Clean Core ERP Strategy: Accelerating the Adoption of Innovation

Summary

In a recent discussion, Laura Marwood and Paul Saunders, both product strategists at SAP, delve into the concept of 'clean core' within ERP systems. The idea, which has been around since the inception of ERP, focuses on identifying and standardizing non-differentiating business processes to enhance flexibility and agility. With global disruptions prompting businesses to adapt quickly, clean core is being revived as a strategy to simplify operations and focus on unique differentiations. Proper governance and a mindset aligned with change management are crucial to successfully implementing clean core, ensuring that standard processes are optimized while innovations flourish.

Highlights

• Clean core aims to standardize and optimize non-differentiating business processes for efficiency. 🌟
• Global disruptions like pandemics and wars have highlighted the need for agility and flexibility in business operations. 🌍
• A strong governance structure is vital to implement clean core effectively and avoid internal politics. 🏛️
• Businesses should focus on their unique differentiators rather than copying competitors. 🎨
• SAP's Business Technology Platform (BTP) aids in integrating various processes for seamless operation. 🔗

Key Takeaways

• Understand what clean core means—standardize non-differentiating processes while innovating externally! 🧹
• Embrace flexibility and agility to combat today's global business disruptions like pandemics and inflation. 🎯
• Governance is key! Align your team with proper structure and mindset to avoid political pitfalls. 🔑
• Focus on what makes you unique to succeed; don't just imitate others! 🎸
• Utilize SAP's tools for best practices and optimization in your core operations. 🚀

Overview

Clean core has been a foundational goal since the early days of ERP, focusing on standardizing non-differentiating processes. The idea is to optimize these processes by taking them 'out of the box', infusing them with AI, and keeping them efficient. This way, businesses can focus their resources on what truly differentiates them from competitors.

The recent revival of clean core comes amid numerous global disruptions—pandemics, climate change, and geopolitical tensions that demand increased business agility and flexibility. Companies realize that agility stems from simplicity rather than complexity, making clean core an attractive strategy for modern business environments.

A successful clean core implementation hinges on robust governance and a clear understanding of one's business differentiators. It requires a commitment to change management and a willingness to question internal politics, starting from a why-focused mindset that prioritizes unique value propositions over mimicry of other companies. SAP's BTP is invaluable in bringing together disparate business capabilities into a coherent operational framework.

Chapters

• 00:00 - 01:30: Introduction and Understanding Clean Core (00:00 - 01:30) In the introduction of the Clean Core concept, Laura Marwood, a Product Strategist for Cloud ERP, introduces the topic and greets Paul Saunders, an ERP Evangelist and Product Strategist at SAP. They briefly exchange pleasantries before delving into the topic of Clean Core.
• 01:31 - 03:00: The Necessity of Clean Core Amidst Global Disruptions (01:31 - 03:00) This chapter begins with a fundamental question about 'clean core' within ERP systems. Paul explains that 'clean core' has been a longstanding objective in ERP since its inception. It challenges the common belief held by businesses that they are too unique to adopt standard processes. Contrary to these beliefs, the goal of 'clean core' within ERP is to streamline processes by emphasizing commonalities among businesses, suggesting that all businesses are more similar than they realize in their operations.
• 03:01 - 04:00: Differentiating Processes in Similar Industries (03:01 - 04:00) The chapter discusses how many business processes and capabilities are fundamentally similar across different industries, regardless of factors such as geography and company size. It emphasizes that while companies must execute these processes efficiently (like paying taxes and managing accounts), these are not the factors that differentiate one company from another in the eyes of customers. The discussion suggests focusing on identifying and understanding non-differentiating business capabilities to maintain a clean and efficient core operation.
• 04:01 - 06:00: Governance and Mindset in Implementing Clean Core (04:01 - 06:00) The chapter explores the concept of 'clean core' in ERP, which is optimized and infused with AI for continuous improvement. The discussion includes why there's a revival in focus on clean core now, linking it to digital and business disruptions.
• 06:01 - 08:00: The Importance and Benefits of Clean Core (06:01 - 08:00) The importance of clean core (06:01 - 08:00) discusses how recent global crises, such as pandemics, wars, hyperinflation, energy crises, and climate changes, have highlighted the need for companies to become more flexible and agile. Achieving this flexibility and agility requires moving away from complex and brittle processes, pointing to the benefits of maintaining a clean core within organizations to better adapt to these challenges.
• 08:01 - 10:00: Differentiation and the Role of Technology (08:01 - 10:00) The chapter discusses the concept of a 'clean core' in organizational processes. It highlights the idea that different types of organizations, such as budget and luxury airlines, while having the same basic function of transporting people, may execute this function differently based on their operational model. For example, a budget airline might offer extremely low fares, such as seven euros for a flight from Frankfurt to Budapest, illustrating its focus on cost efficiency.
• 10:01 - 10:30: Conclusion and Integration with BTP (10:01 - 10:30) The chapter discusses the business strategies of airlines, highlighting the different approaches of budget and luxury airlines. Budget airlines focus on efficiency, cost-cutting, and competitive pricing, while luxury airlines emphasize superior service. Despite being in the same industry, their priorities and methods of differentiation are distinct.

