Digital transformation goes beyond girding for COVID survival -- it enables an unyielding and renewable value differentiation capability

The next edition of the BriefingsDirect Voice of Innovation podcast series explores architecting businesses for managing ongoing disruption.

As enterprises move past crisis mode in response to the COVID-19 pandemic, they require a systemic capability to better manage shifting market trends.

Stay with us to examine how Hewlett Packard Enterprise (HPE) Pointnext Services advises organizations on using digital transformation to take advantage of new and emerging opportunities.

Listen to the podcast. See the video. Find it on iTunes. Read a full transcript or download a copy.

To share the Pointnext view on transforming businesses to effectively innovate in the new era of pervasive digital business, BriefingsDirect welcomes Craig Partridge, Senior Director Worldwide, Digital Advisory and Transformation Practice Lead, at HPE Pointnext Services.The discussion is moderated by Dana Gardner, Principal Analyst at Interarbor Solutions.

Here are some excerpts:

Gardner: Craig, how has the response to the pandemic accelerated the need for comprehensive digital transformation?

Partridge: We speak to a lot of customers around the world. And the one thing that we are picking up very commonly is a little bit counter-intuitive.

At the beginning of the pandemic -- in fact, at the beginning of any major disruption -- there is a sense that companies will put the brakes on and slow everything down. And that happened as we went through this initial period. Preserving cash and liquidity kicked in and a minimum viable operating model emerged. People were reluctant to invest.

Partridge

But as they now begin to see the shifting landscape in industries, we are beginning to see a recognition that those pivoting out of these disruptive moments the quickest -- with sustained, long-term viability built behind how they accelerate -- those organizations are the ones driving new experiences and new insights. They are pushing hard on the digital agenda. In other words, digitally active companies seem to be the ones pivoting quicker out of these disruptions -- and coming out stronger as well.

So although there was an initial pause as people pivoted to the new normal, we are seeing now acceleration of initiatives or projects, underpinned by technology, that are fundamentally about reshaping the customer experience. If you can do that through digital engagement models, you can continue to drive revenue and customer loyalty because you are executing those valued transactions through digital platforms.

Gardner: Has the pandemic and response made digital transformation more attractive? If you have to do more business digitally, if your consumers and your supply chain have become more digital, is this a larger opportunity?

Partridge: Yes, it’s not only more attractive – it’s more essential. That’s what we are learning.

A good example here in the UK, where I am based, is that big retailers have traditionally been deeply into the brick world experience of walking into a retail store or supermarket, those kinds of big, physical spaces. They figured out during this period of disruption that the only way to continue to drive revenue and take orders was on digital platforms. Well, guess what? Those digital platforms were only scaled and sized for a certain kind of demand, and that demand was based on a pre-pandemic normal.

This transformation is not just an attractive thing to do. For many organizations pivoting hard to digital engagement and digital revenue streams is their new normal. That's what they have to focus on -- not just to survive but for beyond that.

Now, they have to double or treble the capacity of their transactions across those digital platforms. They are having to increase massively their capability to not only buy online, but to get deliveries out to those customers as well.

So this transformation is not just an attractive thing to do. For many organizations pivoting hard to digital engagement and digital revenue streams is their new normal. That’s what they have to focus on -- and not just to survive but for beyond that. It’s the direction to their new normal as well.

Gardner: It certainly seems that the behavior patterns of consumers, as well as employees, have changed for the longer term when it comes to things like working at home, using virtual collaboration, bypassing movie theaters for online releases, virtual museums, and so forth.

For those organizations that now have to cater to those online issues and factor in the support of their employees online, it seems to me that this shift in user behavior has accelerated what was already under way. Do companies therefore need to pick up the pace of what they are doing for their own internal digital transformation, recognizing that the behaviors in the market have shifted so dramatically?

Safety first 

Partridge: Yes, in the past digital transformation focused on the customer experience, the digital engagement channel, and building out that experience. You can relate that in large parts to the shift toward e-commerce. But increasingly people are aware of the need to integrate information about the physical space as well. And if this pandemic taught us anything, it’s that they need to not only create great experiences – they must create safe, great experiences.

What does that mean? I need to understand about my physical space so I can augment my service offerings in a way that’s safe. We are looking at scenarios where using video recognition and artificial intelligence (AI) will begin to work out whether that space being used safely. Are there measurements we can put in place to protect people better? Are people keeping certain social distancing rules?

All of that is triggering the next wave of customer experience, which isn’t just the online digital platform and digital interactions, but -- as we get back out into the world and as we start to occupy those spaces again -- how do I use the insight about the physical space to augment that experience and make sure that we can emerge safer, better, and enjoy those digital experiences in a way that’s also physically safe.

Beyond just the digital transactions side, now it’s much more about starting to address the movement that was already long on the way -- the digitization of the physical world and how that plays into making these experiences more beneficial.

Gardner: So if the move to digitally transform your organization is an imperative, if those who did it earlier have an advantage, if those who haven’t done it want to do it more rapidly -- what holds organizations back? What is it about legacy IT architectures that are perhaps a handicap?

Pivoting from the cloud 

Partridge: It’s a great question because when I talk to customers about moving into the digital era, that triggers the question, “Well, what was there before this digital era?” And we might argue it was the cloud era that preceded it.

Now, don’t get me wrong. These aren’t sequential. I’m not saying that the cloud era is over and the digital era has replaced it. As you know, these are waves. And they rise on top of each other. But organizations that are able to go fast and accelerate on the digital agenda are often the same organizations.

