Shortly after implementing any major systems change, all businesses experience a performance dip. Unfortunately, the dip can be extreme. We have all read the horror stories of bungled implementations that resulted in disrupted business processes, anguished clients and lost profits. Experience, however, is a harsh – but effective – teacher. Today, both consultants and clients have gotten much smarter about how to implement business software like SAP. Consequently, late adopters and enterprises seeking to upgrade functionally or to add in one or more of the newer SAP products – like B2B, Supply Chain Management, Customer Relationship Management or Business Intelligence – are now poised to benefit from the knowledge gained by those who have gone before them.
Flattening out the performance dip
For early adopters, the performance dip was deeper and recovery took longer. Consequently, the momentum needed to maximize ROI was spent on recovery instead. Today, the performance dip can be shallower – even shallower than expected – and the recovery can be faster. As a result, the momentum of the implementation can now be harnessed to drive process improvements, reduce costs and gain competitive advantage.
But to harness this momentum, each business unit must buy-in to the value of the profit improvement process. The business units should not be left to their own devices to pursue Business Process Improvement (BPI) opportunities because, as BPI rookies, they:
- May be unable to identify BPI opportunities on their own
- May not work with the BPI team to maximize the benefit of cost saving initiatives
- Do not have all the skills needed to deliver BPI initiatives
- May be distracted when other operating issues arise
- May seek to deliver cost saving initiatives outside of the framework of BPI
Sometimes end-users fail to recognize the savings and productivity gains that BPI can bring. That’s why implementers must clearly identify and communicate the business benefits of simplified and standardized processes. Business users should be invited to participate throughout – in the opportunity search, brainstorming, process redesign, development and implementation phases. It’s vitally important to make the whole process transparent and to engage them fully in the program of improvement.
How to identify BPI opportunities in the first place?
To identify BPI opportunities, it’s helpful to use an industry-specific tool to systematically search the entire scope of business operations. Consultants and systems integrators have developed several tools of this type. For instance, Deloitte has developed a tool called Value Map that identifies most, if not all, of the most important drivers of business profitability for a business in any given industry. Tools such as this can be used throughout the BPI program to identify BPI opportunities, assess the value to the shareholder of different opportunities, develop a custom value map for a particular business, map existing profit improvement initiatives to the value drivers, identify gaps in coverage, i.e. value triggers that have not been addressed and target BPI opportunities. Furthermore these tools help to manage various profit improvement initiatives, define boundaries between different initiatives and track progress of initiatives.
As companies search for BPI opportunities, it’s helpful to bear in mind that they usually fall into one of four categories:
- roles and responsibility changes (who does the work?)
- training and performance enhancement (how do they do the work?)
- process step changes (what work do they do?)
- process redesign (why are we even doing the work in the first place?).
During the search process, companies may need to stretch the definition of BPI a little to encompass cost savings. Cost savings are easier to identify than other opportunities, and it makes sense to look at large spends in order to identify large savings. Good areas to scrutinize are labor spend, procurement spend and legacy software licensing fees. Of course, it’s necessary to obtain the support of top executives before pursuing major changes, such as headcount reductions, procurement automation or legacy system retirement.
Production support metrics as a lever for BPI
Well-run production support phases always identify key metrics that can provide a measure of the degree of stability (or upset) caused by the implementation. These performance measures often pave the way for BPI initiatives. For example after a recent SAP implementation ChevronTexaco employed metrics that measured performance with a level of frequency and impact that the business units had not seen before. This included quantifying performance in terms of dollars and cents via a daily report called Show Me the Money. The report confirmed that the new SAP system caused very few problems, but it did reveal some pre-existing performance issues. The business units focused on this report in their daily post-implementation conferences, and production support used it as a lever to gain support for BPI initiatives.
SAP Business Information Warehouse (SAP BW) makes a report such as Show Me the Money possible. SAP BW offers breadth, depth; frequency and accessibility in reporting that have rarely been available to businesses previously.
How to assess the value of BPI candidate initiatives?
Business case evaluation tools, which allow to plug in the financial measure (ROCE, NPV, IRR or payback period) that a business favors, are helpful in assessing the merit of proposed BPI initiatives. For example, Deloitte has developed a cost/benefit template that evaluates BPI initiatives against eight criteria such as “Business Readiness”, “Cost Justified” and “Quick Hit”.
With this tool, the candidate initiative is scored on a scale of 1 to 10 against each of the criteria. Then, the composite score along with the monetary cost/benefit values are compared against those for other initiatives, and those opportunities with the highest scores move forward.
How many BPI initiatives should an organization take on?
The number of BPI initiatives an organization should include in its post go-live support program depends on the level of resources available. If the initiatives are carefully qualified using the cost/benefit template, financing should not be a problem because all the initiatives will be self-funding. Indeed, many will generate a significant contribution to profits. Business unit support is critical but even if the business units take ownership, each initiative will need some level of facilitation, such as guidance from consultants or veterans of the BPI process or technical support to adjust the programs and configuration where necessary.
Our experience shows that the value of each initiative may be quite small on its own. A recent cost compressibility project undertaken in an oil refinery identified and implemented 120 cost-saving ideas, but found that the average net value of each was only $50,000. Nonetheless, the cumulative savings were substantial, with a total realized net benefit of $6 million.
How to manage the BPI portfolio?
The general approach is to make an inventory of opportunities and to filter them through the criteria on the cost/benefit worksheet. This process enables companies to measure the opportunity and predict the financial outcome. Next, they should insert a checkpoint: Is there enough value to implement? If so, they’ll need to get business unit sponsorship and assign accountability. Then, once an opportunity is implemented, companies will need to capture and report the results. Finally, each BPI experience should be used as a platform for learning, adjusting the process, and repeating it for the next opportunity.
Most importantly, a program that includes BPI as part of post go-live support can install a culture of continuous improvement and process ownership – essential success factors for a business’ long-term prosperity.