Minimising IT costs, streamlining processes and bringing together business units are just some of the reasons organisations want to standardise applications throughout their business. But many are doing it for the wrong reasons or where it doesn’t make sense, making it harder to succeed.
Application standardisation holds the promise of reducing the complexity of your IT environment by getting as many business groups to use the same application for the same task. It goes beyond simply rationalising or consolidating the applications to also standardising how those applications are used.
Standardisation isn’t an isolated IT project. It must be part of a broader business-led initiative to standardise business processes and data across a large enterprise with multiple business units. It can’t happen unless the business wants to standardise those processes.
Application leaders need to partner with business leaders to identify areas where application standardisation can help drive process standardisation. Without strong executive leadership, business units that are accustomed to controlling their own applications will put up a fight. They’d rather retain full control of their profit and loss (P&L), without relying on shared services or central IT for their success.
Business unit leaders need to be convinced and given incentives to do what is right for the overall enterprise. The change management issues are huge. Extra management effort is needed to overcome common excuses, such as: “we’re different,” “we have to do it that way due to government regulations,” or “our division/region/country has always delivered its P&L, so leave us alone.”
While application standardisation may result in IT cost savings, it’s rarely enough to justify the difficult change management required. Unless senior business leaders have the influence and will to establish the governance and hold everyone accountable, standardisation efforts will seldom succeed.
When it makes sense
Application standardisation is almost a requirement for a company to operate in a unified fashion globally. It allows information to be shared, processes to be distributed and common metrics to be applied across the organisation.
The CEO, COO and CFO may embark on a “one company” initiative to leverage the company’s people and assets more effectively and grow geographically. Application standardisation is used as a catalyst to force organisational and process change.
Executives usually have many reasons to take such an approach, ultimately seeking to exploit economies of scale and commonality among the business units. It might be to create a single face of the global customer, move from a national or regional to global business, or if they have many similar operations around the world, such as sales offices, factories, distribution centres and stores. It’s hard to compare performance if every region has different processes and metrics to run essentially the same type of business.
ERP is the most common example that Gartner sees of enterprises deciding to standardise on an application. If a $4 billion company has grown by acquisition, for example, it may be made up of 10 or more separate business units that each have their own systems. The CEO may decide that the business isn’t getting the economies of scale they expected from the acquisitions, launch an effort to be “one company” and get everyone on a common global ERP system.
You don’t have to standardise everything
Watch out for “foolish consistency.” The idea is to minimise process and application variation, not eliminate it. Most companies find they can standardise basic processes and support highly tuned variants for those that differentiate the company in each market.
Even the most diverse company doesn’t need different processes for common functions, such as finance, accounts payable, HR and indirect procurement. The applications can be standardised on a corporate, shared service application. Additional savings can be made by regionalising the functions in shared service centres.
Also consider market specific variants. The greatest need to have different processes comes in customer-facing areas. Companies try to use their customer service as a differentiator in the market. The order-to-cash process, for example, will be very different for selling directly to consumers, B2B or as a tier supplier in the automotive industry.
Don’t standardise if it doesn’t make sense
Standardisation isn’t for everyone. It only makes sense if you can take advantage of the commonality of customers, suppliers, materials, services and processes.
Sometimes a holding company approach is the right way to manage a portfolio of independent businesses. Other times, the company and its management aren’t ready or desperate enough for the cultural change required.
If process standardisation isn’t a corporate strategic objective driven by the CEO, then don’t bother. You’ll be pushing on a rope.
Also, don’t standardise if there isn’t any strategic goal or benefit. It isn’t worth doing it just for the IT benefits – it costs too much money, time and political capital. This adds risk to business execution and revenue.
Other reasons to avoid standardising include if you have divisions with very different value chains; strong cultural differences requiring different management styles; or different brand promises. And finally, it’s obviously not worth changing a unit that isn’t strategic and may be divested in the short term.
Bill Swanton is a distinguished VP analyst at Gartner. He covers application strategy and the business value of IT, including IT benefit realisation techniques used by Fortune 1000 companies to expand the value they receive from their application investments. He will be presenting at the Gartner Application Architecture, Development & Integration Summit in Sydney, 29-30 July.