The biggest constraint we see as organizations try to stress-test their digital age adoption is to see if they actually have agility in the back end. Are the systems set up to be able to scale on-demand as they start to pivot toward digital channels to engage their customers? Does a recalibration of the supply chain mean applications and data are placed in the right part of on- or off-premises cloud architecture supply chains?

The biggest constraint we see as organizations try to stress-test their digital age adoption is to see if they actually have agility in the back end. Are the systems set up to be able to scale on-demand as they pivot to digital channels to engage with their customers?

If you haven’t gone through a modernization agenda, if you haven’t tackled that core innovation issue, if you haven’t embraced cloud architectures, cloud-scale, and software-defined – and, increasingly, by the way, the shift to things like containerization, microservices, and decomposing big monolithic applications into manageable chunks that are application programming interface

(API)-connected -- if you haven’t gone through that cloud-enabled exploration prior to the digital era, well, it looks like you still have some work to do before you can get the gains that some of those other modern organizations are now able to express.

There’s another constraint, which is really key. For most of the customers we speak to, it tends to be in and around the operating model. In a lot of conversations that I have with customers, they over-invested in technology. They are on every cloud platform available. They are using every kind of digital technology to gain a level of competitive advantage.

Yet, at the heart of any organization are the people. It’s the culture of the people and the innovation of your people that really makes the difference. So, not least of all, the supply chain agility, right in the heart of this conversation. It is the fundamental operating model -- not just of IT, but the operating model of the entire organization.

So have they unticked their value chain? Have they looked at the key activities? Have they thought when they implement new technology, and how that might replace or augment activities? And what does that mean to the staff? Can you bring them with you, and have you empowered them? Have you re-skilled them along the way? Have you driven those cultural change programs to force that digital-first mindset, which is really the key to success in all of this?

Gardner: So many interdependencies, so much complexity, frankly, when we’re thinking about transacting across the external edge to cloud, to consumer, and to data center. And we’re talking about business processes that need to extend into new supply chains or new markets.

Given that complexity, tell us how to progress beyond understanding how difficult this all can be and to adopt proven ways that actually work.

Universal model has the edge 

Partridge: For everything that we’ve talked about, we have figured out that there is a universal model that organizations can use to methodologically go off into this space.

We found out that organizations are very quickly pivoting to exploring their digital edge. I think the digital agenda is an edge-in conversation. Again, I think that marks it out from the preceding cloud era, which was much more about core-out. That was get scale, efficiency, and cost optimization out of service delivery models in-place. But that was a very core-out conversation. When you think digital, you have to begin to think about the use case of where value is created or exchanged. And, that’s an edge-in conversation.

And we managed to find that there are two journeys behind that discussion. The first one is about deciding to whom you are looking to deliver that digital experience. So when you think about digital engagement, really caring passionately about who the beneficiary persona is behind that experience. You need to describe that person in terms of what’s their day-in-the-life. What pains do they face today? What gains could you develop that could deliver better outcomes for them? How can you walk in their shoes, and how do you describe that?

We found that is a key journey, typically led by kind of chief digital officer-type character who is responsible for driving new digital engagement with customers. If the persona is external to the customer, if it’s a revenue-generating persona, we might think of revenue as the essential key performance indicator (KPI). But you can apply similar techniques to drive internal personas’ productivity. So productivity becomes the KPI.

That journey is inspired by initiatives that are trying to use digital to connect to people in new, innovative, and differentiated ways. And you’ll find different stakeholders behind that journey.

And we found another journey, which is reshaping the edge. And that’s much more about using technology to digitize the physical world. So let’s hear about the experience, about business efficiency and effectiveness at the edge -- and using the insights of instrumenting and digitizing the physical world to give you a sense of how that space is being used. How is my manufacturing floor performing? The KPI is overall equipment effectiveness (OEE) in the manufacturing space and it becomes key. Behind this journey you’ll see big Industry 4.0-type and Internet of Things (IoT)-type of initiatives under way.

If organizations are able to stitch these two journeys together -- rather than treat them as siloed sandpits for innovation – and if they can connect them together, they tend to get compound benefits.

You asked about where the constraint comes in. As we said, it is about getting agility into the supply chain. And again, we’ve actually found that there are two connected journeys, but with very different stakeholders behind them, which drive that agenda.

We have a journey, too, that describes a core renovation agenda that will occupy 70 to 80 percent of every IT budget every year. It’s the constant need to challenge the price performance of legacy environments and constantly optimize and move the workloads and data into the right part of the supply chain for strategic advantage.

That is coupled with yet another journey, that of the cloud-enabled constraint and that’s very much developer-led more than it is led by IT. IT is typically holding the legacy footprint, the technical debt footprint, but the developer is out there looking to exploit cloud-native architectures to write the next wave of applications and experiences. And they are just as impactful when it comes to equipping the organization with the cloud scale that’s necessary to mine those opportunities on the edge.

So, there is a balance in this equation, to your point. There is innovation at the edge, very much line of business-driven, very much about business efficiency and effectiveness, or revenue and productivity, the real tangible dollar value outcomes. And on the other side, it’s more about agility and the supply chain. It’s getting that balance right so that I have my agility and that allows me to go and explore the world digitally at the edge.

So they sort of overlap. And the implication there is that there are three core enablers and they are true no matter which of the big four agenda items customers are trying to drive through their initiative programs.

In digital, data is everything 

Two of those enablers very much relate to data. Again, Dana, I know in the digital era data is everything. It is the glue that holds this new digital engagement model together. In there we found two key enablers that constantly come up, no matter which agenda you are driving.

