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March 26, 2010

IFRS adoption or convergence goes beyond just being another regulatory mandate

A lot has already been spoken about IFRS. For one reason being that, currently, there are 117 countries that have either adopted or committed to adopt IFRS. But, last month the US SEC announced that companies could start using IFRS no sooner than 2015 - a year after from the earlier timeline of 2014. However, according to a recent survey conducted by KPMG, 49% US executives said they would like the option to adopt IFRS before 2015.

Reasons such as cost of switching accounting systems, maintaining liquidity during financial crisis, increased reliance on auditor and management judgment under IFRS etc. are being cited for driving the SECs decision.

Hence, a question arises “Why in the first place consider adopting or converging to IFRS?” A preliminary internet search did not reveal any convincing findings. To my dismay, the Big 4 have not dwelled into why a company should consider a voluntary adoption and seem to have adopted a retroactive approach driven by the regulatory environment. One is, thus, led to believe that the adoption/convergence to IFRS starts and ends as a mandate.

On researching further, I was able to list down some of the most interesting findings from various articles and quantitative research carried out especially around the time of adoption of IFRS in EU. Majority of these empirical studies, on the effects of IFRS adoption, have been carried out on the market/investor related information (such as bid-ask spreads, market returns etc.) from various countries around the dates of IAS related announcements or the time post its adoption. (The points below are in not in any particular order)

1.      Investors benefit from a common reporting regime – In a recent paper published in Science Direct, authors by comparing two companies reporting in both IFRS and US GAAP demonstrated that different sets of reporting standards can lead to different decisions. For e.g., while under US GAAP one of the companies turned out to be an attractive investment, the other company seemed more appealing under IFRS. Thus, moving to a single international accounting standard will benefit the decision making of investors 

2.     Increased Access to capital – As this point roots from the preceding one, I would only cite the benefit to cross-border investments from increased comparability of financial reporting. Recent empirical evidence (Leuz et al. 2008 etc.) suggests that comparable reporting across firms from different countries facilitates cross border investment and integration of capital markets thus resulting in higher FII flow, lower cost of capital and improved risk sharing

3.      Reduced Information Asymmetry – According to accounting theory, financial reporting reduces information asymmetry by disclosing relevant and timely information. Researchers Horton et al. (‘08) and Wang et al. (‘08) found direct evidence linking improvement of the information environment with the mandatory adoption of IFRS. They used analyst forecast properties like forecast accuracy and forecast dispersion, alongside the relative information content of earnings announcements, as measures of information asymmetry 

4.      Future Cost Savings – Investors can benefit from the time saved on reconciliation of multiple accounting standards, thus amounting to substantial cost savings. Multinationals having global operations in IFRS driven countries (of majority in the time to come) will also find cost savings by having all their business units/investments on a common accounting platform 

5.      Overhauling the IT strategy – While there is no factual research supporting this, but it is widely believed that the adoption of IFRS can help firms overhaul their existing financial systems, i.e. re-evaluate and re-design using clean sheet of paper, thus leading to better auditing, transparency and higher cost savings from automating manual activities

6.      Rules Based (US GAAP) to Principles based (IFRS) – According to a ‘08 survey by Grant Thornton of 200 CFOs across US, 70% believed that the financial statements are too complex for the average investor and around 60% preferred principles based over rules based accounting principles

The benefits of IFRS adoption cannot be generalized for all companies (or countries) as they completely depend on the reporting incentives available to firms and the local regulatory enforcement practices. Between 2003 and 2005, multiple empirical researches were carried out comparing IFRS versus US GAAP and German GAAP. The results suggested that the market participants do not perceive differences in quality of financial reports prepared under US GAAP and IFRS, but however, the firms reporting as per German GAAP had a weaker relation between their earnings and market returns. The benefits, hence, would be higher for firms that move to IFRS from a standard perceived to be of lower accounting quality, that is, the one which currently scores low on (a.) relevance of financial information to the investor and creditor, (b.) ability of financial information to reliably measure a company’s economic position and performance, and, (c.) extent of investor protection provided by the local regulator.

