SAP ROI — Enterprise Architecture & Business Solutions

SAP KPI Success

Few companies see dramatic transformations on their first attempt with Key Performance Indicators.  Many businesses or organizations eventually abandon the efforts because they start out with poor alignment between what they are measuring and the business value proposition or their underlying competitive pressures.  Some companies eventually develop some great reports and a “dashboard” for their executives or senior managers.  But few companies make it to the area where they are effectively using a Key Performance Indicator to implement SAP in a way that strategically steers their business into the future.

Key Performance indicators should be developed to refine the metrics or goals which support processes for your business to compete in the marketplace.  Okay, that was a mouthful.  How about if we put it this way, you need good measures for good business results.  These processes, the goals, the metrics, the KPIs, and all of the effort you have put into this then becomes the foundation of a solid business case for your SAP solution.  It doesn’t really matter what solution, whether it is ERP, CRM, APO, BI, or other system implementation efforts, it is still important to decide what is important and how you will measure it.  Armed with these goals and the business case you can then guage the SAP implementation or upgrade project success.  This is the SAP value driven methodology.  Here are some steps to get you started on your journey:

1. Carefully evaluate your business value proposition.  In other words, why do customers buy your products or services?
2. Look at the industry as a whole, where are the “points of frustration,” where are customers frustrated or disappointed with the industry as a whole?
3. Consider what competitive pressures affect your value proposition and the customer “points of frustration” and determine what organization(s) are impacted by those competitive pressures.
4. Focus on developing a set of goals, metrics, and objectives that address those competitive pressures so that you can then “operationalize” the strategies to address those pressures.
5. Use the right people, processes, and SAP technology tools to address those new “operationalized” strategies. Implement the systems and technology to support the new strategies and measures.
6. Develop a weighted index of those goals or metrics that appropriately considers your competitive pressures and your value proposition as your first KPI.
7. Execute an organization-wide communication program about the new metrics, and the new index, and its meaning to the company in the marketplace.
8. Provide an incentive, generally provided quarterly, for meeting certain KPI related index targets rather than individual goals or metrics.  Cause the company to pull together in the same direction regardless of some of the competing demands that individual goals might create.
9. Communicate to the organization that an annual adjustment of goals, or of their weights will be performed and the KPI index measure will be reset each year and that any incentives will be based on the new “norm.”

An Example of the Correct Use of a KPI as a Useful Business Measure

Probably the biggest problem I see with what many practitioners call KPI is that they measure activity and not results.  Just as an illustration consider the call center below.

You need good measures for good business results

If you operate a call center and have defined a “key performance indicator” as the number of calls per hour per phone operator you may not be measuring the right thing.  So what is a proper KPI?

In the brief example of the call center, the company KPI (i.e. the Business RESULT) might be customer satisfaction, customer retention, or customer acquisition.  Those would be proper Key Performance Indicators that would filter down to the individual organizational measurements to show how a crucial business issue is being measured.  In other words, measuring calls per hour might be a cost based performance indicator (measuring activity), but is that really what is important to the business?  Did you take the time to build customer loyalty (i.e. customer retention), was this a prior customer calling about some issue and did you take the time to try to work with them to regain their business?  Was this a brand new customer?  In other words, what business issue are you trying to address with the activity you are performing and want to measure?

Related Posts:

• The Real Reason Executive Participation Creates IT Project Success
• Tactics, Strategy, ROI, TCO and Realizing Business Benefit from SAP
• Using SAP to Improve Revenue and Profitability
• Competitive Pressures and Value Propositions, Is Lean the Answer?
• SAP as a Change Enabler

When ERP projects fail it is popular (and easy) for consultants and the project management team to simply throw up their hands and site “lack of senior management commitment” as the evil force behind it. However, like much of the conventional ERP wisdom out there today, the real issues can be much deeper than that.

 In my previous blog entries, I posed the following questions:

Why would any management team spend hundreds of thousands or perhaps  millions of dollars on ERP with the goal of failing?

Do ERP Executive Steering Team members in most organizations consider themselves “not committed”?

Do people rise to senior management levels in most organizations because they are totally incompetent?