The first one is surely you need intelligence from that data; data for its own sake is of no use, it’s about getting intelligence from that dataset. And that’s not just to make better decisions, but actually to innovate, to create differentiated value propositions in your market. That’s really the key agenda behind that intelligence enabler.

And the second thing, because we are dealing with data, is a huge impact and emphasis on being trusted with that data. And that doesn’t just mean being compliant to regulatory standards or having the right kind of resiliency and cybersecurity approach, it means going beyond that.

You need to gain intelligence from the data; data for its own sake is of no use, it's about getting intelligence for the datasets. And that's not just to make better decisions, it's to innovate and create differentiated value propositions in your market.

In this digitally enabled world, we want to trust brands with our data because often that data is now extremely personal. So beyond just General Data Protection Regulation

(GDPR) compliance, trust here means, “Am I being ethical? Am I being transparent about how I use that data?” We all saw the Cambridge Analytica-type of impact and what happens when you are not transparent and you are not ethical about how you use data.

Now, one thing we haven’t touched on and I will just throw it up as a bit of context, Dana. There is a consideration, a kind of global consideration behind all of this agenda and that’s the shift toward everything-as-a-service (EaaS).

A couple of key attributes of that consideration includes the most obvious one; it’s the financial flexibility one. For sure, as you reassemble your supply chain -- as you continue to press on that cloud-enabled side of the map -- what you are paying, what you consume, and doing that in a strategic way helps get the right mix in that supply chain, and paying only for that as you consume, is kind of obvious.

But I think the more important thing to understand is that our customers are being equally innovative at the edge. So they are using that everything-as-a-service momentum to change their industry, their market, and the relationship they have with their customers. It helps especially as they pivot into a digital customer experience. Can that experience be constructed around a different business model?

We found that that’s a really useful way of deconstructing and simplifying what is actually quite a complex landscape. And if you can abstract -- if you can use a model to abstract away the chaos and create some simplicity -- that’s a really powerful thing. We all know that good models that abstract away complexity and create simplicity are hugely valuable in helping organizations reconstruct themselves.

Gardner: Clearly, before the pandemic, some organizations dragged their feet on digital transformation as you’ve described it. They had a bit of inertia. But the pandemic has spurred a lot of organizations, both public and private, on.

Hopefully, in a matter of some months or even a few years, the pandemic will be in the rearview mirror. But we will be left with the legacy of it, which is an emerging business paradigm of being flexible, agile, and more productive.

Are we going to get a new mode of business agility where the payoff is it commensurate with all the work?

Agility augurs well post-pandemic 

Partridge: That’s the $6 million question, Dana. I would love to crystal ball gaze with you on that one because agility is key to any organization. We all know that there are constraints in traditional customer experiences -- making widgets, selling products, transactional relationships, relationships that don’t lend themselves to having digital value added to them. I wonder how long that model goes on for as we are experiencing this shift toward digital value. And that means not just selling the widget or the product, but augmenting that with digital capabilities, with digital insights, and with new ways of adding value to the customer’s experience beyond just the capital asset.

I think that was being fast-tracked before this global pandemic. And it’s the organizations now that are in the midst of doubling down on that -- getting that digital experience right, ahead of product and prices – that’s the key differentiator when you go to market.

And, for me, that customer experience increasingly now is the digital customer experience. I think that move was well under way before we hit this big crisis. And I can see customers now doubling down, so that if they didn’t get it right pre-pandemic, they are getting it right as they accelerate out of the pandemic. They recognize that that platform is the only way forward.

You will hear a lot of commentators talk about the digital agenda as being driven by what they call the platform-driven economy. Can you create a platform in which your customers are willing to participate, maybe even your ecosystem of partners who are willing to participate and create that kind of shared experience and shared value? Again, that’s something that HPE is very much invested in. As we pivot our business model, to EaaS outcomes, we are having to double down on our customer experience and increasingly that means digitizing that experience through that digital platform agenda.

Gardner: I would like to explore some examples of how this is manifesting itself. How are organizations adjusting to the new normal and leveraging that to a higher level of business capability?

Also, why is a third-party organization like HPE Pointnext Services working within an ecosystem model with many years of experience behind it? How are you specifically gearing up to help organizations manage the process we have been describing?

HPE digital partnerships 

Partridge: This whole revolution requires different engagement models. The relationship HPE shares with its customers is becoming a technologically enabled partnership. Whenever you partner with a customer to help advance their business outcomes, you need a different way to engage with them.

We can continue to have our product-led engagement with customers, because many of them enjoy that relationship. But as we continue to move up the value stack we are going to need to swing to more of an advisory-led engagement model, Dana, where we are as co-invested in the customers’ outcomes as they are.

We understand what they are trying to drive from a business perspective. We understand how technology is opening up and enabling those kinds of outcomes to be materialized, for the value to be realized.

A year ago, we set out to reshape the way we engage with customers around this conversation. To drive that kind of digital partnership, that means sitting down with a customer and to co-innovate, going through workshops of how we as technologists can bring our expertise to the customer as the expert in their industry. Those two minds can meld to create more than one plus one equals two. By using design thinking techniques and co-design techniques, we can analyze the customers’ business problem and shape solutions that manufacture really, really big outcomes for our customers.

For 15 years I have been a consultant inside of HP and HPE and we have always had that strong consulting engine. But now with HPE Pointnext Services we are gearing it around making sure that we are able to address the customers’ business outcomes, enabled through technology.

Never has there been a time when technology has been so welded into a customer's underlying value proposition. ... There has never been a more open-door policy from our partners and customers.

