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ERP and SAP Business Case for ROI, Business Benefit, and Success

November 23rd, 2009 by
ERP or SAP Business Case, CRM, ERP, BI, and IT investment, where is the business benefit?

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 enableI’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.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

[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




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Tactics, Strategy, ROI, TCO and Realizing Business Benefit from SAP

August 26th, 2009 by

Tactics, Strategy, ROI, TCO and Realizing Business Benefit from SAP

When implementing or upgrading SAP too often I encounter back yard mechanics who changed the oil on someone’s cars and checked the tire pressure–, somehow they think that qualifies them to do engine overhauls on Formula 1 race cars.

And just in case the analogy doesn’t seem to make sense, why again do you expect old-style implementation vendors and consultants to transform your business into a competitive powerhouse by only addressing cost-focused ROI and TCO methods?

What About SAP and ERP Cost Savings for ROI and TCO?

Sure, cost-savings and process improvements are critical today, and they can not be ignored or dismissed on any ERP project, but they can NOT be the key focus of the project either if you expect your company to gain any marketplace competitive advantage.

No wonder survey after survey shows C-level executives disappointed by the return on their ERP investments. If you want Formula 1 results in the marketplace, use Formula 1 approaches, methodologies, vendors, and consultants on your SAP implementation or upgrade. I must warn you though, most consultants and vendors are clueless at how to do anything but take you down the same old tired cow paths to marketplace obscurity.

A cost based ROI or TCO implementation or upgrade approach will never make you a winner in the marketplace.

It’s certainly important to save you a few bucks and reduce some of your overhead, but you can only squeeze so much out before something else has to give. There is nothing about it that makes you unique that can’t easily be copied by all of your other competitors in the marketplace. Worse still, sometimes when you are the first to implement all of these new process improvements and automation methods your competitors get your lessons learned on what worked and what did not when it comes time to modify their own processes.[FN1] You pay the R&D premiums for the trial and error which they receive the benefit of in lower costs and reduced time. Sure, they may lag a little behind but in today’s world I can assure you they are not that far behind.

With today’s globally competitive environment focusing on cost-based metrics alone will not make you win in the market unless that cost decrease is a game changer. Many of today’s modern companies are in the last few miles of business process improvement in system design–, the last few miles of “better, faster, cheaper” ways of doing business. The drive to reduce cost has become so extreme that to squeeze the last few pennies out of products and services companies now outsource entire factories, plants, and operations to Third World countries. But now everyone is doing that too.

Except for some game changing process transformation (which is not likely) the last few miles of process improvement yield the smallest gains at the highest cost. ALL of these ROI and TCO methodologies use lagging indicators to measure success. And lagging indicators will not provide you with the forward business benefit you need to win in the marketplace.

Dusty Old Trails – Why ERP Implementations Focused on Cost

The herd mentality is alive and well with ERP implementatoin vendors. Marching down the ROI and TCO road all I find are the same old worn-out cow paths cut in the brush that everyone wants to follow. In the technology arena, known for innovation, cutting edge transformation, and forward thinking, these old dusty paths are silly. Sure, these implementation vendors try to re-package their offerings, try to suggest a focus on ROI, but they only understand cost-based lagging indicators because they don’t truly understand business.

The Perfect Lagging Indicator of Cost Control

Here’s an extreme example of why these methods are dangerous, unless there is a significant improvement in cost without a significant impact in operations or marketplace competitiveness.

It is the PERFECT lagging indicator or the “perfect” accounting scenario. It is a set of perfectly balanced books, with no deviations, no discrepancies and no risks. It is the model of absolute simplicity. The books close immediately with no lag, and they always balance to the penny. It is the company with no employees, no inventory, no products, no services, no buildings, no assets, no expenditures, no shareholders, no nothing. It is an empty, hollow shell. But that is the “perfect” lagging indicator of accounting and financial performance. It’s also an extreme illustration of some of the silliness in the marketplace around ROI and TCO for an implementation.

Cost savings are an important part of any implementation or upgrade. But unless the cost savings are dramatic, unless they provide you with a major improvement in the “operational excellence” value proposition, they are often hardly worth the effort. Using lagging indicators such as cost-based measures of implementations or upgrades does little to alter a company’s competitive landscape.

The last few miles of process improvement (i.e. cost reductions) yield the smallest gains at the highest cost.

So why won’t it work? Unless you have huge process improvement gaps either as an industry, or compared to your competitors, you just don’t gain that much from process improvement initiatives alone. Should you avoid it? Of course not, it would be both silly and absurd to suggest you should not take on process improvement initiatives. Every little bit helps, there’s no denying that. But without dramatic changes most process improvement initiatives are little more than tactics when your business needs strategies to address your competitive pressures and revitalize your value proposition. And then this needs to be translated into your SAP ERP or CRM implementation–, you need solid, strategy-based IT solutions!

