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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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Contact me today through our site contact form ( http://www.r3now.com/contact ), phone, or e-mail.

Bill Wood
+1 (704) 905 – 5175
Bill Wood contact

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