And the timing is right-on. Never has there been a time when technology has been so welded into a customer’s underlying value proposition. I have been 25 years in IT. In the past, we could have gotten away with being a good partner to IT inside of our customer accounts. We could have gotten away with constantly challenging that price and performance ratio and renovating that agenda so that it delivers better productivity to the organization.

But as technology makes its way into the underlying business model -- as it becomes the differentiating business model -- it’s no longer just a productivity question. Now it’s about how partners work to unlock new digital revenue streams. Well, that needs a new engagement model.

And so that’s the work that we have been doing in my team, the Digital Advisory and Transformation Practice, to engage customers in that value-based discussion. Technology has made its way into that value proposition. There has never been a more open-door policy from our partners and customers who want to engage in that dialogue. They genuinely want to get the benefit of a large tech company applying itself to the customers’ underlying business challenges. That’s the partnership that they want, and there is no excuse for us not to walk through that door very confidently.

Gardner: Craig, specifically at HPE Pointnext Services, what’s the secret sauce that allows you to take on this large undertaking of digital transformation?

Mapping businesses’ DX ambition

Partridge: The development of this model has led to a series of unique pieces of intellectual property (IP) we use to help advance the customer ambition. I don’t think there has ever been a moment in time quite like this with the digital conversation.

Customers recognize that technology is the fundamental weapon to transform and differentiate themselves in the market. They are reaching out to technology partners to say, “Come and participate with me using technology to fundamentally change my value proposition.” So we are being invited in now as a tech company to help organizations move that value proposition forward in a way that we never were before.

In the past, HPE’s pedigree has been constantly challenging the optimization of assets and the price-performance, making sure that platform services are delivered in a very efficient and effective way. But now customers are looking to HPE to uniquely go underneath the covers of their business model -- not just their operating model, but their business model.

Now, we are not writing the board-level strategy for digital ambition because there is a great sweet spot for us, rather it’s where customers have a digital North Star, some digital ambition, but are struggling to realize it. They are struggling to land those initiatives that are, by definition, technology-enabled. That’s where tech companies like HPE are at the forefront of driving digital ambition.

So we have this unique IP, this model we developed inside of HPE Pointnext Services, and the methodology of how to apply it. We can use it as a visualization tool, as a storytelling tool to be able to better communicate, and onward to further communicate your businesses’ digital ambitions.

We can use it to map out the initiatives and look at where those overlap and duplications occur inside organizations. We are truly looking at this from edge to cloud and as-a-service -- that holistic side of the map helps us unpick the risks, dependencies, and prerequisites. We can use the map to inspire new ideas and advance a customer’s new thinking about how technology might be enabled.

We can also deploy the map with our building blocks behind each of the journeys, knowing what digital capabilities need to be brought on-stream and in what sequence. Then we can de-risk a customer’s path to value. That’s a great moment in time for us and it’s uniquely ours. Certainly, the model is uniquely ours and the way we apply it is uniquely ours.

But it’s also a timing thing, Dana. There has never been a better time in the industry where customers are seeking advice from a technology giant like HPE. So it’s a mixture of having the right IP, having the right opportunity, and the right moment as well.

Gardner: So how should such organizations approach this? We talked about the methodology but initiating something like this map and digital ambition narrative can be daunting. How do we start the process?

How to pose the right questions 

Partridge: It begins by understanding a description of this complex landscape, as we have explored in this discussion. Begin to visualize your own digital ambition. See if you can take two or three top initiatives that you are driving and explore them across the map. So what’s the overriding KPI? Where does it start?

Then ask yourself the questions in the middle of the map. What are the key enablers? Am I addressing a shared intelligence backbone? How am I handling trust, security, and resiliency? What am I doing to look at the operating model and the people? How is the culture central to all of this? How am I going to provide it as-a-service? Am I going to consume component parts of the service? How to stress over into the supply chain? How is it addressing the experience?

HPE Pointnext Services’ map is a beautiful tool to help any customer today start to plot their own initiatives and say, “Well, am I thinking of this initiative in a fully 360° way.”

If you are stuck, come and ask HPE. A lot of my advisors around the world map their customers initiatives over to this framework. And we start to ask questions. We start to unveil some of the risks and dependencies and prerequisites. As you put in more and more initiatives and programs, you can begin to see duplication in the middle of the model play out. That enables customers to de-risk and be quicker to path of value because they can deduplicate what they can now see as a common shared digital backbone. Often customers are running those in isolation but seeing it through this lens helps them deduplicate that effort. That’s a quicker path to value.

We engage customers around one- to two-day ideation workshops. Those are very structured ways of having creative, outside-of-the-box type thinking and putting in enough of a value proposition behind the idea to excite people.

We do a lot around ideation and design thinking. If customers have yet to figure out a digital initiative, what’s their North Star, where should they start? We engage customers around one- to two-day ideation workshops. Those are very structured ways of having creative, outside-of-the-box-type thinking and putting in enough of a value proposition behind the idea to excite people.

We had a customer in Italy come to us and say, “Well, we think we need to do something with AI, but we are not quite sure where the value is.”

Then we have a way of engaging to help you accelerate, and that’s really about identifying what the critical digital capabilities are. Think of it at the functional level first. What digital functions do I need to be able to achieve some level of outcome? And then get that into some kind of backlog so you know how to sequence it. And again, we work with customers to help do that as well.

There are lots of ways to slice this, but, ultimately, dive in, get an initiative on the map, and begin to look at the risks and dependencies as you map it through the framework. Are you asking the right questions? Is there a connection to another part of the map that you haven’t examined yet that you should be examining? Is there a part of the initiative that you have missed? That is the immediate get-go start point.