Many times what is perceived as “lack of management commitment or ownership” is really a failure on the part of your consultants, the executive sponsor, and internal project manager to do their jobs. Stepping back for a moment, commitment to ERP starts with education. However, all too often ERP project managers mistakenly assume that an educated management team is by default a committed management team. This is not a technicality, because in practice there can be a huge difference between “education” and “execution” of the senior management role. This is precisely where consultants and the project management team drop the ball when it comes to managing the executive staff (and yes they must be managed).

A big part of managing the ERP Executive Steering Team is not only educating them on their project responsibilities; but also coaching them on how to fulfill them and making sure they do. This includes specifically what they must do, when they must do it, and in some cases, how to do it. In addition, it involves tactfully reminding executives when they have not completed an assigned task and finding out when they will. We are all big boys but if your consultants cannot add value in this area, you have the wrong consultants.

In addition, this is not about spoon-feeding helpless executives. Remember though, most senior managers did not rise to their level in the organization because they are ERP implementation gurus. Furthermore, it is true they have a business to run in the meantime. Therefore, if you want management to “demonstrate” their commitment to the project, the project management team must plan and facilitate this process and not leave it up to chance. Without demonstrated executive commitment (highly visible involvement; communication and supportive actions); do not be surprised when no one else in the organization takes the project seriously.

Many times consulting firms avoid frank and honest dialog with senior management for the fear of falling out of favor. In other words, they act like sales people not project managers. Other consulting firms simply do not have the experience and skills to manage executives. On the other hand, many internal executive sponsors and project managers are uncomfortable with “upward” delegation of responsibilities to their executives. Nevertheless, a project management team that cannot do this has no business running an ERP project. You see, it is not about becoming the bad guy, disrespectful or rocking the boat. What many fail to realize is most senior management teams (spending millions of dollars on ERP), actually want the project to succeed and have no interest in shooting a project manager trying to do his or her job.

http://it.toolbox.com/blogs/street-smart-erp

Related Posts:

• ERP Failure: The Organization is More Than Partially To Blame
• Reduce SAP Project Stress Part 3
• The Top 5 ERP Success Factors by Project Stage from 22 Critical Success Factors
• ERP, SAP, or IT Project Management and Prototyping for Success
• ERP Consultants: Is the Promise of Knowledge Transfer just part of the Sales Pitch?

SAP Business Case Target

Your company’s SAP or ERP business case should start before your RFP, and not just at a high level. It is important to take some time up front to get educated and develop some key understanding before ever issuing an SAP RFP.

There are a number of steps you can and should take, first among them is to get educated.  Educated software buyers are more sophisticated, and the more sophisticated you are the better your results will be.

There are many benefits to being an educated software buyer.   The more educated you are:

• The better the quality of the ERP RFI or RFP.
• The better choice you will make at vendor selection (you’ll be able to see past sales pitches to the substance).
• You’ll be able to make a more objective assessment during demonstrations.
• You’ll be able to focus on ensuring vendors show you what is really important to make a better decision.
• The better your project will be scoped and blueprinted, and;

Ultimately, you will end up with a better project and results overall.

The most successful RFP business case for an SAP, ERP, or IT project will include several components:

ERP Project Value Proposition Elements

• Operational Excellence – expected cost reductions from automating and improving ongoing operations and their processes.
• Customer Focus – how will people, processes, and technology enable operations, goals, and reports to focus on the customer needs and wants? How will sales, marketing, and customer service be integrated and extended to delighting the customer? Tools and resources to empower customers for success with the organization’s products and services.
• Innovation – Tools and resources to support internal and external collaboration, engineering efforts, and market intelligence.

Business Competitive Pressures to consider for your SAP Project

An honest assessment of the organization’s strengths and weaknesses in the four core competitive pressures businesses face [FN3]:

• Customer options
• Vendor power
• Existing competitors
• New (innovative) products or services.

Underlying the value propositions and the competitive pressures is the need for solid business goals and metrics that you expect the software application to enable.  I’ve provided some insight on the process of developing meaningful KPIs which can become the basis for a solid business case.  That article helps to define the business drivers that are necessary to intersect with technology.  By changing how you look at SAP to focus on the business rather than the technology you are far more likely to achieve great results and more satisfaction with your implementation.   And on top of that, by making the business drivers the focus of all of your efforts you will also gain more meaningful insight into aligning the right implementation vendor with your technology project.

For success in highly competitive global markets your organization must be agile enough to change and adapt as necessary. This is true no matter what the size of the organization is.  And by focusing on business needs rather than just on the technology you are far more likely to design processes, goals, metrics, and project expectations that will help to keep you from getting locked into rigid technology restrictions.

