SAP ROI — Enterprise Architecture & Business Solutions

Clearing the SAP Business Transformation Fog

THREE PART SERIES ON DEVELOPING AN SAP CENTER OF EXCELLENCE.

You probably already knew that a “Competency center” is focused on SAP application support like help desk functions, system stabilization, troubleshooting, etc.  But did you know that a true “Center of Excellence” is focused on the business and business drivers?  The key goal of a “Center of Excellence” is to integrate not just the application, but the application support staff into the business.

Business Transformation from an SAP or ERP business application is no longer an option.

For business transformation to occur it will take business and IT convergence –-, a Center of Excellence is an extension of a business’s competitive advantage.

To achieve breakthrough results you have to go beyond the idea of business to IT alignment, you have to move beyond the idea of your IT organization as a support organization.  Your SAP and IT organization must become an active participant in the business and work to participate directly in business success.

Why Haven’t More Organizations Made the Transition to an SAP Center of Excellence?

When system integrators or vendors are asked to develop an SAP Center of Excellence, or some form of a Business Transformation Center, they frequently offer you outsourcing options.   You speak about business needs and they see outsourcing or support organization opportunities.  All they are familiar with is creating help desks and reactive support organizations to handle your issues.  They have little or no guidance on how to develop a powerful, collaborative, and business integrated SAP organization.

If they had the insight you need then there wouldn’t be so much academic research or IT related surveys which consistently raise “business to IT alignment.”  And worse still, while they are still trying to figure out “alignment,” getting in line with business needs is just the first step–, full SAP convergence is the answer.  And that is only just beginning to come onto the radar screen even in the academic literature. 

Your IT or SAP Center must be integrated into the business in the same way that SAP integrates the operations of your business.  It must become enmeshed and integrated into all of your organization’s operations.

This series provides insight, guidance and direction on developing a proactive SAP organization focused on long-term business transformation.  For more information, including a detailed plan, methodology, and concrete steps for creating an SAP enabled Center of Excellence please feel free to contact us.

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Solution brief presented at the SAP ASUG Atlanta meeting on June 17, 2011

Beyond Technology Alignment  Steering Committee Participation in Building a Center of Excellence.

Presentation provided as part of the session.
SAP & Business Convergence

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Toward an SAP Center of Excellence or SAP Competency Center – PART 1

Explaining the differences between an SAP Competency Center or sometimes referred to as an SAP Center of Expertise and an SAP Center of Excellence.  As Peter Drucker wrote either Do Things Right or Do the Right Things.

Toward an SAP Center of Excellence or SAP Competency Center – PART 2

A more complete and thorough explanation of the differences between the SAP Competency Center (or Expertise Center) and the SAP Center of Excellence (or the Business Transformation Center).  An understanding the operating differences and how the Competency Center is focused on reactive processing of things like help desk tickets, problem resolution, data correction, and knowledge transfer.

Toward an SAP Center of Excellence or SAP Competency Center – PART 3

Business model application of steps, techniques, and methods to produce an SAP Center of Expertise or an SAP Business Transformation Center.  The major business transformation steps on moving from an SAP Competency Center to an SAP Center of Excellence.

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For background information see the following posts.  As you move toward being a business-centered SAP or ERP shop these posts will help drive the right IT direction for your projects, budgets, and efforts.

A New SAP Implementation Methodology and Implementation Steps
http://www.r3now.com/a-new-sap-implementation-methodology-and-implementation-steps

The “Center of Excellence” concept focuses on knowledge transfer, change management, and creating a “learning organization.”  For KEY background information understanding the business imperative for a Center of Excellence see the following RESEARCH based posts.

