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

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

SAP Project Blown Budget-Timeline

For years I’ve heard the claims about blown SAP budgets and blown SAP project timelines. Participating in SAP projects since 1994, on over 20 SAP projects, I’ve experienced a few project overruns [FN1] and on a few others, we have come in under budget.  I can’t say any of the projects were ever early. While I believe that coming in under budget is often possible reducing the time frame is much more difficult because of the planning and coordination processes.  Trying to adjust all of the parallel work streams together on a project plan, and getting the coordination and timing correct is much more of a challenge.  In other words there are lots of moving parts that you have to change the timing on.  That is unless you are an SAP “project manager” who has an aversion to using normal WBS, Network, and Activity based project plans.

Aside from 1) scope management, 2) executive buy-in and participation, and 3) using a proven methodology, etc., there are other reasons that cause some SAP or ERP projects to go over budget and over time–, there are basic issues of project coordination and consultant skill.

SAP Project Management Planning and Coordination

After the scope, deliverables list, and a project plan you need good monitoring tools.  A project manager must also consistently communicate the timeline and deliverables ahead of time, throughout the project, to mitigate blown timelines.  They must also provide key templates and the instructions on using them effectively throughout the project, ahead of time.  However there are still other project management planning issues that must be addressed.

A good project plan and methodology will have “tools” and templates that are sophisticated enough to allow time to resolve resource and task leveling constraints.  The deliverables must be designed to support the completion of key milestones and project activities so that they demonstrate not only completion but quality as well.  More than just a “checklist” deliverables should instill some confidence that the project activities they address were done well.

Project plan micromanagement has a way of killing project momentum and destroying project team morale

If deliverables tracking ”tools” are not able to support task and resource completion status of the deliverables then a project manager does not have the correct tools to make critical resource leveling decisions.  Your project and its deliverables will be inconsistent and untimely. And by deliverables tracking “tools” I am NOT referring to the project plan.  Project plan micromanagement has a way of killing project momentum and destroying project team morale.  For more information on this, please see the first section in ERP, SAP, or IT Project Management and Prototyping for Success .

One of the biggest problems I have seen from inexperienced project managers is planning at such a detailed level that they spend all of their time micromanaging individual tasks and miss a lot of the “trains” coming at them further up the project track. They overload a project with the “appearance” of managing it through stupid “trackers” and monitoring tools that are overly complex and add little value to the project.

If you have the wrong consultants on the project you will be forever in design mode throughout the entire project which may blow timelines and budgets.  One of the unfortunate side-effects of this type of consultant is that you generally begin to get that sinking feeling around integration testing time.  And by the time you are at integration testing you have moved so far down the track that it is sometimes too late.  For some ideas on how to prevent this, please see the post on  Breakthrough Project Success: Part 4 of 4, Last Low Risk Chance for Results for some techniques and ideas on reducing this type of consulting mismanagement.

Business Process Chains are Only as Strong as their Weakest Project Link

SAP’s integration between all of the functional modules creates interwoven process chains.  These process chains require complete dependence on each other during an implementation so that the integration touch points between the modules are properly designed. For example, SD (Sales and Distribution) and MM (Materials Management) must tie into FI (Financials) for the posting of Revenue (SD-FI), issuing stock from inventory (SD-MM-FI), scrapping stock (MM-PP-FI), and a whole host of other areas where there are tight process dependencies.

As an SAP project (or any ERP project) progresses, each of those process silos (SD, MM, PP, FI, CO, TR, HR, etc.) has to be coordinated so that they are at roughly the same place at roughly the same time. If you are doing configuration of master data in one area, such as the material master setup, purchasing, sales, production and finance can’t be very far ahead. There is a direct dependency on the material master. And for finance, if you are doing the setup for the sales and invoicing processes it is important to slow down enough to ensure that the accounting for revenue recognition and customer receivables is properly configured. If any module gets too far out in front of other modules it can have devastating impacts on the others. There may be a lot of rework or re-design needed, or, if a dependent area gets too far ahead they may be consuming too much of the other module consultants’ time and attention trying support that modules integration points and their work may suffer unnecessarily.

