SAP: A Propensity For Failure

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This is a white paper that was originally released in early 2008 and examines the myriad of challenges experienced by government organizations in their efforts to successfully implement an SAP-based eProcurement solution.

Citing actual case studies including the City of Houston and Kings County, it is ironic that against the backdrop of SAP's current move towards offering a SaaS-based model, the relevancy of these failed projects takes on an even greater significance.

An added benefit is the revelation that colossal failures such as these were not limited to the public sector as demonstrated by misses at companies such as Hewlett-Packard, Fox Meyer Drugs and Hershey Food Corp. as it demonstrates an inherent flaw in the foundational premise of ERP-based initiatives.

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  • I enjoyed your article. As a public sector manager in charge of a P2P project for a large metro county, I appreciate your emphasis on “process understanding and refinement” instead of software. We’re currently an SAP shop running ECC 6 and SRM 5, and have plans to upgrade to SRM 7.2. I’ve been recently tasked with justifying the cost for implementing PPS as part of our upgrade. Not an easy task since it’s hard to separate the tangible benefits of the SRM upgrade and PPS add-on features.
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SAP: A Propensity For Failure

  1. 1. Ottawa, Canada 2008 SAP Procurement for Public Sector White Paper Jon W Hansen, Chief Architect CATA Alliance
  2. 2. SAP Procurement for Public Sector Table of Contents OLD WINE IN NEW WINESKINS? ...........................................................................................3 SAP PPS – TRUE INNOVATION OR AN EXERCISE IN RE-BRANDING?........................4 SAP’S PROCUREMENT FOR PUBLIC SECTOR: THE PAST AND PRESENT ................5 SAP GLOBAL WEB SITE ............................................................................................................6 REPAIRS ON THE FLY – OVERCOMING PAST CHALLENGES ......................................8 A CASE FOR PPS? ........................................................................................................................9 SEATTLE PUBLIC SCHOOLS, UNITED STATES.............................................................................11 ERIE COUNTY, NEW YORK (PDF, 613 KB), UNITED STATES ....................................................11 SAN LUIS OBISPO COUNTY (PDF, 848 KB), UNITED STATES ....................................................11 CITY OF OTTAWA, ONTARIO (334 KB) ......................................................................................11 SAP – THE DARK SIDE OF THE MOON ...............................................................................11 HERSHEY FOOD CORP ................................................................................................................13 FOXMEYER DRUG ......................................................................................................................14 WHIRLPOOL, DOW CHEMICAL, BOEING, DELL COMPUTER AND WASTE MANAGEMENT .........14 THE ORIGINS OF A FAILED INITIATIVE? .........................................................................15 REVERSING THE TREND?......................................................................................................16 A BEACON OF WHAT IS POSSIBLE?....................................................................................18 LIKE DEEDS, RESULTS SPEAK!............................................................................................21 THE MICROSOFT CONNECTION .........................................................................................22 CLOSING SUMMARY ...............................................................................................................24 ABOUT THE AUTHOR..............................................................................................................28 Appendices APPENDIX A ...............................................................................................................................30 ARAPAHOE COUNTY, COLORADO ..............................................................................................30 APPENDIX B................................................................................................................................34 EXTENDING THE ENTERPRISE.....................................................................................................34 MFI GETS CAUGHT IN SAP TRAP................................................................................................36 INVENTORY WOES LEAD TO PROFIT WARNING ...........................................................................36 BY JOHN OATES → MORE BY THIS AUTHOR ..............................................................................36 APPENDIX C ...............................................................................................................................37 (CASE REFERENCE) ....................................................................................................................37 HP users decry Itanium, SAP issues and bad English...........................................................37 The Shipping News ................................................................................................................37 1
