Large Chinese Enterprise Targets Improved Agility

State-owned enterprises (SOEs) in China face a quickly changing competitive landscape — one that their existing technology strategies can’t keep up with. To address this challenge, organizations are migrating from earlier-generation BI architectures, technologies, and organizational structures to new models and approaches. My “Chinese State-Owned Enterprise Targets Improved Agility” report, scheduled to appear later this month, describes the experience of a typical large Chinese SOE, the China National Cereals, Oils, and Foodstuffs Corporation (COFCO), which leveraged a BI-led program to jump-start the transformation of its technology management capabilities.

COFCO is China’s largest supplier of agricultural and food products and services, including oils, rice, wine, tea, and various other products, and is expanding into real estate, shopping centers, and other industries. COFCO is a large B2B trader with many technology stakeholders, and its headquarters couldn’t quickly collect or analyze data from branches or business units, delaying the company’s response to and decisions about market changes. Major obstacles included siloed operations centers and business units; inconsistent data management rules that complicated centralized data governance; and other process and people challenges.

To address these issues, COFCO decided to redefine the position of technology management in the organization and review its technology agenda and planning. It evaluated and selected BI as the most compelling project to deliver quick business outcomes that would convince business executives to further invest in the transformation. Best practices that COFCO implemented include:

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Analytics Helps Retailers Improve Customer Retention

IBM recently kicked off its big data market planning for 2014 and released a white paper that discusses how analytics create new business value for end user organizations. The major differences compared with last year’s event:

  • Organizational change. IBM has assigned a new big data practice leader for China, similar to what it’s done for other new technologies including mobile, social, and cloud. IBM can integrate resources from infrastructure (IBM STG), software (IBM SWG), and services (IBM GBS/GTS) teams, although the team members do not report directly to them.
  • A new analytics platform powered by Watson technology. The Watson Foundation platform has three new functions. It can be deployed on SoftLayer; it extends IBM’s big data analysis capabilities to social, mobile, and cloud; and it offers enterprises the power and ease of use of Watson analysis.
  • Measurable benefits from customer insights analysis. Chinese organizations have started to buy into the value of analytics and would like to invest in technology tools to optimize customer insights. AmorePacific, a Hong Kong-based skin care and cosmetics company, is using IBM’s SPSS predictive analytics solution to craft tailored messages to its customers and has improved its response rate by more than 30%. It primarily analyzes point-of-sale data, demographic information from its loyalty program, and market data such as property values in the neighborhoods where customers live.
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Lenovo Has Started To Benefit From The Mobile Mind Shift

Lenovo recently announced record results for the third quarter of the 2013/14 fiscal year: the first time that the firm has exceeded US$10 billion in revenue in a single quarter. Lenovo has continued to prioritize maintaining or increasing its share of the PC market — the majority of its business. This strategy has paid off: Lenovo’s PC business (laptops plus desktops) grew by 8% year on year — in stark contrast to its slumping rivals. Lenovo can attribute its success to a strategy that sacrifices profit to keep prices competitive, maintains a direct local sales team, and retains channel partners after acquisitions.

Forrester believes that the mobile mind shift is one of four key market imperatives that enterprises can use to win in the age of customer. Lenovo has gotten a good start on this journey with its effort to enhance its mobile-related capabilities. Although the coming Motorola deal may have a negative impact on Lenovo’s performance over the next three to five quarters, the firm believes that mobile can change its business — and not just its digital business. In the next two to three years, Lenovo’s key strategy will be to provide customers with mobile devices and related infrastructure that will address their mobile mind shift. In particular:

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Government-Certified Public Cloud Providers Can Ease Cloud Concerns In China

Although Forrester expects China’s public cloud market to show solid growth through 2020, we have observed that organizations face barriers to adopting public cloud. Survey results indicate that data privacy, residency, loss of control, and security remain the top barriers for organizations adopting public cloud in China. This shows that Chinese customers are getting more knowledgeable about cloud and would like to understand cloud players’ offerings in more detail.

