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Would SCM be a differentiator in your Apps Portfolio?

Dennis Gaughan of Gartner in his blog dated 29-Jun-2010 wonders whether its time for corporations to rethink their enterprise applications portfolio strategy ( Well, I think organizations are thinking about it all the time, sometimes when they do their annual planning and are reminded of the morass in their application landscape and sometimes thanks to M&A (esp for financial institutions) forcing them to look at what to sunset and what to fold in.

In the medieval times, so to speak, all app categorization was done purely on technology basis. For eg:, all java applications whether its claims processing or labor skills management or web order capture would be lumped together with disastrous results on value addition from the IT team to the business. Why? All requests would be seen as tickets to be fixed or enhancements to be completed rather than based on their business criticality. Of late, with business-IT integration increasingly being a reality, its typically done along the lines of departments (finance, HR, supply chain etc) or functions (procurement, sales, logistics etc)

But what was interesting in Dennis' blog was the categorization of all applications into three buckets,
1. System of Record
2. System of Differentiation
3. System of Transformation
This in turn translates to naming these buckets as applications to "run the business, grow the business and transform the business" with progressive reductions in life-cycles.

I am not sure about the life-cycles part though, a lot of master data blues that large organizations face today is because their lumbering old systems are just not in a position to even categorize their item master along UNSPSC lines, instead turning to one kludgy, band-aid fix after another.

The second point I was not in complete alignment was in terms of seeing the word "transformation" (much bandied these days) and "short life-cycles" in one sentence. May be its a mind-set, but I am used to business transformation being typically large-scale, multi-year, mega change management initiatives which cannot gel well with something which Dennis says are developed out of "ad hoc processes", funded out business budgets and having "short life-cycles". IT-led Business Transformation these days is typically used in global-scale examples like instance consolidation, template roll-out and such.

But as a way of looking at the portfolio, this classification is definitely a powerful way to go.

Now, when we take a look at supply chain applications, its clear that those need to come in the second or third category. We've had instances of some of our clients arguing strongly of keeping Sterling Commerce Distributed Order Management or IBM Maximo Enterprise Asset Management as systems of record leading to some intensive discussions (!), but seriously, no one in their right mind would use core SCM applications as a system of record for master data. That said, a lot of SCM apps can be the system of record for transaction data. In the previous scenario, Sterling DOM can be the "single source of truth" for all orders in the enterprise while Maximo can function as system of record for all "work orders" across the enterprise.

Whenever I see the term "grow the business", my immediate connection is with the sell-side supply chain functions or the revenue earners. In that vein, anything that's customer facing (eg: order capture systems) would be the place for maximizing revenue growth. Transformation is a broader word, substantial improvements in existing supply chain (say aroung logistics model or fulfillment options) or even stringing together apps/functions in a unique way would mean transforming the supply chain to something differentiating vis-a-vis the competition.

While we all realize where SCM functions/apps need to fall, the choices would be around what needs to go in which bucket (differentiation vs transformation) when an enterprise looks at its complex, matrix organization built around suppliers, customers, partners, the various business functions they support aligned to the core SCOR philosophy and the applications that help enable these functions. The implications of the new criteria is where Dennis signs of - around vendor selection, security, governance, integration etc - all of which are very valid points within themselves to be deliberated before making the baby steps towards a new portfolio rationalization strategy.


Gopi, you very well pointed out that SCM business processes would align to the SCOR model.

The letter "O" in SC"O"R points to the management concern we deal with ie, operations, though it may be called production ,asset management,logistics,supplychain etc day in day out.With this thought cant we can readily classify SCM apps as ones which "RUN" the business/operations?

Adding to this, when we RUN businesses in a cohesive manner with all these complex systems, it would "TRANSFORM" the business over years.This is also reflected in your "multiyear" tag assigned to the word Transformation.

In my opinion the SCOR model often because of business process orientation/centricity,may not have answers to all areas when we talk about SCM systems.Therefore classifications can be a much needed area to be further delved up on.

I think what Dennis is hinting at is redefining the terms “Systems of Record”, “Systems of Differentiation” and “Systems of Transformation” to reduce the overall TCO and align the budgeting pattern for new Initiatives accordingly. This is given the fact that businesses of late have a lesser tolerance for the “Older definition of Transformation engagements- As you rightly pointed out the multi-year and multi-million dollar engagements”.
I think a SCM application could fall in any of the three categories depending on the stage in its life cycle. Let me try to elaborate it further

A “System of Record” as I understand the term is not just the system, which holds the master data or the transactions (going by your examples of Sterling &/or Maximo), but can also be christened as the “Single Point of Truth”. For example - In a best of breed stack – post implementation, where there are multiple sources of information (example inventory info in an ERP e.g.- a MFG/PRO or a Peoplesoft & then there is the DOM component installed with Sterling in Place), which system would be the Single point of Truth? Which system would the business user (A Sales Person) go to for getting his Order status? In such a situation, I feel that a Supply Chain Software would surely classify as a System of Record.

Similarly, an SCM software can be a “System of Differentiation”, when the business is in the process of implementing the full functionality of a SCM product or completing its rollouts. In other words, the full benefits of implementing the system are yet to be realized. Once implemented and after its defined life; in other words once the expected benefits of implementing a SCM system are realized, it will move to the System of Record Category.

SCM Software’s can also be Systems of Transformation, if they can act as a quick fix to a business situation, example of doing a live simulation of fixing the accuracy of forecasting in a pilot or for a family of products before doing it for the entire enterprise.

If the definitions mentioned by Dennis get implemented by businesses, we might actually see a reversal of trend in the money being ploughed into these 3 categories.

The money for a fresh implementation of SCM software will not come from a single bucket, but may be split as follows

1. Product Evaluations, Selection and Pilots may come from the Transformation bucket.

2. Full implementations and rollouts will come from the differentiation bucket

3. Maintaining them and enhancing them for giving better results to the business will be still be a part of “running the business”.

In short an Implementation project will actually take the shape of a program, where the pitch or the logical buckets of projects needs to be on the realization of benefits. The businesses may not sign an entire implementation (a multi-year, multimillion dollar engagement, but will do it in installments.) While the buckets are getting changed here and as Implementation partners, we may have to gear up accordingly; it still remains to be seen on what additional differentiators can be brought in besides Cloud Computing and how the total pie (TCO) actually decreases for the end customer.

Thanks Dawn & Srini for your alternate thought processes. I endorse both points of view or rather nuances to what was originally stated. In terms of the "system of record", yes, SCM apps do take that responsibility when it comes to transaction data (eg: Sterling being the single-source-of-truth for sales orders of all kinds), but master data, that's a different kettle of fish altogether.

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