  3. 3. SAP Procurement for Public Sector APPENDIX D ...............................................................................................................................39 (CASE REFERENCE) ....................................................................................................................39 Cadbury IT glitch takes £12m chunk out of profits................................................................39 APPENDIX E................................................................................................................................42 (GATE METHODOLOGY REFERENCE) ........................................................................................42 APPENDIX F................................................................................................................................46 (ARTICLE - DUET) ......................................................................................................................46 Steve Ballmer: Microsoft Business Summit 2005 ..................................................................48 School District Provides Web-based Access to SAP R/3 Financial Data with SharePoint Portal Server..........................................................................................................................48 APPENDIX G ...............................................................................................................................49 (CASE STUDY INDEX – ADDITIONAL CASE REFERENCES) .........................................................49 Erie County works with IBM for enterprise-wide business transformation ..........................49 Erie County leads the way to shared citizen services with SAP and IBM .............................49 Nova Scotia Liquor Corporation builds a robust retail environment with IBM and SAP.....49 2
  4. 4. SAP Procurement for Public Sector Old Wine in New Wineskins? “New Product Development and Introduction (NPDI) allow companies to grow revenues and retain high margins by launching new products and creating new customers in new markets. Even when a company’s top line isn’t increasing, it needs NPDI to replace existing products that are reaching the end of their life. Newer products typically command higher margins in the market while older products are impacted by competitive challenges and waning customer interest. Well executed, NPDI keeps a pipeline of new, high-margin products flowing to the market.” New Product Development and Introduction (NPDI) SAP White Paper December 2007 3
  5. 5. SAP Procurement for Public Sector SAP PPS – True Innovation or an Exercise in Re-Branding? Albert Einstein once defined insanity as “doing the same thing over and over again and expecting different results.” While mildly amusing, it is nonetheless a thought provoking statement when applied to the evolution of the enterprise software industry and in particular the introduction of supply chain/e-procurement solutions. The fact that awareness of the high-rate of ERP/IT-based initiative failure to deliver the expected results is now entering mainstream consciousness, vendors and those associated with the recommendation and implementation of solutions find themselves in unfamiliar waters. Specifically, what do you do to overcome the growing cynicism within the end-user community? In this context, does the introduction of the Procurement for Public Sector (PPS) modules/upgrades by SAP signal the introduction of new and innovative technology that will reverse the generally negative results in the market as a whole? More to the point concerning existing SAP clients will the PPS modules pave the way for an enterprise-wide adoption of a broader SAP centered e-procurement strategy? The first step toward answering this question is determining if in fact the PPS modules or upgrade is a true vehicle of transformation or if it is an exercise in re-branding whereby the same “old” principles of implementation and engagement are used. The methodology used to make this determination centered on extensive research of available case study history worldwide and in particular North America and the United Kingdom. As a point of cross referencing (and validating) the case study findings, we also researched SAP implementing partners web sites to determine if there were any references to the specific introduction of PPS “branded” offerings. This activity was undertaken based on the fact that traditionally the 4
  6. 6. SAP Procurement for Public Sector marketing mechanism for vendors usually precedes the product introduction curve. In the absence of verifiable case study references, the presence of PPS-related marketing information on the partner sites would at least provide a reasonable indication of the timelines associated with real-world PPS availability and impact. Finally, a detailed review of the America’s SAP Users’ Group (ASUG) site was also undertaken in an effort to establish key developments in the area of Public Sector Procurement practice within the SAP user community. While we did not have access to all materials, and in particular those from a December 19, 2007 Webcast highlighting PPS 2008 release information including enhancements to the PPS Roadmap and SRM 6.0, the site did provide us with another vehicle to engage additional resources. Even though SAP can be seen as the firmly entrenched platform within the organizations of their existing client base, the results of our research will hopefully introduce a number of options that the SAP user community can leverage to build upon the existing application’s foundation either organically or through the introduction of new methodologies. SAP’s Procurement for Public Sector: The Past and Present “SAP Procurement for Public Sector provides Public Sector organizations a capability to support a wide variety of government procurement practices. The software is tailored to support simplified acquisition processes as well as the complex processes managed by most government organizations. It includes a document builder function to produce complex procurement documents quickly and easily.” 5
