HANA solution to Google Cloud Platform, which took advantage of the SAP HANA Enterprise Cloud services solution. This allowed SAP to help maintain and upgrade the environment while MSC teams focused on driving business value and what modules to implement. War for talent. With investments in customer experience solutions and collaboration tools, Yang said the company proved the business could operate remotely. This opened the talent pool and recruiting opportunities. However, it also presents a double-edged sword. The combination of the Great Resignation coupled with remote career opportunities has led to a loss in warehouse and IT employees. Skills development. Yang said the move toward agile development models and cloud and hybrid infrastructure means faster decision-making but with a lot of ambiguity in the information. Teams are asked to take risks and become comfortable operating with fewer layers. Thus, learning new skills is critical to retaining employees and empowering them to attain their top performance, said Yang, who considers himself more of a coach than a boss. Cybersecurity risks. With the risk of ransomware attacks, cybersecurity must be a security imperative. Yang advises focusing beyond a company’s four walls to third parties. In today’s cloud-based world with application programming interface and SaaS solutions, awareness of how third parties are protecting against cyberattacks is critical. Hold third parties to the same standards as your own teams. Yang said understand how many vendors you’re dependent upon and what business operations they support. MSC implemented a third-party risk management program with governance to remain engaged with vendors and ensure they understood that cybersecurity is a leading priority. It’s also necessary to review business continuity plans to assure they are robust for today’s cyber risks. Digital transformation. As Yang described it, digital transformation is not a project but rather a new way of working. With the goal of becoming mission critical on the shop floor for customers, MSC examined its mindset, culture, skills, and behaviors. Yang and his team are taking a zero-based approach on processes, questioning what processes are still needed, can processes be more efficient, and which processes are end to end to gain greater transparency? On the technology side, no-code, low-code technologies enable lines of business to create their own solutions, Yang said. API integration plays a significant part. And while MSC has SAP S/4HANA as its foundation, there are many other solutions that surround it. It requires integration and management of all those applications, said Yang, to enable and orchestrate a transformation.

Thoughts on Innovation

And what about innovation? Yang said the company’s MSC MillMax offering is an innovative solution that helps manufacturers become more efficient in their metalworking and milling operations. The focus is to increase productivity through removal rates and cycle-time reduction. However, Yang stressed that MSC did not achieve this initiative alone. He said when companies decide to innovate, it is all right to partner with others. MSC, for example, partnered with Oak Ridge National Laboratory as well as the University of Tennessee. Yang explained that Oak Ridge operates like the R&D arm for MSC around the MillMax initiative. MSC commercializes many of the ideas produced by Oak Ridge. It's a close partnership due to Oak Ridge’s mandate to revitalize U.S. manufacturing, which aligns with what MSC’s business wants to achieve. Yang said it’s a good marriage, a good partnership, and a strategic way to innovate and get products out to market quickly.  

What Does This Mean for SAPinsiders?

• Educate your partners about application lifecycle management. It’s not uncommon for companies to run applications until they’re no longer supported. However, it’s critical to understand the applications your business partners are utilizing to ensure those applications are maintained regularly. Are application patches up to date? Is it time to sunset an application? Refer to cybersecurity as the leading reason to either maintain or sunset applications to avoid security breaches.

 

• Reward behaviors when people expand their circle. IT professionals are accustomed to look for the requirements or the exact solution to solve a business challenge. Yang said those days are gone. There may be a direction but it’s unclear how to get there. Approaching challenges with a different mindset and seeking solutions outside the traditional path need to be rewarded. Rewarding those who think outside the box and expand their circle to gain new insights can lead to a culture shift in operational problem solving.

 

• Empower employees to take risks and explore ideas. The best ideas can come from the most unexpected places. The complexities of business challenges only continue to increase. The tried and true are becoming more ineffective. Empower employees to explore innovative solutions and approaches to business issues. Menard saw this firsthand when a subsidiary recognized the potential benefit of SAP Fiori to manage employee insights and gain valuable information to run their business. He said it was a grassroots effort that’s been transformational.