Clean Core ERP Strategy: Accelerating the Adoption of Innovation Transcription

• 00:00 - 00:30 (upbeat music plays) - Hi, I'm Laura Marwood, Product Strategist for Cloud ERP and today I'm joined once again by Paul Saunders, ERP Evangelist and Product Strategist at SAP. How are you today, Paul? - I'm very good, Laura. How are you? - I'm very well. - Good. - So today we're gonna be talking about clean core. - Yeah. - Now, maybe we could start
• 00:30 - 01:00 with a simple question. What exactly is clean core, Paul, in the simplest terms possible? - In the simplest terms possible, yeah. So clean core has been kind of one of the goals of ERP since ERP first began. And the idea is that there's... Every business across the world always thinks that they're very complicated and they can't do anything standard because they're very different from everybody else. And the answer is actually most businesses, in fact all businesses,
• 01:00 - 01:30 are 75, 80% exactly the same, a lot of business processes, business capabilities that any company has to do irrespective of industry, geography, size and so on. So, let's say that you and I started a company today we would still have to pay taxes, we would have to do accounts payable and accounts receivable and we wanna do these things really, really well but no customer is gonna come to us because of that. That's not what differentiates us. So the clean core is saying, look, let's identify the business capabilities that are non-differentiating.
• 01:30 - 02:00 Let's take them out of the box, so to speak. Let's optimize them. Let's infuse AI to kind of keep improving them but they're standard, and then we differentiate outside of that clean core. - Paul, you said that clean core has been one of the founding goals of ERP since ERP first began. So, what explains this revival? Why now for clean core? - We've talked about digital disruption and business disruption and everything as technologists for decades. And then all of these disruptions
• 02:00 - 02:30 came along at the same time, you know, so we've had pandemics and wars and hyperinflation and energy crisis and climate crisis and all of these things coming together. And companies through this have realized that they need to be able to be much more flexible and agile to be able to respond. The way that you get flexibility and agility is not by having a very complex, brittle set of processes and capabilities. So this is where a company says,
• 02:30 - 03:00 "How do we get this?" And the answer is clean core. - And just so we're clear, what kind of things are we talking about in the 80% category there? What are standard processes for most organizations? - So if you take an airline, and let's say you have a budget airline and then you have a luxury airline, they both have the same job, which is flying people from A to B. But a budget airline would be, let's say, you know, I can fly from Frankfurt to Budapest for seven euros.
• 03:00 - 03:30 And the luxury airline is we can fly you halfway around the world and it will be the nicest 11 hours you've spent in the air. They're very, very different. The one is gonna differentiate based on how fast they can turn the plane around, how low they can keep their costs, you know, what their pricing is. So, they can make sure that if somebody else comes in at six euros, they can be five euros and so on. The luxury airline is very, very different. They're gonna differentiate based on the service, what is it that they provide to everybody? Same industry, same end-to-end goal,
• 03:30 - 04:00 differentiated processes. - So how do you get alignment across the company and what is truly differentiating? - When you put in place a governance structure for clean core, politics goes around it. So let's say for example, you know, you say, "The the most important thing for us to focus on is we're going to have standard finance processes." But then the VP of Finance says, "Well actually, I'm the VP of Finance. I'm not going to do that." The VP of Finance goes to talk to the CEO.
• 04:00 - 04:30 Off the record, the CEO says, "Just let him or her do what they want." The whole governance structure then is rendered moot and it's pointless. So this is one of the first things that any company has to do is let's make sure if we're going to do this, then let's do it. And if we're not, then don't. But clean core is governance, it's mindset it's change management, it's change leadership, then it's technology. - Let's stay with this phrase clean core for a second.
• 04:30 - 05:00 - Yeah. - Now, we're all humans. None of us like being told to clean something up whether it's the bathroom, the car, the garage, you know, I think we're all. - Yes. - We're all inclined to maybe put that to the back of our priority list. So, why should customers care about this? Why should customers be making this top of mind? - Yeah, that's, I mean, clean core is, it's, I agree with you. It's kind of a tough one because it's, when you think about cleaning, it's normally something we do, something I do, if somebody's coming over, you know?
