SAP ROI — Enterprise Architecture & Business Solutions

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

Modern technology has lowered the barrier to entry for new competitors by allowing international outsourcing, greater agility, quicker product design to market, and specialized focus on niche markets causing more market fragmentation and specialization. Customers have a wide variety of information from sellers and the Internet about products, design, services, options, pricing, and availability.  Things are more dynamic than ever.

Because of the pace of change, focusing on “best practices” and internal process improvement, or even extending processes is no longer enough. Business can rarely (if ever today) integrate, automate, and streamline to achieve marketplace success –, to one degree or another nearly every competitor is doing this or is quickly headed in that direction.

Business complexity and the breakneck pace of change turns yesterday’s breakthrough technology into today’s commodity; vendors are modestly integrated into the extended supply chain, all the way from raw materials to end customer delivery; customers are more sophisticated and have more options than ever through the Internet; competitors have worked to incorporate similar technology throughout their entire process chains by integrating, automating, and accelerating their processes.  As a result, business demand on technology simultaneously creates new opportunities and new struggles. 

For years SAP has been trying to encourage their customer base to focus on creating value as one way to address some of the changing business dynamics. SAP has developed major toolsets to focus on strategy and value for over a decade and often reference this need for a value and strategic focus in their literature:

Investing in technology is only half the game. Investing in IT without analogous improvements in the management practices around IT will lead only to a slight increase in productivity. Leading companies that invest in IT while enhancing management practices and governance have experienced sustainable results in increased value and improved productivity, in some instances as much as a 20% boost (reported in Stephen J. Dorgan and John J. Dowdy, “When IT Lifts Productivity,” The McKinsey Quarterly, November 2004)… [A]n IT project needs to be not only on time and on budget but also on value. Similar to any other capital investment, the project is not done when it goes live.

SAP Executive Insight Series. Accelerate Value Creation: The Virtuous Cycle of Using Technology to Maximize Business Value, pg. 3, September 7, 2009.

SAP built a multi-billion dollar business based on helping business succeed in strategy and value as critical components of their software implementation. So why isn’t it happening? 

What about “Lean”?

If you are embarking on “Lean” initiatives it indicates that your market space already is, or is rapidly headed for commoditization. The reason is that “Lean” processes are primarily another type of process improvement initiative that only addresses one of the three key areas of the “value proposition.” Lean focuses on the value proposition area of operational excellence but does very little in the other key arenas of customer focus or innovation. In turn, operational excellence addresses cost reduction through automation, cycle-time reduction, and operational efficiency.  But is that what you need?

Excess capacities, combined with the frequent layoffs that occur during economic downturns indicate that many enterprises are operating at or near optimal levels, maybe not perfect, but certainly efficient. Whatever backlog exists before any market downturn or disruption is low enough that those backlogs quickly dissolve. When market downturns occur, resources are adjusted relatively quickly in response. As market downturns point out, integration, automation, and streamlining are not the problem. The excess capacity, whether in products or services, demonstrates that processes are effective and efficient.

Do you need “Lean” or Six Sigma? Maybe, maybe not. There are two reasons your business or organization should consider this operational excellence proposition over the others–, 1) your competitors are beating you on price, or your market is already a commodity or is quickly becoming commoditized, or 2) if your product or service requires a significant amount of precision, Lean makes sense.  Otherwise why would your pour your company’s limited resources, time, and energy into these methodologies where the “last mile” of change has the highest cost but yields the smallest gains? 

If your competitors have a significant price point advantage then it may make sense. Otherwise your efforts and resources might be better spent focusing on competitive pressures, market dynamics, business strategy, IT strategy, and value propositions.  With Lean you may be running a dangerous race to the lowest price in the marketplace that will squeeze your profit margins, press your cash flows, and commoditize your products or services.  On top of all of this you may risk of stagnating or even declining stock prices unless you are able to capture significant market share.

