The document discusses challenges that organizations face in consolidating business and IT functions, innovating business processes, and outsourcing processes using traditional ERP systems. Specifically, it notes that consolidation is difficult and expensive due to islands of automation with different technologies and proprietary code. Innovation is challenging because existing investments cannot be easily leveraged and specialized integration skills are required. Outsourcing processes also faces hurdles integrating systems outside the organization's boundaries. The document proposes that an enterprise services architecture may help address these issues.

1. SAP White Paper
mySAP ERP
DELIVERING OPERATIONAL
EXCELLENCE WITH INNOVATION
Enterprise Services Architecture for Enterprise Resource Planning

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2

3. CONTENTS
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Enterprise Resource Planning: Strategies and Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Why Consolidation Is Difficult. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Why Innovation Is Difficult. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Why Outsourcing Is Difficult . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Solution to Becoming an Adaptive Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Embracing Innovation and Achieving Operational Excellence. . . . . . . . . . . . . . . . . . . . . . . 10
Business and IT Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
– Example: Consolidating HCM as Shared Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Business-Process Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
– Example: Extending the Quotation Process to More Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
– Example: Reengineering the Employee On-Boarding Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
– Example: Reengineering the Procure-to-Pay Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
– Example: Integrating Desktop Productivity Tools with ERP Applications . . . . . . . . . . . . . . . . . . . 13
Business-Process Outsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
– Example: Outsourcing Logistics Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Unlocking the Potential of ESA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
mySAP ERP and ESA: Aligning IT and Business to Achieve Operational Excellence. . . . . 17
What’s Next? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
For More Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3

4. EXECUTIVE SUMMARY
Today, islands of automation, growing IT complexity, governance This white paper is intended for IT executives and line-of-
pressures, and budget reductions are IT realities that hamper the business management. It introduces business strategies, trends,
ability of small and large organizations to embrace new business and issues related to enterprise resource planning (ERP), finan-
practices and technological innovation. As organizations look for cial management, operations management, and human capital
better ways to achieve competitive differentiation, market respon- management (HCM) that drive the consideration of enterprise
siveness, and operational excellence, they often find their existing services architecture (ESA). It also examines the importance of
IT landscapes too complex, inflexible, and costly to adapt to such architecture and the role it plays in guiding organizations
evolving business conditions. Even if organizations can afford the to create value, improve efficiency, and respond to evolving busi-
resources, time, and effort it takes to change and enable new ness needs in ERP – on any scale and for any industry. The docu-
practices, all those might prove too extensive to justify the value ment then illustrates and compares a number of deployment
of the investment. IT – often regarded as a monolithic, rigid, examples with and without ESA and clarifies why businesses are
slow-moving, or foreign entity by many businesspeople – must be adopting an enterprise services approach to compete effectively
aligned with business needs and evolve with changing market in a dynamic marketplace.
demands to enable future innovation, agility, and excellence.
The growing importance of IT architectures has led many IT
executives to rethink traditional approaches and seek better,
smarter, and more efficient ways to serve their organization’s
needs. The adoption of services-oriented architecture (SOA) is
central to becoming more responsive and agile. An SOA not only
helps organizations address short-term needs – such as lowering
IT costs, improving quality of service, and enhancing existing IT
systems – but also, and more importantly, provides a flexible,
adaptive, and open IT foundation that can accommodate
changing business practices, market dynamics, and competitive
challenges.
4