Where to start with developing a solid SAP business case based on business and IT strategy:

1. Get your company “A” team together to work on the initial project definition. Be sure they are the people that will have key responsibilities for the SAP project (and they should be key decision makers for the vendor selection process).
2. If you have not acquired an SAP software agreement yet then contact an SAP sales rep and ask about getting a copy of the ASAP toolset as part of your evaluation process for software selection.  Be prepared for the sales pitch but if you have not yet decided on SAP just insist that you are going through the up front due diligence of Discovery and Evaluation of what SAP might be able to offer.
3. If you’ve already agreed to purchase the SAP software then have your sales rep give you access to SAP’s ASAP toolset. Install it on any web server (Apache, IIS, etc.) and begin getting your team familiar with it.
4. Set a timeline and deadline for the initial project team to produce a business case with your company’s core strategic direction.
5. Get familiar with the ASAP tool set.
6. IF you have an SAP software agreement then you also have something called “IDES” available to you free from SAP. That is a complete SAP system used for training by SAP America. It is the full and complete application with pre-loaded data for a fictitious company. If you are a licensed SAP customer it is NOT a trial version, it is an educational version that does not have some short term expiration date. Along with it you can also go through installing some of SAP’s Best Practice scenarios to get more familiar with the Best Practices resources SAP provides.
7. If you do NOT have an SAP software agreement or if you do not have the time or resources to set up an internal educational system there are several reasonable online services for direct SAP access.
8. If you set up the SAP IDES system, or decide to get remote access, then have several key decision makers about the SAP vendor selection begin to get familiar with the software to help with your own understanding.
9. Get familiar with the ASAP tool set.
10. Plan on spending about 3 – 6 months on all of this PRE-project prep work depending on the size and complexity of your company and implementation requirements.  It may take 2 – 4 weeks or more just to put the RFP together after you have had a few months exposure to SAP’s resources and tools.

From this exercise one of the most critical drivers of success in the initial business case will be the ability to define outcome based business drivers for the project. These outcome based business drivers should be articulated in such a way as to be able to be verified after go-live and sufficient enough to write a contract with a vendor to include them along with penalties for lack of compliance.

SAP Business Case critical elements

No matter how you draft, define, or craft your business case it should contain a few critical elements:

• People – the expected organizational effects or company changes such as: changes in workforce behavior, more collaboration, greater cross-functional cooperation, more customer focus, etc.
• Process - the existing business processes will be implemented along with any expected cost savings from improvements or automation (lagging indicator processes).
• Process and Technology - any new business processes that will address competitive pressures or value propositions and any expected savings or revenue opportunities (lagging and leading indicator processes).
• Technology - the Key Performance Indicators (KPIs), reporting requirements, goals reporting, and other metrics that the SAP implementation will address and provide the details for (lagging and leading indicator reports). This would also include any new technology that is needed or desired to reduce operational costs or improve revenue and profitability.

Notice that this business case includes the three key areas of business process and technology intersection in the marketplace–, people, process and technology. It is equally as important to note that the best business case will also focus on both lagging and leading indicators of success. And one other key point to keep in mind is that this type of business case is focused on business transformation. Transformation in the form of developing an organization that is more focused on competitive pressures, company value, and growth. As a result all any application can do is to enable those transformation efforts, and it can lead them, but it cannot make them happen.

The best measure of success of your SAP project is whether the tools, resources, and means to achieve that business transformation were delivered as expected.

In other words, did the software and implementation vendor provide you with the tools and resources you need as a business to address your business drivers and your business reasons for doing the project?

No software, technology, or even capital equipment is going to suddenly make you money by itself.  Even capital equipment needs the raw material, labor, or service inputs that produce the products or services you make in a new, cheaper, or better way.  In other words, no equipment or technology investment alone is going to create revenue, profitability, or cost savings without having proper inputs and outputs to use that resource.  It is the new or more effective way of processing those inputs and outputs that makes the difference and this is where your business case should focus.  What do you hope for SAP or any other technology to enable your business to do better.

Business transformation must come from the business although it is enabled by the technology.