SAP’s Rarely Used Tools and Techniques for Strategic ERP Implementation

It’s always shocking to me to find out how many vendors, consultants, and sales people have no idea about the value and strategy tools and resources SAP provides. And of the few that do, most of them have little idea or understanding on how to use them because they are not experts, they are merely technicians. Along the way they’ve found or developed their one or two “wrenches” and they’ve found “cool” ways to convince you their tire pressure gauge is the best at working on your race car. They’re not Formula 1 mechanics they are oil changers.

With so many vendors and consultants who are not aware of the SAP value and strategy tools, or how to use them, how can SAP customers be aware of them? Few vendors or consultants understand business strategy, competitive pressures, value propositions, and how to integrate them into an SAP implementation of the ERP package or CRM. They know how to change oil and and show you their cool tire pressure gauges. Sure, they’ve got slick presentations to try to convince you their wrench or pressure gauge is really a super-secret James Bond gadget that can do magic, but if that were the case there wouldn’t be so many frustrated C-level executives over the lack of ERP results.

Now that SAP is a very mature product with significant market penetration the focus of the conversation is changing. CIOs, CFOs, and CEOs are now starting to cut back on their SAP budgets, ignoring upgrade requirements, running to alternate support vendors, and generally have little or no desire to go through a painful upgrade process. And the number one reason why this is all happening is because C-level executives are not seeing the return promised by all those implementation vendors.

For over 10 years that I know of many of these tools and techniques have been available freely to customers and vendors in one form or another. Even though they are not used nearly as often as they should be, SAP continues to develop and invest in them but somehow they keep getting missed. While all of those consultants and implementation vendors are out there tuning up their oil changing techniques, and trying to build better tire pressure gauges, the market marches on and C-level executives continue to challenge the ERP paradigm.

The Future of SAP is in Leading Indicators of Business Success Like Customer Acquisition, Customer Retention, and Revenue Generation

Surveys of CIOs routinely show that top priorities for their IT department spend is to focus on business related issues like customer acquisition, customer retention, profitability, etc. And implementation vendors are unable to articulate how an SAP implementation or upgrade can enable that to happen. SAP provides the tools and resources to make that happen but no software company can change the skills, talents, and abilities of the implementation vendors or their consultants. That is up to the educated ERP consumer to ensure they are actually getting what they are paying for.

Significant SAP and ERP Success Criteria will not Change Until Business DEMANDS that Fakes and Frauds are Removed from the Marketplace

Business must become more savvy at “looking under the hood” of their implementation vendors. Vendor claims must be more carefully evaluated and the skills of the consultants they provide more thoroughly vetted.

To this day I’m still shocked by the number of resumes I see which show some 5 – 10 years, and 3 or more full lifecycle implementation projects in a country where the individual making these claims can barely understand or speak the language. Again I have to ask how did they lead the requirements discussions sessions to know what needed to be set up? And how do they lead meetings and discussions related to markets, company direction, or required processes to support your business? And who wrote their portion of the blueprint or logged their issues or resolved complex process and integration problems that came up during the project? Just exactly how does someone who barely speaks the native language of the company they are performing the work for take care of the communication intensive knowledge transfer and change management activities? Are you getting the picture here? [FN2]

In other words, do you really have to wonder why your implementation didn’t deliver to your expectations when so many of the consultants you bring onto your project can hardly understand the language?

It’s a testament to SAP’s ability to deliver methodologies like ASAP, Best Practices, and other materials that there aren’t more lawsuits for all of the outright fraudulent “consultants” with completely fake resumes in the marketplace.

Is it any wonder there is little genuine business awareness on what tools and techniques SAP offers to take your business to the next level?

Too often these vendors and their consultants are just like the carnies at the County fair on the midway hawking their “better, faster, cheaper” midway games to the unwary. And just like those carnies, they’ve got lots of slick marketing, slick packaging, and supposed unique methodologies and approaches to solve your problem and deliver to you cost-reduction based ROI.

They replace your legacy transaction systems with future legacy transaction systems in the form of your SAP implementation. But they have no idea on how to use the tools and techniques SAP provides to realize value based on a strategic implementation method.

SAP Tactics, Strategies, or Both?

So here we are, back to the old back yard mechanics, the ones who checked their tire pressure and changed the oil on a few cars but want to overhaul a Formula 1 race car engine. Good luck!

Doing research for an upcoming book on using a strategy based implementation or upgrade approach to SAP I’ve read probably thousands of pages of academic articles, research information, and company websites about “ROI” with IT systems, and more directly, “ROI” with ERP implementations. Maybe one percent (1%) of the material I read contains any substance about strategic options for ERP. This seems to be a “mystical subject” where the Formula 1 mechanics can’t be found so companies continue to rely on tire checkers and oil changers to overhaul their race cars.

