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Business Network Transformation Example in CP-Retail Closed Loop Trade Promotion Management between Retail-CP sample for a picture in the title slide Steve Winkler – GEPG Standards Management & Strategy Amit Sinha – Business Network Transformation Julio Navas – Live Enterprise Technology Gary Adams – CP Industry Business Unit, Superior Customer Value Mark Osborn – Industry Marketing - CP Vince Rouleau – Field Services - Retail September, 2008

2 Industry Boundaries Are Being Redefined Value Chains Are Evolving into Business Networks
Company-centric Command and control Ownership-driven Self-contained risk Business network Customer-centric Connect and collaborate Relationship-driven Shared risk The boundaries of how an organization delivers value to customers and achieves profitable growth are being redefined. As internal opportunities to drive profitable growth are already extracted, line of business who are responsible for P&L are expanding their horizon to business networks to deliver not only cost savings (leveraging business network’s assets thereby reducing capital deployed, managing global demand and supply with efficiency) but also higher revenue (through better customer satisfaction and faster rate of product co-innovation). Company Centric vs Customer Centric: Customer feedback travels slowly in linear value chains – where each entity optimizes to the adjacent player in the value chain – making it slow to change. On the other hand in business networks – customers are the focal point – feedback travels faster – more often through new technologies and communities - companies hustle to bring higher customer value – anticipating requirements and altering company and industry boundaries to achieve it. As an example – in the automotive industry – cars have become high tech devices – including navigation, in car entertainment, communication and now battery and alternate energy technologies to bring more customer value. Technology companies in the network of the automotive manufacturers have to focus on changing end consumer preferences in addition to the needs of the automotive partners. Its no longer a tiered linear value chain – its more of a network – where business network partners are collaboration to create NEW VALUE. Similarly in healthcare or media, by focusing on end customer, be it patients or content consumers, business network partners can provide better care (e.g. insurance with healthcare) or access (e.g. via telco or online providers) to content Command and Control vs. Connect and Collaborate: As relationships become more strategic on a global level, companies have to build new skills and culture to collaborate with their partners. Traditionally companies have operated in a command and control fashion, specially when they have held “concentrator” power in their value chain. Command and Control works when opportunities are mature, in traditional value chains for example, where each participant knows their place in the value chain. However when new opportunities emerge, “Command and Control” style of functioning is very weak as they cannot collaborate to develop new markets – they dictate terms. In fast paced global markets where there are more opportunities for development – business networks require a culture of connecting and collaborating with suppliers, partners, alliances and customers. With technology, advanced communications such as telepresence, collaboration in online communities we have the capabilities to do this more easily. As an example – P&G opened its product innovation to its network and today drives more than 50% revenue from new products developed by its business network partners – accelerating time to market and category leaders (note to speaker - google connect+develop before the meeting) Ownership vs. Relationship: Companies have traditionally competed by building all the assets needed to deliver customer value – factories, owned logistics, owned design. To enter an industry value chain, you had to invest in owning assets however, as companies become asset heavy – the flexibility to adapt and innovate quickly reduces –making companies less competitive than their peers who specialize on their core strength and leverage “relationships” to complete the customer solutions. Companies in multiple industries – from media, defense, automotive, computer industry started leveraging relationships instead of owning all the assets themselves driving higher return on their investments. Microsoft’s dominance on the operating system layer is largely due to their ability to orchestrate a “lockstep relationship” with chip manufacturers like Intel, computer makers like HP and a number of application providers including SAP for instance. Self Contained risk vs Shared risk: Tighter access to finance implies companies will focus on their core to drive up margins and leverage external partner capabilities and assets, thereby, further disaggregating the value chain. How do you measure risk and manage performance when so many of business processes are outside your company? Companies must now optimize risk and performance at the business network level for profitable growth. Benefits Loosely-connected organizations in which each sharpens its defensible differentiator and relies on its partners, suppliers, and customers for the rest. Enables organization to deliver faster innovation to customers at lower costs by sharing investments, assets, and ideas. New market opportunities are unlocked by combining the products and services of the business network participants in creative ways and leveraging each other’s market access and infrastructure. Risk gets shared, with the right KPIs and visibility this higher risk can be better managed for higher performance. Competitive Advantage will go to companies that collaborate across their network for better customer results © SAP 2008 / Page 2