5. ENTERPRISE RESOURCE PLANNING:
STRATEGIES AND TRENDS
In the past, organizations deployed ERP software to gain internal
efficiency in back-office operations, such as manufacturing, Common Experiences When Changing
accounting, HCM, financial management, and purchasing. Business Practices
Such technological investments helped management reduce
costs. But today’s businesses can no longer rely on automating • Once the competition copies a differentiating activity
back-office processes to achieve top-line growth and bottom-line from the core, efficiency and productivity become the
improvements. primary purpose of the core.
• Consolidating common business and IT functions
This situation is well described in Living on the Fault Line by
reduces costs and redundancy while it enforces
Geoffrey Moore. In the book, Moore frames the challenges of
global policies.
achieving continuous business innovation around an organiza-
tion’s “core,” the business processes that differentiate businesses • Outsourcing nonstrategic processes enables an enter-
in the eyes of their customers, and its “context,” which is every- prise to focus on its strategic or core competency.
thing else (see Figure 1). The purpose of an enterprise’s core is
to drive business innovation and competitive differentiation to
stimulate growth. The context’s primary goal, according to Businesses might want to leverage their ERP software for com-
Moore, is to operate as efficiently and productively as possible. petitive differentiation by finding new ways to achieve greater
The catch is that core remains core only as long as it differenti- efficiency in previously untried or unsuccessful areas. They
ates the enterprise from the competition. Once it has been might also want to consider outsourcing standard processes
copied, it becomes context and is no longer an innovation. to free up resources for strategic endeavors that lead to
At that point, the organization must refocus on improving the differentiation.
efficiency and productivity of the context.
Examples of business practices that can enhance differentiation
or improve productivity for an organization include the
Core Context
Focus on Differentiation Focus on Productivity following:
Innovation Standardization • Implementing mass customization with geographically
Mission-
dispersed contract manufacturers and suppliers to reduce
Consolidate
Critical cycle times, rework, and inventory costs in the automotive
Activities
Compose or high-tech industry
Out-Task
• Extending an existing quotation management process to exter-
Insource
Scale
nal suppliers to encourage more efficiency and responsiveness
within the contract manufacturing process
Enabling
• Improving new hire, employee transfer, termination, and
Activities Invent Retire other workforce management events to automate the
Invention Commoditization
exchange of information with third parties in accordance
Courtesy of Geoffrey Moore’s Living on the Fault Line
with local and global policies
Figure 1: Business-Process Innovation – Core and Context
• Centralizing common operations as a shared service to enforce
global policies and leverage economies of scale
• Outsourcing payroll and human capital management to
third-party agencies
5

6. THE ISSUES
Given the complexity and nature of IT in many enterprises, these applications. Similarly, developing innovative processes from the
operational strategies are difficult to implement. Traditionally, context into the core is equally challenging and expensive,
organizations develop custom applications from scratch and use because IT must determine the best way to leverage existing
various platforms, but then find that they lack the flexibility to investments. And business-process outsourcing is difficult and
accommodate change. Moving from core to context to consoli- expensive, because it requires organizations to manage the
date common IT practices, for example, is difficult and expensive. performance of the third-party vendors on service-level
To make the move, enterprises must analyze their IT landscape agreements, but monitoring and enforcing such new policies
to determine which assets to replace, upgrade, or make obsolete; would require new integrations with third-party systems that
acquire new skills; and support integration with new reside beyond existing boundaries.
Core Context Core Context
Custom Development Packaged Applications Custom Development Packaged Applications
on a Tech Platform on a Tech Platform
Innovation Standardization Innovation Standardization
Consolidation Innovation
is extremely can’t easily
difficult: leverage existing
• New platform investments.
• New skills
• New integration
• Time
• ...
Invention Commoditization Invention Commoditization
Core Context
Custom Development Packaged Applications
on a Tech Platform
Innovation Standardization
Outsourcing is
challenging:
• New process
extensions
• Data on different
systems
• Governance
• ...
Invention
Commoditization
Figure 2: Business-Process Innovation Hampered by IT

7. Why Consolidation Is Difficult Why Innovation Is Difficult
In many enterprises, consolidating common business and IT To achieve innovation, organizations often attempt to build
functions is difficult and costly for several reasons. For instance, upon existing IT investments. However, a number of issues
applications are often implemented independently to address impede their efforts. For instance, some organizations use enter-
specific needs at a given time. This approach creates islands of prise application integration (EAI) tools to integrate independent
automation that comprise different technologies and proprietary applications to support new or reengineered business processes.
code that are too complex to integrate, that are too costly to This approach relies upon proprietary interfaces to hardwire dif-
adapt to changing business requirements, and that make it diffi- ferent applications. Although EAI tools have been used success-
cult to share critical business information. With evolving business fully for such linkage, they require employees with specialized
conditions – such as mergers and acquisitions, company spin- skills who understand the inner workings of the systems on both
offs, and reorganizations – fragmented information, inconsistent sides to create tightly coupled integration. In addition, skilled
user interfaces, additional pockets of automation, and redundant employees are also needed to maintain the integration over the
systems not easily used by other business units only complicate useful life of the applications. But the costs of up-front develop-
the IT landscape further. ment and ongoing maintenance and efforts involved in integra-
tion can be avoided.
Consider the example of an enterprise that has grown through
acquisitions and now consists of a few independently operated Consider a second example of the difficulty of process inno-
HCM, financial, procurement, and IT groups, each with its own vation. In many organizations, the need to reference structured
system to support local needs. Any policy changes required at the (or online) data and unstructured (or offline) data is not only
global level – such as IT security policies, privacy laws, or desirable to increase efficiency, but also mandatory to satisfy
contractual pricing – must be enforced separately at the local regulatory requirements. This situation is especially true in the
level. public sector, where agencies rely on traditional paper forms to
conduct business with smaller companies that might not have
The question? How can organizations in such a situation act online access. Because traditional systems do not fully address the
effectively to comply with global and local regulations? The end-to-end process, the agencies create a wealth of offline data
answer? Not easily. Many organizations look for better ways to through administrative paperwork, e-mail, faxes, mail, and other
centralize common functions as shared services, rid themselves methods of offline communication. The staff must then spend
of redundancy, increase their operating efficiency, and enable non-value-added time sorting the offline information and tying
reuse of their existing investments. Unfortunately, the growing it back to, or reentering the data into, appropriate systems for
complexity of the organization’s IT landscape often hampers compliance purposes. To innovate this process and ensure com-
these laudable goals. pliance with federal regulations, agencies must invest in IT staff
to develop the custom integration necessary for data exchange
and in a team of contract administrators to govern the end-to-
end process.
7