Listen to the podcast. Find it on iTunes. Read a full transcript or download a copy. See the video. Sponsor: Hewlett Packard Enterprise.

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How an SAP ecosystem partnership reduces risk and increases cost-efficiency around taxes management

The next BriefingsDirect data-driven tax optimization discussion focuses on reducing risk and increasing cost efficiency as businesses grapple with complex and often global spend management challenges.

We’ll now explore how end-to-end visibility of almost any business tax, compliance, and audit functions allows for rapid adherence to changing requirements -- thanks to powerful new tools. And we’ll learn directly from businesses how they are pursuing and benefiting from advances in intelligent spend and procurement management.

Listen to the podcast. Find it on iTunes. Read a full transcript or download a copy.

To uncover how such solutions work best, we welcome Sean Thompson, Executive Vice-President of Network and Ecosystem at SAP Procurement Solutions; Chris Carlstead, Head of Strategic Accounts and Partnerships and Alliances at Thomson Reuters, and Poornima Sadanandan, P2P IT Business Systems Lead at Stanley Black and Decker. The discussion is moderated by Dana Gardner, Principal Analyst at Interarbor Solutions.

Here are some excerpts: 

Gardner: Sean, what’s driving the need for end-to-end visibility when it comes to the nitty-gritty details around managing taxes? How can businesses reduce risk and increase cost efficiency -- particularly in difficult, unprecedented times like these -- when it comes to taxation?

Thompson: It’s a near-and-dear topic for me because I started off my career in the early ‘90s as a tax auditor, so I was doing tax accounting before I went into installing SAP ERP systems. And now here I am at SAP at the confluence of accounting systems and tax.

Thompson

We used to talk about managing risk as making sure you’re compliant with the various different regulatory agencies in terms of tax. But now in the age of COVID-19 compliance is also about helping governments. Governments more than ever need companies to be compliant. They need solutions that drive compliancy because taxes these days are not only needed to fund governments in the future, but also to support the dynamic changes now in reacting to COVID-19 and encouraging economic incentives.

There’s also a dynamic nature to changes in tax laws. The cost-efficiency now being driven by data-driven systems helps ensure compliancy across accounting systems to all of the tax authorities. It’s a fascinating time because digitization brings together business processes thanks to the systems and data that feeds the continuing efficiency.

It’s a great time to be talking about tax, not only from a compliance perspective but also from a cost perspective. Now that we are in the cloud era -- driving data and business process efficiency through software and cloud solutions -- we’re able to drive efficiencies unlike ever before because of artificial intelligence (AI) and the advancements we’ve made in open systems and the cloud.

Gardner: Chris, tax requirements have always been with us, but what’s added stress to the equation nowadays?

Carlstead: Sean hit on a really important note with respect to balance. Oftentimes people think of taxation as a burden. It’s often overlooked that the other side of that is governments use that money to fund programs, conduct social welfare, and help economies run. You need both sides to operate effectively. In moments like COVID-19 -- and Dana used the word “unprecedented,” I might say that’s an understatement.

Carlstead

I don’t know in the history of our time if we have ever had an event that affected the world so quickly, so instantly, and uniformly like we have had in the past few months. When you have impacts like that, they generally drive government reaction, whether it was 9/11, the dot-com bubble, or the 2008 financial crisis. And, of course, there are also other instances all over the globe when governments need to react.

But, again, this latest crisis is unprecedented because almost every government in the world is acting at the same time and has moved to change the way we interact in our economies to help support the economy itself. And so while pace of change has been increasing, we have never seen such a moment like we have in the last few months.

Think of all the folks working at home, and the empathy we have for them dealing with this crisis. And while the cause was uniform, the impact from country to country -- or region to region -- is not equal. To that end, anything we can do to help make things easier in the transition, we’re looking to do.

While taxes may not be the most important thing in people’s lives, it’s one last thing they have to worry about when they are able to take advantage of a system such as SAP Ariba and Thomson Reuters have to help them deal with that part of their businesses.

Gardner: Poornima, what was driving the need for Stanley Black and Decker to gain better visibility into their tax issues even before the pandemic?

Visibility improves taxation compliance

Sadanandan: At Stanley Black and Decker, SAP Ariba procurement applications are primarily used for all indirect purchases. The user base spans across buyers who do procurement activities based on organizational requirements and on up to the C-level executives who look into the applications to validate and approve transactions based on specific thresholds.

Sadanandan

So providing them with accurate data is of utmost importance for us. We were already facing a lot of challenges concerning our legacy applications due to numerous challenges like purchasing categories, federated process-controlled versions of the application integrated with multiple SAP instances, and a combination of solutions including tax rate files, invoice parking, and manual processing of invoices.

There were a lot of points where manual touch was necessary before an invoice could even get posted to the backend ERP application due to these situations, including all the payback on return, tax penalties, and supplier frustrations, and so on.

So we needed to have end-to-end visibility with accuracy and precision to the granular accounting and tax details for these indirect procurement transactions without causing any delay due to the manual involvement in this whole procurement transaction process.

Gardner: Poornima, when you do this right, when you get that visibility and you can be detail-oriented, what does that get for you? How does that improve your situation?

Sadanandan: There are many benefits out of these automated transactions and due to the visibility of data, but I’d like to highlight a few.

Basically, it helps us ensure we can validate the suppliers’ charge tax, that suppliers are adhering to their local tax jurisdiction rules, and that any tax exemptions are, in fact, applicable for tax policies at Stanley Black and Decker.