Using “Lean” methodologies to squeeze out the “last mile” of very small efficiency gains is no longer enough to gain real competitive advantage in the marketplace. It might eliminate or streamline some of the bureaucracy, and it will help to minimally improve margins and improve cycle times, but it will not create breakthroughs that companies need to survive and thrive in today’s business environment. In a nutshell, process integration, automation, and streamlining is not the only issue to be addressed.

Is there an Answer to Competitive Pressures and Value Propositions?

If your organization approaches your SAP or IT investment from a business and IT strategy perspective you are far more likely to achieve the kind of benefits and results you are looking for. Unfortunately by the time you get to the RFP you are asking vendors to bid on a project where there is a built in emphasis on putting the system in.  Integrators are bidding on the IT work, not on business transformation, not on business benefit, not on business goals, not on addressing competitive pressures–, the RFP only addresses IT work. Before the vendor RFP is issued by your company you should be having key internal discussions about why you are doing the project.  What are your business drivers?  The direction of the company must be considered, the key goals and initiatives defined, and then your RFP should insist on vendors demonstrating their direct competence on delivering solutions that enable your key business drivers.

IT Directors, CIOs, CFOs, and other key decision makers who influence technology decisions find it difficult, if not impossible for their vendors to provide the innovation and guidance for this type of implementation. It is a creature of the business climate and the traditional RFP approach that these typical implementations occur in.  Some of the things that influence the RFP focus on delivering a technology solution rather than business solutions are:

1. ERP systems generally can be very costly to implement.

2. The marketplace has dictated lower implementation costs, which has in turn led to;
   a. Implementation “success” being defined down to “on time and on budget.”
   b. Many software vendors hire the least cost but acceptable application consultants to meet some cost and margin goals.

3. Few or no real entrance requirements to SAP consulting has led to a wholesale consultant cottage industry of frauds and fakes that are not well-vetted.

4. Of the actual SAP consultants with verifiable experience few have real business background outside of an SAP implementation (as a result they do not understand value propositions, business strategies, competitive markets, etc.).

5. Fewer consultants have real process integration experience to be able to cover an entire process from start to finish. For example, there are few genuine “Order to Cash” or “Requisition to Pay” or “Plan to Produce” consultants.

6. Implementation vendors have no incentive and no requirement to participate in or drive organization success. They have an incentive for project success, as defined by “on time and on budget” but no incentive or guidance on your organization’s success.

If you don’t see the spark of innovation, creativity, strategy, or marketplace understanding in an implementation vendor during the selection process it is unlikely to change once you sign the contract with them. If business expertise and strategy development appears lacking in the consultants being proposed for your project you won’t see it in your project; and it is even less likely you will see it in the SAP solution that is rolled out to the user community. If they don’t have it when they come to the table, they won’t have it when you start paying them! There are ways to change this frequent disappointment:

First, the business must drive the project right from the beginning–, and that beginning is before an RFP is created.

Second, an educational process is required which includes critical tools, resources, methods, and techniques to ensure you finally realize ROI and business benefit from your SAP implementation. And not just cost-focused benefit either, but real business transformation benefits and business focus on the IT investment.  This process must include some repeatable process for evaluating your competitive pressures, addressing your value proposition, and integrating your employees through collaboration.

Third, that new knowledge from the educational process must be incorporated into the entire implementation process, and ultimately in the entire organization–, from before the RFP is issued, to the vendor selection, through the Blueprint, into the Implementation, and throughout the organization once your SAP system is operational.

Today’s organizations need more than the old vendor implementation model, today’s organizations need consultants to deliver results. Previous consulting methods have produced consultants that are little more than expensive commodities that focus exclusively on the “better, faster, cheaper” method of project delivery. But they only deliver technology solutions, they rarely, if ever, deliver business solutions.  That same commodity is available to every organization everywhere. It does nothing to tailor the organization for today’s global competitive pressures or for enhancing their value propositions.

The client or customer who implements, upgrades, and adds on to their SAP landscape can no longer afford the commodity consultant. Because of the lack of genuine business knowledge and experience from application “technicians” there is consistent disappointment from C-level executives who want to see the promise of technology transform their business. These “technicians” are not able to assist in transforming the enterprise, or business, or an organization to compete in today’s marketplace. Your company must insist on more from consulting vendors and from placement firms or you will continue to be disappointed by the lack of results.

