Using SAP to Improve Revenue and Profitability
For years CIOs have been under pressure to help cut costs, improve operational efficiencies, and automate the enterprise; CIOs implementing SAP have largely been effective at streamlining the back-office. They’ve also succeeded at optimizing the extended supply chain because SAP is well-suited to supporting execution activities, and therefore have been a good fit for reducing costs. However, times are changing.
To successfully move IT and SAP in the direction of revenue and profitability growth it is important to understand where technology fits into the puzzle–, technology is not magic. When SAP is considered in its proper context as a “change enabler” or “change lever” rather than a “change driver” it is easier to understand how and where it can properly fit into a revenue and profitability context. In other words, technology works best when the rules, metrics, criteria, and the means to acquire, process, or analyze information which supports revenue and profitability are understood and defined. Organizations take on large projects like SAP or any other ERP system to achieve several business benefits, often those might include:
* Revenue growth
* Profit margins
* Customer acquisition and retention
* Sales conversion
* Customer profitability
* Product / product line profitability
* Incentive programs and monitoring
* Market penetration / market share
* Marketing program performance
* “Smart” growth (i.e. “good” customers vs. “bad” customers)
* Time to market
And even though these are the expectations companies have for their ERP or SAP implementation, upgrade, or other applications they rarely achieve these goals because they are looking at the application and technology investment in the wrong way. They are looking at the technology as if somehow it will cause these things to happen rather than providing the key insights and information that management needs to enable them to happen. Even though that is not said, when companies invest millions in SAP that is the underlying assumption that somehow the technology will just “cause” revenue and profitability increases.
For example, no amount of technology is going to make your sales people sell more if they are paid on salary, without commissions, and do not have objective sales targets and other performance measures. This comes back to the old adage of “what gets measured gets done” and it is no different with the sales force. However, depending on how you structure your sales and marketing programs SAP contains a number of tools, reports, resources, and other data analysis methods as well as bolt-ons like CRM to facilitate a change in sales and marketing programs and strategies.
In other words ERP, SAP, CRM, APO, BI, and all of the other technology tools must be driven by business needs, and to provide key information relevant to business decisions and processes to ensure success. And even though that seems self-evident it is still not occurring even to this day at many organizations who implement these technologies. They often start out with that ideal, however they usually get caught up in the technology and lose sight of the business drivers.
Since doing SAP project work since 1994 I can only recall a couple of projects where the client spelled out the business drivers, and then communicated and reinforced them to the project team and the larger organization throughout the project. If the project team performing the implementation does not know the underlying business drivers, or the reasons for the investment, how will they build those expectations into the technology?
What are the CIO and SAP Roles in Revenue and Profitability?
It is healthy that C-Level sponsors are beginning to press IT in the direction of supporting revenue growth and profitability, however, SAP by its nature is part of the execution processing and post-execution analysis process. This is where the expectation of driving revenue and profitability with SAP has to be decoupled from corporate planning and execution. The business side of the equation must be defined first, this supports the business case which in turn drives the technology in the direction of enabling necessary change.
The senior management discussions for the this global ERP system must be focused on what information and processes the organization needs to make the right management decisions, to be more competitive, to focus on the wider marketplace.
In many implementations the reason SAP works to reduce costs is because the reductions are based primarily on improving and integrating operational and accounting execution activities. Using SAP to drive revenue and profitability growth requires building another layer of data collection, data analysis, “tools,” and processes on top of the operational data that is processed. To work correctly this new revenue and sales support layer must be built on well defined sales and marketing programs and strategies that are then converted into processes with clear performance metrics and KPIs. A focus on process improvement, business process automation, efficiency gains, cycle-time reductions, and other business process management related issues is not enough.
Sales and marketing must do their part in integrating their strategies into clearer plans, programs, metrics, KPIs, and other measurable criteria that can then be executed on with IT / SAP supporting these processes. ERP systems like SAP do not exist in a vacuum; they are dependent on data from plans, strategies, and historical analysis based on some concrete or perceived KPIs and business metrics. Until a company’s customer touch points (sales, marketing, customer service, shipping, etc.) are able to provide quantifiable plans, goals, metrics, and KPIs for what is important, it is difficult for SAP initiatives to directly affect revenue and profit.
I’ll bet many C-level executives in SAP shops didn’t know that the ERP application contains standard functionality to integrate sales planning, sales forecasting, marketing expenditures, and product or service execution with financial budgeting and multiple dimensions of profitability. For example, over the years I’ve worked on clients that have used one or more of the following methods from standard or enhanced SAP functionality (and there are many, many more possibilities):
· Points loyalty program (ERP pricing and SIS or CRM)
· Trade Promotions Programs (CRM, bolt-on, or custom ERP app)
· Marketing Effectiveness (CRM, custom reporting, BI/BW)
· e-sales with catalogs and configurable products (R3 Internet Sales or CRM – they use the same backend)
· Sales or Marketing program budgeting (ERP CO and internal orders with SD user exits)
· Sales forecast to actual (ERP Sales and Operations planning, CRM, BI/BW)
· Order templates (Generic quotes as templates, ERP, R3 Internet sales, CRM)
· Potential Planning (customer potential buying and planning against marketing plan – ERP, CRM)
· Ticklers, Marketing, Sales activities and campaigns (limited ERP functionality or with CRM)
· Customer churn (standard ERP functionality, custom report, BI/BW, or CRM)
· Customer $$ sales growth, month over month, year over year (SAP ERP functionality, custom report, BI/BW, or CRM)
· Order frequency trends (standard SAP functionality, custom report, or with CRM)
· Upselling, cross-selling, product allocation, substitutions, free goods (standard SAP ERP functionality).