3 Internet of Things Overview The Business Internet
IOT: The Distributed Model The Internet of Things is a conceptual framework where information about physical items is shared across company boundaries on an open architectural platform The primary driver is increased visibility in the supply chain Uniquely identifiable products is a prerequisite for such a system The creation of an Internet of Things platform that ties together business systems would enable SAP to deliver a new breed of applications and value to our customers SAP should take a thought leadership position on the IoT Live Enterprise technology can be used to create the network Live Enterprise Kraft Mixing Center Distribution Center Retailer A Supplier DSD Distribution Center Retail Store A Retail Store B Mfg Plant Live Enterprise Live Enterprise Legacy Live Enterprise Live Enterprise Custom DB Live Enterprise Live Enterprise The basic idea is to network business systems together over the internet. This out of the box connectivity enables customers to share certain information with trusted business partners The data stays at the SAP nodes but is made available on the network. New network based enterprise applications will show that BNT is real at SAP. Custom BW

4 Live Enterprise Connecting Enterprise Systems
Business User Applications BPC Analytics GRC Direct Push to User Live Enterprise is an SAP server component that creates a network overlay It propagates business information to other LE nodes, similar in fashion to DNS, but in real time The distributed nature enables discovery of events across a business network LE originated as an Imagineering project GRC was the first to take advantage of LE by creating new applications that can detect risk events. 4x faster implementation $5.4M cost savings LE will be released as a GRC product in Q1 2009 LE is a viable option for SAP to take a thought leadership role in developing the IoT, and can serve as a platform for new types of SAP applications Live Enterprise SAP Applications Web Services Databases An overlay network can be thought of as a 2 level internet. The lower level uses internet protocols to route packets across routers, and the upper level uses similar protocols to route application data. NAPSTER is perhaps the best known example of such a network overlay. Department Enterprise Trusted Partners 4

5 Standards Are Critical The Key to Success
Opportunity SAP Position Most companies today have poorly integrated system landscapes Companies want to track uniquely identifiable data across their business network Accessing data across company boundaries requires an agreement on common interfaces SAP has a large worldwide install base that contains the core business data needed for an IoT SAP has emerging technologies like Live Enterprise that can be used to build the IoT SAP application knowledge enables us to derive new apps leveraging the IoT IOT Cloud Company A Company B History of GS1/EPCglobal and IOT GS1 barcode management started in the grocery industry – very CP/Retail focused Basic RFID architecture and concepts developed at MIT, sponsored in part by SAP Licensed by EPCglobal to capture new revenue stream for GS1 GS1/EPCglobal is more of a competitor than a standards body The basic strategy is to grow the RFID market and ensure that they don’t cut us out of it The SAP IoT (36,000 nodes) would dwarf EPCglobal (700 nodes) EPCglobal’s high fees and tight control risk destroying the opportunity The IOT enables discovery of events and data about objects across a business network 5

6 Business User Applications
Proposed Standards Strategy Create Market For New CP/Retail Applications Develop Consumer Products and Retail focused Internet of Things applications to drive adoption of the Live Enterprise technology and create a de facto standard 3. Master Data Synchronization Create a LE based MDS system to augment / replace GDSN 2. E-Pedigree Regulatory requirements are driving RFID adoption and are the primary focus for the RFID standards Body EPCglobal Business User Applications TPM Pedigree MDS 1. Trade Promotion Management Demonstrate LE capability of sharing operational data across company boundaries Not an obvious affront to GS1/EPCglobal or our customers that support them. Establishing a de facto standard is the first move Then we can make the IOT standards truly open (CDG -> Standards Body) Gain a first mover advantage and thought leadership for the IOT – Sell lots of new apps We need to show customers that our solution can work with GS1/EPCgobal but doesn’t need those standards to function Start with TPM DemandTek is gaining significant market share in this area Live Enterprise

