Use SAP Best Business Practices For Commodity Processes But More Carefully Evaluate Competitive Processes
The debate and discussion around SAP best business practices usually assumes an “either-or” mindset. Either you use the SAP best business practices as they are or you abandon them (for more background on SAP’s “Best Business Practices” see What are SAP Best Business Practices Anyway). Several commentators suggest you should not do a software vendor’s “best practices” because you are adopting the “herd” mentality and will not be competitive in the marketplace. They completely ignore the reality that some processes do not need huge development investments. SAP provides a number of tools and resources to evaluate its solutions for your enterprise’s business processes (see Using SAP Solution Composer for SAP Scope – Process Alignment).
Commentators who are broadly against “best practices” have failed to recognize that there are different types of business processes. One type are what I call “commodity processes” or the things you must do to run business, that everyone does, but adds little or no value to reducing cost, increasing revenue, or improving margins. The other type are “value added” processes where the process itself (not ancillary manual steps) directly aid in reducing cost, increasing revenue, or improving margins. Some business processes justify custom development when a standard solution will not do certain business critical processes (see e.g. Lower SAP Application Support Costs – TCO – by Reducing Custom Solutions).
Value added processes must directly contribute to market share or address a specific pressure from a competitor or they are commodity practices which are good candidate for “best practices.” By reducing costs or increasing revenue and margins you are directly affecting your competitive posture in the marketplace.
What Are Value Added Processes in the SAP Organization?
Let me clarify one thing here, a “value added” process can be any process in a company. In one company or environment a process may be a commodity process, however in another company, or industry, that same process may be a value added process. The test for a “value added” process is whether or not it adds to your business marketplace competitive advantage. That generally means it has to reduce cost or increase revenue in more than a minimal way. As an illustration ask yourself, if you significantly increase your margins on a slow moving, outdated, low volume product or service is it worth a huge amount of time and effort? Was the investment worth it?
Management’s primary responsibilities are to increase revenue, reduce cost, and improve margins
A value added business process will generally have some type of reporting requirement attached to it. Some way to measure its performance because the process is critical to the organization’s mission. If you have developed KPI’s, goals, metrics, or reports for a particular portion of your business processing you can be sure it is a good candidate for special attention as a “value added” process (see Why Indexed KPIs are Critical for Business Performance and Success and Using Key Performance Indicators for Building a Strategy Focused Organization).
What are Commodity Processes in the SAP Organization?
In most companies “commodity” processes would include purchasing, warehousing, inventory, distribution, or other routine processes. Commodity processes and those business functions that do not have a direct impact on your competitive position. If you are a third-party logistics provider then your competitive processes would include warehousing and distribution. It is the core of your business and what you do. However in other businesses those would be commodity processes. If you are a consumer products company then sales and marketing processes would be value added where purchasing and inventory would be more commodity processes.
Worse still, in recent years IT has been seen as a “commodity” resource to be outsourced. As IT and technology functions have become more and more focused on cutting costs and shaving pennies from a few process areas they are finding smaller and smaller returns at more and more cost. As new technology is rolled out and it stabilizes the business and senior management see IT as more and more of an expensive cost center with functions that can be performed elsewhere at a lower cost. IT organizations everywhere must begin to aggressively focus on business integration and value realization or become prey to outsourcing themselves (see IT Outsourcing, Off Shore Support, Cost Cutting and IT Department Changes).
SAP Software Best Business Practice Processes
While I have long advocated for business process engineering rather than software engineering there are times when custom development is justified. The key to understanding when you might choose one approach or the other is related to whether a process (or sub-process) is a “commodity” process or a “value added” process.
Considering cost, revenue, and margins separated from marketplace competitiveness is misplaced. Unless there is some significant competitive advantage or directly aligned business driver then only standard functionality should be used.
When you consider your SAP software investment it would provide the greatest business benefit to pay special attention to value added processes. Do not waste time or development effort on commodity processes. Spend the time, effort, and money on change management for commodity processes because after the initial change cost ongoing Total Cost of Ownership (TCO) for these SAP processes will be the least expensive (see Where do you Start with SAP Return on Investment or SAP ROI?). Regression testing, patches, fixes, new functionality, and all of the other things you do with SAP business applications will be easier and less expensive for the commodity processes.
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