Business Solutions with SAP

Competitive Pressures and Value Propositions, Is Lean the Answer?

November 10th, 2009 by

business and IT strategy

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

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)

Related Posts:

The Real Reason Executive Participation Creates IT Project Success

October 10th, 2009 by

Executive Participation Creates IT Project SuccessSince I started in the SAP (ERP) arena in 1994 I’ve heard it often repeated, reiterated, studied, and pronounced that one of the key criteria for IT project success is executive participation.  That mandate applies to any large scale project, whether it is ERP, CRM, APO, SOA, BI, or other solutions.

Many implementation companies wrongly believe this is because the executive brings a measure of authority and visibility to the project and that is the key reason for executive participation.  The most often overlooked reason has more to do with the senior executive role than any of these other reasons.  And although the previously quoted reasons are valid it is because of executive insight into the company’s future that creates the possibility for strong client satisfaction and success.
Most mid to large scale IT projects, whether they are ERP, CRM, Business Intelligence, or other business transformation initiatives last at least 3 months, and most are 6 months to 2 years (or more) depending on the size, scale, and scope of the company and IT effort.  Combine this with the senior executive role of setting direction and strategy, as well as mid and long term goals of the organization, and that insight is critical to ensure success. 
If you’re a CIO, IT Director, or IT decision maker, extended executive involvement can make a real difference with C-level satisfaction with implementation or upgrade results–, without it you may be headed for rough roads and difficult budget discussions.

A Couple Illustrations of Executive Participation for Project Success

I’ve been on SAP projects where the executives asked some key questions about application readiness for future events.  They were not clearly noted as such, but were definitely voiced, and then pushed into the project. 
On one very large client, the Senior VP of Operations asked what the requirements were for adding new companies if at some point in the future they decided to acquire another business.  A couple weeks later, the client project manager insisted that the company needed full documentation to support the required configuration settings to set up a new company code for financial postings only, not operations.  About six months after the go-live event they purchased another company where they left the operations in tact, without altering their existing systems, but interfaced to SAP as the financial system of record. 
At another company the CEO frequently attended weekly project team lead meetings and in one of those discussions noted the company needed to be able to source products from a different distribution facility, by customer, on an ad hoc basis and for periods of time that would not be consistent or continuous.  This was required at times even if the primary warehouse had stocks to service the customer. 
Special development efforts were made to integrate a customized solution allowing for the default customer distribution warehouse to be overridden by customer or product, or a combination thereof for a particular date range.   On this particular project about three months after going live the reason was discovered. 

The business was consolidating and closing a couple of distribution facilities and this allowed for an orderly withdrawal of inventory and of business without significant transportation or carrying costs.  It was transparent to the customer as well.  The MRP portion of the system saw the reduced demand on the closing warehouses and therefore planned less replenishment stock until the distribution facilities were mothballed.  By the same token, the additional demand on the consolidated warehouses was also picked up and accounted for so that disruption was minimal.

Without this future preparation built into the system at go-live, it would have created significant hardships and difficulties in addressing these business needs.  The failure to plan for future business needs in the initial go-live event is also where SAP gets some of the bad press about being “inflexible.”  The reality is that if you plan, design, construct, test, and then go-live with it over the years I haven’t seen very many process gaps in the application.

Where Strong Executive Involvement Produced Amazing Results 

The previous illustrations are a couple of examples where the future state of the business was designed into SAP solutions.  The reason success was achieved was because of the longer term insight the executive participation brought to the project.  I’ve seen a few projects where the executive imprint soundly focused the project on the future strategic direction of the business by constantly challenging and refocusing the entire project team’s attention on strategic sales and marketing goals. 

At one company a scope change request or newly defined custom development would only be approved if it fit the strategic direction of automating or empowering the sales and marketing groups to profitably increase revenue.  This drove the requirement to add special CO management reporting functionality, specialized marketing spend tracking by material, customer, and region of the globe, and a whole host of other significantly customer focused initiatives.  Marketing spend and return was captured down to the individual line item on a customer order and then posted against the marketing budget to track the spend.
That company is thriving today, in a down economy, and in a particular market that was, and is still contracting (or growing smaller), even before the economic downturn. 

This project was different because senior executive participation was evident throughout the project: it included a monthly round table of every C-level executive; the Senior VP of Finance (who answered directly to the CFO) was one of the two client side project managers, and the twice monthly steering committee meetings were attended by several VPs and senior directors. 

This entire project had the future strategic direction embedded throughout the SAP implementation.  This project delivered more in terms of automation, efficiency, along with key lagging and leading indicator business goal reporting than I had ever seen on any other project.  This was also the most involved and most complex project I had ever seen–, nearly 150 legacy systems were mothballed and close to 200 interfaces were still needed. 
This multi-billion dollar, multi-national company, delivered a level of operational efficiency, customer focus, and product innovation that I had never seen before and haven’t seen since.  It was done on time, on budget, and with extensive scope.  And let me reiterate, it continues to grow in a market that was contracting even before the global economic troubles we see now.
Because of the level of executive participation and visibility the implementation vendor brought in only their “A list” consultants, and over a third of the vendor’s consultants on the project were senior level independent contractors.  On this project only the “best” would do and it was reflected throughout the project and after the production environment went live.  Full cost-based, cost reducing payback was achieved in less than two years, and as previously mentioned; revenue and profit were pushed to significant growth in an industry and economy where that should not be occurring.
The executive level of involvement and participation helped educate the senior leadership team to wider business issues and IT challenges.  This in turn led to more acceptance and adoption of IT solutions for other business challenges.  The company ultimately developed a significant IT – business competency center with numerous business representatives directly participating with IT counterparts and the business staff funded from the various business budgets. 

They got it, they understood the critical business nature of IT solutions and saw it as a strategic investment in their own areas of responsibility.  They also saw this as a prudent method to ensure their organizations and business units were adequately represented in future technology initiatives and future technology funding.  This became a huge win-win for everyone involved that has played out in a company that is doing reasonably well when by normal standards it should not be.

Lessons Learned from Executive Participation on IT Projects

Executive participation in an IT project creates visibility within the company that the IT initiative is important.  It also demonstrates a measure of authority to break through log jams and make some of the difficult decisions.  But the most important reason of all, the one that I have never heard mentioned by other commentators or implementation vendors is the strategic imprint that executive involvement creates. 

By the nature of the executive role and responsibility they set direction and strategy for the company.  They live and breathe direction and strategy.  Senior leadership frequently surveys the marketplace and adjusts course for future goals and plans.  Strategic, future-state input in an SAP project is inherent in the nature of the executive whether the IT project is ERP, CRM, SOA, BI, or process work. 

As I have seen from past experience this executive involvement causes implementation vendors to bring their best and brightest to these types of projects if they want to stay in business.  That is because the visibility to the executive staff of the skills and abilities of the consultants has a strong bearing on whether or not the implementation vendor continues on with the project, or whether there are any follow-on opportunities.

If you are a CIO, IT Director, or other IT decision maker, it’s time to make the case for stronger executive involvement.  The executive participation will help to ensure that their expectations are met and will enhance your career possibilities as well.

Properly engaged senior leadership and executive participation puts the business first and turns the technology into a change enabler or change lever.  And in the end the business is more likely to achieve the business benefit and results they had hoped for. 

Additional Resources for ROI, IT Project Success, Competitive Pressures and Value Propositions: 

Why SAP Projects Fail to Deliver ROI (and how to change it)                SAP SDN Blog  

Change How You Look at SAP to create ROI 

ERP Failure: The Organization is More Than Partially To Blame

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