Companies undertaking an ERP implementation will continue to be disappointed until they begin to demand the Formula 1 teams and realize they may cost a little more than the backyard mechanics. They will be disappointed until they begin to demand real business consultants from the marketplace who understand and can communite about competitive pressures, value propositions, and change management about the SAP application in terms of:

  • Knowledge transfer
  • Change management
  • Competitive pressures
  • Marketplace performance
  • Supply chain integration with the customer
  • Customer experience
  • Customer or sales conversion
  • Product or service innovation
  • Niche markets
  • Joint venture opportunities
  • Product or service portfolios

and a whole host of business issues that the application can enable. That list contains BUSINESS issues, not application issues. How is a company going to achieve real breakthroughs in SAP or ERP implementations or upgrades with-out focusing on business reasons for the system? And even if you do, you still need to find the vendors and consultants who understand how to translate these business-centered strategic initiatives into application solutions.

Why, why do you buy a Formula 1 race car and then bring in backyard mechanics to work on it?

Some of the research I read is plainly misplaced, it is more like marketing material for the backyard mechanics claiming they have the answer to working on your Formula 1 racer. One research piece that tried to make the case that just improving processes alone “supports” goals of revenue and profit growth. Sure, that’s a marginally true statement, but business doesn’t just need the “support” that process improvement offers (unless there are large improvements), business needs a new IT focus.

That same research paper went on to explain that business should not be cutting back on ERP IT spend during tough economic times. And while I agree, it is for an entirely different reason. ERP IT spend should be preserved, but with a new focus and direction. That direction is on strategic implementation and upgrade directed at business benefit along with the tactical cost-based process improvements. [FN3] In other words, IT spend should be focused on producing business centered solutions and results, not just replacing transaction systems with cool new best practice processes.