  7. 7. SAP Procurement for Public Sector SAP Global Web Site Given the above description of the PPS offering, the first thought that comes immediately to mind is why adjunct modules to the main ERP application were licensed by many organizations in the first place? The Material Management (MM) application used by some organizations today is one such example. It is a logical question in that the MM application’s primary focus is on managing materials of which procurement is just one element. Other functional features include inventory management, valuation and assignment, batch management and classification. Combined with the fact that the materials management program is designed to integrate with SAP modules such as Sales and Distribution, Production Planning and Quality Management (areas which do not commonly fall within the framework of a public sector procurement practice) would lead one to reasonably conclude that there are a great many clients whose existing platform is better suited to a manufacturing environment instead of an organization operating within the public sector. This could be a factor in the persistently high rate of initiative failures. It is important to note that this question is not intended to stimulate debate pertaining to the internal decision-making process within the public sector (although this is a subject worthy of closer review). Instead, and as it relates specifically to this report, it does raise potentially disturbing questions surrounding the vendor’s thought process and motivation in terms of recommending a materials management solution in the first place. Perhaps we can assume that one of the motivating factors that have led to the prevalence of misaligned technology is linked to a desire for continuity – the perceived importance of compatibility with a main ERP system. Continuity or compatibility could certainly provide a plausible explanation for sacrificing the functionality that would best serve the procurement department’s needs. Regardless of the reasoning, this approach is problematic on several levels. 6
  8. 8. SAP Procurement for Public Sector Specifically, the need to “shape” or “mold” a misaligned module to better align with an organization’s procurement practice increases the frequency of having to create “work arounds” or band-aide fixes on the fly. In those instances where measures such as these are employed on a regular basis, there is usually a substantial and incremental cost in both time and resources (nee money) starting at the point of implementation (see Example A below). Example A Technology-Centric Approach Exacerbating this situation further is the negative impact the attempt to fit a square peg into a round hole will have (or has already had) on any future initiatives in terms of stakeholder adoption. 7
  9. 9. SAP Procurement for Public Sector This is usually demonstrated by varying degrees of cynicism at the operational levels of an organization. Taking this into account, many organizations may very well be embarking on a new undertaking from one or two steps back. This is an important factor that has to be both quantified and addressed prior to moving forward with any strategy let alone a revised PPS strategy. In an effort to bolster stakeholder confidence, one avenue that may be worth pursuing is to clearly understand and outline the differences between the existing module or modules, the PPS modules as well as possible third party options. This approach would provide a platform for collaboration with key stakeholders that would help to avoid the potential pitfalls of a perceived “gravitational pull” towards a particular vendor (in this case SAP). Along these lines I would recommend a nominal investment in additional research material such as a book by Martin Murray titled SAP MM – Functionality and Technical Configuration. Published in June of 2006, one may find unrealized functionality within their current application (in this case the MM module) that can assist in better quantifying the eventual transition to a more appropriate e-procurement solution. Repairs on the Fly – Overcoming Past Challenges Historically, almost all e-procurement initiatives originate as a by-product of either a Finance (ERP)-centric or IT-centric initiative in which any meaningful engagement of the purchasing department is limited to the narrowly defined framework of an externally mandated strategy. Henry Ford’s comment that “people can have the Model T in any color – so long as it’s black,” is a fair representation of how the majority of purchasing departments “inherit” the technologies that ultimately (and erroneously) define their practice. One such example that is worth looking into further is the City of Houston’s SAP-based 10 year, $30 million plus initiative announced in December 2005. Focused on standardizing the City’s administrative functions across 8
