enabling productivity and business excellence in the 21st century

Fall 2010

EAC • 2303 Spaulding Avenue • Berkeley CA 94703

t e l 5 1 0 . 5 4 0 . 8 6 5 5 • f a x 5 1 0 . 5 4 0 . 7 3 5 4

[email protected] • www.eaconsult.com

Joshua Greenbaum, Principal

Enterprise Applications Consulting

Adding Value in the Cloud:

Saba’s Next Generation SaaS Offerings

Joshua Greenbaum, Principal Enterprise Applications Consultingwww.eaconsult.com

Closing the People and Process Gap in the Enterprise: Enabling Productivity and Business Excellence in the 21st Century

Fall, 2015

Table of Contents

Introduction: Challenging mediocrity in business process excellence and workforce productivity ........ 1

Process and productivity: The state of business today ............................................................................ 3

The productivity gap: Technology progress and human progress ........................................................... 5

Correlating people and process excellence: Training and education in the 21st century ........................ 8

Is training finally getting the recognition it deserves? ........................................................................... 10

Conclusion: The time is now .................................................................................................................. 12

C l o s i n g t h e P e o p l e a n d P r o c e s s G a p

© 2 0 1 5 E A C 1

Introduction: Challenging mediocrity in business process excellence and workforce productivity The myriad changes in technology, business processes, and the workforce have made managing a 21st century enterprise an increasingly complex and difficult task. This blend of new technologies, globalized business processes, and a major generational shift in the workforce has resulted in a complex mix of opportunities and challenges for managers and executives.

While business leaders have struggled to stay abreast of this rapidly changing business environment across the globe, the reality is that broad indicators of business progress – as defined by looking for measurable improvements in core business processes and worker productivity – show that on the whole, the global business community has not kept pace with change.

Keeping pace is possible, particularly since the advent of new technologies and methods that can close the gap. Among the many ways to close the gap, one has surfaced in recent years as perhaps the most promising, and the most cost-‐effective: next generation employee training and education.

For many companies, the lack of progress towards improved business processes and worker productivity has been the result of not being willing to commit enough strategic focus and capital to solve the problems. As long as revenue and profitability targets are being met, even if they are sub-‐optimal, how a business executes its core processes, how it deploys its human capital, and whether it is actively optimizing processes and people all too often takes a back seat to the tactical job of meeting short term financial gains. This means that many firms yield to the temptation to cut costs or take shortcuts in process and people excellence in order to meet their short-‐term objectives, ignoring the negative implications for the long term.

The problem with this approach is clear: papering over inefficiencies can be a marginally successful strategy in good financial times, but the moment markets soften, revenues and profits fall, and competition increases, this strategy – or, more accurately, lack of strategy – becomes an anchor that prevents a company from sailing to safer waters. And even in the best of times, a more strategic focus on process and people can yield important results that further both short-‐term and long-‐term objectives. There is abundant evidence that relatively small investments in optimizing people, and somewhat larger investments in optimizing process can yield important results that can carry a company to new competitive and fiscal heights while mitigating the risks that come with market downturns.

The realization that this process and people gap exists is not lost on many business executives and managers. What is lost is the strong correlation between the two: improving either one without taking the other strongly into account dooms the organization to further mediocrity. And yet the knee-‐jerk reaction of many business executives is to bring on new technologies – by buying into an almost 30-‐year old notion that more technology is always good for the enterprise – without accounting for how that new technology will actually be used to improve key business metrics as well as improve worker productivity.


© 2 0 1 5 E A C 2

Clearly new technology is needed. Many enterprises are working on older systems that are unable to adapt to new business practices and new business realities. The fact that the impact of new technologies on the workforce is ignored, however, combined with the fact that the role that the rapidly changing workforce will have on how new technology is used by the enterprise is also ignored, explains why investing in new technology doesn’t solve the problems it is intended to solve.

That mistake can be rectified, and the time to do so is now. Closing the gaps in business process optimization means closing the gaps in workforce optimization. Without the people part of the equation, acquiring new technology in order to improve business processes and, ultimately, corporate revenues and profitability, cannot succeed. And achieving workforce optimization depends squarely on one simple, until recently hard-‐to-‐achieve requirement: improve training and education.