 

~~~~~~~~~~~~~~~~~

[FN1] Change How You Look at SAP to create ROI
http://www.r3now.com/change-how-you-look-at-sap-to-create-roi

[FN2] Screening methods to find the right SAP consultant
http://www.r3now.com/screening-methods-to-find-the-right-sap-consultant

[FN3] 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:

Why SAP Projects Fail to Deliver ROI and How to Change IT

July 8th, 2009 by

Why SAP Projects Fail to Deliver ROI and How to Change IT

Part of the frustration with the failure of results in SAP implementations is the “hangover” from the Y2K effect.  At that time businesses everywhere simply wanted to install ERP systems to take care of the looming potential “crisis” over the millennial changeover.  The real promise of SAP was lost in the Y2K chaos.  After Y2K, the brief downturn in demand for ERP systems along with the tech bubble burst in the stock market created additional pressure.  The idea of delivering SAP implementations “better, faster, and cheaper” together with business benefit was lost in the confusion.  

Because so many custom systems had been developed from the era when disk space and memory were incredibly expensive, nearly all programs were written with 2 digit designations for the year.  The fear was that as we approached the year 2000, those same systems might read that date as 1900, have a different day of the week assigned, or not know how to handle the 2 digit date at all.  As a result there was a massive rush to implement ERP systems to manage this issue and to replace legacy systems with “off the shelf” software.  

ERP and SAP, Better, Faster, Cheaper but What About Business Benefit and Business Focus?

Leading up to Y2K the demand for replacement of these legacy systems with new ERP systems was so strong it lead to an almost exclusive focus on implementing SAP projects “better, faster, and cheaper.”  Certainly this is not a bad thing, but business alignment and business drivers got lost in the fog of technical system replacements.  Rather than doing system implementations that were focused on genuine business drivers nearly all ERP systems were installed as technical system replacements rather than being implemented for business benefit.

After Y2K, there was a continued emphasis by vendors and companies everywhere to implement and automate current business processes because that is the sales model (and competency) they had developed.  That sales model worked, presentations, approaches, methodologies, implementation tools, consulting training and prep, everything was centered around the Y2K “get it in” model. Projects focused only on existing business operations and on replacing existing IT systems.  Implementation methodologies and techniques for “better, faster, cheaper” implementations were developed to support these “quick hit” IT system replacements.

While every project should be delivered on time and on budget, the focus on only current business processes fails to address the forward looking nature of business.  Even to this day businesses implementing SAP still fail to see the system as any other kind of a capital asset where you build a business case with both a current state justification and a future state justification as well.  The current state is nothing more than the “on time, on budget” back office operational project requirements while the future state looks at business strategy and builds those into the application as well.  What do you want SAP to help you with in the future?

ERP Technicians Replace Systems – Consultants Use ERP to Transform Business

SAP projects fail to deliver for a number of reasons that have nothing to do with the software itself.  SAP projects that focus almost exclusively on “back office” processes or “operational excellence” find that they use lagging indicators.  These are important for evaluating current company health, and today’s (or yesterday’s, last months, etc.) indicators of marketplace performance, but these lagging indicators will not produce world class results most C-level executives are now looking for from SAP. [FN1] 

Today the marketplace still wants the “better, faster, cheaper” model of delivery, but now CEOs, CIOs, and CFOs are insisting that the application software must do more.  It must deliver something more meaningful. It must deliver strategy and forward looking business benefit.

Leading or Lagging Indicators? 

SAP projects, whether they are new implementations, upgrades, or re-implementations should begin with strategy, goals, and KPIs. In developing goals, KPIs (Key Performance Indicators) and performance metrics there are generally two types of measurement categories–, leading indicators and lagging indicators.  Leading and lagging indicators refer to “timing of cash flows within a corporation.”  [FN2] 

In the past, lagging and leading indicators have been applied almost exclusively to economic output, not necessarily to that of business, but the impact of business on economies. 

Recently, with the rise of the use of KPIs as a method to help drive business goals and strategy, the idea of leading and lagging indicators has been applied to business. In the context of economics, Wikipedia defines these indicators as:

Lagging Indicator  

A lagging indicator is an economic indicator that reacts slowly to economic changes, and therefore has little predictive value. Generally these types of indicators follow an event; they are historical in nature. For example, in a performance measuring system, profit earned by a business is a lagging indicator as it reflects a historical performance; similarly, improved customer satisfaction is the result of initiatives taken in the past. [FN3]

Leading Indicator 

[L]eading indicators are key economic variables… used to predict a new phase of the business cycle. A leading indicator is one that changes before the economy does. [FN4]

The Future of SAP – Strategic Implementation 

To finally realize business benefit from SAP, to achieve that elusive ROI and begin to make a difference in the way your company works, you must change the way you approach your implementation.  [FN5]

The Y2K days of any consultant who could learn to make system settings on the fly to support all those implementations are over.  With them, the thousands upon thousands of application “technicians” who got their start in SAP when the demand was so high may not be able to deliver in today’s tremendously competitive market. After all, now that the Y2K scare is long past, businesses everywhere are beginning to ask the really important questions of “how do we make this huge investment actually provide a return?”

The type of vendor and consultant you employ must have business and application experience.  Today more than ever it is critical to ensure you find the right resources and then do some up front planning and prep work yourself. 

Long before your implementation or upgrade project starts the implementation focus must change. 

While it is great to focus on process improvement, and that is critical in today’s market, it is no longer enough to win in today’s marketplace.  All of your competitors are working process improvement so it will not differentiate you in today’s market.  Does that mean you can ignore it?  Of course not, it still has to be done, but it must be done together with a serious strategy focus to your SAP implementation or upgrade.

Start by looking out at your competitive landscape, where are your company’s strengths and weaknesses in comparison to your competitors?  Are there areas in comparison to them that you are not executing particularly well?  Should you then focus on those processes to improve your competitive position?  In the areas you are doing well against your competition, should you emphasize those?  Are there market opportunities you are missing, or are there gaps in your product portfolio that partnering with another firm might help to fill the gap in?  Is your company large enough that you can change the vendor dynamic for certain key products or services by outright purchasing, or possibly underwriting new competitive vendors to ensure better products and services at better prices?

How do you use SAP to enable all of these processes you’ve just answered these questions to?  How do you develop the key goals and KPIs to meet the new market challenges out there in today’s competitive landscape?  What SAP reports or tools will be needed to support your leading indicators?  What KPIs should you focus on first?

There are many more mountains of additional things you can do to use SAP to achieve genuine business benefit, find that “elusive” ROI and make a real difference in the marketplace.  But to get there take the first step to changing your implementation approach–, start by defining the business reason for your implementation or upgrade before you even begin. [FN6]

[FN1]  Using SAP to improve Revenue and Profitability
http://www.r3now.com/using-sap-to-improve-revenue-and-profitability

[FN2] Bloomberg Glossary, http://www.bloomberg.com/invest//glossary/bfglosl.htm (retrieved 9/21/2009)

[FN3] Wikipedia, http://en.wikipedia.org/wiki/Lagging_indicator (retrieved 9/21/2009)

[FN4] Wikipedia, http://en.wikipedia.org/wiki/Leading_indicator (retrieved 9/21/2009)

[FN5] SAP as a Change Enabler
http://www.r3now.com/sap-as-a-change-enabler

[FN6]  Change How You Look at SAP to create ROI
http://www.r3now.com/change-how-you-look-at-sap-to-create-roi




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