8. Why Outsourcing Is Difficult
Outsourcing is often difficult, because organizational boundaries Why the Complexity of IT Systems Hinders
constrain an organization’s systems and applications, neither of
Excellence and Innovation
which was designed to be interoperable with external systems. To
accommodate outsourcing, organizations often build proprietary • Impedes the ability of organizations to respond
integration between internal and external systems, which to business change
increases the cost of ongoing maintenance and adds complexity
to the IT environment. In addition, changes to the internal or
• Requires additional investments to unite
scattered or hidden information
external systems cause a wave of updates to development, testing,
and documentation. For example, if an organization wishes to • Increases the costs of building and maintaining
outsource its payroll information, it must extend its time and integration
attendance processes in HCM to a third party. But doing so is • Requires custom integration by personnel with
difficult, because success here relies upon the ability of multiple
scarce and expensive skills
systems with different functionalities, underlying logic, and rules
to work well with each other. • Forces employees to work with multiple systems
to accomplish tasks
Consider logistics outsourcing as another example. Extending an
organization’s inventory management system to a third-party
warehouse inventory system requires proprietary integration and
specialized skills unless the systems are built upon open stan-
dards and communication protocols. Subsequent changes to the
tightly coupled systems drive up the costs of maintenance.
8

9. THE SOLUTION TO BECOMING
AN ADAPTIVE ENTERPRISE
The need to respond rapidly to business demands, support new Furthermore, although Web services are suitable for promoting
strategies, and improve the overall user experience is driving syntax and protocol-level communications, they do not yet pro-
IT organizations to search for new ways to improve IT at a lower vide a way to ensure semantic interoperability. For example, the
cost. IT organizations can overcome these challenges by adopting way a customer is defined in a product from Siebel Systems dif-
SOA. In general terms, SOA is a technical framework for building fers from the way it is defined in a solution from SAP. Organi-
software applications that use services available from a network zations need a way to resolve the data and process disparities
like the Web. Applications in SOA are designed to use Web between different Web services and to translate syntax and
services as the standard means to communicate well-defined communications into business constructs that can be reused
information with an array of other applications. across different situations. The notion of enterprise services does
exactly that through the “semantic leveling” and “right sizing”
Enterprise services architecture, as defined by SAP, is a business- of individual Web services. For example, an enterprise service can
driven approach to SOA that expands the concept of Web services encapsulate incompatible and individual Web services that span
into an architecture that supports enterprise-wide, service- the Siebel and SAP® systems into a common business concept
enabled business architecture. However, SOA and ESA are not such as “retrieve customer information.” Various enterprise serv-
one and the same. The difference between an SOA and an ESA ices can then be assembled to form a composite application.
comes from service enabling the most common business process-
es, such as procure to pay, order to cash, and hire to retire. Composite applications enable the orchestration of new business
Although SOA can be seen as a more technical concept, ESA can processes that leverage enterprise services from existing applica-
be thought of as the blueprint that enables flexibility, openness, tions in ESA. Whether a composite application is designed for
and agility, which are critical elements for success in an adaptive internal or partner use, it shows how any company can address
enterprise. Simply put: ESA is a blueprint for a business-oriented new business needs and extend its existing processes by using
approach to SOA. existing systems and applications based upon ESA.
9