The evidence has been clear for decades that improvements in the quality and quantity of employee training and education yield strong, measurable results in productivity, which in turn impact top and bottom line growth. In recent years, the pace of change has been accelerating as never before, requiring new business processes, new technologies, and new ways to engage a dynamic workforce. All of this adds up to an even greater imperative to change the game in training and education in order to stay in the game – and hopefully prosper – in the global economy.

Another factor that has changed is the availability of a next-‐generation approach to training and education based on online, always-‐on accessibility, peer-‐led instruction, simulation, and highly customizable training content. In this regard, SAP SE has been pioneering the availability of next-‐generation approaches to training and education that fit precisely with the requirement to tackle the problems of process and workforce optimization in a highly dynamic, global economy. Services such as SAP Learning Hub, which provides hundreds of online courses for training; SAP Learning Rooms, which allow collaborative, peer-‐led, topic-‐specific learning to take place in an online environment; SAP Workforce Performance Builder software, which allows training professionals and others to build highly interactive training content based on actual enterprise software usage; and SAP Live Access, which allows users to train in a simulation environment based on their company’s actual implementation, are all part of SAP’s strategy of closing the process excellence and productivity gaps as noted in this report.1

It is via the new capabilities available in SAP Learning Hub, SAP Workforce Performance Builder, SAP Learning Rooms, and SAP Live Access that businesses can now deliver what is needed to close the people and process gap and address the changes in workforce dynamics and the technologies companies deploy. All that is needed is a change in mindset that allows companies to move beyond the limitations of older technologies, processes, human resource management, and other impediments.

1 For more on SAP’s advanced education and training services, see: http://go.sap.com/training-certification.html


© 2 0 1 5 E A C 3

Process and productivity: The state of business today While much has been made of the impact of enterprise software on individual companies, and the global economy as a whole, the fact remains that there are still significant problems to solve and gains to be made by the application of new enterprise software technology. In fact, it’s clear that new problems and challenges have emerged in recent years that are pushing up against the limits of what has been implemented in the enterprise to date. Research from a broad range of sources points to a leveling off in the 21st century of the gains in process effectiveness that were made towards the end of the 20th century.

This leveling off can be seen in a number of key metrics that measure core business processes, such as order to cash, days’ sales outstanding, and days’ inventory outstanding, among others. An excellent example of this can be seen in the results of a global survey of over 4,000 companies conducted by the management consulting firm EY. The survey, which sought to understand how poor cash management was impacting business effectiveness, looked at the number of days in the respondent companies’ cash to cash cycle (C2C). This metric is a key indicator of overall business effectiveness – the lower the number, the faster a company can locate and engage customers, deliver products or services, and receive payment.

The findings (see Figure 1) show a rapid rate of decline in the cash to cash cycle across Europe and the United States from 2002 until 2011, at which point Europe continued the decline, while the US cash to cash cycle began to rise. Both regions began plateauing in 2012, and continued the following year.

Taken by itself, EY’s C2C analysis does not particularly shed light on why this plateauing has occurred, and if it is even indicative of a trend, or is an anomaly caused more by external, macro-‐economic factors rather than internal issues. As it turns out, EY is not alone in seeing the impact of these phenomena.

Figure 1: Cash to cash levels off in the 21st century

Source: All Tied Up. Working Capital Management Report 2014, EY


© 2 0 1 5 E A C 4

A report by McKinsey & Co., which also looked into a broad set of companies’ C2C cycles, sheds further light on the issue (see Figure 2). The McKinsey report compares the average C2C performance of the top performing companies (those in the 25th percentile) and the bottom performers (those in the 75th percentile). The data show a surprisingly large gap in C2C performance that, as it is the result of an aggregation of data across the wide range of companies in the study, points to a systemic process execution gap between companies that employ best practices in C2C (the 25th percentile) and companies that do not.

Figure 2: The process execution gap in C2C

Source: Uncovering Cash and Insights from Working Capital, McKinsey & Co. July, 2014

This process execution gap isn’t only evident in metrics relating to financial performance. Other key metrics, such as days’ inventory outstanding, also suffer from a process execution gap. A report from the Performance Measurement Group (see Figure 3) highlights a similar gap in supply chain performance. Companies that are best in class across a wide range of industries are able to reduce their spend on supply chain management as a percent of total revenues by 50 percent or more relative to the industry average.