Keys Why SAP Project Timelines and Budgets are Blown

What are some of the other key problems that cause budgets and timelines to be blown?

The first and most obvious is when the timeline and scope are not realistic.

Beyond this it can also be anything that causes any one project area to get “out of synch” with another project area.  Some of the reasons for projects getting out of synch include when scope is too large in one particular module for the number of resources assigned. It may be that one consultant or module is far behind, or far ahead, of another module for any reason at all.

Other times it may be that the business has not dedicated the right core team members and they do not have sufficient knowledge of the business, or know where to get it.  When the wrong business-side core team members are assigned to a project you can be sure there will be lots of missed items and lots of rework no matter how skilled a consultant or system integrator is.  There is little substitute for the business-side resources and their level of experience within your company and industry.

A consultant’s lack of experience, or exposure, or, if they are a fake (which is VERY common in the SAP world) may contribute to problems.

There are two solutions to many of these issues.

1) The first and most important is to make sure your vendor staffs your project with only the right consultants with verifiable and deep SAP experience (see Screening and Interview Methods to Find the Right SAP Consultant and Screening and Interview Methods to Find the Right Consultant – Part 2).

2)  After that, it is a project manager’s responsibility to ensure that client and consulting resources are leveled and adjusted as necessary throughout the project.  When a project manager tries to manage a project at a too detailed task level they can get “lost in the weeds” and not realize that their project is headed for trouble.  The project manager must have the tools and resources to recognize if the teams are on track, off track, or starting to get out of synch. And the tools to support this must be sufficient enough to allow early enough notice to make the necessary staffing and resource adjustments.

In a nutshell a project manager must have a list of deliverables, and with that list of deliverables a set of mechanisms for tracking the progress on those deliverables which roll into the project plan.

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[FN1] I attribute that success rate to the two consulting companies that I worked at before going independent. They had philosophies about implementation that helped clients realize success. Both of them had very focused policies about getting experienced consultants who had both SAP and business experience. In all the years since I’ve been independent I have seen few projects with that caliber of consultants. It took me a while to realize that these companies I worked for early on frequently staffed projects with what would be considered today as “Platinum” level resources.

Additional Resources for SAP Projects:

Some methods to reduce SAP or ERP project stress

Reduce SAP Project Stress: Part 1 Setting SAP Project Expectation Setting
http://www.r3now.com/reduce-sap-project-stress-part-1

Reduce SAP Project Stress: Part 2 SAP Project Integration Points
http://www.r3now.com/reduce-sap-project-stress-part-2-integration-points

Planning a Smooth SAP Go-Live

Planning For a Smooth SAP Go-Live: Part 1
http://www.r3now.com/planning-for-a-smooth-go-live-part-1

Planning For a Smooth SAP Go-Live: Part 2
http://www.r3now.com/planning-for-a-smooth-go-live-part-2

Planning For a Smooth SAP Go-Live: Part 3
http://www.r3now.com/planning-for-a-smooth-go-live-part-3

Planning For a Smooth SAP Go-Live: Part 4
http://www.r3now.com/planning-for-a-smooth-go-live-part-4

How to screen for SAP consultants
Avoid fake SAP resumes, fake SAP experience, and get the experience you pay for.

Screening methods to find the right SAP consultant
http://www.r3now.com/screening-methods-to-find-the-right-sap-consultant

Screening Methods to Find the Right Consultant – Part 2
http://www.r3now.com/screening-methods-to-find-the-right-consultant-part-2

Corporate and Personal Liability for Fake Consultants
http://www.r3now.com/corporate-and-personal-liability-for-fake-consultants

Related Posts:

• Planning For a Smooth Go-Live: Part 3
• ERP Project Plan: Getting Real Part 3
• SAP Implementation Projects: Still Crazy After All These Years
• Reduce SAP Project Stress Part 3
• ERP Project Plan: Getting Real (Part 2)