10. EMBRACING INNOVATION AND
ACHIEVING OPERATIONAL EXCELLENCE
ERP solutions that adopt a services-oriented approach enable In a centralized scenario, a self-service portal for employees is
organizations to achieve competitive differentiation by allowing introduced globally to allow employees to perform simple HCM
them to implement a variety of IT and business strategies, includ- tasks or use an online employee handbook and other knowledge
ing business and IT consolidation, business-process innovation, tools. The portal serves as an automated first line of support. The
and business-process outsourcing. This section illustrates the HCM department is readily accessible if the employee needs assis-
value of an ERP system built upon ESA for helping organizations tance with the task at hand or with using the portal. This new
implement a number of processes under the following strategies: approach liberates the local HCM representative from a signifi-
cant number of routine administrative tasks to focus on more
Strategies Used to Achieve Competitive Differentiation strategic initiatives that can further improve employee satisfac-
tion and reduce operating costs.
Strategy Examples
• Business and IT consolidation • Consolidating HCM as shared services Existing Employee On-Boarding Process
Deployment of the employee self-service portal requires extensive
• Business-process innovation or • Extending the quotation process to
reengineering more suppliers proprietary integration with back-end systems. For example, to
• Reengineering the employee register an employee home address change, the update must
on-boarding process
• Reengineering the procure-to-pay need to be reflected across multiple systems, as shown in the fol-
process lowing table.
• Integrating desktop productivity tools
Information Used by Multiple Systems
• Business-process outsourcing • Outsourcing logistics operations
Type of Information System Involved
Employee master information ERP system
Business and IT Consolidation
By consolidating business processes, organizations can reduce Travel profile Third-party travel system
redundancy and increase cost savings. Organizations avoid the 401(k) Third-party financial services system
complexity and costs of a fragmented, heterogeneous environ-
Employee stock purchase plan Third-party investment system
ment by consolidating redundant applications and systems into
a single technology platform based upon ESA. American Express card Third-party credit and banking system
Payroll ERP system and third-party payroll
Example: Consolidating HCM as Shared Services processing
Consider the example of centralizing HCM functions for all Tax services Third-party tax services
employees. In a distributed scenario, local HCM teams are on-site
to address specific issues and administrative tasks. The tasks
might be as simple as executing an address change, enrolling
in a 401(k) plan, or managing direct payroll deposits. But the
tasks might also be as complex as managing benefits planning
through different providers using different systems on several
continents.
10

11. Integration of an HCM solution without ESA requires the design, and external systems – including homegrown, third-party,
testing, deployment, and documentation of a multitude of cus- and legacy systems – are in place to help address ERP, customer
tom proprietary interfaces. Changes to a given interface result in relationship management (CRM), supplier relationship manage-
yet another wave of development, testing, and documentation. ment (SRM), HR, supply chain management (SCM), and
In time, this task becomes insupportable, because it is overly financials.
complex, cost prohibitive, and highly inefficient.
The process starts with the receipt of a request for quotation
Enhanced Employee On-Boarding Process (RFQ) from the end customer. The account manager enters the
An HCM solution built upon ESA can use enterprise services information into the CRM system and then assesses the opportu-
to exchange employee data securely and reliably with multiple nity. The internal team is notified of the opportunity and assem-
systems. For example, when an employee submits a home address bles pricing and material information from multiple internal
change through the self-service employee portal, the appropriate and external sources. Depending upon the sourcing needs, the
change home address service is invoked to communicate real-time internal team might produce an RFQ to source more competitive
information to third-party systems. Several systems can use the quotations from suppliers. This situation can occur when insuf-
enterprise services developed upon open standards–based inter- ficient manufacturing capacity exists or when more competitive
faces in the enterprise services repository. This flexibility reduces prices can be obtained.
the time, effort, and cost required to build and maintain tightly
coupled integration. Existing Quotation Management Process
The contract manufacturer relies upon its internal team as
Business-Process Innovation human integrators to bridge the flow of information manually
By reengineering existing processes and by composing and exten- between multiple systems and parties. The extended quotation
ding new applications, organizations can enable new business management process requires extensive offline communication,
processes. Doing so is difficult without ESA, because innovation paperwork processing, data reentry, and other administrative
or changing existing business processes would require the IT tasks, all of which result in poor process governance and frag-
organization to understand the inner workings of the underlying mented data. The process is clearly ineffective, reactive, unre-
applications. With ESA, IT organizations can compose appli- liable, time-consuming, and difficult to manage for all parties
cations that leverage existing IT investments and accelerate involved. Changes to the original RFQ require a wave of updates
the rate of change while eliminating the need for proprietary to the existing applications, which compromises responsiveness
integration. and data accuracy. The contract manufacturer can automate the
process through hardwired integration between its internal ERP
Example: Extending the Quotation Process systems and the supplier’s systems, but this approach is complex
to More Suppliers and difficult – especially considering the vast number of suppliers
Consider the example of a contract manufacturer that must and proprietary systems with which the manufacturer might
extend the quotation management process to external suppliers have to connect. And even worse, this type of integration increas-
to improve efficiency and responsiveness. Today, the process es the total cost of ownership by making the IT landscape more
spans the line of organizational silos – the end customer, the and more complex.
internal team, and the external suppliers. Numerous internal
11

