SAP & ERP Consulting from the Customer Point of View

IT Convergence

The other day I was having a conversation with an IT executive from one of America’s largest companies.  I was really interested in his perspective as a hard working senior level IT insider.  We started talking about the role of IT and business as well as the future of business and technology while I relayed my passion for how IT needs to integrate with the business and how the future was going to change significantly (see e.g. What is the Proper Relationship for the CIO, CEO, and CFO?).

I gained a new appreciation for how difficult an IT executive’s job can be when the economy is in turmoil.  I’m sure my comments and perspective were challenging but here is part of what I gained from that conversation (my assumptions and my “read” may be wrong)…

The wider global technology discussion (inside and outside of the company) is putting real pressure on IT return on investment, IT Convergence, and full integration with the business (see Steps to Achieve SAP IT Convergence).  Even while all of this takes place there is still a critical need to stay on top of technology trends and be sure the organization does not stagnate.  To stay competitive what does he do with “cloud” processing, do they need different applications for some of their processes (CRM, APO,SRM, etc.), what about social media (does it even fit), virtualization, shared services, service excellence, outsourcing, in-sourcing, etc., etc., etc.

This executive’s IT organization is being challenged to do more with less.  As a result of cost-cutting pressures his organization is having to look at outsourcing while he also has to maintain a positive and upbeat appearance in the face of working through difficult cuts.  He has to continue encouraging and rallying the troops while some of them will not be there.

A Simple Response to the Nagging Problem of Business IT Convergence

With all of this background in mind one of his responses to me set me back a moment for its simplicity, candor, and most of all the underlying frustration.  It is certainly one of those very difficult struggles that many corporate technology leaders today face:

“What is the business responsibility for this?”

The business not only has responsibility but they have to help drive solutions and delivery. The various business stakeholders must see, understand, and then accept their role in developing the technology roadmap. And once it is developed they must help ensure its execution.

The Business to IT Convergence Solution That Was There All Along

The IT Convergence approach in the SAP enterprise is partially based on best practices around IT Governance.  By creating a governance structure that involves and integrates both the business and IT stakeholders you gain business buy-in and involvement.  I have written a solution brief on this approach and provide a free, no-obligation MS Access application to build technology roadmaps (see the Solution Brief, governance process, and application overview here:  Beyond Technology Alignment )

The basic takeaway here is that business involvement is critical.  They are already making technology investments, with, or without your involvement. So it is critical to gain that convergence so that technology investments are performed as a partnership and not in isolation.  As a recent Harvard Business Review post by Ray Wang notes:

“[O]verall corporate tech spending is up by 17 to 20% in our latest data, spending by IT departments is flat at best. It’s business leaders, not their IT colleagues, who are driving purchasing decisions.”

Coming to Terms with the Consumerization of IT, http://blogs.hbr.org/cs/2011/07/coming_to_terms_with_the_consu.html and a followup with more details on his site at:  http://blog.softwareinsider.org/2011/08/22/mondays-musings-balancing-the-six-ss-in-consumerization-of-it/ (both retrieved 8/23/2011)

So the key here is to integrate the business into the IT and application infrastructure.  One way to do that is through leveraging SAP steering committee skills and business connections to ensure meaningful involvement by IT.

Additional Steps to SAP IT Convergence – Creating the Center of Excellence

Last week’s post provided a few high level steps to achieve SAP IT Convergence, and this week I am adding to that list the following items.

• Pursue business executive sponsorship but don’t wait for it to get started.
• Start a communication program
• Engage at all levels of the organization
• Conduct one or more pilot programs and capture lessons learned
• Hold IT staff accountable for participation
• Don’t let available tools stifle participation or innovation

Related Posts:

• Steps to Achieve SAP IT Convergence
• SAP IT Convergence is About Business Focused Integration
• SAP Program Management Requires a Type of CMMI
• SAP IT Convergence Beyond Business to IT Alignment
• SAP Project Manager – SAP Program Manager, Lessons from the Trenches

SAP IT Convergence

The problems with Enterprise SAP IT organizations are they are focused on SAP and IT.  They lose sight of their purpose which is to support and promote the broader objectives of the enterprise.  In an SAP centered IT organization this means your whole existence is about ensuring business benefit, focusing on enterprise goals, strategies, and objectives.

