How a Growth and Value-Driven Digital Transformation is Key to Winning over the C-Suite
⇨ The pressure on manufacturers to evolve quickly, embrace the latest technologies and yet remain competitive is almost unparalleled.
⇨ While manufacturers, according to a World Economic Forum post back in January, are the “beating heart of industrial societies,” the reality is that digitally transforming is a challenge.
⇨ Beating heart or not, manufacturers are hardly immune to the potential pitfalls of change.
enosix on how a truly seamless human experience driven by real time digital transformations demonstrate not just ROI but on-going value creation for the entire organization
The pressure on manufacturers to evolve quickly, embrace the latest technologies and yet remain competitive is almost unparalleled. While manufacturers, according to a World Economic Forum post back in January, are the “beating heart of industrial societies,” the reality is that digitally transforming is a challenge. Beating heart or not, manufacturers are hardly immune to the potential pitfalls of change.
The problem is that not all digital transformations are equal. While manufacturers may understand technology and have a digital infrastructure and software systems in place, so many transformations fall short. The best way to look at this is in terms of valuations. If investment in technology has not yielded increased value for the organization, then has that transformation been worth the effort and the expense?
Technology change must drive margin. Yes, it is initially a cost to the business, but ultimately it has to impact the bottom line, not just to enable sales but actually drive margin improvement. For C-level executives this is a natural language – how can technology transformation increase shareholder value?
For years, discounted cash flow (DCF) has been key to company valuations. It explores the relationship of five key value drivers: sales growth, margins, working capital investment, fixed capital investment and risk (the cost of capital). While sales growth is an important factor in evaluating a company’s potential for future profitability, many times incremental profit margins drive a higher company valuation, especially for mature companies during economic down cycles when growth is difficult.
When valuing a company, investors and company executives are interested in its ability to generate sustainable profits over the long term. This allows firms to invest in their future growth, or return cash to shareholders in the form of dividends. Companies with high profit margins are generally able to maintain their profitability, even when sales growth slows, as they are able to generate more profit from each sale. On the other hand, companies with low profit margins may struggle to remain profitable even if their sales are growing rapidly, as they may not be generating enough profit to cover their expenses.
Margin improvement is essential for manufacturing firms because it directly affects their profitability and sustainability in the long run. A higher margin means that the manufacturing firm is earning more profit per unit sold. It enables competitive advantage through pricing and helps to lower costs. It also enables business future growth and, of course, is attractive to investors. This drives a higher stock price.
At a board level, CFOs are taking a more active interest in digital transformations, as technology is widely regarded as a panacea for current economic ills. As Gartner’s Marko Horvat, Research vice president, in the Gartner Finance practice said in January, “technology-enabled change both in the finance function and the wider business is leading most CFOs to reevaluate and reframe the role of finance in the business.”
Understandably, CFOs are looking for justification on investments in technology.
A lack of real time, trusted data is undermining transformations
Digital transformation refers to the process of using digital technologies to fundamentally change the way a business operates, including the way it interacts with customers. Ecommerce solutions are a type of digital technology that enable businesses to sell their products or services online.
Digital transformations for ecommerce solutions tied to ERP systems typically involve unifying front and back end solutions such as SAP and Salesforce, to ideally provide a seamless human experience. Traditionally, this integration has involved a range of technologies, such as APIs and middleware, that enable data replication between the two systems.
However, most ERP solutions were never designed with this in mind. It has often led to complex customizations to support a myriad of internal processes. These solutions at best are clunky, slow and do not provide manufacturers with the real-time data required to make an impact. The result is data that is not trusted or accurate, having an enormous effect on the impact of the transformation. Trusted, accurate data is a key linchpin in serving customers and keeping promises.
Manufacturers clearly understand the potential benefits of digital technologies, such as improved customer experience, increased efficiency and enhanced data analytics. But still, so few will have realized this potential, as it has been left to manual workers to “swivel chair” between data terminals to get data from one system to the other. This is inefficient and error prone.
Traditional integration using legacy APIs gives the appearance of providing true visibility into pricing, inventory or complex ordering, for example. However these old-school tools do not create the seamless customer experience that is core to realizing value. To truly change the customer experience and gain the benefits of digital transformation, real time access to trusted ERP data is critical. Organizations need to realize that without real-time visibility and access to trusted data, opportunities to return true value from digital technology investment diminish.
Using traditional APIs, at almost every point, there is a process that slows or adds complexity to data flow, leading to, for example, delayed inventory and pricing information, resulting in inaccurate data. This in turn leads to missed expectations, frustration and disappointment, impacting performance, and failing to achieve that transformative customer experience.
It also increases costs through inefficient inventory management, order errors, customer support enquiries and delayed order processing. In short, persisting with legacy technology API integrations falls way short of offering sales growth, margin and shareholder value
Living the dream with real-time ERP integration
Real time access to an ERP solution (trusted data) is critical if a manufacturer wants to improve its customer experiences, sales and visibility of processes and performance. Some manufacturers of course will say that they have already embarked on integrations with ERP systems, so that the data can support ecommerce needs. These are often expensive, complex solutions requiring third party IT consultants, fail to deliver the results, and become long-term maintenance headaches.