12. Enhanced Quotation Management Process 7. Initiate facilities request for office, phone, furniture, and
Using enterprise services, ERP systems can exchange business- wiring to support TCP/IP (automated)
critical information between different systems, including SRM 8. Provision services, including facilities, IT procurement,
and third-party CRM systems, and even with other ERP systems. office space, and so on (automated)
Examples of enterprise services include purchase order and con- 9. Schedule new-hire orientation (hiring manager)
tract status tracking, costing updates, sourcing, vendor quotes 10. Enroll in benefits, submit W-4 forms, and so on (employee
status tracking, and PO creation. through third party)
The new approach enables different systems to communicate With the composite application, activities can be automated and
using a common language and reduces the need for data reentry information can be exchanged in real time. Furthermore, the
and offline communication. For example, the document con- composite application provides a consistent look and feel that
troller receives supplier quotation information through vendor makes it simpler for employees to access the enterprise services of
quotes developed specifically for a third-party CRM solution. the ERP system and other systems.
Information is then automatically communicated to the manu-
facturer’s system with enterprise services. Example: Reengineering the Procure-to-Pay Process
Consider the example of a federal agency in the United States
Example: Reengineering the Employee that acquires goods and services from suppliers. Today, federal
On-Boarding Process agencies are mandated to use standard forms to conform to Fed-
Consider the employee on-boarding process that affects personnel eral Acquisitions Regulations (FAR). Depending upon certain
in a number of departments, including the hiring manager, criteria, such as acquisition value and type, specific contractual
human resources and facilities employees, IT administrators, and provisional clauses must be presented on any forms sub-
and so on. mitted to suppliers and contractors for bidding. (Agencies still
rely upon standard forms to accommodate suppliers and
With ESA, organizations can compose new business processes by contractors who might not have online or Internet access.)
orchestrating and rearranging existing enterprise services into a
composite application that automates the new-hire process as With ESA, agencies can submit standard forms as Adobe PDF
follows: files to suppliers and contractors (see Figure 3). Suppliers and
1. Initiate new-hire request (hiring manager) contractors can print a form and fill it out offline, or enter
2. Approve request (approver) the information directly into the PDF file and submit it.
3. Generate offer letter and employee contract (automated)
4. Accept or reject offer (candidate) Using enterprise services, the unstructured data in the PDF
5. Initiate service request to provision users on IT systems document is easily transported to ERP systems and stored as
(automated) structured data. The benefit of this approach is that agencies can
6. Initiate purchase request to acquire new laptop and other reuse existing online and offline forms to comply with federal
supplies (automated) requirements. At the same time, the competitive bidding process
is simplified for contractors and suppliers.
12

13. real-time information between a desktop tool and a financials
system in the context of managing appointments with
Microsoft Outlook.
Time Recording Plan Execute Control
Schedule Assign Submit and
Appointment Project Charge Time
Figure 3: Sample RFQ in Adobe PDF Format
Example: Integrating Desktop Productivity Tools
with ERP Applications ESA Integration
Time and attendance management offers a prime example of the • Real-Time Access and Updates
from Desktop Tools to ERP
need for a services-oriented approach. To manage time and • Data Integrity
• Corporate Governance
attendance, employees must record their activities in HCM and • Real-Time Insight
financials systems and maintain the same information using
desktop tools such as Microsoft Outlook and Microsoft Project. Figure 4: Enhanced Time Management Process
An abundance of information that, for compliance and control
purposes, is scattered throughout the universe of available Business-Process Outsourcing
systems and is unnecessarily difficult to track further complicates By outsourcing context activities, organizations enable their
the process. IT and business employees to focus on the next differentiating
practice and still ensure proper governance of service levels.
Using enterprise services, time and attendance information is Organizations can use enterprise services based upon open
automatically exchanged between third-party desktop tools, standards to communicate and exchange information between
HCM systems, and financials systems, thus saving employees time internal and third-party systems rather than building pro-
and effort and greatly improving the accuracy of reporting. Figure prietary, costly integration with third-party systems. Because
4 illustrates how employees can improve productivity while multiple systems can reuse enterprise services, this approach
meeting corporate compliance requirements by exchanging significantly reduces IT complexity.
13