To summarize, from a macro-perspective the regulator of a country currently under a high quality accounting standard regime might not see huge benefits from transitioning or converging with IFRS, but nevertheless, would follow/converge with the global trends. But, from a micro-perspective, a firm having global aspirations, and presence, in terms of business operations or funding requirements can attain competitive advantage, atleast in the short term, with IFRS.

March 23, 2010

Centralized Procurement through SAP SRM - the next great wave of savings - Part 1

Continually changing turbulent economic environment is forcing organizations to adopt innovative business strategies to stay competitive, efficient in order to achieve highest level of benefits to the stakeholders. Procurement function is playing an ever increasing role in this transformation journey and its importance is becoming increasingly visible.

Benchmark data suggests that organizations are shifting towards a Centralized Procurement model, one which decouples the logical and physical locations of procurement activities. Reasons for this are obvious benefits of spend consolidation, product standardization and enhanced negotiating power. Along with Direct materials, Indirect Materials are a focus area for many organizations from this perspective. Indirect materials procurement typically contributes to approximately 5% of the overall procurement costs in an organization. Apply the Pareto principle and this would mean 20% of the Indirect Materials procurement would lead to 80% of Spend. Hence an effective strategy to minimize this 4% (80% of 5%) Indirect Material Procurement Spend, for 20% of materials can have massive bottom-line benefits.

Over next few write-ups I will discuss strategies that organizations can undertake to implement a Centralized Procurement model and the role played by SAP SRM solution as a business transformation enabler. SAP SRM provides the following features - Organization Structure mapping to enable shift from classic decentralized procurement model towards centralization, Centralized Contract Management and Centralized Sourcing to enable the process. A judicious combination of these will help arriving at a solution that will be a prime reason driving the change in the organization and smoothen the journey of this mammoth organizational change. I will also focus on some of the challenges faced during this journey and recommendations to overcome some of these challenges to achieve a streamlined procurement strategy reaping in huge bottom line savings for the organization.

So be tuned to my future write-ups on this topic…and look forward to your thoughts on this prominent shift in the procurement space.


Atul Chorbele

Optimize Operating Cost of Pharma ERP Support Setup

This blog is based on the experience of working in Pharma ERP Projects and Support environment. In this case ERP system used was is SAP R/3 system. One of the observation is Pharma companies have to follow and built in Validation and Compliance steps in both SAP Projects and  Production Support processes. Validation and Compliance ensures detailed electronic records and audit trails are maintained for system setup, design, specifications, testing, defects, modifications and are ensured through Validation Plan & Report for SAP Projects and through Validation Audits for SAP Production System. Validation and Compliance procedures also ensures Implementation and Maintenance of GxP business processes as per defined operating procedures in the underlying systems. This translates into presence of multiple tools and presence of complex processes which adds up to the cost of SAP Support setup. This blog examines and present ways to reduce such costs.

Apart from SAP ERP system, the support setup uses multiple tools and major amongst them are listed as follows:
a) Helpdesk and Ticketing tool for logging of suppport ticket and associated details from initiation to closure
b) Document Repository tool for maintenance of  Project documentation, Functional specifications, Design, Test specification, Test results and other host of documentation associated with SAP  Project and Support setup
c) Change Request Management tool which is particularly complex in Pharma companies as requirement is to maintain change details, assessment details, proof of approval before it is actually executed in system, proof of testing, and proof of approval before it is moved into productive system.

Pharma companies may have different tools for all the above. The tools have their own infrastructure in terms of servers, development, production environment and databases. There is substantial amount incurred on maintaining these tools and the associated processes. Moreover, since tools were implemented quite some time in the past these tools may have gone down in both business and technological value in last few years keeping in view rapid technological advancement and changing business environment.