Change Management Strategies and Knowledge Transfer Processes for a Successful SAP Project 1
http://www.r3now.com/change-management-strategies-and-knowledge-transfer-processes-for-a-successful-sap-project1

Change Management Strategies and Knowledge Transfer Processes for a Successful SAP Project 2
http://www.r3now.com/change-management-strategies-and-knowledge-transfer-processes-for-a-successful-sap-project2

Also, for more information see the second half of this post for more information on Knowledge Transfer and ensuring user and business maturity in using SAP technology:

Change Management Strategies and Knowledge Transfer Processes for a Successful SAP Project 1

Related Posts:

• How To Navigate the SAP Business Transformation Journey
• Achieving Business Value from SAP Investment
• SAP Service Delivery versus Value Delivery
• SAP Customer Responsibility for SAP Project Success
• 3 Development Phases for SAP Center of Excellence Maturity

See PART 1 – SAP Implementation is an Investment NOT an Event

How much is it going to cost and how long is it going to take?  That is the classic approach to SAP implementations.  Today it’s not enough and the marketplace is demanding more from their IT dollars.  Now there are questions about measuring cost reductions, process improvements, as well as customer retention and customer acquisition. These are all important discussions.

Your money has to work for you in your business and it should work for you in your SAP investment as well.

If you’re looking to buy a new stock, or mutual fund, or some other investment you do your homework.  If you’re looking at a capital purchase in your business you want to understand the justification and the payback so you build a business case.  If you’re looking to implement SAP then define the business reasons for the implementation and do your homework! 

Take the time and do some research to understand how to avoid many of the sales scams, pitfalls, and ridiculous system integrator tactics.

SAP Cost Based Indicators, Total Cost of Ownership, and Return on Investment

Lagging Indicators and SAP Supported Process Cost Reduction

Using the stock investment analogy, the cost-based ROI component can be seen as the dividends paid by a stock–, generally known, stable, reliable payback, quantifiable and tangible.   In an SAP implementation the “dividends” would represent lagging indicators of performance.  There is a fairly reliable history to consider for the dividend payout. You have a pretty good idea of a number of your costs (or can find out what they are), such as:

• current legacy systems cost,
• you know what your man hours are (staffing, personnel, benefits, overhead, etc., etc., etc.),
• process cycle times,
• per transaction costs for things like purchase orders, sales orders, production orders, etc.,
• competitor transaction cost benchmarks,
• current application license and maintenance costs,
• etc., etc., etc.

These are all lagging indicators and they are all cost based, cost improvement focused portions of an SAP implementation.

Same Old, Same Old, Everyone at Least Pays Lip Service to Cost Based Process Measures

EVERYONE tries to do this to some extent.  It is not always structured, clearly defined, and then measured after the system is live, but there is a general expectation of improvement.  Even for those companies who buy into this paradigm during the sales process but never see it realized, it is still part of the system integrator pitch.  You are always promised “improvements” by the system integrators.  You always expect processes to speed up and process costs to go down.

The process improvement, automation, and cost reduction approach is no different than everyone in the marketplace who does SAP or some other ERP application–, it is the old “operational excellence” model of business.  It does little or nothing to address the key components that grow business or improve revenue.  And after an initial cost reduction boost it does little to increase profits.  

Leading Indicators, SAP Value Proposition and SAP Value Realization

Unless you are in a commodity market, or have clearly “broken” or significantly inefficient processes, the cost reduction or operational excellence approach to ERP should not be your only focus.  Considering your SAP implementation as an investment for ROI purposes you would understand that this is the first step in a long term system investment program.  After you get the system in, you should press your IT organization to move from an operational excellence paradigm into how to use the system to support corporate innovation and sales growth.

If you want value realization from your SAP or other business application implementation it takes a more rounded and tangible business centered approach or, a real SAP value proposition.  Using the stock analogy, the value realization comes from stock appreciation together WITH the cost saving dividends that are paid.  In your SAP implementation both lagging and leading indicators are used to finally realize value.

This new investment paradigm must focus a significant amount of attention on the end state after the business has started operating in the new SAP world.  And that “end state” focus on value realization from your SAP implementation should begin  before you write your RFP.  This entire site is dedicated to help you transfer critical knowledge needed for success from SAP value proposition all the way through value realization.

Marketplace Winners and Losers in SAP and ERP Investment

Innovation is one of the key and critical value proposition areas that separates winners from losers in the marketplace.  And even though your initial implementation may only consider the initial operational excellence areas that is just the beginning of the journey.

Does your system integrator have any ideas or methods for improving engineering, design, and delivery collaboration efforts?  Maybe you are not there yet, and that is fine, but it must be considered as part of your initial assessment of the path you are on with SAP.

