An oft-quoted McKinsey/Oxford University study(i) shows that only 20% of organizations achieve over half of their originally projected benefits from SAP transformations. However, projects which execute with a value focus achieve an average of 68% reduction in schedule over-run.
So, what do we mean by a value-based focus?
Typically, transformation programs are run like the PMI’s “Triple Constraints” (also known as the “Iron Triangle”) – On-time, On-budget, On-target. Too often there is little or no concern with value - whether quantitative by means or return on investment (ROI), or internal rate of return (IRR), or qualitative value - that the program should bring to the business.
This is because once a program has been funded (not always based on a business case), it becomes an “IT Project”, and we take the eyes off the prize when it comes to delivering true business value. McKinsey’s study shows, however, that the most successful projects establish a clear view of the initiative’s strategic value, beyond the technical content and specification.
Our experience bears this out. By creating a comprehensive, detailed business case; maintaining focus on business value throughout the program and beyond; and by constantly engaging with and involving business stakeholders, a program is more likely to be successful at achieving alignment between business needs and the IT solution being developed.
There are several key “watch areas” to remember with typical SAP S/4HANA implementations to safeguard against value leakage:
- Business doesn’t understand the potential value of the program, and sees it as an “IT Project”
- Long timelines drain value – traditional timelines and implementation methods increase ‘Time to Value’
- Best practice/model company implementations often skimp on change management and, therefore, miss optimal adoption of the newer capabilities and enhanced business processes.
How to safeguard business value
To shift the program away from the “Iron Triangle” to a value-based mentality, there are several key areas to focus on:
Don’t believe the hype!
Of course, the business case drawn up by the vendor looks compelling. But does it pass the sniff test? Most business cases take the “top down” view, using but a few key metrics which often miss the mark. They ignore business imperatives, such as shift patterns and order seasonality. Labor “efficiency” savings are often touted but rarely achieved, due to many factors not considered by a top-down business case. As a result, skepticism as to the achievability of business cases is rife.
Key to understanding the true business value of any business transformation program is to look at the view from top-down, bottom-up, and middle-out: Understand the links between the metrics at the highest level and the granular, business unit KPIs. Test and validate the improvement opportunities with the line managers who will be tasked with delivering these improvements – the chances are high that if they don’t believe they are feasible they won’t be delivered. And to help with the believability factor, an approach that includes some “outside-in” benchmarking is preferable to demonstrate what others have achieved.
Focus on the business process rather than the technology
Focusing on SAP S/4HANA as a technical transformation rather than a business transformation is a frequent point of failure. If your existing business processes are inefficient, a pure technological transformation or upgrade will help you leak value more quickly.
Most business processes are (or should be) very similar within, and even across, business sectors. Vendors bandy about the term “best practices” for a reason – there is very little value to be derived from maintaining non-standard processes unless they are truly differentiating.
It can be very valuable to undertake a process mining exercise (with software tools such as Signavio or Celonis) to establish areas of inefficiency within your current business processes prior to determining which course of redesign you wish to take. Think of this as an MRI for your business – a scientific way to get a detailed view of how your business processes are actually being performed, not anecdotally, but in real time. The visibility of bottlenecks, workarounds, and time wastage makes the imperative for change very real at all levels within the business and focuses the mind on what is important and needs to happen. A comparative mapping of existing processes against “best practices” brings home the value of simplification and standardization and can direct you to areas where your transformation project effort will be most impactful.
Ensure program governance is led by the business
As IT is increasingly a shared service, it is likely that funding for an SAP S/4HANA transformation will come from the business. It is therefore imperative that the program is driven by the business with a focus on achievement of business value.
An active, business-led steering committee is a must. For deployment, an Agile approach, with business owners working as integral parts of the scrum teams and release trains, is key to ensuring the focus on value is maintained throughout the development cycle. Agile also lends itself to demonstrating value sooner than a more traditional waterfall-based deployment and provides critical flexibility and adaptability to your project.
Establish value management as an integral part of the program management office
A typical program management office is IT-heavy, with a focus on “on-time, on-budget, on-spec” performance and governance. An over-reliance on this type of focus often results in value leakage: design, development, and deployment decisions are often made from a position of technical or time-based expediency rather than business value.
Embedding a value-focused professional in the PMO leadership team can effectively shift focus to enable the PMO to become a true transformation office, or value management office. When change requests arise (and they inevitably will!) they should be made based on:
- Does this change support the business case?
- Does this change add value proportionate to the cost of change?
- Does it have upstream or downstream effects on value or time-to-value?
You can achieve change without benefits, but not benefits without change
Change management is often overlooked or regarded as “optional” in a transformation program. Given that adoption is every bit as critical as delivery, this is a mistake.
True business value does not arrive automatically at go-live without a well-trained and motivated workforce who are able and willing to embrace and adopt the new system(s). It is therefore beneficial to integrate the business base and value management efforts closely with the change management plans and execution. Clear, meaningful, and measurable value, financial or qualitative, provides the imperative for change and a powerful message to communicate.
It is also a mistake to assume that the program alone can deliver the full potential value without integration into any existing operational excellence initiatives. Liaison and involvement with OE / Lean Six Sigma practitioners should be a key objective of the value management office, and a full handover of value management should be made to the OE team after go-live to ensure continuous improvement happens.
You can’t manage what you don’t measure
Creating a business case is crucial, maintaining it and revisiting it is not so common. When the question comes from the business on how much value a program delivered, the answer is not always clear.
Building in a dashboard of value-driven metrics to support the business case is a must. From the benchmark of existing business performance that was taken to create the initial business case, set up metrics that are like-for-like to alleviate concerns of inconsistency. Utilize process mining and performance support tools (Signavio, Celonis, TT-S, EnableNow etc.) to measure adoption, compliance, and improvement. Provide clear performance targets enabled by the new solution so mangers know what they are driving toward. Incentivize them to deliver on their value-based levers and KPIs to drive both quantitative and qualitative benefits and demonstrate and communicate the value created.
There are, ultimately, only two key factors in a successful project:
- Delivery – On time, On Budget, On Target (to specification), and
- Adoption – which is the key to achieving the business value from a successful delivery
A value-focused strategy enables both deliverables. And program success that is demonstrable through delivered value will lead to greater confidence in future investment decisions as well as a greater motivation to change.
(i) Delivering large-scale IT projects on-time, on-budget, and on-value – McKinsey / Oxford University – Bloch, Blumberg & Laartz, 2012