Ecommerce systems typically involve large volumes of data and transactions, which must be accurately and efficiently transferred to an ERP system. This requires careful consideration of data mapping, data transformation and data validation to ensure that data is accurate and remains consistent between the two systems. Traditional integrations through synchronization results in errors captured in SAP log files that remain unreviewed, leaving the customer with a bad experience, lost sales through abandoned shopping carts.
Also, real-time integration requires high levels of performance and reliability to ensure that ecommerce transactions are processed in a timely and accurate manner. This can involve the use of advanced technologies, such as messaging queues, data caching and load balancing to ensure that the integration is scalable and can handle large volumes of traffic. Security and data privacy is also critical, so any integration needs to implement robust system-to-system authentication and authorization mechanisms to support the necessary audits that are required.
There is only one way to do this both efficiently and effectively and that is by leveraging data virtualization to surface information from an ERP system, such as SAP, directly into a front-end client such as Salesforce. This guarantees that the information needed from the ERP system is 100% accurate and always ready to use and share.
Does this help manufacturers? Yes, it does, through improved ecommerce data, including pricing and product availability, leading to less abandoned carts, more sales, reduced costs and higher margins. The real power of an ERP system can therefore be used to have a significant impact on the overall business value. As well as cost control and visibility, an ERP system gives a manufacturer better inventory management, production planning, sales and customer relationship management, and of course, financial management and planning.
With these two crucial systems now connected, the challenge is no longer about the systems themselves and how they are restricting the business, it is about how to use the information now at the fingertips to keep promises to customers, driving sales and improving margins.
Let’s look at this in action with a case study concerning a client of enosix, a dedicated expert in SAP and Salesforce data integrations.
Case Study: Stanley Black & Decker
Stanley Black & Decker (SBD) is a world leading manufacturer of industrial tools, household hardware, and provider of security products. For over 150 years, SBD has invested in breakthrough innovation that focuses on delivering value to its customers, colleagues and communities. However, even the most innovative firms struggle with connecting legacy ERP solutions to any modern business front-end.
A lack of real time data integration between its Salesforce and SAP systems led to lost sales. As the system did not have access to real time, customer-specific pricing from the ERP system, it forced the team to manually swivel chairs multiple times during the process to quote or submit an order, leaving multiple opportunities for errors at each step of the process.
The solution was data virtualization, deploying enosix to eliminate SBD’s need to move between solutions. This also avoided costly mistakes. As a quarter of SBD’s collective time each day was spent on correcting errors, this has been a significant saving. Now, with real time access directly into the SAP data, the path has been cleared for further integrations, cost savings and higher customer service in multiple divisions within SBD.
SBD says as a result it has seen $10m in margin savings, and a 25%-time saving across its customer-facing representatives. The specific ROI on the project was enough to justify the investment, however the enterprise value it realized far exceeded even that analysis and expectations.
The metrics of change: adding-up value
Performing the sensitivity analysis on the business, as a result of increased or decreased sales growth and margins (two of the largest determinants of firm value), you can begin to understand how much it is costing the organization not to implement a real time integration for ecommerce digital transformations.
Any ROI analysis of a traditional integration approach is going to yield a negative value, or at best break even. However, with trusted data from an ERP system, any ROI analysis will not only be positive (and add value to the company in any DCF scenario), but also create sustainable competitive advantages. This alone will justify any digital transformation investment, as it creates a tangible increase in shareholder value.
As manufacturing C-suites continue to battle with the current economic climate, understandably there has to be increased accountability for investment. As digital transformations continue to dominate change management processes, it is this ability to add value through real time integration that creates a seamless, accurate customer experience.
Scott Dios, Vice President of Sales at Stanley Black & Decker agrees. He says that his work with enosix in implementing real time integration between SAP and Salesforce has been transformational.
“There are no longer errors, because the data comes directly from the source in SAP,” says Dios. “We can give flexibility to the salespeople, to close deals, without major costly oversight.”
Jim Johann, Director of Enterprise Applications at Teletrac Navman also agrees, adding that the real time integration with enosix “eliminated a lot of the custom development that would have been otherwise needed.” He adds that the technology “allows us to do things in Salesforce that we previously couldn’t do, so we can still leverage the ERP logic and functionality, but we’re doing it from our customer engagement platform in the front-end.”
In a recent SAPInsider article highlighting the digital transformations impact at Mannington Mills, Senior Manager of Customer Technology Strategy, and great, great grandson of the 1915 founder of the company, explains that after their go-live “Mannington’s customer portal has jumped 250 percent, and number of ordering users have doubled since migrating the platform.”
By measuring the impact of real time integration using a simple discounted cash flow model, manufacturers will begin to understand the true value impact of their investments. This is not digitalization for digitalization’s sake. This is putting a number on the transformation and the results are sure to be startling. What would a business invest to see valuation increases of six to eight percent? That’s the value of real time, trusted data delivering a seamless client experience.