  10. 10. SAP Procurement for Public Sector all departments, the perception surrounding the e-procurement component was one of being an adjunct option of the core program in which implementation would take place down the road. This approach ultimately saddles the purchasing department with a platform that creates in a tug of war between operational requirements and developmental capacity. Or as one senior public sector official lamented, requires the dedication of already limited resources whereby full-time staff is needed to make the ERP-based procurement module “fit” the practice. Unfortunately, this has meant that the vast majority of purchasing organizations are now in the software business as they attempt to adapt their practice to an application they would not have chosen to use in the first place. In this scenario, making the software “work” becomes the focal point. Recognizing the existence of these or similar-type challenges with pre- existing modules, as well as the possible emergence of competing strategies that originate at the departmental level, organizations have to be cognizant of end-user reluctance to embrace what may initially be perceived as another misaligned or inherited program. This means that a clear understanding of how the PPS offering will actually work (re adapt) to real- world practices is an essential requirement out of the gate. To do this effectively, project champions have to review available case history to gain additional insight into the success or failure of similar programs with other public sector organizations. Simultaneous to this exercise, is the need to build a Results Objective Table which accurately reflects the interests and objectives of key stakeholders both within and external to the practice itself. A Case for PPS? Based on an exhaustive research of available case history through a variety of sources including SAP partner sites, it would appear that the PPS offering is more of an exercise in re-branding than in technological innovation or breakthrough. This assessment is based on the fact that outside of general references within the SAP site itself, there was not a single or independent 9
  11. 11. SAP Procurement for Public Sector case history reference to a specific PPS “branded” module or product. (Note: this does not imply that a PPS module does not represent an improvement over existing modules. In fact, given that the MM example clearly demonstrated that a materials management solution was not ideally suited for a PS procurement practice - which again may go a long way toward explaining present end-user skeptism; it would be surprising if there wasn’t a reasonable degree of improvement with the PPS offerings in whatever form or forms it may take.) Arapahoe County in Colorado for example, implemented the SAP solution as part of a broader ERP initiative. While there was a component of the project that involved purchasing as demonstrated by a quote that “County officials now enjoy online real-time visibility into financial, purchasing and inventory reports – as well as transactional information,” there is no specific reference to a PPS branded “purchasing” module. The absence of a PPS reference notwithstanding, the operational benefits according to an SAP produced case* study regarding the Arapahoe implementation included the following:  Purchase order cycle time reduced 80%  Age of information in monthly reports reduced from six to eight weeks to real-time  Full-time equivalents in accounts payable and purchasing reduced 50%  Financial close process time (annually) reduced by 150 hours * A copy of the complete case study has been provided in (Appendix A) The key question surrounding the above referenced results (as well as those outlined in the following case studies) is whether or not they are a fair and reliable indicator of success. 10
  12. 12. SAP Procurement for Public Sector Other case study references provided through the SAP site include: Seattle Public Schools, United States Examine how this large urban school district is using SAP SRM to buy pencils, paper, computers, and custodial equipment – while generating large savings of 50% to 75% of back-end processing costs – with the streamlined, online procurement process. Erie County, New York (PDF, 613 KB), United States Consider how Erie County, which needed an integrated, automated ERP system to manage payroll, procurement, budgeting, grants administration, and accounting, chose SAP Business Suite solutions – and successfully standardized and streamlined business processes. San Luis Obispo County (PDF, 848 KB), United States Read how San Luis Obispo County used the SAP ERP application to accommodate an economic boom and mitigate the impact on county services and operations. City of Ottawa, Ontario (334 KB) Read how Ottawa, reformed from 12 municipalities, uses the integrated mySAP Business Suite family of business solutions to improve processes such as centralized payroll and consolidated inventory, and to run faster reports and responses -- anticipating 100% ROI in five years. SAP – The Dark Side of the Moon Often times it is the unknown that can create the greatest challenges. Regardless of the vendor, the less than stellar results associated with the majority of all e-procurement initiatives should give one pause for thought. 11