• 05:00 - 05:30 - Exactly. - It's like, oh, let me pretend that I live in this immaculately smart place that looks like it could be in Cosmo, which I don't, you know? But then after that, that's not something that I live, you know? - Yes. - You know? So then we do it again and we do it again. Clean core is very different from that. Clean core is saying we're not going to allow it to get messy. We're not going to allow it to get jumbled and complicated and so on. We're going to have this clean, Marie Kondo
• 05:30 - 06:00 kind of mindset of, you know, if we don't need to do it, then let's not do it. Let's make it as simple as possible. Let's make it as efficient as possible. It really is around getting the company not focused on let's clean up the stuff, but once we've done this and we've standardized on it then we can do the stuff that's really, really engaging for us. This is the stuff that's really interesting. This is the stuff that drives the company vision and mission. It can't just be, you know,
• 06:00 - 06:30 the neighbors are coming over. Let's pretend, you know? Push everything in under the carpet. - So what is the number-one pitfall that customers should be aware of? - I would say the number one is not starting with kind of why, of course, you know, why are we doing this and why, you know, does a company come? Why does a customer come to you? What differentiates you? So you wanna start with the differentiation. - Mm-hmm. - And not the standardized.
• 06:30 - 07:00 A lot of the companies, they start off and they say, you know, "Let me look at company A. If company A does this and company B does this and company C does this, if I do the same as them, therefore this." And to give you a silly analogy, when I was younger I wanted to be a rockstar. You know, I'd been playing guitar since I was a kid and so I thought, "Well, let me look at my guitar heroes." So I looked out and I said, "Okay, well, you know, here's Peter Green. He plays a Gibson Les Paul. It's like, and here's Jimmy Page.
• 07:00 - 07:30 He plays a Gibson Les Paul. Here's Gary Moore, he plays a Gibson Les Paul. If I buy a Gibson Les Paul, I will be just like them." Well, it's obviously a stupid thing. It doesn't make any sense, but this is what companies do all the time with ERP and with clean core. They say, "If I buy the same software and I do the same things, therefore I will get this." That's not what, the way to start. What you wanna be, I mean, the governance part is a bit like the music part. We've gotta agree on what key are we playing in, you know? We've gotta have a bit of talent, that's important.
• 07:30 - 08:00 You're not going to be in business at all if you don't have the talent but we've gotta, what key are we playing in? What time signature we playing in? Are we all agreeing we're gonna start at this point, we're gonna finish at this point? We're playing in the same style. That's kind of the governance piece around this. But the talent, the creativity and everything is on the 20%, the differentiation side. Once you've got this and said, so focus on the differentiation, what truly differentiates us? And it's gotta be, those are tough conversations because it can't be what do we do differently?
• 08:00 - 08:30 It's, what does a customer find differentiating about us that adds value? Everything else is clean core. And with the clean core, it's not like well, I'll just push that to one side, that's not important. It's massively important. That's where optimization comes in. This is where taking best practices from SAP where we've developed them across thousands and thousands of customers over, you know, decades to say: "This is the best way of doing this. This is where AI has a huge part to play.
• 08:30 - 09:00 This is where RPA has a huge part to play." We wanna be able to do this, and we wanna be able to do it well. But don't start with: Let me look at everybody else and see what they do. Start with why me? Why should a company come to me? What differentiates me? And everything that doesn't differentiate, clean core. - And tell us how BTP fits into this conversation. - This is the differentiator between a collection of applications and end-to-end, integrated, flexible processes.
• 09:00 - 09:30 If you think about it, that I'm an end customer. I don't care about finance and HR and CRM and all of these kind of things. I want a product or a service from you. - Mm-hmm. - In order to be able to deliver that product and service, the company needs to bring together finance and HR and, you know, purchasing and all of these kind of things. But as the customer needs change, they're going to need to adapt.
• 09:30 - 10:00 It's this flexibility and agility that we talked about, why clean core helps against this kind of fragility and kind of complexity of a very rigid way of working. As the customer demands change, the individual customer, you know, this kind of idea of a lot size of one sort of thing, then BTP is the conductor, the orchestrator, the integrator of all of these pieces. And so it can take the business capabilities from various parts of different systems in order to provide an outcome for the customer at the end.
• 10:00 - 10:30 - Sound advice as always, Paul. Thank you very much for joining us today. - Thank you, Laura. (upbeat music plays)