7 Trade Promotion Management The 1st BNT Application
Placeholder for an overview slide describing the TPM scenario in more detail. - Gary Adams

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9 Trade Promotion Management The CP Value Proposition
Placeholder for an overview slide describing the value prop for our CP customers. - Gary Adams

10 Trade Promotion Management The Retail Value Proposition
Placeholder for an overview slide describing the value prop for our retail customers. - Vince Rouleau

11 Trade Promotion Management Next Steps
TPM Viability Assessment Bring together stakeholders to determine viability Define the scenario scope and value proposition for CP and Retail customers. Define high level technical architecture for the scenario. Identify Customers CP side: Colgate – already have a LE POC that is realizing significant benefit Retail side: PetSmart – has demonstrated strong belief in BNT vision Build the POC Use a 3rd party to do a rapid prototyping of the solution. Involve SAP teams to facilitate an easy transition from prototype to SAP product. Demo & Call to Action Demonstrate that BNT is real at SAP Invite more CP/Retail customers and prospects to participate in defining enterprise services for TPM Stakeholders: (CP, Retail, LE, Marketing, and SMS) Build & Standardize Roll requirements in and build solution for delivery late next year Standardize portions of the IP to create a product advantage for both the CP and Retail Industry, just like we did in Banking

12 Appendix

13 Strategic Engagement – Banking Example Standards Create Markets
Global Banks & SAP Banking Credit Suisse Deutsche Postbank ING Nordea Standard Bank ABN AMRO ABSA Barclays BBVA Banca Intesa Phase I: Create a community of customers and prospective customers to define basic community goals, under SAP control Banking IVN Banking Definition Group Enterprise Services for Banks Phase II: Open the community to other vendors, still on SAP terms, and determine an architectural approach BIAN – Global Banks, SAP Banking, & Other Vendors Credit Suisse Deutsche Postbank ING Nordea Standard Bank ABN AMRO ABSA Barclays BBVA Banca Intesa Industry Standards for Banking The Banking IBU successfully used standards as a game changer for their industry. The Banking industry was notorious for not having packaged software (over 90% was homegrown by the banks) which meant there was an opportunity for us. SAP found that customers and prospects wanted to lower their TCO by using packaged software Worked with them to define the functional areas, developed enterprise services definitions, etc. SAP facilitated the formation of the BIAN standards organization and contributed the output of the private work to define the industry standard This created a first-mover advantage for SAP’s banking IBU and opened up the market to SAP Phase III: Once SAP has established its leadership position, move the results to a neutral standards organization – in this case the organization had to be created

14 Seventeen founding members have launched BIAN.
Banking – SAP Teams with Customers to Give Birth to a New Market Provides Industry Architectural Leadership - BIAN Description SAP spearheaded the creation a standards organization called the Banking Industry Architecture Network (BIAN), which focuses on application to application interoperability. Opportunity The market for banking applications is currently wide open, because the vast majority of banks’ enterprise software today is home grown. SAP is actively stimulating the expansion of the market for packaged banking software by providing a framework architecture for the banking industry. Benefits For Customers Lower Integration Costs Standard Packaged Software (Lower TCO) Higher Reliability For SAP SAP will assume a firm position in a battleground industry. New revenue streams and growth. Seventeen founding members have launched BIAN. “Being an active member of the Industry Value Network of Banks, Credit Suisse sees the creation of this association as significant milestone for not only ourselves, but for the industry as a whole,” said Claus Hagen, head of Integration Architecture, Credit Suisse. "The association will create an open environment of members that begins with an idea and takes it all the way through to execution.”

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