From this business case a set of “success criteria” and of strategic goals, initiatives, processes and reports can be defined to be included in an RFP to a vendor. And although I’ll write another post on RFPs another day, one of the most important focal points of an RFP and of an SAP project is in achieving “operational independence” which is just a fancy way of saying that you have developed the internal competence to be able to process day to day SAP related issues without outside vendor involvement.

Consider Independent SAP Contractors as SAP Project Auditors and Coordinators

If there is sufficient funding available it would also be helpful to bring in one or two very seasoned contract veterans at this point to help educate you and your team about the ASAP methodology, SAP’s Best Practices, solutions options, help with an RFP, and in learning how to use the SAP system, etc.  And even if you don’t have an SAP license yet, your company may wish to use one of the many SAP educational services that provide access so you can get some initial exposure to the application with no risk and no obligation.

If you decide to bring on an outside contractor or outside vendor resources to help with the initial efforts it would be to your advantage as a company to insist that by accepting that responsibility they will not be allowed to participate as a competitive vendor during the RFP.  This will prevent your up front efforts from being skewed or distorted  to have the “deck stacked” to ensure only they get the project. And by employing one vendor’s resources for that portion of the project with an absolutely clear expectation that they will not replace the final vendor you help to avoid some of the finger pointing and “gaming” between the vendors.

In spite of an incumbent vendor or consultant’s claims, or their sales pitches on how they know your business the best, you are likely better off using their talents for the vendor selection and for guidance during the actual project.

Whoever you bring in during the Discovery or Evaluation phase (independent contractor or implementation vendor) it would be best to draft an agreement that they are not allowed to participate in the RFP process as a competitive vendor. However, depending on your vendor selection it might be a good idea to work out an arrangement with the incumbent vendor who helped during the Discovery or Evaluation phase to be first choice for project staff augmentation of your internal resources or staff augmentation for the prime vendor only if that vendor does not have certain key resources during the course of the project.

SAP Business Case conclusion

Good luck on your SAP business case, it will be the beginning of a business focused journey that will help to move your SAP implementation, SAP upgrade, or SAP development work in the right direction toward realizing real business benefits. You might actually discover that elusive “ROI” and recognize the ERP system’s promise of enabling your organization to be more competitive in the marketplace and enhance your value proposition.  Using your new system to enable the business to focus more effectively on the underlying measures that are important for revenue and profitability should be your primary goal.  And defining what those measures and processes look like creates the foundation for the success criteria you need for your project.

For a little more insight read the article on effectively scoping your SAP project [4] to get some initial scoping for the SAP RFP. Being able to do some initial SAP scoping work before your SAP vendor RFP will help to level the playing field some.

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[1] SAP as a Change Enabler
http://www.r3now.com/sap-as-a-change-enabler

Change How you Look at SAP to Create ROI
http://www.r3now.com/change-how-you-look-at-sap-to-create-roi

Why SAP Projects Fail to Deliver ROI (and How to Change IT)
http://www.r3now.com/why-sap-projects-fail-to-deliver-roi-and-how-to-change-it

Using SAP to Improve Revenue and Profitability
http://www.r3now.com/using-sap-to-improve-revenue-and-profitability

[2] SAP PDF files with overviews of the toolsets for use on your SAP business case.
ASAP Methodology and Tools Overview (KEY Resource)
ASAP Proven Methodology for Fast Successful Implementation (similar to the one above)
Additional Resources for Using SAP Tools and Methodologies for Success (similar to the ones above)

Nearly every SAP vendor claims they use the SAP ASAP methodology but few actually follow it.

[3] Adapted from Harvard Professor Michael Porter’s “Five Competitive Forces” model. Professor Porter adds a fifth consideration–, the entry of new competitors. This author believes that while the fifth “force” might be a valid consideration for academic purposes that in practicality if an organization were able to master the other four competitive pressures then the barrier to entry for new competitors would be so high as to make that competitive pressure irrelevant. That fifth force only becomes a real factor if one or more of the other competitive pressures sufficiently lower the barriers to entry.

[4] Effectively Scope Your SAP Project
http://www.r3now.com/effectively-scope-your-sap-project

Related Posts:

• Tactics, Strategy, ROI, TCO and Realizing Business Benefit from SAP
• The Real Reason Executive Participation Creates IT Project Success
• Using SAP to Improve Revenue and Profitability
• SAP Customer Responsibility for SAP Project Success
• SAP System Vendor Project Success Criteria 1