Additional Reading and Resources on Business and IT strategy:

The Real Reason Executive Participation Creates IT Project Success
http://www.r3now.com/the-real-reason-executive-participation-creates-it-project-success

CRM, ERP, BI, and IT Investment — Where Do You Find the Business Benefit?
http://www.r3now.com/crm-erp-bi-and-it-investment-where-do-you-find-the-business-benefit

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

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 as a Change Enabler
• Business and IT Alignment – Integrating Technology and IT Spend with Business

In many cases those pushing for a new ERP system are comparing the worst of the current environment to an idealistic ERP concept that is all things to all people.

Sometimes the best way to avoid a train wreck is not to get on the train. In other words, do you really need a new ERP system and, if so, is now the right time to proceed? Performing an honest and thorough assessment of business needs and alternatives is an important part of taking ownership in the ERP business case, the decision not to do ERP or any alternative solutions. 

It is understandable this question is not always popular among the ERP zealots; but for the organization, it is a very necessary discussion. There is an old saying that certainly applies: “when you have a hammer in your hand everything can look like a nail”.  That is, believe it or not every organization does not need a new ERP system. 

The problem is when the ERP bandwagon starts to roll and no one in management is asking the right questions, those with legitimate business concerns get steam rolled. It is often not even a fair debate. After all, in many cases those pushing for a new system tend to compare the very worst of the current environment to an idealistic ERP concept that at this stage is all things to all people. Make no mistake; there are plenty of good reasons to implement ERP including many “no brainers”. However, in most organizations the decision is not so obvious and one must objectively evaluate the validity of the proposed business case, timing and not shoot the messengers that raise the red flag. 

Therefore, an executive running a business in the real world must ask the following questions before spending millions of dollars on ERP.  Again, the intention is not necessarily to rain on your ERP parade; but perhaps bring some sanity to the decision-making process.

1. Are the business strategies and assumptions that drive the perceived need for a new ERP system valid?

2. Would an ERP project be one of the top two priorities within the organization (given other internal and external projects, initiatives, or probable events)?

3. What is really broken, the current software or our business processes? (Don’t attempt to automated the mess you already have!)

4. Has the organization attempted to fix the things it can without new software? (The point is bad policies, procedures,  work flows,  controls, cultural issues and measurement systems typically have little or nothing to do with software, but a lot to do with poor business performance).

5. Will the availability of “better information” actually result in better decision-making or make lousy managers more effective?

6. Does anyone understand the data or capabilities of the current software (that are not utilized)?

7. Is the promise of “new technology” always a good reason to throw out application software?

8. Do we have bad software or just bad data (garbage in, garbage out)?

9. Is everything about the current software terrible (or are there areas where a major step backward is inevitable with new software)?

10. Can a few customizations or enhancements to the current software satisfy 80% of the important needs for a fraction of the time and cost? (I know mods are a no no but sometimes they make perfect business sense).

11. Can a few purchased (and integrated) “bolt-on” applications do the trick vs. buying an entirely new package (that likely has a few bolt-ons of its own under the covers)?

12. Is the current software really on the brink of “not supported” by any vendor(after all, they have been saying this for years) and, if so, what are the other support options?

13. Before spending a fortune on software to implement a new operating philosophy or paradigm, should we first “prove out” the idea with a limited pilot? (even when a few software work-arounds are necessary to complete the pilot).

14. Are the perceived operational benefits and cost savings of new software real or fluff? (The history of ERP states they might be fluff)

15. Have we considered ALL the implementation and support cost in the ROI? (Many are not so obvious).

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

Related Posts:

• Using SAP to Improve Revenue and Profitability
• Competitive Pressures and Value Propositions, Is Lean the Answer?
• Tactics, Strategy, ROI, TCO and Realizing Business Benefit from SAP
• Why Indexed KPIs are Critical for Business Performance and Success
• The Real Reason Executive Participation Creates IT Project Success