· Web based reports and mobile device sales support (ERP mobile device functionality or CRM)
· Commissions and incentives (SAP ERP functionality or CRM).
One of the things the companies that have implemented these solutions and others had in common was there were already reasonably well defined sales and marketing processes and programs in place. As a result, the SAP technology was used as a change lever to enhance and improve those existing processes and programs to achieve a measure of revenue growth, profitability, and competitive advantage.
Where to begin with a business and market centered approach to SAP?
- Develop your longer term business plans, define marketing and competitive pressures along with current and future value proposition(s).
- Define the business strategies to support them.
- Determine the goals that support those strategies.
- Derive your KPIs for those goals. To be successful these KPIs must include both lagging indicators (financial) and leading indicators (pointing to growth).
- From those metrics and KPIs determine which business processes and departments will be affected, sales, customer service, shipping, marketing, etc.
- Define the necessary reports that will be needed to report on those goals and KPIs. These reports should use both leading and lagging indicators.
- Operationalize the strategy by defining the processes that will support them.
- Assign responsibility for the reporting requirements to the proper department heads.
- Create an internal progress communication process.
- Implement the necessary technology solution(s) to support the new paradigm (SAP BI, SAP CRM, SAP ERP functionality, etc.)
By following these steps you will see business centered results that are enabled or empowered by technology, not the other way around. Below are some examples of key ideas for defining strategy, processes, and technology to help with revenue growth and profitability. While in no way comprehensive the following outline provides some steps to begin on this journey. Some type of plan or steps to produce metrics which can be turned into an IT and CIO supported system strategy for revenue and profitability growth are listed.
1. Senior executive sponsorship is needed to drive integration of sales, marketing, and customer service processes. Many of them can be very difficult to “pin down” on key measures for sales and marketing drivers. Without C-level direction here it will be difficult at best to achieve and impossible at worst.
2. Set clear expectations of cooperation between those processes which “touch” the customer.
3. Determine how baselines and benchmarks for KPIs will be determined. The best baselines, benchmarks, metrics, and KPIs will require interdepartmental support. Some of the KPIs, though not all, should be outside of the silo. For example, some of the KPIs should cross over sales and marketing together. Some should cross over sales and customer service, or shipping, etc. The more the KPIs are structured within a silo the more possibility there is for finger-pointing and deflection. It has to be everyone’s job to promote revenue and profitability.
4. Senior level sales and marketing managers must set specific KPI’s, strategies, and plans around customer “touch points” as they relate to revenue generation and profitability. For example:
a. What processes or sales functions require your sales force to be in the office rather than in the field? How can these be automated or delivered remotely?
i. Web based?
ii. Hand held?
iii. E-delivery through automated e-mail notices or text messages?
b. What are important new markets and how do you conduct pilots or rollouts to new markets?
i. Do you have preferred customers as partners who would be willing to cooperate and “pilot” new product or market rollouts?
c. What about new products?
i. Do you know what your concept to engineering to market to customer cycle times are?
ii. Where are the bottlenecks in each of these sub-processes?
iii. How can they be streamlined?
5. How will you measure customer retention, customer loyalty, and most of all, conversion of retained or loyal customers to actual sales? (after all, what difference does it make if you have retained and loyal customers if they don’t buy more of your products, or pay for premium services or products?)
a. Do you have (or need) some type of metrics around defining “good” customers (high revenue or sales compared to the cost of doing business) vs. “bad” customers (low revenue or sales compared to the cost of doing business).
b. How do you measure customer “churn” or attrition of “good” customers?
c. How do you measure sales growth into the existing customer base?
i. How do you segment or stratify that data, by product line, by geography, or by customer sales volume?
d. How do you target new customer acquisition?
i. In spite of what some salesmen may say, companies do not sell “everything” to “everyone,” so what are your target markets?
ii. What are your key criteria to focus your sales efforts on your target markets?
iii. Where are your “invest” opportunities for sales growth and how do you measure the effectiveness of that investment?
iv. How do you integrate marketing, sales, and customer service into customer acquisition?
6. Define processes and reporting points for each of the key customer “touch” points, whether it is sales, marketing, service and support, or new product / new market entry.
7. What is your strategy for getting company knowledge about products or services closer to the customer?
a. Are you tracking service or repair trends?
i. Do you have standard defect codes or service delivery categories?
ii. Do you have a solution database?
b. How is engineering, R&D, or new product development integrated into the sales, marketing, and support feedback cycle?
8. What tools do you need to capture customer intelligence based on contacts, visits, and other information traditionally maintained in CRM systems?
9. What external data sources and information do you need for customer acquisition?
These and many, many more questions must be answered within your sales, marketing, and customer service organizations to drive strategies, plans, programs, and ERP investment opportunities for increasing revenue and profitability.
Once you define your revenue and growth plans and strategies, determine the key metric for how performance will be measured by developing a set of KPIs. From this set of KPIs, and from the plans and strategies that are developed, take the time to prioritize them based on a simple cost / benefit analysis. What costs the least (in terms of time, cash, resources, etc.) and has the biggest payback? Depending on your business, you may weight some of the cost factors differently, but try to keep the priority process as objective and clear as possible by creating some type of scoring protocol. Using some type of objective method to prioritize will help to keep the politics, personalities, and emotion out of the process. The approach may not produce a perfect result, but it will be focused on results rather than personalities.
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Please see the article on Screening Methods to Find the Right SAP Consultant. This type of process analysis, business strategy, and help with development of the best possible plans for implementing your SAP solution is exactly why SAP consultants with real experience are necessary.