For the Pharma companies having SAP ERP there is way to reduce the cost incurred on above tools. The solutions lies in moving to SAP Solution Manager for requirements mentioned above which so far for lack of alternatives were met by different tools. Apart from host of other features, SAP Solution Manager also provides matured functionality and capability for:
a) Helpdesk and Ticketing functionality with seamless link to SAP Customer support
b) Document Management with e-signature approval capability
c) Change Request Management capability with e-signature approval capability

IT Managers can cut costs by implementing above features of SAP Solution Manager to meet the requirements which were previously catered by variety of legacy tools. Due-diligence exercise should be performed to analyze which all tools and processes can be replaced by Solution Manager.
SAP Solution Manager is integrated with SAP ERP Applications and thus provides streamlined ways of working i.e. shortens the cycle time and brings efficiency due to less and easy process steps as compared to working with legacy tools. Infrastructure cost is reduced as SAP Solution Manager can be implemented to share the same infrastructure and skill set as required for SAP ERP application. These benefits will form the basis for the business case.

March 17, 2010

ERP Consolidation Assessment in Pharma Companies:Cross-Divisional or Divisional

Pharma and Healthcare companies may have multiple ERP system lines in their Organization. This could be because of multiple reasons, for example how organization was structured in the past e.g. separate business divisions exist for patent drug production, Generics, Consumer Health or it would have acquired or got merged with other Pharma companies for better strategic fitment. Reasons apart, there is sufficient scope to optimize the total cost of ownership of ERP Systems by consolidation into a Global ERP System. Apart from the benefits arising from IT Infrastructure consolidation, the business case for consolidation of ERP systems will originate from the top management need of having a global view of business, to foster the standardization of the business processes across divisions, to improve visibility across supply chain, to bring efficiency in handling inter-divisional transactions and most importantly to emerge as a customer and market responsive organization.

The ERP system consolidation is a highly visible project not only as top management is involved but the fact that project budget may be so high that it may require sanction from Chairman`s or CEO Office. It translates into a highly critical project and therefore project roadmap and planning have to be very detailed for successful consolidation. It is important to decide the approach whether to go for cross-divisional consolidation in one go or first perform divisional consolidation and than go for cross divisional consolidation. The answer lies in performing assessment across divisions based on combination of factors e.g.  Current standardization and complexity of various business processes, number of ERP system lines in each division, Tools and Processes used across divisions, extent of harmonization within each divisions.

In case of ERP systems consolidation across business divisions, if the underlying ERP Systems are same for example it is SAP ERP in all the divisions than the consolidation will be easier as technical infrastructure and resource skill sets required will be same. However if some divisions are on SAP ERP and some are on Oracle ERP the task is compounded and Organization have to decide on the consolidated ERP System whether it will be SAP ERP or Oracle ERP in such a scenario.
Another complexity which can arise is that some of the business divisions may have multiple landscapes of ERP Systems. For example, the different geographies have their own ERP system landscape e.g. North America, Europe, APAC operations of the divisions have their own ERP system landscape. The ERP system may be same e.g. SAP ERP system but operations are supported by individual regional ERP system landscape for each geography. The business processes may not be harmonized across region within a business division. This will mean more time will be required to standardize the processes. In such a scenario, Organization should aim to harmonize the business processes and integrate the reporting within different regions in a given division. Since the nature of business operations are likely to be same (except localizations) across regions for a given division for example say Generics Division or Consumer Health Division, it is less complex to consolidate all regions at divisional level. Business Process harmonization can be achieved to a high degree. The Project budget and timeline will be more predictable and easier to control. Also, since within division, the chance that top management is likely to be same will help in bring better alignment across regions and will result in less political hurdles. This will mean faster business decisions for the divisional consolidation project.

For Global ERP Consolidation across various divisions, to prevent  the project failure and to minimize the risks it may be prudent to perform and compare assessment for each business divisions. If the divisional complexity is high then consolidate first at individual divisional level and than perform the further consolidation at global level in the Organization.