© 2 0 1 5 E A C 5

Figure 3: Supply chain management spending gap

Source: PRTM, The Performance Measurement Group

What these and other data show us is that there are wide discrepancies in business process execution across companies, regardless of whether one looks at them across different geographies or industries. The common denominator in all these data is the fact that there are huge gaps in performance for core business processes that are well known and understood, and for which there has been a large body of software, services, and best practices available. This begs the question: Why, if the global economy spends hundreds of billions of dollars on enterprise technology and software to improve business execution, do these gaps still exist? And why, assuming the plateauing noted in the EY data continue, are they not being resolved?

The productivity gap: Technology progress and human progress In considering the state of employee productivity, and the underlying issues relating to process effectiveness, it’s important to consider the changes in both human capital and the technology available to employees as critical factors in this problem. The two most obvious issues impacting the enterprise in this regard are the rising presence of the millennial generation in the workforce, and the rising importance of the digital media and technology that these new workers have grown up with and are bringing to the job.


© 2 0 1 5 E A C 6

A study by investment firm Goldman Sachs2 highlights a wide range of important characteristics of the millennial generation in the United States, many of which are echoed in research published by the European business school INSEAD.3 (An important difference: millennials in Europe are not slated to become a majority of the population anytime soon; the 50 and older cohort remains larger than the millennial generation, whereas in the United States, and many other countries, millennials are now or will soon constitute the majority of the population. However, in Europe, millennials will quickly become a majority in the workforce due to European retirement policies. Millennials already have this distinction in the US.)

Importantly for the workforce, one of the main characteristics of the millennials that are beginning to dominate the global workforce is that they are considered to be “digital natives,” and are more likely to use social media, communicate via SMS/texting/chat, seek entertainment online as opposed to via broadcast or cable television, and use mobile technology in work and play.

This characteristic in turn sets up an important set of criteria for millennials in the workforce that impact enterprise process effectiveness. The first criterion is the fact that millennials expect enterprise software functionality and user experiences to be in line with a mobile, online, touch-‐based user experience, something that much of today’s enterprise technology cannot provide. The second is that millennials expect their technology to be intuitive, requiring a minimum of training. The third is that if there is a need for training it should be be online, highly visual, and as interactive as possible, in line with this generation’s technology consumption preferences.

These three criteria dovetail with another key consideration regarding the role of millennials in the workforce. Whereas the consumer world has largely made the shift to a mobile-‐first user experience, the enterprise has not. This means that there remains a considerable amount of legacy software and business processes that cannot be accessed in the ways that digital natives would like. And while many enterprise software products have made the shift to a more millennial-‐friendly user experience, the underlying business processes are based on legacy functionality and ways of doing business.

This means that despite the requirement for a more intuitive learning experience, there is a considerable requirement for knowledge transfer to the millennial workforce from the previous generation of workers, particularly around legacy processes and user experiences. Even as more and more enterprise software moves to a mobile-‐first UX, it’s clear that the wholesale replacement of older technology isn’t going to happen any time soon, and that millennials will need to navigate a hybrid world of new and old technology and user experiences, and be shown – through training and education – how to do so.

2 http://www.goldmansachs.com/our-thinking/pages/millennials/index.html?cid=PS_02_18_07_00_02_15_01 3 http://universumglobal.com/millennials/


© 2 0 1 5 E A C 7

The Productivity/Technology Gap

Against the backdrop of the challenges inherent in enabling millennials to reach their full potential in the enterprise, the issue of relative productivity of employees adds a further complication to workforce empowerment and process excellence.

A report by the Deloitte Center for the Edge, From exponential technologies to exponential innovation,4 reveals an important truth about the pace of innovation in technology: while technology has innovated along a sharp, upward curve since the beginning of the century, worker productivity has largely remained stagnant. (See Figure 4.)

Figure 4: Workforce productivity is stable even in the face of massive innovations in technology.

Source: From exponential technologies to exponential innovation, Deloitte Center for the Edge

4 http://d2mtr37y39tpbu.cloudfront.net/wp-content/uploads/2013/10/DUP401_Exponential-Technology_vFINAL2.pdf


© 2 0 1 5 E A C 8

This stagnation in worker productivity in the 21st century has its parallel in the data relating to process excellence cited above. Despite the best efforts of vendors to build and deliver the latest in innovative technologies, and despite the efforts – not necessarily best efforts – of companies to adopt those new technologies, there remains significant gaps across the board in core processes and worker productivity that desperately need attention.

