Implementing IT for Joint Venture projects
Satish Pendse writes how using SAP-ERP for Joint Venture projects could be an easy, quick and effective solution
Some infrastructure projects are very large involving substantial capital investments and requiring expertise in multiple areas. The pre-qualifying criteria for such projects require experience in executing similar kind of projects. It may not be possible for one organisation to meet all these requirements. To bid for such projects, organisations form joint venture (JV) with partners who have experience in areas that the organisation may be lacking. A JV may have operating partners and non-operating partners. They combine monetary or personnel resources to share a project’s expenses and revenues. The parties agree to create a new entity through equity contribution, and they then share in the revenues, expenses, and control of the enterprise in proportion of their equity. The JV can be for one specific project only, or a continuing business relationship. A JV is often seen as a very viable business alternative, as the companies can complement their skill sets. Foreign companies operate through forming a JV with an Indian company wherein they gain through a geographic presence of an Indian company and the later gains through the technology know-how of the former.
Let’s examine this entity from the perspective of the systems for running their businesses. Success of any JV mainly lies in creating mutual trust. Transparency is the single most important factor for creating mutual trust. ERPs like SAP can provide adequate transparency to the partners and sets governance to the high standards. Each partner in a JV has their own systems and processes for their own organisations. Some have ERP systems while some have standalone software systems for accounting, stores, procurement etc. Since each JV is a different entity, it needs to maintain separate records.
Partners are generally not in favour of using a particular partner’s hardware platform for storing the data of the JV, mainly to protect the interests of all the partners equally. The JV management therefore wishes to have separate software on separate computer hardware, which is in their control (and not in the control of any particular JV partner).
Generally the JVs are formed for a project and hence they have a limited life till the completion of the project. One therefore needs ERP software that can be deployed within a very short time and its total cost of ownership is within a manageable limit since the same needs to be recovered within the life of the JV. The JV software needs to have well established set of processes built into it, primarily to ensure quick deployment and easy usage. They will not have the luxury of thinking to form the appropriate set of processes for the JV and then to automate the same. They should rather be given a platform that is at least 90% ready. The JV also can’t afford to have a big IT Department to maintain the ERP. Besides, the JV partners ideally expect the ERP software of the JV to interface with their own ERP software for transferring the JV data relevant to them.
Having an ERP system such as SAP in the JV satisfies most of the above mentioned criteria. All its key business functions namely, project execution, equipment handling, materials management, sub-contractor management, costing, financial accounting etc. can be automated using the same.
Needless to say, all the data gets stored in a single database with various reports to access the same as and when needed. Within SAP, we have created standard template of the best-practice processes for the JVs, which ensure quick deployment and easy usage.
The implementation requires shorter duration (couple of months), which helps the JV make use of the integrated system in the early stages of the project. The efforts of the individual partners in collecting the data for accounting and other purposes is reduced drastically since the integrated system gives real time data. The SAP system can provide the relevant data to the partners in electronic format desired by them.
Since JV wants to lower the costs and recover them during the life of the JV itself, they can explore the option of not procuring the hardware and instead host the database on some of the service provider’s hardware and pay the monthly usage charges. This way the maintenance of the IT infrastructure is also taken care of by the service provider, instead of the JV requiring to employ the high-cost IT staff for the same. It works so seamlessly that the JV management is not required to spend their time-share and mind-share to ensure the smooth running of the baseline software. It’s definitely a workable option and can address many of the concerns of the JV.
JV also comprises of the partners from different countries. One, therefore, needs software that will be acceptable to people across the geography. SAP-ERP fits the bill since it’s the most popular software among construction organisations in many countries. The way English is preferred as the communication language by the JV (despite some of the partners being from non-English speaking countries), SAP is preferred as the international transaction processing system. The acceptability amongst the partners and their employees is therefore less painful. The same has already been tried in multiple JVs in India and is working well.
Whenever you get into the JV for some of the project, we recommend that you should select SAP as the software for automating its business processes.
Satish Pendse works as the chief information officer for Hindustan Construction Company (HCC), which has started offering IT services to the infrastructure industry. This also includes implementation of the tendering & estimation software. Through this column in Construction Week India, the author brings out the increasing significance of Information Technology in the construction industry. He can be reached on firstname.lastname@example.org