March 8, 2010

Healthcare Analytics- Enhancing performance

As the Hospital industry focuses to overcome the common challenges in terms of improving patient care and controlling operational costs, every hospital wants to enhance its performance. But, Hospitals sans intelligent tools cannot take informed decisions due to lack of an integrated repository of critical hospital information, intelligence reports and analytics tools.
IS-Healthcare provides integrated operational & analytical tools tailored to meet specific standards, processes and the challenges of healthcare industry, focusing on its key solution components

• Ambulatory care management
• Patient Management
• Patient Accounting and
• ISH-Clinical medical system

Tools like Operational Dashboards and Analytical Cockpits integrate transactional and analytical data across domains, departments and service lines of the hospital enterprise to provide enhanced operational control through easy-to-understand summary data, budget simulations for planning purposes, greater ability to meet compliance requirements and drive better operational excellence through information provided by cost and revenue analyses.


1.Organizational statistics:
These statistics provides the details of the basic organizational structure and the related hierarchy of the related units in a typical hospital environment.

List of Organizational units: This list provides the list of basic organizational units maintained / organizational categories and the details of specific identifiers etc

Organizational Hierarchy: The program displays list of organizational units and their respective          hierarchy and the relationships among the higher level and lower level organizational units

Building units: This list provides the basic hospital building structure/ names of typical building units / room numbers and the relevant bed details of the specific rooms etc
Services list:  It provides the list of services the specific hospital can provide to the patients and the related service catalog information etc

2.Internal Organizational Reports: These reports facilitate the management to have a detailed understanding of the day to day operations of the key performing units.

Care unit workstation: The care unit work station provides an ergonomic interface for facilitating work on the care unit. It can provide the Occupancy/ Arrivals and Departure details of patient in a specific Organizational unit for a specific day/ for period of days
Occupancy statistics: This report provides the occupancy statistics (no of available/beds /occupied beds/ occupancy percentage) of the organizational units to a specific key date.

List of admissions (Inpatients/ Outpatients):  This report provides the details of patients who got admitted as inpatients/outpatients / admission date/ assigned room-bed details and relevant case details etc

List of discharges: This report provides the details of patients who got discharged as inpatients/outpatients / discharge date and relevant case details etc

List of Outpatients with physician details: This report provides the details of patients who got outpatients along with their attending physician details etc

Appointment details: this provides list of appointment maintained for that particular day, can be viewed by patient’s list/ by treating org unit and by attending physician

List of planning objects: Provides the details of objects like attending physician/ org unit/ building unit for which time slots can be maintained and appointment can be fixed for

3. Finance and Billing related Statistics:

Case list by Insurance provider: This list provides the details of Insurance service providers and the concerned patients with related insurance provider relations/ case list details etc

Service evaluation for patients :This list provides the details of specific services rendered to the patients / its start-end dates/ billable service details etc

Service and Billing statistics: This list provides the details of services available and their billable statuses versus actual status

Billing status of patients (Inpatients/Outpatients): This list provides the status of patients (Inpatients/Outpatients) / discharges details and their respective billing status (billed/ non billed)

 4.Government Mandated Statistics:
These reports provide the required information, which needs to be submitted to the government authorities for specific audits/ functions. These requirements differ from country to country

Patient census statistics of the hospitals:  this report provides the patient census statistics of the a particular hospital in the predefined format, with details like rate of use of planned beds / admission & discharge details / days covered by flat rate per cases etc.

Patient census statistics of the Departments: this report provides the patient census statistics of the a particular department/Org unit in the predefined format, with details like rate of use of planned beds / admission & discharge details / days covered by flat rate per cases etc.

