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Move Beyond Mundane Metrics to Benchmark Measures That Really Matter

by Chakib Bouhdary | SAPinsider

October 1, 2006

Good benchmarks reveal insights that can help your company gauge how well its business processes perform, relative to those of its peers. SAP’s benchmarks delve even deeper -- focusing not just on cost, but also on context -- to reflect the value that certain activities ultimately derive for the company. SAP’s Chakib Bouhdary offers a four-step methodology to build business cases to persuade even the most skeptical of business executives.
 

Chakib Bouhdary
Senior Vice President,
Value Engineering,
SAP Americas

The value of benchmarks has traditionally been in their predictive quality. Good benchmarks offer an invaluable glimpse into your future — a faithful approximation of future ROI and TCO that you can reasonably count on when making decisions about adopting a solution or best practice. Needless to say, good benchmarks are (or rather, were) hard to come by. That's changing. SAP is aggressively moving into the benchmark arena and revealing itself to be among the foremost authorities on business process benchmarking. Three things have catapulted SAP into this top-tier position:

1. The first is the sheer number of data points SAP is able to draw upon for its studies, allowing for a robust data set and therefore high-quality benchmarks. To date, SAP has completed over 1,000 in-depth business cases and collected hundreds of benchmark surveys across a broad range of industries and business areas. Working with ASUG and other SAP user groups to encourage broad participation by customers, this number is expected to rise to over 3,000 in 2008.

2. SAP has the solution, business-process, and industry-specific acumen to design meaningful benchmark surveys and draw meaningful conclusions.

3. Last, and perhaps most important, is SAP's approach to benchmarking. Under the leadership of Chakib Bouhdary, Senior Vice President of SAP's Value Engineering organization, SAP will not allow bias to work its way into these benchmarks. Bouhdary does not want these benchmarks to be used as sales tools. He wants the results to provide objective, world-class metrics that are coupled with practical, how-to advice, and he is taking SAP down a path that safeguards the integrity of this mission.

In this article, Mr. Bouhdary offers insights into this new breed of benchmarks and its anticipated impact on the SAP customer base.

Q. As customers turn to this new breed of benchmarks, what value can they expect to derive?

Business processes have progressive levels of excellence. A Center of Excellence (COE) at the high end of the scale would have remarkably different characteristics than one at the low end. We've got studies that show three times lower costs for a top-performing versus a low-performing finance organization, 32% improvement in effectiveness for top- performing shared services organizations versus those without shared services, and 2.4 times higher materials savings for top-performing sourcing organizations than average companies. One key benefit, then, is that you can leverage one of these benchmarks to evaluate what level of excellence your business processes are working at. Another is that you can evaluate their performance relative to the performance of your peers' processes.

These benchmarks also help you to identify important industry trends and the value potential of one business model versus another. Many customers grapple with decisions concerning shared services and outsourcing. We address these issues head on.

For those evaluating a new solution, these benchmarks show them how to use it, how to enable it, and what the expected value of the solution is.

Q. What advice can you offer to those who are struggling to justify the ROI of their SAP systems, want to understand if they are getting sufficient utility from their investment, or want to reduce TCO? These issues are frequently voiced across our readership.

Let's first address the issue of why they are struggling. Very few companies have the institutional knowledge to build these types of business cases, let alone document and present them in a way that can be readily understood by both business and IT teams. To do this, you need the right metrics, the right data, and the right understanding of the measures and best practices that characterize your activities compared to those at other companies. We help fill this gap.

But that's not all we do, and I think it's very important for SAP customers to understand this. These benchmarks do not resemble others with which they may be familiar. Most benchmarks are generic; they don't get into the how. These do. They are designed to ensure customers understand how to take action on a benchmark, how to leverage it to develop a plan, and then how to execute it.

Toward this end, the benchmarks operate on three levels, differentiating between transactional activities, expertise-based activities, and strategic management (see Figure 1).

Figure 1
Benchmarks operate on three levels

When looking at the value of transactional processes (accounts payable is a good example), simple metrics that focus on cost make a lot of sense. If you are looking at processes that are expertise-based and drive the effectiveness of your programs and services (e-learning and training are great examples), cost is too simplistic a metric. This measurement fails to reflect the value of this activity to the company. The level of e-learning and training that you create may have high costs, but it will also have a high impact on your company. Similarly, to approach compliance and strategy simply from a cost perspective is completely off base.

Unfortunately, too many benchmarks focus on cost and fail to account for context. This is another reason customers struggle with value measurements. Measures of cost for HR and finance in a company with a lot of merger and acquisition activity should look very different from those associated with companies focused on organic growth. Nor would I recommend you look at IT costs simply as a percentage of revenue or by IT consumption per employee, as this would mask important variances driven by your company strategy and business objectives.

My advice is to move beyond simple metrics that are related solely to cost and start accounting for what really matters — the impact of an activity on your business.

Q. What about those who are struggling to build a business case for a new solution — what advice can you offer them?

I suggest they answer the following four questions and do so in this order:

1. Why do anything? Before you build a business case for any solution, you need to be absolutely clear as to why you need to leverage the technology to fix a business problem or to create a competitive advantage. You should be able to ask any executive in the company this simple, direct question and get the same answer. Alignment among executives is critical.

2. What are my options? When you present executives with a recommendation, they will instinctively ask whether you've considered other options. "What if we did nothing?" "What if we were to simply fix the legacy system?" "What if…?" Get these questions out of the way so you can move forward without looking back. You don't want to be revisiting these issues once the deployment is underway.

3. How do I deploy this option now? Do I just do one region, one business unit, one business process, and then scale it? How do I do it without impacting the business? I find people jump to the "how to" before they even know the options. That's a mistake. In those cases, very often options are revisited as soon as the first roadblocks appear, delaying or stopping deployment altogether.

4. Who? Who is the system integration partner? Who from the business unit will run the project? Who from the business is going to support the user? Who will be doing what? Very often I see customers selecting partners before they even know the "why." These are the projects that last a year and get nothing done.

Q. Are benchmark findings available to all SAP customers or only those who participate in the benchmark survey?

The benchmarking study is open for participation to all SAP customers and select non-customers. Participants receive a tailored, confidential, detailed benchmarking report comparing their performance against the average and the first quartile of their peers. We also publish aggregate benchmark survey results in a white paper for select non-participants.

Q. How do SAP customers participate in these benchmarking processes?

SAP customers can now participate in nine benchmark studies:

  • Supply chain planning

  • New product development and introduction (NPDI)

  • Manufacturing

  • Customer contact centers

  • Human capital management (HCM)

  • Finance

  • Total cost of ownership (TCO)

  • Procurement/supplier relationship management (SRM)

  • Governance, risk, and compliance (GRC)

Participation is free. Enter your data online and SAP will provide you with a custom benchmark report and review the report's findings with you over the phone. You can download a sample report below.

To participate in benchmarking, and for more information, visit www.sap.com/usa/solutions/asugbenchmarking/initiatives.epx.

Click here to download a sample custom benchmark report.


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