Ask your system integrators how to use your SAP implementation to improve concept to market cycle times and for other innovation methods that will impact your marketplace.  Drill into the details, don’t accept “sales fluff,” ask for specifics and don’t settle for less. 

SAP Implementation Measurement of Return on Investment

To this day I am still surprised by how few companies define success criteria for their SAP implementations.  Fewer still do the up front due diligence to determine where they will have business benefit in terms of cost based lagging indicators:

• process improvements,
• cost reductions,
• automation,
• reduced transaction processing costs,
• reduced licensing for legacy systems,
• reduced system maintenance for legacy systems,
• improved cycle times,
• etc.

Even if there is some consideration of these categories or classes of cost savings, few companies quantify them and try to understand current costs and how they might be improved BEFORE bringing in a system integrator. 

During the selection process few companies ask the tough questions and demand the details of their integrators to validate their saving assumptions, and then even fewer hold the integrator accountable for them.  Few businesses attempt to tie incentives, compensation, or other means of achieving these results to their system integrator contracts. 

Talk about caveat emptor, or buyer beware!

Some companies consider legacy systems, and the cost savings for eliminating them, but beyond that there is not a lot of due diligence done to support long term cost reductions.  Key details are generally lacking.

Few companies, and fewer system integrators ever consider leading indicators of business performance such as:

Customer retention

• service processing
  • reducing overall service requests / requirements,
• repair and response turnaround times,
• first time fixes,
• solution databases,
• interactive response forums,
• etc., etc., etc. (come on, you didn’t expect me to tell you ALL the secrets of an ERP customer retention program did you?)

Customer acquisition

• target markets
  • by geography,
  • product line,
  • customer strata,
  • customer segment,
• promotion options
  • special product mixes,
  • offers,
  • promotion execution,
  • promotion cost tracking,
  • buy “x” get “y” at a discount or free,
  • buy “xyz” product mix and get “abc” mix at discount or free or both,
  • etc., etc., etc. (again, feel free to contact me if your system integrator has NO IDEA how to do all of this is the BASE SAP ERP system ;)  It is possible!)
• Customer analysis
  • stratification,
  • buying analysis,
  • product mix / popular combinations,
  • promotion integration,
  • segmentation
    • by region,
    • dollar value,
    • product mix,
    • product line,
    • customer group or product line profitability
  • overall profitability,
  • etc., etc., etc.  (again, feel free to contact me if your system integrator has NO IDEA how to do all of this is the BASE SAP ERP system ;)  It is possible!)
• And MANY more options…

Why is this lacking?  Because you, as the customer, do not demand it of the system integrators.  As a result the system integrator develops technicians.  And the cheaper they can develop those “technicians” rather than experts the greater their margins are. 

System integrators generally have little interest in promoting the idea that you should actually see a genuinely measurable business improvement.  If they did, those system integrators would be forced to bring in more competent, more highly skilled, and more seasoned veterans who understand business as well as the technology.  See for example, CRM, ERP, BI, and IT Investment — Where Do You Find the Business Benefit?  Using mostly a CRM example for illustration, that post helps you gain some insight on the types of consultants and insight you need for business success.

Short Term (operational excellence), Mid-Term (innovation), Long-Term (customer focus)

Relying on the investment analogy, your SAP portfolio should include several items or components of the application to implement.  And just like stock market investments, there must be some short-term, mid-term, long term, and business hedges built into a healthy implementation. 

Some items, such as “Wave II” or add-on functionality may be planned for at a later date but should be considered from the beginning.

For a long term successful SAP implementation it must become part of a business program, not just a system installation.

What does this mean?  This means that your thinking about SAP and its role in your enterprise must change.  As I’ve written before, Change How You Look at SAP to Create ROI.  SAP must be seen as a tool that enables the enterprise to change, to grow, and to spot opportunities and execute on those opportunities sooner than your competitors.  To do so requires a change in culture and thinking that companies often struggle with, however, SAP can enable these changes when SAP is seen as a business investment requiring regular adjustment, focus, balancing and change.  Just like your stock portfolio.