Correlating people and process excellence: Training and education in the 21st century While it would be overreaching to suppose that there is a panacea that can solve this problem, enhancing training and education is clearly one of the key ways in which the problem can be solved. This is based on the simple fact that the use of training and education has historically been highly correlated with increased productivity and process excellence. Indeed, the academic literature over the last 20 years is replete with studies showing this correlation. And with recent improvements in training technology and methodologies, in particular SAP’s recent offerings, this correlation is slated to increase significantly.

One of more comprehensive studies on this correlation, entitled The impact of human capital and human capital investments on company performance. Evidence from literature and European survey results,5 published by the European Center for the Development of Vocational Training, shows a wide range of impacts that a relatively small incremental investment in training can have on a company’s productivity, profitability, innovation capability, service quality, and stock market performance. The authors, Bo Hansson, Ulf Johanson, and Karl-‐Heinz Leitner, analyzed survey data on private sector companies conducted under the auspices of the Centre for European Human Resource Management at the Cranfield School of Management in the United Kingdom. The survey data used by the authors included results from over 8,000 companies. The results showed significant differences between companies that were in the top 10% of the survey population in terms of training uptake, versus those in the bottom 50%. The top 10% had on average 9.21% greater profitability, 7.46% greater productivity, and a 9.8% higher rate of innovation than the lower 50 percent. Service quality in the top 10% was 9.92% higher, and overall stock market performance was 6.34% higher.

5 http://www.cedefop.europa.eu/files/BgR3_Hansson.pdf


© 2 0 1 5 E A C 9

Figure 5: Gains for companies in the top 10% of their markets in terms of training uptake, as compared with companies in the lower 50%, and average increase in training spend (as a percent of wages).

Source: The impact of human capital and human capital investments on company performance. Evidence from literature and European survey results, the European Center for the Development of Vocational Training.

Perhaps even more interesting was the relative difference in how much the top 10% spent on training as a percent of wages to achieve these goals. The companies with higher profitability spent on average 0.6% more, the ones with greater productivity spent 0.43% more, and the ones with higher rates of innovation spent 0.73% more. The companies that performed better on the stock market spent 0.55% more, while there was no data reported for the percent spent achieving higher service quality. It’s clear from this study that a relatively small investment in training and education can go a long way towards meeting a wide range of highly strategic corporate objectives.

The authors’ survey of several dozen studies on training and the enterprise showed other positive results as well. Lower staff turnover and improved management/labor relations were also attributed to high degrees of investment in training. Other studies, such as the one published in 2001 by Alan Barrett and Philip O’Connell of the Economic Research Institute in Dublin, looked at whether the impact of training at a company in a given year (1993) had an impact on not just productivity, but productivity


© 2 0 1 5 E A C 10

growth as well. By looking at the change in worker productivity between 1993 and 1995, the authors were able to show training “to have a positive and significant effect on productivity growth.”6

These and other studies in the US and Europe show that investments in training can have positive impacts across the board and that SAP’s focus on providing state-‐of-‐the-‐art training and education services comes at a perfect time. Ironically, the availability of these studies has had little impact on the spending for and prioritization of training, particularly in the early years of the century, which, as has already been demonstrated, was a period of stagnation for both process excellence and worker productivity. Much of the blame for this lack of impact can be laid firmly at the feet of the providers of training and education technology and services, most of which were focused on a classroom model that required trainees to travel to training centers and spend days at a time “learning” in an outmoded setting based on general-‐purpose training materials that often had little or nothing to do with the actual system that the trainees were expected to master. It’s small wonder that this approach yielded limited results.

The question that remains is whether those who have a stake in reversing this stagnation – and who understandably were put-‐off by the poor state of the art in training and education – understand what training and education can do to help close an enormous set of gaps in people, process, IT, and business.