Midnight census statistics: This report provides the details of patient census like external arrivals/ external departures etc  

KPIs (Key performance indicators):Key benefits delivered

Improvement of regulatory compliance
• Improve capacity utilization
• Improves cost effective treatment
• Focus on accurate and traceable medical coding process
• Optimization of registration process enhances customer satisfaction
• Improved accounting process
• Real-time measurements and metrics are embedded throughout SAP ERP to support all business process in the enterprise
• Manage the entire life cycle of corporate performance management
• Can perform ad hoc queries and measure operational performance using real-time transactional data and metrics
• Organizations can analyze and optimize the workforce, implement and monitor corporate strategy, and continuously evaluate how various what-if scenarios affect business goals

Conclusion: In general SAP for Healthcare provides state of art software solutions tailored to meet specific standards, processes and the challenges of healthcare industry. Analytics, in particular help health organizations gain enterprise wide visibility for decision making in critical areas, helping organizations improve its operational efficiency,  mitigate risk and control costs, while enabling innovative business process and patient services. Typically IS-Healthcare provides Strategic management, financial, operational and workforce analytics, in collaborative environment-enabling organizations to share information and make accurate, rapid decisions and allowing hospital administrators to work cooperatively with payers, suppliers, other healthcare providers and statutory authorities. Healthcare specific analytics enhances operational control through easy-to-understand summary data, budget simulations for planning purposes, greater ability to meet compliance requirements and drive better operational excellence through information provided by cost and revenue analyses.

Ref: Sap for Healthcare www.sap.com/industries

Business Value Articulation for Sustenance - Part 3

Having delved upon business value avenues in my prior posts (Part 1 and Part 2) in this series, let us visit the value articulation aspect. In case of SAP ERP steady state environment, it’s all about bringing out and quantifying the value augmented in the business processes as the business goals and objectives thrive on them.

As mentioned in my first post in this series, the business value has two facets -tangible and intangible. The tangible component may be quantified but the intangible generally remains qualitative, although equally important. Hence the articulation exercise must identify all the touch points of any business value case and bring out all of them- tangible and intangible. The more touch points brought out, the better articulation of value.

In the milieu of steady state SAP ERP environment, with a set of existing processes running, when it comes to quantifying business value of an improvement it can be carried out in two dimensions. The first is the process effectiveness and second is the business continuity ensured.

Let us look at the first dimension. How well the process connects with the business goals and how far it aids in meeting those goals would determine how effective the process is. In case of ‘sales to customers’ process how well it generates revenue and how much revenue it generates would decide its effectiveness. A key to link a business process and the business goals is process metrics that help measure the process performance. These measures help in articulating how far the process is successful in generating value. In the example of ‘sales to customers’ process, some of the key process metrics are as follows.

• Hit Rate (Acquired Customers/ Prospective Customers)
• Book to Bill (Billed Value/ Booked Sales Order  Value )
• Cost of Sales ( Cost of Selling Effort / Revenue earned)
• Cost of Warranty and Returns (Cost of Warranty claims and Returns/Revenue  )
• Average cycle time (Order Entry to Billing Document released to Accounting)
• Customer acquisition cost
• Sales per Sales Employee
• Back Orders % of Sales Orders  Entered

Any improvement done in the ‘sales to customers’ process should be measured on these metrics with adequate data to determine the ‘pre’ and ‘post improvement’ levels. Therefore as a case of adding business value  if the step of sales order entry is automated, the quantification should include  the process cycle time reduction apart from user effort saving. Thus these measures help much beyond the effort and time saving in the quantification activity and in turn help in establishing a straight connect with the business goals.

The second dimension which must be considered for quantification is the business continuity ensured. In other words, avoiding interruptions in business processes. Every organization earns revenue from sales and incurs cost on various fronts like manufacturing and procurement. So if the business operations are stalled for 1 hour it can be looked as manufacturing effort lost for 1 hour and revenue delayed to the next financial year or even lost. Any proactive improvement that gets implemented to avoid such disruptive situation is as good as earning business continuity worth the business revenue apportioned to that 1 hour. With that if an enterprise has annual top line of $ 1 billion, taking 250 workdays in a year and 8 hours of productive work time per day, ensuring 1 hour of business continuity is worth $ 500,000. Let us correlate this point to a BVA case. A business had manual process to address the failed messages exchanged with SAP through IDocs. This used to result in delays in documents (like orders and invoices) creation and mutation. As an improvement option an automated clearing desk for interface messages was set up leading to reduction in time taken for corrections and posting the documents. On the business continuity dimension, an improvement of even 30 minutes in the documents posting can be quantified as business continuity worth $ 250,000 ensured.