Secondly, there comes a lot of reduction of manual processes. That happened because of automation, the web services, and as part of the integration framework we adopted. So tax calculation and determination became automated, and the backend ERP application, which is SAP at our company, receives accurate posting information. That then helps the accounting team to capture accounting details in real-time. They gain good visibility on financial reconciliations as well.

Tax calculations became automated, and the backend ERP, which is SAP, receives accurate posting information. That helps the accounting team capture details in real-time. They gain good visibility on financial reconciliations as well.

We also achieved better exception handling. Basically any exceptions that happen due to tax mismatches are now handled promptly based on thresholds set up in the system. Exception reports are also available to provide better visibility, not just to the end users but even to the technical team who are validating any issues that helps them in the whole analysis process.

Finally, the tax calls happen twice in the application, whereas earlier in our legacy application that only happened at the invoicing stage. Now this happens during the requisition phase in the whole procurement transaction process so it provides more visibility to the requisitioners. They don’t have to wait until the invoice phase to gain visibility on what’s being passed from the source system. Essentially, requesters as well as the accounts payable team are getting good visibility into the accuracy and precision of the data.

Gardner: Sean, as Poornima pointed out, there are many visibility benefits to using the latest tools. But around the world, are there other incentives or benefits?

Thompson: One of the things the pandemic has shown is that whether you are a small, medium-size, or large company, your supply chains are global. That’s the way we went into the pandemic, with the complexity of having to manage all of that compliance and drive efficiency so you can make accounting easy and remain compliant.

The regional nature of it is both a cost statement and a statement regarding regional incentives.  Being able to manage that complexity is what software and data make possible.

Gardner: And does managing that complexity scale down as well up based on the size of the companies?

Thompson: Absolutely. Small- to medium-sized businesses (SMBs) need to save money. And oftentimes SMBs don’t have dedicated departments that can handle all the complexity.

And so from a people perspective, where there’s less people you have to think about the end-to-end nature of compliance, accounting, and efficiency. When you think about SMBs, if you make it easy there, you can make it easy all the way up to the largest enterprises. So the benefits are really size-agnostic, if you will.

Gardner: Chris, as we unpack the tax visibility solution, what are the global challenges for tax calculation and compliance? What biggest pain points are people grappling with?

Challenges span globe, businesses

Carlstead: If I may just take a second and compliment Poornima. I always love it when I hear customers speak about our applications better than we can speak about them ourselves; so, Poornima, thank you for that.

And to your question, because the impact is the same for SMBs and large companies, the pain centers around the volume of change and the pace of that change. This affects domestic companies, large and small, as well as multinationals. And so I thought I’d share a couple of data points we pulled together at Thomson Reuters.

There are more than 15,000 jurisdictions that impact just this area of tax alone. Within those 15,000 jurisdictions, in 2019 we had more than 50,000 changes to the tax rules needed to comply within those jurisdictions. Now extrapolate that internationally to about 190 countries. Within the 190 countries that we cover, we had more than two million changes to tax laws and regulations.

At that scale, it’s just impossible to maintain manual processes and many companies look to do that either decentralized or otherwise -- and it’s just impossible to keep pace with that.

With the COVID-19 pandemic impact, we expect that supply chains are going to be reevaluated. You're changing processes, moving to new jurisdictions, and into new supply routes. And that has huge tax implications.

And now you introduce the COVID-19 pandemic, for which we haven’t yet seen the full impact. But the impact, along the lines where Sean was heading, is that we also expect that supply chains are going to get reevaluated. And when you start to reevaluate your supply chains you don’t need government regulation to change, you are changing. You’re moving into new jurisdictions. You are moving into new supply routes. And that has huge tax implications.

And not just in the area of indirect tax, which is what we’re talking about here today on the purchase and sale of goods. But when you start moving those goods across borders in a different route than you have historically done, you bring in global trade, imports, duties, and tariffs. The problem just magnifies and extrapolates around the globe.

Gardner: How does the Thomson Reuters and SAP Ariba relationship come together to help people tackle this?

Thompson: Well, it’s been a team sport all along. One of the things we believe in is the power of the ecosystem and the power of partnerships. When it comes down to it, we at SAP are not tax data-centric in the way we operate. We need that data to power our software. We’re about procurement, and in those procurement, procure-to-pay, and sales processes we need tax data to help our customers manage the complexity. It’s like Chris said, an amazing 50,000 changes in that dynamic within just one country.

And so, at SAP Ariba, we have the largest business network of suppliers driving about $3 trillion of commerce on a global basis, and that is a statement regarding just the complexity that you can imagine in terms of a global company operating on a global basis in that trade footprint.

Now, when the power of the ecosystem and Thomson Reuters come together we can become the tax-centric authorities. We do tax solutions and help companies manage their tax data complexity. When you can combine that with our software, that’s a beautiful interaction because it’s the best of both worlds.

It’s a win, win, win. It’s not only a win for our two companies, Thomson Reuters and SAP, but also for the end customer because they get the power of the ecosystem. We like to think you choose SAP Ariba for its ecosystem, and Thomson Reuters is one of our -- if not the most -- successful extensions that we have.

Gardner: Chris, if we have two plus two equaling five, tell us about your two. What does Thomson Reuters bring in terms of open APIs, for example? Why is this tag team so powerful?

Partner to prioritize the customer

Carlstead: A partnership doesn’t always work. It requires two different parties that complement each other. It only works when they have similar goals, such as the way they look at the world, and the way they look at their customers. I can, without a doubt, say that when Thomson Reuters and SAP Ariba came together, the first and most important focus was the customer. That relentless focus on the customer really helped keep things focused and drive forward to where we are today.

When you bring two large organizations together to help solve a large problem it's a complex relationship and takes a lot of hard work. I'm really proud of the work we have done.