Somewhere between the SAP sales cycle and the SAP go-live the concept of business benefit gets lost and is never found again.  By the time you go live with the SAP application the entire IT organization becomes narrowly focused on the care and feeding of the new system.  Everything is all about the “new” ERP application and the business is left holding an empty bag –, the money is gone but the business now has to struggle through getting their operations stabilized just to continue doing business.

The entire IT organization’s existence must focus on enabling business.

Today’s enterprises will no longer pay the premium prices for SAP or IT organizations which exist in a silo.  To continue with this old way of doing SAP or IT support will turn those internal services into very expensive commodities to be outsourced to the lowest cost provider(s).  If you want to do more than survive, but rather to thrive, you must build a converged SAP or IT organization.  Without IT convergence you can expect budget cuts and more outsourcing pressures.

Research Shows a Business Focus Produces SAP Results Needed for IT Convergence

Successful SAP projects require the management and measurement of expected benefits and the purpose for the project throughout the entire SAP life-cycle (Holland and Light, pg. 1630-1636, 1999).  To gain business benefits from an ERP package like SAP you will need serious discussion of goals, direction, objectives, and what the business software can do in those areas.  After that, coordination of key resources from both business and IT is also required to create business to IT alignment (Willcocks and Sykes, pg. 33-38, 2000).  This business to IT alignment produces some great results but is just the beginning.

[F]irms that invested more heavily in business process redesign and devoted more of their IT resources to increasing customer value (e.g. quality, timeliness, convenience) had greater productivity and business performance (Hitt, Wu, and Zhou, pg. 3, 2004 citing Brynolfsson and Hitt)…   [A 1999 study on] the impact of ERP systems on self-reported company performance based on a survey of 101 US implementers of SAP R/3 packages [showed]… companies reported substantial performance improvement in several areas as a result of their ERP implementation, including their ability to provide information to customers, cycle times, and on-time completion rates (Hitt, Wu, and Zhou, pg. 5-6, 2004).

In the 2004 study just cited they also referenced compiled research by Gattiker and Goodhue (2000) which identified four broad categories of ERP benefits including (1) better information flows, standardization, integration, communication and coordination; (2) centralization of administration activities like, AP, payroll, etc. (i.e. “shared services”); (3) reduced IS maintenance costs and improved ability to deploy new IS functionality; (4) a move to “best business practices” around business processes.

Some of the additional and very interesting findings (Hitt, Wu, and Zhou, pg. 18, 2004) include:

• Greater sales employee performance
• Higher profit margins
• Better return on assets including greater asset utilization
• Higher inventory turns
• Greater receivables management (including better “cash to cash” cycles)
• More revenue generated per unit of input

This is impressive but notice these benefits are nearly all operational business performance results.  They certainly appeal to the CFO and improve market valuation making them meaningful. However, as operational benefits they are nearly all focused on lagging indicators of business success.  Shareholders like them with the valuations of companies who implement ERP systems like SAP being “worth approximately 13% more than their non-adopting counterparts, controlling for assets, time and industry” (Hitt, Wu, and Zhou, pg. 20, 2004).  So implementing SAP has a positive impact on stock values.

Today’s SAP Enterprise Can Realize Even More Through SAP IT Convergence

All of these benefits and gains from roughly a decade ago are not enough today.  While the study from Hitt, Wu, and Zhou (as well as the others reviewed here) showed tremendous benefits for SAP they were based on studies at least 10 years old.

In the last decade the entire global landscape has dramatically changed –, the Internet and the pace of technology change has disrupted every value proposition model relied upon by business.  No area of the enterprise is off limits–, business is in the midst of a global and dynamic transformation of operations, innovation, and customer focus.  To thrive in our modern business era we will all have to move past the IT to business alignment model and push into IT convergence.

Your SAP Enterprise Can No Longer Avoid Full Business to IT Integration (i.e. “Convergence”)

The business benefit focus has been difficult for SAP or IT leaders trying to quantify returns from their investments.  Even though SAP has been at the forefront of addressing this message it is slow to catch on.  Over a year ago I highlighted SAP’s “value delivery” and value focus to implementing their software:

Studies have shown that there is a critical disconnect between projected benefits in business cases for IT investments and actual value achieved, because so many firms focus on going live with a project rather than its value delivery. An SAP / ASUG best-practice survey on the ability to capture the projected benefits of an IT project found that 73% of companies do not quantitatively measure value post-implementation (SAP Executive Insight Series, pg. 7, 2009)…  Critical business benefits for an SAP project require taking a hard look at the enterprise and its goals or direction…  (see A New SAP Implementation Methodology and Implementation Steps).