 

To ease concerns about public cloud usage, in mid-2013 the Chinese government and some leading cloud and data center service providers in China initiated an industry standard to evaluate cloud service offerings. After six months of discussion, they agreed upon version 1.0 of the industry standard, which includes three categories and 16 detailed SLAs:

Source: CNII

The first 10 qualified cloud service providers were announced on January 17, 2014:

Source: C114

What does this mean for end user organizations?

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Dell Services In The Post-Privatization Era

I attended Dell’s third annual global summit last week at the company’s headquarters in Austin, Texas to get an update on the company’s progress since it went private. The event demonstrated Michael Dell’s passion to transform a hardware company into an end-to-end solution provider. Dell highlighted five key investment priorities in 2014, including expanding its sales coverage and enhancing its relationship with partners; it also wants to increase its investments in emerging markets, with China atop the list.

The success of these investment plans hinges upon highly efficient execution across the organization. We’ve already seen one example that Dell has increased its executive capability since it went private: Its partnership with open source software provider Eucalyptus to put preinstalled and pretested Eucalyptus software on Dell VRTX servers. This project was ready just three weeks after CEOs of Dell and Eucalyptus decided to go forward with the partnership.

Eucalyptus in Dell VRTX

On one hand, the improved execution capability and more flexible service delivery model will strengthen the competitive position of Dell’s services. On the other hand, these changes will also provide benefits to end user organizations, including:

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Globalizing Tencent Puts Data Centers Where Its New Customers Are

Now that WeChat has more than 100 million overseas subscribers, Tencent, China’s leading web content provider, faces a new challenge: improving the experience of its customers outside of China. Steep rises in content consumption — largely driven by the increasing use of mobile devices to access services and information — represent a significant opportunity for content companies like WeChat to go global. To achieve this, Tencent has made positive steps in boosting its investment in data centers and networking outside of China.

To improve its user experience in the rest of Asia, Tencent recently announced that it will colocate one data center in Hong Kong and has chosen Equinix to operate it. This is already the second node that Tencent has built outside of mainland China; the first was implemented in Canada to serve North American users.

As an Internet company that operates its own large data centers in mainland China, Tencent has deep experience in data center construction and management and has leveraged this experience to develop best practices and key criteria for data center provider selection. These include:

  • Networking and interconnection options. As Tencent intends to rapidly expand its business into more countries, it needs carrier-neutral data center providers to offer the necessary connectivity options. For its Hong Kong implementation, Tencent used Equinix to optimize transit routes to achieve lower latency and better connect users inside and outside of mainland China; the data center provider can access multiple networks and peer with members of the Equinix Internet Exchange.
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Use Caution When Considering RDS Services For SAP Implementations

I’ve just returned from SAP’s 2013 SAPPhire China user conference; with more than 17,000 attendees, it’s still the largest SAP event on the planet. The vendor has recently launched new offerings, like HANA enterprise cloud and extended ERP solutions for new industries; it has also extended its China strategy by announcing SAP Anywhere, a bundle of cloud-enabled mobile CRM services, which it has just begun piloting here.

At the event, clients presented their feedback on SAP services, particularly rapid deployment solution (RDS) services. Ever since their launch two years ago, SAP has extended RDS services to more than 150 software applications. The RDS concept aims to provide everything out of one box; clients buy a bundle of application and implementation services. RDS services have brought tangible benefits to clients that want to quickly start their SAP journey or begin with pilot implementations before going for a full-scale rollout.

However, RDS does not apply to all SAP application implementations; it primarily depends on the client usage scenario. Forrester believes that RDS will not be an attractive choice in a few instances:

  • Large enterprises using SAP core ERP systems as a mission-critical application. Large enterprises normally make huge investments in these projects. Their primary focus is not on saving time or money; instead, their top priority is ensuring that the project is a complete success and that all functionality is rock-solid: well-developed and thoroughly tested. RDS services, which can cover up to 80% of ERP system functionality, may not be the best choice in this scenario. We’ve seen this happen in China and Southeast Asia time and time again over the past two years.
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Manufacturers In China Should Change Their Sourcing Strategy To Improve Business Competence

Chinese manufacturers are repositioning. They’re willing to invest more in improving their core competencies, like R&D and design capabilities, by using outsourcing providers that have successfully served foreign peer companies in the same industry. They must dedicate all their resources — including internal IT systems and solutions like ERP — to meeting this goal.