Your views are welcome.

March 5, 2010

HRP – Home Resource Planning: An ERP Microcosm touching everyday life

While teaching ERP concepts, we always speak of islands of systems and processes with no major integration and leading to inefficiencies.   On one such occasion I was forced to apply similar analogy towards the current generation professionals who are trying to meet increasingly contending demands between Professional and Personal aspects of life.   Our lives are always inclusive of various such islands of partners, systems and processes such as Employer, Banks, Insurance, Schools, Service Providers, Hospitals, Doctors, Grocery & Retail stores, Government agencies etc.,   On the personal side we always try to play a major integration role between all these different entities and get stressed out in the process.  Hence this thought process and blog.

Human life is getting complicated day by day.  Running a household has enough challenges as in an enterprise.  Any major tasks in the world once broken down to a granular level are either human, machine or environment related. All human tasks are essentially transactions between individuals.  Now if the individual is spending significant time in taking care of running his home as a personal enterprise and is entangled with its complexities, the stress generated is going to have an impact on the professional work.       In a world which has invented ERP packages to solve giant Global Organizations Business efficiency problems, we can look at solving human-centric problems of this world through an ERP – Microcosm which is for the benefit of an individual and catering to Home Resource Planning - HRP.  HRP can be a next generation solution hosted by an Application Service Provider and meeting common day in life household processes like Finance, Inventory, Household Partners, Workflows, Alerts, etc., 
Key Organization elements: Household is the highest level.  Entire personal organization structure of home is built into the system.  
All partner organizations such as Insurance, Banks, Employer, Vendors, Schools etc., are also represented as organizational elements with due integration between HRP and their in house systems.

Home Process Master List: HPML typically consists of the Day in life processes, workflows and activities and some of them are represented below on sample basis by each of key entities.

1) School 
      a. Check and sign-off assessment results
      b. Alerts on fee payments, fee hikes and any special incidental fees
      c. Communication, complaint and feedback mechanism
2) Grocery Vendors
      a. Maintain preferred vendors
      b. View Catalogues
      c. Re-order point planning
      d. Stock-out, replenishment notifications to vendors
3) Insurance
      a. Payments, tax exemption submissions
      b. Customized solutions for household needs
      c. Medical insurance claims
4) Bank
      a. Electronic Clearing System registration and approvals
      b. Payments to vendors, schools, service providers
      c. Loans and EMI payments

5) Services
      a. Annual Household Maintenance Contracts
      b. Rental payments and collections
      c. Telephone, Internet and other essential services management
      d. Travel and Leisure management
6) Reporting and Analytics
      a. Spend analysis
      b. Overdue payments
      c. Consumption patterns
7) Document Archives
      a. Payment Receipts
      b. School scorecards  & Certificates
      c. Health & Medical records

HRP should be an internet based hosted application software based on cloud computing concepts.  It should be accessible anywhere through any of the standard mediums like computers, mobiles, personal devices etc.,

Entire Application layer and User Interface Layer should be so designed to provide a greater efficiency of operating transactions, integration between various entities and catering to an exhaustive HPML.

Organizations can register with HRP service provider on a pay per transaction basis.  It helps them in becoming completely paperless many of the interactions with key customers and also with lean administration staff.  Organizations can expose the data relevant for HRP and also APIs (Application Programming Interfaces) which are relevant for external end customers.   Individuals can create their own accounts, pay per transaction basis and configure their personalized environment consisting of various organizations they interact with and modes & frequency of alerts, workflows etc.

Key benefits of HRP for an individual in general would include all that we can attribute to an ERP for an Enterprise.  Also HRP will support Go-Green concept with paperless (less paper) life.  Will cover in my subsequent blogs other aspects like  Architecture & Design, cost-benefit analysis, commercial model etc.,

Can we look at SAP–Home as new package in the market in coming days!!  Any venture capitalists hearing?

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