Tuesday, May 11, 2010

The BI recession?

Bob Evans described a customer claim that we are in "The SAP Recession" (quoting from an article from Reuters). According to his opinion piece:
Timken Co. CEO Jim Griffith said, "I call this the SAP recession" (and Timken's an SAP customer!). But despite how it bad that sounds, Griffith intended it as a compliment. (I think).


"I call this the SAP recession," Griffith is quoted as saying, "because companies have a much better control over their inventories and so our customers did a much better job of reducing inventories immediately when they saw the demand go. And the further back you were on the supply chain, the more that hit you."

There is a lot to be said for this point of view. I was at a major consumer products manufacturer in an earlier decade, when tough times hit our business. The tough times hit the company hard, because we did not have the systems (or standard agreements!) in place to cut hard and quickly - on discretionary spending, capital outlays, supplier contracts, or employee hours. As a result, our suppliers and employees were buffered from the effects of the downturn. They could see the hits to our earnings and thus predict the arrival of the "rainy days" ahead - they were able to adjust their spending and expectations, softening the blow of our customers' hard times throughout our supply chain. Given that we were not lagging other large companies at the time in our IT systems, it is likely that similar scenarios played out across the economy, leading to a much softer, slower, and economically more efficient deflation of the economy.

Jim Griffith has a good point, although I think he is misplacing the beginning point of this new era. Due to Y2K concerns (and good marketing on the part of SAP, other ERP vendors, and their systems integration partners), many companies implemented integrated enterprise systems for employee management, budget control, financial controlling and reporting, purchase order management, supplier contracts, and other enterprise spending vehicles in the period leading up to January 1, 2000.

Shortly thereafter, the global economy (and the US economy in particular) faced a significant downturn. For the first time in a recession, companies had the tools to clamp down hard on spending - tools including ERP systems (including purchasing, travel, budgeting), reporting and BI systems (for visibility and transparency), collaboration tools (such as e-mail and workflow approval), and business processes (for adjusting budgets, approving capex and opex spending, stopping all hiring and travel, and much more). Companies used these tools, and it seemed to me that the result was a much steeper decline into recession than ever before. I remember months that went by after 9/11 when there were zero jobs posted on job bulletin boards, no consulting contracts issued, and no employee travel approved.

2001 was the first cyclical downturn where most large companies had pretty good expense control capabilities, pretty good ability to adjust budgets on the fly, and pretty good ability to manage supplier contracts via ERP. In previous downturns, expense control was haphazard, but with SAP you could shut off employee travel (for example) in an instant. As a result, the downturn was more abrupt - the economic equivalent of program trading, but without a regulator that could turn off the program.

Every recession (and upturn!) after Y2K can be thought of as being accelerated by ERP systems like SAP. What has changed since 2001 is a pervasive use of business intelligence (BI) tools in most leading companies. Now, companies can not only shut off transactions, but they can analyze business performance such that they can identify (and efficiently/brutally execute) strategic business opportunities including facility consolidations and shutdowns, offshoring and outsourcing efficiencies, supplier consolidation, and even exits and shutdowns of poorly performing business units.

Perhaps this recession, rather than being called "The SAP Recession," should be called "The BI Recession" ...

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