New Accenture Research Shows the Potential of Enterprise Systems to Drive Business Growth

According to a new Accenture research study, enterprise systems, once derided as "generic IT", have the potential to provide organizations with a basis for developing distinctive capabilities; that is processes and services that enable them to differentiate themselves from competitors and outperform industry peers.

Accenture Proved the Value
In the post dot-com era organizations became concerned that enterprise systems were not delivering enough value; it resulted in cost cutting and systems consolidation. In 2002, an Accenture-led study, The Return of Enterprise Systems: the Director's Cut made a significant contribution to perceptions about the value of enterprise systems. The report showed that some organizations were achieving considerable value with their systems. They did so by following very clear-cut practices; they identified value drivers and realigned their processes accordingly. This timely insight helped to reset organizations' expectations about the role of enterprise systems.

Authored by Jeanne Harris and Thomas Davenport of the Accenture Institute for High Performance, the new 64-page long study revisits questions around value. It also examines the impact of the recent, positive shift in business environment to understand if organizations:

• Have improved how they implement and create value with their enterprise systems?
  
  
• Use enterprise systems to enhance their competitiveness?
  
  
• Are adopting advances in technology in order to do more with their enterprise systems?
  
  

A Study of Unprecedented Scope on Enterprise Systems
The New Growth global research study covered a 12-month period over 2005 and 2006. It is based on a rigorous analysis of data collected from 371 organizations (not limited to Accenture clients) from 34 countries in 19 industry sectors, which have implemented at least two major enterprise systems modules from vendors such as SAP or Oracle.

Twenty-five industry analysts and experts on enterprise systems, and executives from fifteen companies, were also interviewed to add depth to the analysis—a rigorous process that confirmed the causal link between enterprise systems implementation, business value and increasingly the opportunity for business growth.

The findings of the 2006 study reveal that overall value has increased during the last few years. However some organizations are getting much more value and some are getting very little. Perhaps obviously, organizations that do the right things and do them consistently achieve more value than those that do not. But regardless of what a company has done in the past—whether greenfield or a mature implementation; a high or low performer—organizations have considerable opportunity to derive more value in the future. This is good news, because executives increasingly see enterprise systems as an ongoing program or a journey rather than a series of discrete projects. There is a growing awareness that the systems are so intricately woven into the fabric of their business that executives will need to continue enhancing their footprint for the foreseeable future.

What a Difference Four Years Make? Comparing the Results 2002-2006
In 2002 Accenture identified three drivers of value that are still generating benefits in 2006. The adopted software or hardware is not nearly as significant as how these IT assets are deployed. Integration, optimization of processes and using analytics for decision making are the value drivers that allow organizations to harness the value of their systems.

Value driver 1: Integration—Organizations are integrating more both inside and outside. Inside their enterprise they are operating with fewer instances or versions and are hooking together more business units or geographies. Fifty percent of our sample—a 39 percent increase from four years ago—say they have implemented enterprise systems across their entire enterprise. Twenty four percent said they have direct links with their customers, and 15 percent said they have direct links with suppliers. The greater focus on customer linkages was explained by certain organizations as having more growth potential than with suppliers.

Value driver 2: Optimization—Optimization is about having the right business processes, and ensuring those processes are supported by the right systems and software. Organizations are improving how processes flow and fit with their enterprise systems environments. What matters is how software and systems are deployed, not necessarily which systems are used: New Growth identified a 13 percent rise in process optimization between 2002 and 2006.

Value driver 3: Analytics—Of the three major value drivers, the use of analytics has become an even more significant factor than in our prior study. Organizations are using their systems much more to facilitate decision making, as analytics help managers make more informed and faster decisions: 65 percent of top performers said they had significant decision-support or real-time analytical capabilities—versus 23 percent of low performers.

As concluded by the authors, the increase in the use of analytical capabilities is an early warning sign that executives want to get more value-add with their systems and systems data. Analytical insight helps organizations identify market opportunities and sustain competitive advantage.

Distinctive Capabilities are Integral to High Performance
While the data reflects that organizations are doing a better job of integrating, optimizing and using analytics, the most significant difference between 2002 and 2006 is that companies confirm they are using enterprise systems to develop processes or services that are integral to their business...and to their business success. This counters the old perception of enterprise systems being used for back office processes only. Accenture calls the processes and services that can contribute to competitive advantage 'distinctive capabilities'. Fifty three percent of respondents to our survey believe that they are gaining a competitive advantage through distinctive capability—that's a far cry from the 88 percent who started out on their implementation journey never believing that their investment could contribute to the bottom line.

As an example of distinctive capability, an Australian-based subsidiary of a global natural resources company integrated its enterprise system to manage maintenance processes and to generate detailed information on costs that helped the company execute its strategy as a low-cost producer. The company's CIO said that the strategy could not have been implemented effectively without an enterprise system.

Meanwhile, an executive at a Dutch-based global rubber supplier credited the company's enterprise system with enabling its strategy of growth through acquisition by allowing for rapid integration of acquired firms into a common system platform.

10 Key Practices for Higher Performance
Accenture has taken the research findings and has been able to determine the key practices for raising business performance with enterprise systems. Accenture's understanding of high performance businesses is based on proprietary research. The practices identified correlate with the strategies and approaches adopted by a class of top performers; approx 13 percent of the sample. For the purposes of this study, top and low performers were defined by asking respondents to assess their standing in their industry—on a scale of one to five— relative to profit, shareholder return and revenue growth. We found that these self-reported performance measures were highly correlated with the organization's compounded average growth in revenues and profits.

Some of the key practices, such as building distinctive capability are integral to high performance and provide the opportunity to develop and sustain competitive advantage. Other practices that contribute to a company's formula for serving its customers include:

Tailoring systems: Our research has determined that top performers selectively tailor strategic applications ensuring they align with business processes, and meanwhile continually standardize and simplify the rest: a 22 percent increase has appeared between the two studies for configuring systems. Once a company truly understands their competitive differentiation in the market, they can focus on enhancing their distinctive capabilities and ruthlessly simplify and standardize everything else.

Implementing industry solutions: High performers are much more likely—a significant 84 percent--to have implemented industry-specific solutions. Solutions developed for specific-industry processes require a very detailed understanding of what that process needs to deliver and that understanding underlies a focus on developing capability that is critical to an organization's business success.

Taking advantage of SOA: When asked what new technologies they might employ a year from now, the most popular answer was "none." SOA and integration technologies, however, were an exception to this finding because they enable organizations to move more quickly and to magnify the value of their enterprise systems. Twenty-five percent of the survey participants reported using SOA already, with another 15 percent planning to begin using it within 12 months. High performers were more than twice as likely to plan to take advantage of SOA.

Steadfast Gardening Results in New Growth
In summary, organizations that integrate, optimize and analyze are well-positioned to develop the distinctive capabilities that in turn help them to create and sustain the ultimate prize: competitive advantage. Many organizations are adopting multiple key practices. What distinguishes the top performers is the discipline and rigor that they apply to their approach.

"Like any garden, an enterprise system requires ongoing care. Sometimes watering and fertilizing are called for; at other times, weeding and pruning," writes Harris. "For those that planted seeds and were then surprised when nothing sprouted immediately, their steadfast gardening is now being rewarded."