Use a Business Focused SAP Implementation for Business Transformation

If you want to see true competitive advantage it will take adding a real business imprint, real business insight, and key success metrics to create a long term business program.  That long-term business program is business transformation with SAP enabling the enterprise to be more competitive, more agile, and more robust.

At the the end of the day if you do not define what you want from SAP to consider it a SUCCESS, and if you do not have a focus on business drivers you will NEVER see the success you want from your implementation.  Worse still, if you don’t focus on these items from the beginning you will not have a good baseline to evaluate your system integrator or SAP implementation partner in the early RFI or RFP project stages.  Without that critical evaluation you may end up sinking your budgets in a “money pit” where you will NEVER see a return on investment.  Worse still, without these critical measures you may end up having a long term negative return that is dangerous for your long term prospects.  And it is NOT a shortcoming of the software!

Related Posts:

• Tactics, Strategy, ROI, TCO and Realizing Business Benefit from SAP
• Using SAP to Improve Revenue and Profitability
• The Real Reason Executive Participation Creates IT Project Success
• Competitive Pressures and Value Propositions, Is Lean the Answer?
• CRM, ERP, BI, and IT Investment — Where Do You Find the Business Benefit?

The other day I was talking to a pair of executives looking for a way to determine whether or not their SAP implementation cost was higher or lower than their competitors.  They had wanted benchmarks or some other way to know if they were in line with the marketplace.  The CFO was worried that they might have paid way too much for their SAP implementation.

After talking for a few minutes they realized that they were looking at the question the wrong way.  While they were asking about how their expenditure compared with other competitors, what they were having a hard time articulating is whether or not they got what they paid for.

I provided them a simple illustration to drive the point home quickly–, if they spent twice as much as their competitors, or if they spent half, what matters is the return on technology dollars.  The numerical illustration I gave them is if they spent $50 million and their next closest competitor spent $20 million, they are looking at the wrong thing.  What really matters is the return.  If they achieved a 10% financial return from process improvements, automation, task time reduction, etc., and their competitor was achieving a -3% return then even at 2 ½ times the cost of their competitor they got the better deal.

By the time we finished the conversation it was clear they were asking how to measure any return or business results they received from the implementation.  However, from the conversation it didn’t sound like they were very happy with their results.  And this leads us to the issue of whether you are focused on service delivery or business benefits delivery.

Control SAP Implementation Costs and Promote a Return on Investment by Focusing on Investment Drivers

The best way to understand how SAP can benefit your business is to start out by understanding what you are trying to accomplish with an SAP implementation.  This in turn will determine what your success criteria is and that success criteria is a critical factor in value realization from your SAP implementation.

As SAP Blue Book author Michael Doane says “just because a project is delivered on time and on budget does not make it a successful project.” To wring value out of SAP it must be seen as an investment, an important component of your company’s growth, its long-term health, and part of the investment portfolio much like capital equipment or financial leverage.

This investment paradigm out of necessity includes a component of return on that investment, and a view of the investment that goes beyond the delivery date for the project, therefore it must include more than a project that is delivered on time and on budget.

You wouldn’t define a successful stock investment as spending the money and then receiving the stock, over some period of time you would want a tangible return on your investment.  You should begin with that mindset from your SAP implementation.  Also, you generally wouldn’t expect that return the day you purchase the stock either.

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Stay tuned for the next installement, “Where do you start with SAP Return on Investment or ROI?”  This includes some of the details of what to consider for achieving ROI with SAP. 

After that, at some point over the next few months, I will release a complete ROI / TCO / payback system.  This set of evaluation tools and resources should be used for your initial implementation, however they can be used to help plan out an upgrade, enhancements, or possibly to evalaute the implementaiton you’ve already done.

If I can find one or two companies who are looking to evaluate their current implementations, or are looking at implementing SAP to try this out I will be happy to work through it with them.  Contact me for more information.

Related Posts:

• Designing startup metrics to drive successful behavior
• Toward an SAP Center of Excellence or SAP Competency Center – PART 1
• A New SAP Implementation Methodology and Implementation Steps
• Competitive Pressures and Value Propositions, Is Lean the Answer?
• The Real Reason Executive Participation Creates IT Project Success