And that doesn’t mean that we are perfect by any means. I’m sure we have made mistakes along the way, but it’s that focus that allowed us to keep the patience and drive to ultimately bring forth a solution that helps solve a customer’s challenges. That seems simple in its concept, but when you bring two large organizations together to help try to solve a large organization’s problems, it’s a very complex relationship and takes a lot of hard work.

And I’m really proud of the work that the two organizations have done. SAP Ariba has been amazing along the way to help us solve problems for customers like Stanley Black and Decker.

Gardner: Poornima, you are the beneficiary here, the client. What’s been powerful and effective for you in this combination of elements that both SAP Ariba and Thomson Reuters bring to the table?

Sadanandan: With our history of around 175 years, Stanley Black and Decker has always been moving along with pioneering projects, with a strong vision of adopting the intelligent solutions for society. As part of this, adopting advanced technologies that help us fulfill all of the company’s objectives has always been in the forefront.

As part of that tradition, we have been leveraging the integration framework consisting of the SAP Ariba tax API communicating with the Thomson Reuters ONESOURCE tax solution in real-time using web services. The SAP Ariba tax API is designed to make a web service call to the external tax service provider for tax calculations, and in turn it receives a response to update the transactional documents.

During the procurement transactions, the API makes an external tax calculation. Once the tax gets determined, the response is converted back per the SAP Ariba message format and XML format and it gets passed on by the ONESOURCE integration and sends that over to the SAP application.

The SAP Ariba tax API receives the response and updates the transactional documents in real time and that provides a seamless integration between the SAP Ariba procurement solution and the global tax. That’s exactly what helps us in automating our procurement transactions.

Gardner: Sean, this is such a great use case of what you can do when you have cloud services and the right data available through open APIs to do real-time calculations. It takes such a burden off of the end user and the consumer. How is technology a fundamental underpinning of what ONESOURCE is capable of?

Cloud power boosts business outcomes

Thompson: It's wonderful to hear Poornima as a customer. It’s music to my ears to hear the real-life use case of what we have been able to do in the cloud. And when you look at the architecture and how we are able to drive, not only a software solution in the cloud, but power that with real-time data to drive efficiencies, it’s what we used to dream of back in the days of on-premises systems and even, God bless us, paper reconciliations and calculations.

It’s an amazing time to be alive because of where we are and the efficiencies that we can drive on a global basis, to handle the kind of complexity that a global company like Stanley Black and Decker has to deal with. It’s an amazing time.

And it’s still the early days of what we will doing in the future around predictive analytics, of helping companies understand where there is more risk or where there are compliance issues ahead.

That’s what’s really cool. We are going into an era now of data-driven intelligence, machine learning (ML), applying those to business processes that combine data and software in the cloud and automate the things that we used to have to do manually in the past.

And so it’s a really amazing time for us.

Gardner: Chris, anything more to offer on the making invisible the technology but giving advanced business outcomes a boost?

Carlstead: What’s amazing about where we are right now is a term I often use, I certainly don’t believe I coined it, but best-of-breed suite. In the past, you used to have to choose. You had to go best-of-breed or you could go with the suite, and there were pros and cons to both approaches.

Now, with the proliferation of APIs, cloud, and the adoption of API technology across software vendors, there’s more free flow of information between systems, applications, and platforms. You have the ability as a customer to be greedy -- and I think that’s a great thing.

Stanley Black and Decker can go with the number-one spend management system in the world and they can go with the number -one tax content player in the world. And they can expect these two applications to work seamlessly together.

As a consumer, you are used to downloading an app and it just works. And we are a little bit behind on the business side of the house, but we are moving there very quickly so that now customers like Stanley Black and Decker can go with the number-one spend management system in the world. And they can also go with the number-one tax content player in the world. And they can have the expectation that those two applications will work seamlessly together without spending a lot of time and effort on their end to force those companies together, which is what we would have done in an on-premise environment over the last several decades.

From an outcome standpoint, and as I think about customers like Stanley Black and Decker, getting tax right, in and of itself is not a value-add. But getting it wrong can be very material to the bottom line of your business. So for us and with the partnership with SAP Ariba, our goal is to make sure that customers like Stanley Black and Decker get it right the first time so that they can focus on what they do best.

Gardner: Poornima, back to you for the proof. Do you have any anecdotes, qualitative or quantitative measurements, of how you have achieved more of what you have wanted to do around tax processing, accounts payable, and procurement?

Accuracy spells no delayed payments

Sadanandan: Yes, all the challenges we had with our earlier processes with respect to our legacy applications got diminished with respect to incorrect VAT returns, wrong payments, and delayed payments. It also strengthened the relationship between our business and our suppliers. Above all, troubleshooting any issues became so much easier for us because of the profound transparency of what’s being passed from the source system.

And, as I mentioned, this improves the supplier relationship in that payments are not getting delayed and there is improvement in the tax calculation. If there are any mismatches, we are able to understand easily how that happened, as the integration layer provides us with the logs for accurate analysis. And the businesses themselves can answer supplier queries on a timely manner as they have profound visibility to the data as well.

From a project perspective, we believe that the objective is fulfilled. Since we started and completed the initial project in 2018, Stanley Black and Decker has been moving ahead with transforming the source-to-pay process by establishing a core model, leveraging the leading practices in the new SAP Ariba realm, and integrated to the central finance core model utilizing SAP S/4HANA.