14. Example: Outsourcing Logistics Operations The outsourcing initiative requires interoperability of the com-
Consider the outsourcing of logistics management for a global pany’s internal ERP and legacy systems with the homegrown,
high-tech original equipment manufacturer. The company has sophisticated transportation and warehouse management tools
manufacturing plants, logistics centers, and third-party ware- of the third-party provider. Without proper ESA, the company
houses located across Europe, the Middle East, Africa, the Asia- will be forced to build and maintain custom, proprietary inter-
Pacific region, and North America. Each location has varying faces between its ERP system and all third parties to exchange
inventory levels of finished goods, from 0 to over 120 days of product, bill-of-material, order, inventory availability, pricing,
supply, to meet service-level agreements (SLAs) with customers. and customer information. The interfaces are required to ensure
that the third-party provider can share real-time information at
A key objective for the company is to reduce the finished goods any time on shipments, including those in transit and held up at
inventory across its distribution centers and warehouses. How- customs, such as details on expected delivery dates, damaged
ever, the staff is consumed by the day-to-day activities of tactical shipments, inventory at distribution centers, and so on.
logistics and warehouse management related to global ship-
ments, such as working with logistics carriers, custom agents, Now, suppose the company decides to establish a new process to
and third-party warehouse providers. monitor and enforce SLAs with the third-party logistics provider.
Because of the existing complexity of IT and the inflexibility
As a result, the manufacturer decides to outsource its logistics of the tightly coupled systems, the organizations will face chal-
and warehouse operations to a third-party provider with special- lenges in decomposing existing functionality and composing
ized expertise in multimodal transportation and planning, con- a new application that can span business and IT boundaries.
tract negotiation, competitive pricing, insurance management,
Platform For Packaged Business Processes
import and export, taxation, warehouse management, and so on.
These activities are clearly mission critical for the business, but Flexible Packaged Business Applications
the company recognizes that it does not have the core com- Custom and SAP® xApps™ mySAP™
Composite Applications Powered by
petency in-house to differentiate itself. Powered by SAP NetWeaver
SAP NetWeaver®
Innovation Standardization to Pay
Procure
Existing Logistics Outsourcing Process
The company uses an ERP system for sales and distribution Mission- Order to Cash
Critical
and materials management, legacy systems for HR and CRM, Activities
Manufacture to Inventory
and third-party solutions for warehouse management. The IT
Enterprise
environment is complicated by a myriad of unique business Services
processes and proprietary, tightly coupled integrations. Commoditization
Enabling
Activities Enterprise SAP NetWeaver
Services
Repository
Invention
Custom
CRM
SCM
SRM
PLM
ERP
Figure 5: IT Landscape Before Logistics Outsourcing
14

15. Enhanced Logistics Outsourcing Process What’s more, enterprise services enable organizations to compose
In ESA, ERP, HCM, financials, and operations software can use and fine-tune business processes more easily. In the case of build-
enterprise services to communicate and exchange information ing a process that governs an SLA across company boundaries,
with the external systems of the third-party logistics provider. the use of enterprise services can ensure that business-critical
Both parties can leverage their existing IT systems and publish information is exchanged in real time between the third-party
enterprise services that can be found and invoked over a network. provider and the manufacturer. For example, the manufacturer
Some of the services might include product details, pricing, can monitor the actual service levels of deliveries from order
inventory availability checks, delivery status checks, purchase receipt (in the ERP system), to shipment in transit (in the third-
order details, purchase order changes, partial shipments, and party system), and ultimately to shipment delivered (in the third-
bill-of-lading details. party system), even though the process spans different systems.
Platform For Custom Business Processes
Compose Differentiating Processes . . . by Leveraging Packaged Solutions
Custom and SAP® xApps™ mySAP™
Composite Applications Powered by
Powered by SAP NetWeaver
SAP NetWeaver®
Innovation Source
Standardization Procure Procure
Mission- to Pay
Critical
Order Ship Order
Activities
to Cash
Order to Cash (with Logistics Outsourcing) Plan Manufacture Inventory Manufacture
to Inventory
Enterprise
Services
Commoditization
SAP NetWeaver
Enterprise
Services
Invention Repository
Tracking
Custom
Mgmt.
house
Trans-
Ware-
Third-
Third-
tation
CRM
SCM
Party
Party
SRM
PLM
ERP
por-
Figure 6: IT Landscape Enabling Logistics Outsourcing
15

