Having cut 4,000 customisations from its SAP systems, chemicals firm BASF is ready to create global standards for its processes to save millions of pounds
In 15 years at IT services company EDS, Wolfgang Erny saw many IT projects led by people isolated from the business. Fortunately, that is not the case at chemicals multinational BASF, where Erny became managing director of BASF IT Services in 2001.
Support for a massive global business process and ERP rationalisation programme from business managers at BASF is "outstanding", he said.
The firm, which has a turnover of £30bn, spun off its IT organisation - made up of 50 departments - into a separate company in 2001. About 1,700 people were transferred to the new organisation, which has a global mandate to provide competitive services to BASF as well as win business from elsewhere.
BASF expects its IT services arm to cut is IT costs by £138m a year. This is being achieved partly through replacing mainframes, rationalising the service structure and the economies of scale possible with a single global IT organisation.
BASF IT Services also aims to save "tens of millions of pounds" by rationalising its SAP enterprise resource planning (ERP) systems and reducing the number of business processes supported by the software. To achieve this, close business support for the programme is essential, said Erny.
The project involves a core IT team of between 150 and 200 staff and will eventually involve thousands of users.
Having completed a technical consolidation of its SAP systems, BASF is now ready for the toughest part of the programme.
"The simple part has been done," Erny said. "All the technical consolidation is finished and we are now starting to optimise and harmonise our processes. In the past, BASF was organised on a regional or country basis, but globalisation requires global processes."
This degree of rationalisation is a massive challenge for any large and diverse organisation, said Teresa Jones, senior research analyst at Butler Group. "People do not like being forced to change onto a standard process. They are in the mindset that it was always done this way and they do not want to change," she said.
The BASF board is driving the rationalisation process, said Erny. It has demonstrated its support for the project by empowering a business advisory board to rule on which business processes will survive the cull.
In a company that has grown through acquisition, local divisions can become possessive over processes they have used for years, making global standardisation difficult.
To avoid protracted negotiations, the business advisory board has co-opted senior managers from line-of-business units, each of whom have an overall reduction in business processes written into their performance targets.
As a whole, the business advisory board is empowered to turn down requests for non-standard processes without referring them to the company board. "The business advisory board will want to know what the reason is for going away from the standard," Erny said. "If you cannot live with it, you have to have a very good reason."
Jones was impressed with this approach. "It is extremely sensible - it is vital to get senior management to buy in to the project and to measure that they are doing it. You must also make sure that the business managers know what is happening on the ground - they may not always know exactly how the application is used."
Jones said the rewards of business process standardisation could be great in terms of lower application support costs and improved efficiency, but it must also be balanced with the need for local innovation. The next generation of ERP applications are promising greater flexibility to do this, she said.
BASF has cut the number of customisations to its SAP system by 4,000 during its ERP rationalisation programme.
Because it has grown by acquisition and operates in many markets, the company was working with hundreds of different iterations of SAP, some of which had been customised for particular businesses.
Since the firm centralised its IT operations by creating BASF IT Services, it has been cutting back unnecessary customisation to reduce IT support costs. Together with server rationalisation and business process harmonisation, the company hopes to cut is SAP costs by tens of millions of pounds.
Despite the scale of rationalisation, BASF’s 15,000 users in Europe are almost unaware of the changes happening behind their interfaces to company systems, the firm said.
BASF standardises on SAP R/3 before making the move to MySAP
BASF has opted to standardise on SAP R/3 rather that move on to the latest SAP product MySAP as part of its ERP standardisation programme.
The chemicals firm wanted to be near the latest version of SAP, but not reliant on the most recent release, said Wolfgang Erny, managing director of BASF IT Services.
“We have some MySAP, but it makes sense to bring everyone on to the same version before moving to MySAP,” he said.
Butler Group senior research analyst Teresa Jones said it may be too painful for a business to move to MySAP all at once. “You cannot run before you can walk, you need to go step by step,” she said.
As mainstream support for SAP R/3 Enterprise will end in 2009, all users of the system will have to consider moving to MySAP or a rival product.
Although there were costs associated with separate programmes to standardise and then upgrade at a later date, the costs of upgrading to MySAP were difficult to quantify for an organisation as large and complex as BASF, said Jones.
Business process standardisation would make the eventual upgrade process easier as well, she said.