You are leaving our main website to go to our chinese website hosted in China. For legal reasons there will not be any links pointing back to the main website.
As the world economy shifts away from the more conventional product focus and towards a services-based economy, so it becomes increasingly difficult for businesses to use their traditional enterprise resource planning (ERP) systems to cost their operations accurately.
This is because ERP functionality, particularly the general ledger (GL), is structured in such a way as to provide a view of costs that meets statutory and financial reporting requirements, rather than delivering the level of granularity required for costing in the new services-focused world.
According to General Manager at Keyrus in South Africa, the growth in popularity of shared services as an organisational means of creating more efficient service delivery is a direct response to the services-based economy. Shared services allow for costs to be reduced through outsourcing or through economies of scale from centralisation of services. However the calculation, the allocation and the reporting of these costs to the relevant business units can be difficult.
“When it comes to truly understanding costs, the shared services environment is extremely complex. For example, in a financial services organisation, how do you cost the contribution IT or HR makes to enabling your business to offer a particular product such as a home loan? Yet in providing products such as this, it is vital the company knows it is done profitably, which means it is critical to understand these costs,” says the GM.
“This is what the discipline of cost transparency is designed to address. The result of effectively implementing such transparency is that it enables you to attribute costs more accurately. It also enables people responsible for specific areas of the business to understand which costs they are able to control, as well as which levers they can pull to effect changes in these.”
Cost transparency trumps cost allocation
Up until recently, cost allocation was the standard approach from organisations with regard to the different shared services within a business, explains the GM.
“The trouble with this way of doing things is that it treats shared services with a simplistic approach, by merely working out a percentage allocation of budget for each business unit, which is not only inflexible, but ultimately ends up with such cost allocations being seen as sunk costs to the business. This is because the lack of visibility around what constitutes the cost means there is less motivation to find ways to optimise spend, so the business units just learn to live with things the way they are.”
“Cost transparency, on the other hand, is designed to provide business, finance and shared service owners with detailed and meaningful insights into their respective areas. It creates both visibility and understanding of the costs and volumes of their entire shared service product and service portfolio, enabling the organisation to make informed and fact-based strategic and tactical decisions concerning its shared service investments.”
Moreover, he adds, no less an entity than Gartner has suggested that the effective implementation of the discipline of cost transparency will save an organisation around 10% to 15% of its shared services costs, year-on-year.
And it is not only limited to costs either, continues the GM , who indicates that cost transparency is equally adept at helping businesses to improve performance and increase efficiencies.
“In effect, you achieve not just a clearer view of costs, but also the ability to do something about them in such way as to increase performance. For example, granular knowledge of what services are being run on which servers may demonstrate to a business unit that multiple servers are only running at 50% capacity. This will enable them to consolidate in this area, reducing costs and increasing efficiencies at the same time,” the GM suggests.
“Thus, the best cost transparency strategies move beyond simply cost savings and into the arena of optimisation. In the end, it is about transforming the conversations between what the business unit needs and what the shared service provides. Instead of, say, the IT shared service simply delivering an application to the business, it can now demonstrate the value it is delivering via the application.”
Ultimately, he says, cost allocation only discusses what is delivered, while transparency is able to quantify the value obtained from such a delivery.
Acceptance can be difficult
Implementing effective cost transparency is very much a journey, the GM continues, and is thus not something that can or should be implemented via a big bang approach.
“Typically, we follow a recognised framework which focuses on delivering the most value in the shortest time. Tackling this low-hanging fruit not only delivers significant value, but also provides more time to drive the relevant behaviour through the organisation as well. Sometimes, ensuring that the people within the business accept and adopt the new approach is more difficult than implementing the actual discipline.” The GM indicates that a critical part of cost transparency is the educational process required to drive the mindset change among those who will be using this approach.
“Nonetheless, with the right solution, it is possible to democratise the responsibility for costs and empower people across the business units to manage their costs on a broader basis. Remember that if you have a large group of people thinking about costs and how to reduce them – as opposed to merely a few key people from the finance department – the opportunity to gain deeper insights is exponentially increased.”
“Moreover, with the right tool, one which is able to deliver truly granular detail, people will be able to understand what the costs are in detail and where these are found in the value chain. Thus it becomes possible not only to understand how much it costs to manufacture a product or provide a service, but ultimately to determine what it costs to support the entire ecosystem, from delivery and support through to infrastructure and marketing. Keyrus South Africa has been implementing a progressive cost transparency tool called MagicOrange with great success,” concludes the GM.
Stay updated on the latest articles, events, and more
Your email address is only used to send you the Keyrus newsletter and for commercial prospecting purposes. You can use the link in our emails to opt-out at any time. Learn more about the management of your data and your rights.
Keyrus assisted with a rapid, accurate, visible shipping date information system that makes for faster and better-informed customer decision-making.
Keyrus has become a systems integration and consulting partner for Gartner-recognised, Pyramid Analytics in Southern Africa. This partnership will enable Keyrus's customers to benefit from this unique augmented analytics platform for decision intelligence and accelerate growth for Pyramid Analytics in Africa
In this age, it is absolutely essential to collect data but even more important is to use it effectively to the organisations’ full advantage - to make data matter.
The BI landscape is continually evolving, and rapidly too. The transition from IT-driven BI delivery to self-service analytics continues at pace and is now enhanced by the latest major trend of embedded analytics. The BI environment is no longer something separate from line of business systems. BI and advanced analytics are now being embedded within core operational systems with tangible benefits, says Adam Walker, General Manager at Keyrus South Africa.
Keyrus is Tableau Embedded Specialist Partner in Africa and MEA region, recognising our expertise in promoting and implementing Tableau’s embedded BI solution.
Keyrus assists the Kwaden Investments Group to revolutionise its clients’ business landscape and transform their organisations. In the modern information age, data should be considered a precious corporate resource. However, it is only beneficial when coupled with the ability to derive deep insights from the available information by using analytics to provide focused details around business areas such as sales, stock and financial performance.
Stephen Coull, Sales Director at Keyrus South Africa conducts a captivating interview with a business-technology celebrity Aki Anastasiou discussing key contributors to Keyrus’s success, our unique partnership with Tableau, embedded analytics being the future of BI, and the importance of humanizing data.
South Africa’s leading data and technology consultancy Keyrus has achieved Premier Reseller Partner status in the Tableau Partner Network, becoming the only Premier Tableau reseller in South Africa and also on the African continent.
A leading national supply chain specialist now benefits from vastly improved visibility and immediate access to information via self-service following a sophisticated cloud-powered analytics solution delivered by Keyrus.
Following this implementation, TFG is benefitting from insights into the costs of delivering IT and services to the group, as well as the ability to accurately assign costs to users of IT services. For the first time, IT is able to properly explain these chargebacks with accurate, detailed reports.