We recently published a case study on Tagal, a joint venture of ThyssenKrupp Steel Europe and Angang Steel in China. The company was finding it difficult to face up to new business challenges; not only was its infrastructure aging, but its original outsourcing services agreement was constraining business development.

To solve these problems, Tagal changed its sourcing strategy and successfully migrated its ERP system to an Itanium x86 platform to accelerate business processes. The resulting ERP efficiencies enabled employees to process orders and reports twice as fast as before. This has improved Tagal’s relationships with its customers, which are some of the world’s largest automakers. Tagal also reduced its total cost of ownership by 20% in the first nine months alone, primarily due to the simplified sourcing strategy.

How did Tagal achieve these tangible outcomes? It redesigned its service contract and employed three key principles when re-evaluating vendors:

  • Modifying sourcing governance. Tagal drew on lessons that it learned from 10 years of outsourcing. Its new service provider contract contains more penalty terms; for instance, the provider now must refund the outsourcing fee in any month in which it does not fix two system errors within an agreed time period.
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LESSONS LEARNED FROM THE FIRST WAVE OF SAP IMPLEMENTATIONS IN CHINA

With Frederic Giron

SAP officially started its first business operations in 1995 in China. Prior to that, several Chinese end-user organizations like Shanghai Machine Tool Works Ltd. tried to implement SAP through partners based outside China.  Through discussions with CIOs who have experience in such projects, all agree that these early  SAP projects did not meet expectations. During this first decade of SAP in China (1995-2005), aka the 1st wave of SAP implementations in China, many SAP projects either failed outright or continued to fall short of expectations, primarily due to shortage of local SAP skills and cultural misalignment. China is not a unique in Asia and early adopters in Indonesia and Thailand faced similar challenges since the early 2000s.

As Chinese organizations continue to rapidly grow their activities, one of their major IT challenges is shifting from legacy to more standard information systems – and SAP solutions remain a key option in this shift. But today, experienced CIOs are also setting more realistic expectations regarding business outcomes for these SAP projects. For instance, they now consider SAP as a tool to automate some of their organization’s business processes rather than misinterpret it as a primary mechanism to drive revenue growth or improve profitability – which was a rather common misconception in the past. Chinese organizations have also modified their views on external service providers and are now much more open to leveraging these providers to bring additional value to their SAP implementation projects.

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THE PRIVATIZATION OF CHINESE IT SERVICE PROVIDERS – SHOULD YOU BE CONCERNED OR EXCITED?

With Frederic Giron

On June 6, iSoftStone announced plans to make the company a wholly owned subsidiary of China Asset Management Co., Ltdand delist from the U.S. stock market. This is the fifth IT services (ITS) provider headquartered in China to announce plans to go private in the past 9 months. The others were Yucheng Technology, AsiaInfo-Linkage, Camelot and Pactera.

Why are these firms going private? Despite ambitious global growth plans, Chinese ITS providers have largely failed to articulate a compelling value proposition to U.S. and European clients. By focusing mainly on low-end application development services they have instead primarily competed with much bigger and much more experienced Indian providers – but without the ability to offer lower costs. In fact, the average profitability of Chinese ITS providerswent down from 10-15% to less than 5% over the past 2 years, when most large Indian firms are in the 15-25% range. Going private will give these5companies a chance to transform their current model relieved from the quarterly pressure to meet Wall Street analyst expectations.

Existing and potential customers of these ITS providers may have concerns seeing these providers going private, particularly regarding overall company transparency, including financial strength and corporate governance. I believe clients will have to balance their concerns against the potential benefits that going private may deliver, which include:

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