  13. 13. SAP Procurement for Public Sector That said it is not the intention of this study to either recommend or dissuade the reader from actively pursuing an SAP-based strategy. The primary objective is to provide decision-makers with an “objective lens” through which they will be able to view all relevant data. For this reason, our research was extended to include case histories in which the results of an SAP program did not meet client expectations. In a September 16th, 2004 article titled Extending the Enterprise – SAP: Are its customers happy? (Appendix B), Dale Vile referenced a story in which one of SAP’s major customers (MFI) “cited problems with an SAP supply chain implementation as a reason for poorer than expected financial results.” Other similar stories including Hewlett-Packard’s “lost $400 million in revenue from a failed SAP rollout” (Appendix C) and the £12 million hit that Cadbury Scwheppes took in 2006 as a result of a “bad SAP supply chain” project (Appendix D) are also worth noting. And not just because of the apparent size and resources of the companies in question. Although the HP case study should be somewhat disconcerting given that organization’s level of sophistication and supposed expertise as an SAP integrator. As RedMonk analyst James Governor put it, “HP is trying to build an application management business to rival IBM’s. What better case study in proving your R/3 and Netweaver capability” . . . by showing “everyone how to merge two SAP systems.” The analyst concluded by saying “Who would want to go to HP now for large scale SAP integration? The CEO just publicly said HP can’t effectively manage such a project.” This being the case, if a high technology company who has extensive experience with the product can’t succeed, what does this say in terms of any organization’s chances for success? Even the previously referenced City of Houston project appears to have run into some difficulties if you are to believe a recent post on the Houblog Blog site (http://www.houblog.com/wp/index.php/2007/506). 12
  14. 14. SAP Procurement for Public Sector The post’s author, who admitted that he wasn’t an SAP fan talked about a news report regarding “HPD officers being up in arms over how badly the SAP payroll implementation has gone.” According to the information, other departments within the city’s infrastructure have reported similar experiences with some employees reporting that they received “paychecks with $0” amounts. As a result, the writer observed that “A year ago, there was a lot of talk about how the city’s operation would be converted to SAP. Now, not so much (as in none).” To stress once again, the Houston SAP program’s problems have not been substantiated, hence the recommendation to follow-up with that municipality directly. However this as well as other Blogs such as blogHouston (http://www.bloghouston.com/) have reported similar experiences which do warrant consideration. (Note: an interesting comment regarding SAP in a blogHouston post claimed that the user had “never met anyone in any department outside of accounting that likes it.”) And while Vile indicated that for “every horror story,” there are “many successes” his position that “other factors – such as the way these implementation projects are managed – are the most likely causes of failure” may actually help to empower organizations in terms of understanding the management mechanisms that will be required to achieve the desired and needed outcome. Other case study references regarding the challenges associated with SAP implementations: Hershey Food Corp Beginning in 1997 Hershey tried to integrate Manugistics, SAP and Siebel applications to improve order processing. About 30 months and $112 million later, Hershey had to admit failure. With its order fulfillment process broken, the company found itself having to call its customers to find out how much candy they had received in shipments. 13
  15. 15. SAP Procurement for Public Sector While SAP calls Hershey’s experience a consolidation success story, experienced SAP integrators would tell you that Hershey dramatically underestimated the effort required to install and customize six SAP modules (finance, purchasing, materials management, warehousing, order processing and billing.) http://www.intelligententerprise.com/showArticle.jhtml?articleID=1643011 26 FoxMeyer Drug The ultimate cautionary tale for any IT manager about to pull the trigger on a new ERP implementation. Following an SAP R/3 implementation in the mid-to late 1990s, the company’s bankruptcy trustees filed a $500 million lawsuit in 1998 against SAP, and another $500 million suit against co-implementer Anderson Consulting, claiming the companies’ software and installation efforts had contributed to the drug company’s demise. On June 23, 2004, SAP reached a settlement agreement with FoxMeyer pursuant to which SAP was required to pay a specified amount. http://www.cio.com/special-reports/horror/erp Whirlpool, Dow Chemical, Boeing, Dell Computer and Waste Management In a January 2000 article in CFO magazine titled Blaming ERP by Andrew Osterland (http://www.cfo.com/article.cfm/2987370), reference was made to the ongoing struggles associated with SAP implementations and “to a lesser extent,” as the story states, “competing products like those from PeopleSoft, Oracle, Baan, and J.D. Edwards.” 14