Is training finally getting the recognition it deserves? A ray of hope that these issues are helping to alter perceptions can be seen in a study published in 2014 by Oxford Economics and supported by SAP. The study, Workforce 2020, The Looming Talent Crisis,7 surveyed more than 2,700 executives and an equal number of employees in 27 countries regarding the critical issues relating to workforce issues in the enterprise of today and tomorrow.

Two key results are worth mentioning in the context of this report. The first is that the need for improvements in training surfaced as a key critical path for the companies and employees surveyed: Fully 44% of respondents signaled that increases in training were required in order to deal with changes in the workforce (see Figure 6).

6 http://ftp.iza.org/dp51.pdf 7 http://www.successfactors.com/en_us/download.html?a=/content/dam/successfactors/en_us/resources/white-papers/sap-

workforce2020-research-report.pdf


© 2 0 1 5 E A C 11

Figure 6. Impact of the changing nature of work. What impact is the changing nature of employment having on your company?

Source: Workforce 2020, The Looming Talent Crisis, Oxford Economics

Equally important was the relative lack of progress in meeting these goals (as shown in Figure 7). Barely one third reported that their companies were making good or significant progress towards the goal of creating the workforce they need to meet the changes in business requirements. The remaining two-‐thirds are making slight or moderate progress, which signals that the while the recognition of the problems is high, a tremendous amount of work is needed to complete the job.

Figure 7. Progress toward goals of building a workforce to meet future business objectives. To what extent have you made progress toward your goals of building a workforce to meet future business objectives?

Source: Workforce 2020, The Looming Talent Crisis, Oxford Economics

Can education and training solve all the problems of process and workforce productivity stagnation? Is increasing education and training enough? Should this be the only measure of progress? Clearly, process effectiveness and workforce empowerment depend on a multitude of factors, some within


© 2 0 1 5 E A C 12

management’s purview, and some relating to macro and micro economic factors beyond management’s control. It seems clear, however, that in looking at the intersection of the problems engendered by a changing global business climate – i.e. the need for improved process execution and the need to better empower a changing workforce – improving training and education must be relatively high on the short list of solutions available to the enterprise.

Conclusion: The time is now The disconnect between process excellence, technology uptake, and the changing workforce is at present a slow-‐moving threat that will only build over time as the imperative to meet the needs of a changing business and workforce climate run into the relative stagnation in process excellence and workforce productivity that has characterized the 21st century. The need to enable new process excellence is well defined, and vendors such as SAP have built a portfolio of products and services that help to enable this process excellence. Providing the environment for excellence to thrive, however, requires better engagement with a changing workforce, which in turn requires significantly different modes of interaction than have been available from enterprise software in the past. Simultaneously, this new workforce needs to understand not just how to leverage its status as the first generation of digital natives in the quest to improve business excellence, but also to connect to the past by understanding how to use the legacy systems that still run core processes in the enterprise and will be part of hybrid business process environments for many years to come.

Advanced training and education are some of the best guarantees for success in managing these challenges. As the data in this report show, it takes a relatively small incremental change in spend on training and education to yield significant results. And advances in training and education from SAP that have progressed since the studies cited here were undertaken, make it easy to believe that the contributions to training and education noted in the research would potentially be even greater still.

Much of this increased value comes from changes that SAP has helped pioneer, with the specific goal of solving the problems noted in this report. This is why SAP Learning Hub, SAP Learning Rooms, SAP Workforce Performance Builder, and SAP Live Access, are all part of SAP’s strategy of closing the process excellence and productivity gaps noted in this report. SAP’s training and education services – which were recently made available as cloud offerings that leverage technology like SAP HANA Cloud Platform – will enable companies that have recognized the necessity of training and education to engage and empower a changing workforce using the tools and methods that make the most sense for challenges at hand.

Regardless of industry or geography, the issues surrounding process excellence, worker productivity, and the emerging millennial generation are here to stay. How companies respond to these challenges may differ dramatically from company to company, but there is one constant that needs to inform every company’s strategy: moving quickly to embrace advanced training and education is a critical success factor for all. The stagnation and unfilled promise discussed in this report are the result of many factors, but poor training and education are by far the most important common denominators in all of them, and fixing training and education should be one of the first steps towards process excellence and improved productivity that a company should take. To do otherwise is to repeat the mistakes of the past, and in today’s business climate, that’s a luxury no company can afford.

enabling productivity and business excellence in the 21st century

Software