16. UNLOCKING THE POTENTIAL OF ESA
To address the business context in communication between SAP NetWeaver also enables delivery of role-based user interfaces
applications, SAP elevates Web services to enterprise services through an enterprise portal that allows organizations to struc-
through its Enterprise Services Architecture Adoption Program, ture business processes and deliver relevant financial, operational,
which helps companies develop a blueprint for their ESA. HCM, and other business information tailored to a specific role.
Through the program, organizations can expand the concept This approach improves user productivity and provides a more
of Web services into an architecture that supports an enterprise- consistent user experience. With SAP NetWeaver, organizations
wide, service-enabled business architecture. can provide their users with access to structured and unstruc-
tured information scattered throughout an enterprise, including
The mySAP™ ERP solution, the mySAP Business Suite family of information stored in SAP and third-party systems, databases,
business solutions, and many partner solutions are powered by data warehouses, desktop documents, and Web content.
the SAP NetWeaver® platform – the open integration and appli-
cation platform that provides the best way to integrate all Rather than establishing, managing, and maintaining a myriad of
systems running SAP or non-SAP software. SAP NetWeaver IT systems, organizations can cut costs and reduce IT complexity
unifies integration technologies into a single platform and is by consolidating their infrastructure. SAP intends to develop SAP
preintegrated with business applications, enabling change and NetWeaver into a business-process platform, or “applistructure,”
reducing the need for custom integration. SAP NetWeaver that helps organizations merge enterprise applications with infra-
enables customers, partners, and SAP to unlock the potential structure technology. This approach allows business analysts to
of ESA. Based upon open standards like Web services, Java, and compose applications by assembling enterprise services from the
XML, SAP NetWeaver unites information and functionality enterprise services repository, a central repository for modeling
from SAP applications and offers them as enterprise services for enterprise services and storing metadata as defined by customers,
communication with SAP, third-party, and legacy systems. SAP, and partners. SAP plans to make the repository an integral
part of both SAP NetWeaver and mySAP ERP as they evolve to
Traditionally, organizations have had two options when it comes enable an ESA. Figure 7 illustrates the different components en-
to IT infrastructure: build or buy. With ESA, organizations have abling the evolution of mySAP ERP and mySAP Business Suite
a third choice: compose. Organizations that leverage ESA can to ESA.
develop applications more quickly and with less effort to support
next or evolving business practices. Portal Devices Office RFID
Organizations with an ESA can use the SAP NetWeaver Visual
Composer tool to compose applications. In the past, teams of Composite Applications
business analysts and application developers have translated busi-
ness requirements into detailed, procedural logic. With ESA, the
language of business becomes the language of IT. Enterprise serv- Enterprise
Services SAP NetWeaver®
ices within mySAP ERP are defined with simplicity and at a gran- Repository
ularity that allows business analysts to understand them easily.
Thus, business analysts can leverage the appropriate enterprise
mySAP™
services for composite applications that support new business Existing Systems
scenarios.
Figure 7: mySAP ERP in ESA
16

17. mySAP ERP AND ESA: ALIGNING IT AND BUSINESS
TO ACHIEVE OPERATIONAL EXCELLENCE
The following table illustrates the difference between pursuing
business strategies using a traditional IT environment and doing
so with an ESA in place.
Adopting ESA Enables Operational Excellence
Business Strategy ERP Examples Traditional IT Environment With Enterprise Services Architecture
in Place
Consolidate common ERP and legacy Accounting Different applications might have differ- Enterprise services can be used by
systems to provide shared services and • Time and expense management ent technology platforms and proprietary multiple applications, so consolidation
reduce total cost of ownership • Credit and debt analysis interfaces – difficult and complex. will be more efficient and effective.
• Collections
• Invoicing
• Accounts payable
• Billing dispute resolution
Self-services
• Employee interaction center for
centralized management of IT and HR
Compose applications to support unique HCM Custom-built applications with Enterprise services are modular and can
business needs • Employee on-boarding proprietary code are not designed for be easily rearranged to support composite
reuse by other systems. applications.
Extend existing applications to drive Supply management and procurement Special skills and proprietary interfaces Enterprise services are modular and can
further operating efficiency beyond • Procurement are required to integrate multiple be orchestrated to enable other business
existing boundaries • Logistics management systems, meaning higher costs and effort. processes by other systems.
• Warehouse management Changes would also drive total cost of
ownership higher as a result of additional
coding, testing, documentation, and
training.
Outsource core business processes and Human capital management Core business processes are difficult to Business-process outsourcing is simplified
their IT systems • Payroll outsource because the underlying IT because enterprise services are modular
• Benefits enrollment systems are tightly integrated. and loosely coupled and can be more
• Benefits management easily out-tasked without affecting the
• Training rest of the IT landscape.
Supply management and procurement
• Procurement
• Logistics management
• Warehouse management
Demand management
• Call center operations
• Analytics
17

