Calculating the Potential Benefits of Business Software

August 18, 2003 by admin

As anyone who has worked for one of the “Fortune 500,000” knows, small and midsize businesses (SMBs) face many of the same challenges that confront large enterprises. That is, they require business solutions that can help them to optimize operations, boost efficiency and, above all, cut costs. The difference is that small companies and organizations typically do not have the same resources available to them as larger businesses. When a smaller organization contemplates an investment in business software, it needs some assurance that the benefits it will derive will be worth the cost of implementation.
The new SMB Value Calculator from SAP is designed to help small and midsize businesses, as well as smaller business units and subsidiaries of large companies, to weigh the potential benefits of investing in business solutions. This easy-to-use online tool, which is available directly from the SAP.com Web site, supports small and midsize businesses and other organizations with revenues less than USD 500 million per year. The SMB Value Calculator enables users to determine the strengths and weaknesses of their organization’s current business processes – and, more importantly, to calculate the potential value their organization could derive by implementing a leading-edge business software solution. The SMB Value Calculator evaluates the potential benefits of business solutions in the following areas: enterprise resource planning (ERP), supply chain management (SCM), customer relationship management (CRM), supplier relationship management (SRM) and product lifecycle management (PLM).

Calculations Based on Comprehensive Key Performance Indicators

To obtain an assessment of the benefits a particular software investment might provide, all that the user has to do is provide a few key pieces of data, which the SMB Value Calculator compares against its comprehensive database of key performance indicators (KPIs). These KPIs were defined by business consultants at Pittiglio Rabin Todd & McGrath (PRTM), a research firm that specializes in analyzing and quantifying the efficiency of business processes.
Here’s how the tool works. The user fills in a brief series of online forms, providing some basic information about the organization’s industry sector, annual revenue and current business processes. The SMB Value Calculator then compares this data with the standard practices of other businesses in the organization’s particular industry sector. As part of this comparison, the SMB Value Calculator determines the organization’s “stage of excellence” – that is, where the organization’s systems and processes rank in relation to those of other companies of similar size in similar industries. This ranking specifies how developed the organization’s business processes are according to a four-stage evolutionary model. The lowest stage in the model refers to disconnected or isolated business processes, while the highest stage describes a fully integrated environment that connects all of the organization’s key business activities.
Once the organization’s stage of excellence is identified, the SMB Value Calculator then assesses the potential benefits the organization could achieve over a twelve-month period by making incremental improvements in its processes. The SMB Value Calculator estimates how much the organization’s KPIs are likely to improve in the year following the introduction of best practices enabled by business software in a specified business area. It assumes that improvement occurs step-by-step and that organizations investing in new software solutions typically will evolve to the next step in the four-stage model on which rankings are based.
Among the business benefits that the SMB Value Calculator takes into account are such obvious KPIs as growth in sales and reduction in costs. But they also include less tangible benefits resulting from improvements in areas such as lead generation (administrative costs, knowledge of customer buying patterns), new product revenue (product introduction times) and market segmentation (customer segmentation based on size, region, products and seasonal preferences).
The resulting estimate of potential benefits should make it easier for an SMB to assess whether investment in business software makes sense for its organization. It gives the organization a clear idea what it might expect from software solutions designed to improve performance and enhance business processes. And it provides a starting point for evaluating which areas of the business will benefit most from improved systems and processes.

The SMB Value Calculator in Action

An example: The decision makers of a high-tech company want to use the SMB Value Calculator to obtain an overview of their current situation. They decide to take a close look at SCM, and they enter the required data. In this case, the SMB Value Calculator assigns their operations in the SCM a maturity rating of three. It describes their existing SCM software solutions in the following way: “Information is used and updated across all systems and ATP (available to promise) has been implemented.” In addition, the organization’s SCM process maturity is also described: “The goals relating to inventory levels, production and customer service have been coordinated and optimized across departmental boundaries.”
Next, the SMB Value Calculator identifies the potential benefits the organization could achieve by introducing new software solutions that move its process maturity to the next level. In this case, it calculates that the company’s inventory levels could be cut by an average of 46.5 percent and its sales, marketing, service and support costs could be reduced by 9.1 percent. In addition, the calculation determines that the company drive down its costs for direct and indirect procurement could be reduced by as much as 35.9 percent and shrink its expenditures for research and development by 4.7 percent.
Finally, the SMB Value Calculator concludes that, by introducing a business solution that supports best practices for SMBs, the company could cut its overall costs by a total of 14 percent and boost its revenue by 0.5 percent in just one year. Moreover, it also will gain longer-term benefits, including improved customer service and greater customer loyalty even as it lowers costs. In short, implementing a software solution now could have a significant beneficial effect on the firm’s future financial results.

A Calculator for Every Solution Area

The SMB Value Calculator currently can be accessed, free of charge, at http://www.sap.com/valuecalculator/smb/. Since its market launch in February 2003, more than 3,000 companies have used the SMB Value Calculator. Value Calculators for larger enterprises also are available for the SCM and CRM solution areas, and these tools can be accessed from http://www.sap.com/solutions/calculator. In future, SAP plans additional Value Calculators for each of the major solution areas covered by mySAP Business Suite.

Crispin Sheridan

Crispin Sheridan

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2 comments

  1. sapinfo

    Hi Leighton, sorry for the inconvenience. This article was published several years ago, so it could be that the links have expired. We will check to see if there are any calculators available. Thanks for your feedback! Heather McIlvaine

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