So the source-to-pay core model includes leading practices of the tax solution by leveraging ONESOURCE Determination by integrating to the SAP Ariba source-to-pay cloud application. So with a completion of the project, we were able to achieve that core model and now the future roadmaps are also getting laid out to have this model adopted for the rest of our Stanley Black and Decker entities.

Gardner: Poornima, has the capability to do integrated tax functionality had a higher-level benefit? Have you been able to see automation in your business processes or more strategic flexibility and agility?

Sadanandan: It has particularly helped us in these uncertain times. Just having an automated tax solution was the primary objective with the project, but in these uncertain times this automated solution is also helping us ensure business continuity.

Having real-time calls that facilitate the tax calculation with accuracy and precision without manual intervention helped the year-end accounts payable transactions to occur without any interruptions.

Having real-time calls that facilitate the tax calculation with accuracy and precision without manual intervention helped the year-end accounts payable transactions to occur without any interruptions.

And above all, as I was mentioning, even in this pandemic time, we are able to go ahead with any future projects already in the roadmap because they are not on a standstill, we are able to leverage the standard functionalities provided by ONESOURCE and that’s easier to adopt in our environment.

Gardner: Chris, when you hear how Stanley Black and Decker has been able to get these higher-order risk-reduction benefits, do you see that more generally? What are some of the higher-order business benefits you see across your clientele?

Risk-reduction for both humans and IT

Carlstead: There are two broad categories. I will touch on the one that Poornima just referenced, which is more the human capital, and then also the IT side of the house.

The experience that Stanley Black and Decker is having is fairly uniform across our customer base. We are in a situation where in almost every single tax department, procurement department, and all the associated departments, nobody has extra capacity walking around. We are all constrained. So, when you can bring in applications that work together like SAP Ariba and Thomson Reuters, it helps to free up capacities. You can then shift those resources into higher-value-add activities such as the ones Poornima referenced. We see it across the board.

We also see that we are able to help consolidate resourcing from a hardware and a technology standpoint, so that’s a benefit.

And the third benefit on the resource side is that as you are better able to track your taxation, not only do you get it right the first time, when it comes to areas of taxation like VAT recovery, you have to show very stringent documentation in order to receive your money back from governments, so there is a cash benefit as well.

And then on the other side, more on the business side of the relationship, there is a benefit we have just started to better understand in the last couple of years. Historically folks either chose not to move forward with an application like because they felt they could handle it manually, or even worse, they would say, “We will just have it audited, and we will pay the fine because the cost to fix the problem is greater than the penalties or fines I might pay.”

But they didn’t take into consideration the impact on the business relationship that you have with your vendors and your suppliers. If you think about every time you have had a tax issue between them, and then in the case in many European countries and around the world, where VAT recovery would not allow that supplier to recover their taxation because of a challenge they might have had with their buyer, that hurts your relationship. That ultimately hurts your ability to do commerce with that partner and in general with any partner around the world.

So, the top-line impact is something we have really started to focus on as a value and it’s something that really drives business for companies.

Gardner: Poornima, what would you like to see next? Is there a level of more intelligence, more automation?

Post-pandemic possibilities and progress

Sadanandan: Stanley Black and Decker is a global company spanning across more than 60 countries. We have a wide range of products, including tools, hardware, security, and so on. Irrespective of these challenging times, all our priorities regard the safety of the employees and the families and keeping the momentum of business continuity responding to the needs of the community … these all remain as the top consideration.

We feel that we are already equipped technology-wise to keep the business up and running. What we are looking forward to is, as the world tries to come back to the earlier normal life, continuing to provide pioneering products with intelligent solutions.

Gardner: Chris, where do you see technology and the use of data going next in helping people reach a new normal or create entirely new markets?

Carlstead: From a Thomson Reuters standpoint, we largely focus on helping businesses work with governments at the intersection of regulation and commerce. As a result, we have, for decades, amassed an extensive amount of content in categories around risk, legal, tax, and several other functional areas as well. We are relentlessly focused on how to best open up that content and free it, if you will, from even our own applications.

When we can leverage ecosystems such as SAP Ariba, we can leverage APIs and provide a more free-flowing path for our content to reach our customers. The number of use cases and possibilities is infinite.

What we are finding is that when we can leverage ecosystems such as SAP Ariba, we can leverage APIs and provide a more free-flowing path for our content to reach our customers; and when they are able to use it in the way they would like, the number of use cases and possibilities is infinite.

We see now all the time our content being used in ways we would have never imagined. Our customers are benefiting from that, and that’s a direct result of the corporations coming together and suppliers and software companies freeing up their platforms and making things more open. The customer is benefiting, and I think it’s great.

Gardner: Sean, when you hear your partner and your customer describing what they want to come next, how can we project a new vision of differentiation when you combine network and ecosystem and data?

Thompson: Well, let me pick up where Chris said, “free and open.” Now that we are in the cloud and able to digitize on a global basis, the power for us is that we know that we can’t do it all ourselves.

We also know that we have an amazing opportunity because we have grown our network across the globe, to 192 countries and four million registered buyers or suppliers, all conducting a tremendous amount of commerce and data flow. Being able to open up and be an ecosystem, a platform way of thinking, that is the power.

Like Chris said, it’s amazing the number of things that you never realized were possible. But once you open up and once you unleash a great developer experience, to be able to extend our solutions, to provide more data -- the use cases are immense. It’s an incredible thing to see.

That’s what it’s really about -- unleashing the power of the ecosystem, not only to help drive innovation but ultimately to help drive growth, and for the end customer a better end-to-end process and end-to-end solution. So, it’s an amazing time.

Listen to the podcast. Find it on iTunes. Read a full transcript or download a copy. Sponsor: SAP Ariba.

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