  16. 16. SAP Procurement for Public Sector Referencing the Hershey nightmare, Osterland wrote, “A week after Hershey’s disappointment, Whirlpool, a leading manufacturer of household appliances, announced similar though less severe problems with its SAP implementation. In fact, the two companies are just the latest additions to a long list of companies that include Dow Chemical, Boeing, Dell Computer, Apple Computer, and Waste Management that have struggled in varying degrees with ERP projects.” The Origins of a Failed Initiative? As indicated earlier, most purchasing departments inherit their software as an adjunct downstream byproduct of either an original Finance (ERP) or IT- centric initiative. This has usually meant that their input has been relegated to the realm of the afterthought versus providing decisive and proactive input when it matters the most – prior to an actual decision being made. Unless this “hierarchical” practice is changed, the majority of organizations will end up banking on the SOA train linking disparate and inefficient applications to deliver results in the emerging decentralized world of procurement. Once again refer to the purported challenges faced by the City of Houston in terms of its project, or those of Hershey Foods as a point of reference. Situations such as these demonstrate that the actual software itself (or in the case of an upgrade from a pre-existing module) will have little relevance on the success or failure of a program. The Commonwealth of Virginia’s eVA system is a case in point. In my October 23, 2007 post on the Procurement Insights Blog titled Yes Virginia Revisited! Why some e-procurement initiatives succeed and others don’t! (Note: this article also appeared in my regular column in Summit Magazine - http://www.summitconnects.com/index.htm), I concluded that stakeholder buy-in and the ultimate success of the program was not 15
  17. 17. SAP Procurement for Public Sector determined by the technological platform that was pursued and ultimately selected. Instead, success was directly linked to the proper alignment of technology with the way in which the organization operated in the real- world. Along the lines of Dale Vile’s suggestion that failures such as the ones highlighted in this study, are directly linked to the flawed management of the implementation process, I would take it a step further by stating that a lack of collaboration between key stakeholders is where the success or failure of an initiative originates. Reversing the Trend? It is not surprising that based on the persistent and some would suggest steadily increasing number of ERP project failures, a methodology centered on improving SAP implementations in the hopes of improving an organization’s chance for success would exist. Referred to as the SAP Gate Methodology (Appendix E), its creation was driven by the “horror stories” everyone has heard regarding cost overruns on SAP programs. The following is an excerpt from that document including a brief outline of the corresponding “Gates” While there are a few factors which are outside the control of the program managers’ (e.g. business change, funding withdrawn) the majority of the responsibility lies at their door. 16
  18. 18. SAP Procurement for Public Sector From the program manager’s viewpoint it is essential to get early warning that things are starting to slip. One of the quickest ways to lose your job is to surprise your board 4 weeks from go-live with the message that the program is 6 months late. One of the best ways to get this early warning is through implementing a gate methodology which forces a structured review of the program at pre- defined checkpoints along the way. In essence you build gates at the exit points of major phases of the program. Naturally these are also the entrance points to the next major phase. Let’s assume that you have five major phases as follows: Scope and Plan, Design, Build, Test, Go-Live. You would then have five major gates as well – each positioned at the exit point of the five phases: Gate 1 – Exit Scope and Plan Gate 2 – Exit Design Gate 3 – Exit Build Gate 4 – Exit Test Gate 5 – Go-Live 17
  19. 19. SAP Procurement for Public Sector The specific criterion for each Gate is available in the complete document in the Appendices. While the Gate concept is certainly creative, it is still based upon the premise of working within the flawed confines of a traditional enterprise- based project – admittedly a situation for which there may be no alternative or opportunity to change. Therefore, under the best circumstances it represents a methodology for potentially reducing what will still turn out to be an unnecessarily expensive and time consuming exercise which according to industry reports, is not likely to reflect the way in which purchasing departments actually operate in the real-world. That said what is the alternative? A Beacon of what is Possible? In early October, I sat on a panel which reviewed e-procurement practice in the public sector. Of the many topics that were presented for discussion, the conversation surrounding stakeholder collaboration was by far the most interesting and telling. Responding to a question from the audience regarding the Government of Canada’s (GoC) strategy for procurement reform, a comparison between the success of the Commonwealth of Virginia’s eVA program and the GoC’s Way Forward’s continuing struggles ensued. This of course shed some much needed light on what ultimately determines the success or failure of a public sector initiative. Interestingly enough, the respective outcomes weren’t directly linked to the software that was implemented. After providing an overview of the shared services or “one enterprise” approach that is the hallmark of every ERP/IT-centric program, a panel member from Virginia disclosed that the Commonwealth’s procurement reform initiative had similar beginnings. 18
