Recently, an unusual set of circumstances has led one company, Airgas, to publish details regarding the substantial benefits they are targeting with a major SAP project.

Airgas is a $4 billion provider of industrial, medical and specialty gases.  They are also fending off a hostile acquisition bid from rival Air Products.  They see publication of their SAP business case as a way to demonstrate value put at risk by an acquisition. 

In any case, it gives us a view that is typically only available to insider corporate executives and their trusted consultants.  The specifics of their SAP business case are impressive: 

• Total annual benefits:  $75M “minimum” – $125M “strong likelihood”
• Total investment:  $105
• Payback period:  about 1 year

It breaks down as follows:

• Sales Growth – a common platform across product lines will allow for an expansion of the telesales operation to more products and customers, generating incremental annual operating income of $25 – $50 million
• Price Management – ability to perform price optimization across all products and geographies leading to $40 – 60 million in additional annual operating income
• Administrative & Operating Expense – consolidation of accounting, administrative, and other functions, with savings of $10 – 15 million annually

Like I said, impressive.

We’re obviously not at liberty to share information regarding our clients’ business case results, so that makes us very excited to let you know what’s happening at Airgas.  It demonstrates what our clients already know – that ERP projects can pay back handsomely, with benefits occurring throughout the value chain, as well as in the back office.  A business case process can help identify and quantify these sometimes hidden value opportunities, often with dramatic results.

A Center of Excellence (CoE) is an organization that specializes in providing these services across the enterprise.  In principle, benefits are obtained through leveraged expertise, commonly applied ERP management best practices, and economies of scale.  The result should be improved customer service, better control, and reduced cost.

At Scendant, we’ve often been asked to establish, optimize, or assess various ERP Centers of Excellence and have collected quite a number of ERP CoE Best Practices over the years.  Here is a summary of the most critical ones to consider.

Plan the Transition

Sounds obvious, but often in the fervor to implement a new solution, the CoE design and transition plan is forgotten.  Put the same planning, organizational design, and testing rigor into your CoE design and transition as you put into the ERP program itself.  Include the plan and status reporting into the overall ERP program plan to maintain leadership visibility.  When the integration consultants walk out the door, you’ll be ready.

Commonize and Govern the Solution

I’d need a whole separate blog entry to define what constitutes a true global template.  But for today’s purpose, let’s just say that having a global template and a business-engaged global governance process improves both CoE performance and the business value of the solution.  A single template allows for impactful business solution changes to be developed, tested, and implemented more simply and reliably, and on a global basis.  And global governance ensures that the solution truly stays global, resisting unnecessary local changes which can dramatically erode a template over time.

Centrally Organize and Manage the Service

Every situation is unique, but it is almost always better to centrally organize and manage a CoE.  That doesn’t mean everyone needs to sit in one location.  A global business may well require resources in the U.S., Europe, and India, for example.  But the team should all report to one executive who is ultimately fully accountable for the CoE’s performance and cost. 

A centralized CoE is also beneficial for a host of other reasons:  it eliminates resource redundancy, allows for increased specialist resources, enables leveraged sourcing strategies, facilitates global service desk integration, and promotes a standard operating model, just to name a few.

Measure and Improve

What service can’t benefit from some good old “Plan/Do/Check/Act”?  Determine useful Key Performance Indicators that provide insight into the performance of the CoE.  Establish meaningful SLA’s with customers.  Establish a Continuous Improvement function (often in the PMO) to report regularly on KPI and SLA performance, identify trends and opportunities, perform value check-ups, and ensure lessons learned are identified and adopted.  Pursue improvement opportunities in the operating model, tools, standards, procedures, organization, and so on.

Engage the Business

The CoE is all about customer service, after all.  The business should be engaged with the CoE at multiple levels.  Certainly, business leadership engagement needs to be obtained in solution strategy, governance, and SLA management.  But more importantly, Power Users from the business need to be involved as an extension of the CoE in three capacities:  as “Level 0” solution support; as a participant in the prioritization, design, and testing of changes; and finally as an advocate to their peers for the solution and the CoE itself.

There are certainly many more Best Practices, but I consider these to be the “Big Five” foundational elements of a successful and mature ERP Center of Excellence.  Not all businesses have the scale or complexity to justify a sophisticated CoE.  But certainly all can creatively apply the above concepts to improve their ERP service function.

•  Speak the Language of the Business – We in IT revel in the language of our craft – BI, ETL, ERP, SOA, blah, blah, blah.  In fact, there’s a fun video that Gartner put together that demonstrates the meaninglessness of such terms to the general population.  Sure, we IT folks like to demonstrate our IT knowledge, but let’s think twice about the audience.  Let’s try to speak in a way that answers the questions we know the business will have – “What capability do we get to make us more effective?  When do we get it?  How much will it cost?  What are the risks?  What do you need from me?”