18. WHAT’S NEXT?
To demonstrate its continued leadership in helping customers
In 2005, SAP announced its ESA preview system with more than move toward SOA and build upon its commitment to provide
500 live enterprise services. Developed and deployed on the the partner community with a development platform, SAP’s road
latest version of mySAP ERP, the preview system offers partners, map for ESA includes the following milestones:
developers, and customers an opportunity to test the enterprise • SAP plans to publish an inventory of its enterprise services that
services, and more importantly, to influence the definition and customers and partners can use for planning. Customers’ and
development of service-enabled solutions that help enterprises partners’ composite applications and longer-term planning can
run business-critical processes more efficiently. leverage the list. Additional service-enabled functionality will
be made available, focusing on business-process flexibility and
The following are just a few examples of the ways that the enter- anticipating the needs of new composite applications.
prise services can be used: • In 2006, SAP intends to create an enterprise services repository
• A third-party provider of tendering software uses enterprise based upon the next release of SAP NetWeaver. The purpose is
services to extend the purchasing functionality in mySAP ERP to make all relevant enterprise services actively available from
to address the public sector’s unique regulatory requirements. the repository for use by selected partners and customers.
Enterprise services from mySAP ERP help the company verify
budget availability before the release and publication of RFQs.
Once the award is determined and the tendering process
between the customer and supplier is complete, the company
uses enterprise services to generate purchase order information
and pass the information to mySAP ERP for invoicing and pay-
ment processing.
• Using enterprise services, another third-party software and
services company integrates its time and attendance tracking
application with the mySAP ERP Human Capital Management
solution some 90% faster than it could with traditional methods.
Enterprise services enablement of mySAP ERP allows the
vendor to provide its customers with comprehensive and
real-time insight into time and attendance status in a fraction
of the time it would have taken otherwise.
• A large infrastructure management software company is work-
ing to extend its asset management and infrastructure moni-
toring systems into the purchasing functions available in the
mySAP ERP Operations solution. Traditionally, these systems
have been implemented independently, without integration
with SAP systems. ESA will enable the company to use enter-
prise services from SAP to exchange asset details, pricing, and
contract terms and conditions from the purchasing functions
to its asset management systems. The company also plans to
trigger an event from its infrastructure management tool to
automate the procurement process in the purchasing module.
18

19. CONCLUSION FOR MORE INFORMATION
Today, enterprises are burdened by complex IT landscapes that For more information about how ESA can help your organiza-
drive up the cost of innovation and slow down the pace of tion deliver operational excellence and realize new levels of
change. With rapidly shifting business conditions – such as innovation, please contact your account executive or visit us
mergers and acquisitions, business consolidations, new business on the Web at www.sap.com/erp,
ventures, new partnerships, and changing market dynamics – www.sap.com/solutions/esa/index.epx, or
enterprises must find a better way to effect change and employ www.sap.com/contactsap.
innovation.
There is a better way. The market is recognizing the value and
potential of SOA – a new approach to help organizations make
their IT operations leaner, more responsive, and more easily
adaptive to enterprise solutions. SAP is among the first to recog-
nize this vision and is leading the market with an ESA vision to
support the next generation of ERP innovation.
mySAP ERP, powered by SAP NetWeaver, is evolving into an
ESA with a new repository of enterprise services developed upon
open standards for exchanging information with a variety of sys-
tems, such as ERP, HCM, SRM, CRM, and SCM. The evolution
will enable customers and their trading partners to seek greater
efficiency and differentiation as they become empowered to
implement new business strategies with less IT complexity, lower
total cost of ownership, and increased agility.
With ESA, mySAP ERP enables organizations to increase effi-
ciency and growth by doing the following:
• Extending existing processes across new business boundaries
• Consolidating business and IT to leverage economies of scale
and eliminate redundancy
• Innovating existing business processes by developing composite
applications that leverage existing investments
• Replacing custom programming with model-driven
composition of applications
• Delivering flexible and highly productive user interfaces
• Simplifying the IT landscape and reducing the costs and effort
associated with integrating internal and external applications
Organizations of all sizes around the world now have the choice,
flexibility, and freedom to evolve into adaptive enterprises
using an enterprise services approach that keeps them open to
innovation and responsive to change.
19

20. www.sap.com /contactsap
50 077 977 (06/02)