And while all of this is critical for realizing SAP ROI from your investment there is still more to do.  With this groundwork focusing on the need for business benefit, or measurable ROI, we can take the next step and start to explore full IT convergence around your SAP endeavors.

Next week we will look at some methods to create SAP IT convergence.

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Gattiker, T., and Goodhue, D. Understanding the plant level costs and benefits of ERP: Will the ugly ducking always turn into a swan? In: R. Sprague, Jr. (Ed.), Proceedings of the 33rd Annual Hawaii International Conference on System Sciences ( CD-ROM), Los Alamitos, CA: IEEE Computer Society Press, 2000.

Hitt, L., Wu, D.J., and Zhou, X. ERP Investment: Business Impact and Productivity Measures.  Wharton School at U of P (2004).

Holland, C. and Light, B. Critical Success Factors Model for ERP Implementation.  IEEE Software. May / June (1999).

Willcocks, L. P. and Sykes, R. The Role of the CIO and IT Function in ERP.  Communications of the ACM, Vol. 43, Iss. 4 (2000).

Related Posts:

• Integrating Business Stakeholders as Part of SAP IT Convergence
• Steps to Achieve SAP IT Convergence
• What are SAP Best Business Practices Anyway
• Why Indexed KPIs are Critical for Business Performance and Success
• Using SAP to Improve Revenue and Profitability

SAP Center of Excellence Governance

This post is based on information from my recent ASUG presentation in Atlanta…  Beyond Technology Alignment – Building a Center of Excellence @ http://bit.ly/jJefxP

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At the intersection of business and IT you have convergence.  At the place of convergence is where the Center of Excellence exists.

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One of the key SAP project success factors is to use a steering committee made up of key business stakeholders.  They can meet once a week or once a month, but generally they are involved to provide business level guidance to an SAP project or IT programs.  The most effective steering committees include at least one executive and several senior leaders from throughout the business (see The Real Reason Executive Participation Creates IT Project Success).

That steering committee performs a critical function over large projects like SAP implementations.  This group is critical to your project’s success because of the amount of time from company employees, capital from the organization’s coffers, and decisions which change the business.

Some of the key functions a steering committee carries out during the course of your SAP project include:

• Set SAP project scope and then help manage it.
• Define project objectives and evaluation criteria.
• Monitor project progress, including key milestones and deliverables progress.
• Oversee Quality reviews at key check points.
• Evaluate and mitigate organizational impact of business changes.
• Promotes the project throughout the organization.
• Coordinates staffing and resource levels from key business areas.
• Makes critical decisions which the project team is unable to resolve (escalations or key business decisions).

The ongoing functions and tasks of the SAP steering committee cannot be underestimated. During the course of their duties they gain that list of unique and critical skills related to applying technology to business issues and problems (see Using Your SAP Steering Committee for Business Transformation).

You go live and WHY do you disband your steering committee???

Integrating the SAP – IT Organization Into the Business

In an SAP Center of Excellence, after your SAP implementation goes live, the steering committee functions change to one of developing and managing technology road-maps.  Their skills with scope, schedule, cost, performance, prioritizing, and evaluating risks / rewards are ideally suited to their continued involvement in the application of technology to the business.  But the underlying issue here is that they must continue to function –, they should not be disbanded.

One of the key benefits of continuing to leverage the SAP Steering Committee after the SAP business software goes live is you continue to build on their experience and unique skills.  Even as they rotate out of the steering committee role these individuals move through the ranks of the larger enterprise and take that technology to business integration experience with them.  If they have served on a steering committee long enough to see the benefits technology can bring to the larger enterprise their exposure is invaluable to building a long term Center of Excellence –, an organization dedicated to converging business and technology to meet business marketplace requirements.

These individuals have worked through many key business decisions, budget decisions, scope and schedule decisions, and how to move to technology integration project success.  As a result of their experience applying technology solutions to the business they develop critical skills for the converged and integrated organization, these skills are difficult to replicate.  In a nutshell this steering committee develops a convergence of three critical skills for tomorrow’s powerhouse enterprises: they understand management, technology, and business integration.  Those are the key ingredients to the converged SAP enterprise.

Related Posts:

• SAP Program Management Requires a Type of CMMI
• Competitive Pressures and Value Propositions, Is Lean the Answer?
• The Real Reason Executive Participation Creates IT Project Success
• Change How You Look at SAP to Create ROI
• Why Use the SAP ASAP Methodology?