• Don’t Let the Tactical Kill the Strategic – Our business partners may be too busy running their day-to-day operations to spend time thinking about long-term strategic improvements.  So requests to IT are heavily oriented towards addressing the “hot” issues for this quarter or next quarter.  It’s IT’s job not to get caught into the “order taker” trap by properly balancing incrementalism against revolutionary, longer-term opportunities.   Be sure to have a 5-year plan worked out with your business partners.  Communicate the vision and value of the strategic opportunities and the trade-offs involved. 

• Follow a Portfolio Process for Project Selection – Does your IT strategy office or leadership team follow a defined portfolio analysis process?  This not only makes sure that only the most valuable projects are performed, it sends the message to business and IT that strong business cases will rule the day and are not simply a formality.

• Gain Business Ownership of the Business Case - Bravo for IT shops that perform business cases for their projects.  IT investments, especially the big ones, should be financially justified.  But too often, IT takes ownership and responsibility for the business case.  True, IT is in the best position to facilitate the business case process, but getting the business leadership involved in defining and measuring the benefit, and accountable for achieving the improvements with the new solution, improves both their understanding of the value and their commitment to achieving results.

• Perform Value-Based Solution Design and Delivery – Too often, talk about business value ends once a project is approved.  Instead, value-based thinking needs to be infused into project design and delivery itself.  The scope and requirements of every project should be clearly identifiable to business value.  Tie each and every requirement to a definition of the business value delivered from the requirement.  Project delivery should also be managed and reported in terms of measureable dollar value delivered to the business.  Finally, manage the business case throughout the life-cycle and beyond to confirm benefits attainment. 

Demonstrating business value is more than simply justifying IT’s investment.  A value-based IT philosophy will lead to better decision making, better business engagement, and improved IT and business performance.  Transforming an IT organization into a Value Center is a long-term proposition and closely linked to the underlying IT and corporate culture, but taking these steps can begin that long journey.

The two big competitive challenges that SAP faces are,  first, the never-ending battle with Oracle, who seems to have been getting the upper hand lately, and  second, the emergence of cloud, mobile, and SaaS technologies and solutions.

Oracle’s dominance in the database market, where it’s share is close to 50%, has certainly provided synergies in their success in the ERP space.  But more importantly, their acquisition binge over the past five years, including PeopleSoft, Hyperion, Siebel, BEA, and Retek, has given them a broad portfolio of enterprise solutions to offer their customers.

SAP, by contrast, has largely grown organically, with the notable exeption of the Business Objects acquisition.  The Sybase acquisition appears to represent a “toe in the water” by their new leadership into adopting a more aggresive acquisition strategy.  (Meanwhile, unsubstantiated rumors about an Ariba acquisition are swirling once again).

Fine, but how does this acquisition help SAP’s customers?  SAP’s announcement focused heavily on the value of Sybase’s mobile technology, indicating it will bring SAP solutions to mobile devices.  Indeed, as mobile platforms and cloud solutions continue to penetrate corporate environments, this could well position SAP’s customers to exploit these opportunities in advance of their competitors.  Database synergies are less clear – will SAP’s customers benefit by using a performance-enhanced version of Sybase in their solution?  SAP says yes, but clearly it will take some time to see how these technologies are integrated.

Enter Open Group’s Cloud Work Group, which intends to clarify these issues by identifying standard requirements in security, identity management, architecture models, and lock-in avoidance.  Certainly they are not the first, or only, group to be addressing this issue – other industry groups are doing the same.  Of course, that also means there’s a chance that competing standards may cause additional confusion and noise.

The important thing is for IT leadership to watch closely and keeps tabs on these emerging standards and practices.  IT needs to stay ahead of their customers in their understanding and readiness to move forward appropriately – and safely – on their cloud initiatives.

For more information, visit https://www.opengroup.org/cloudcomputing/

1. Data in the cloud is subject to a lower legal standard in terms of search, seizure, or break-in.
2. Companies who want to audit or test their providers, such as for vulerability or penetration,  require the explicit permission of the cloud-service provider
3. With SaaS, phishing attacks are going to be an increased threat.  User education will be required to counteract.
4. Apparently, third party virtual machine images  have vulnerability or data-protection issues. 
5. Security routines, such as random number generators, require careful re-thinking under a cloud model.

There are a number of gotcha’s related to transitioning to a Cloud/SaaS model, but clearly vulnerability, security, data protection, and audit are at the very top of the list.

Item #1 was particularly interesting to me.  First, your data can be more easily subpoenaed.  Second, if security is breached due to a vendor error, the vendor cannot be held liable.  Good illustration of the need to have your IT and Legal department work especially closely on cloud/SaaS contracts.

Doesn’t mean that Cloud and SaaS are bad models.  It just means you need to perform your due diligence before signing on the bottom line.

Some of the topics we’ll cover include IT strategy, governance, ERP, SAP, methodologies, standards, and trends.  We’ll sprinkle together a mix of news, opinion, analysis, and maybe some humor.

 Of course, we’ll also keep you abreast of news on Scendant Consulting!

So welcome again!  I hope you enjoy.