  20. 20. SAP Procurement for Public Sector Specifically, the Commonwealth’s original approach to driving procurement reform was to establish a single standard across the board. This is probably the reason why Way Forward proponents from the GoC had initially made reference to eVA as a model they were going to emulate. However, the Commonwealth’s thought leadership soon realized that the degree of stakeholder resistance at the department or agency level towards what can be referred to as a “monolithic undertaking” in which centralized control (or the illusion thereof) is the driving force was untenable. Developed outside of the framework of an existing Finance (ERP)-centric strategy (an extremely important point of consideration), leadership recognition of the fact that government is “not just a single business but is actually comprised of many different lines of business,” was a crucial first step towards what eventually became a highly successful program. Through the acknowledgement that “government goes beyond a mere org chart,” as the Virginia panel member stressed, enabled senior management to both actively seek and ultimately understand the “special needs, special rules and special challenges associated with the procurement practice of each entity.” Beside the recognition of the inherent flaws associated with a shared services approach in which compatibility with an ERP platform is the central consideration, the Virginia team had the courage and determination to change course. As a result, the Commonwealth avoided the trap of eVA becoming a software (IT) project (along with the requirement for a Gate methodology), and shifted emphasis from an exercise in ERP compliance and cost justification to one of process understanding and refinement. Now I do not want to mislead you into thinking that the Commonwealth did not experience a certain degree of pushback from a variety of stakeholders. The key differentiator however was that being unencumbered by ERP- driven objectives, senior management focused on understanding stakeholder concerns which enabled them to take the appropriate course of action to remove barriers of resistance relating to their proposed strategy. 19
  21. 21. SAP Procurement for Public Sector As stated earlier, it is not the intent of this paper to take a position in terms of whether or not a public sector organization should pursue a strategy centered on an SAP-based solution. Dependent of the feedback that is received from the case references in this study (both the good and the bad) an organization may very well choose to move forward with the Vendor’s application (or upgrade). However, it should be recognized that the key to a successful program is not dependent on the Vendor’s product - although I would be remiss if I did not stress the importance of investigating opportunities to utilize the emerging Software as a Solution (SaaS) pricing models or low-cost trial licensing programs such as the one SAP offers – but is instead based on a program which is capable of adapting to the processes that define its practice. The benefits of taking this approach are well documented, with the eVA framework acting as a beacon for other public sector organizations. Once again it is important to note that the Commonwealth of Virginia’s senior management truly believes that they would have been equally successful with the product offering from any other vendor. The difference with Ariba is that they were willing to base their remuneration under a SaaS model – which at the time (2001) was not widely known. SaaS, or On-Demand as it was originally called, was a relatively new concept in 2001 whereby organizations would pay a “transaction” fee for using the application versus making the usually significant and ongoing investment in owning or licensing an enterprise solution. Under SaaS, the vendor would absorb the lion’s share of the implementation costs as well as the ongoing responsibility and expense of maintaining the viability of the product including the introduction of upgrades (say good- bye to costly maintenance fees). In turn the vendor would receive (usually under a long-term agreement) transaction fees based on a percentage of the total throughput – similar in concept to an Automated Banking Machine (ABM) fee. 20
  22. 22. SAP Procurement for Public Sector The benefit under this model is that the vendor (Ariba) was motivated to have the application up and running within the shortest period of time possible. This meant that they were more “sensitive” to the true operational requirements of the customer, which in turn resulted in a highly productive outcome. Like Deeds, Results Speak! While initiatives such as the GoC’s Way Forward program struggle to gain traction, it often seems as if the greatest effort with most programs is expended on selling and enforcing compliance with the “new” direction. By changing the methodology to one in which process understanding and refinement were the cornerstones of their program, Virginia’s eVA has consistently demonstrated strong growth and an increased level of stakeholder acceptance that most public sector organizations can only dream about. There are several hard indicators or markers that confirm the veracity of the Commonwealth’s approach including:  An increase from 1% of the Commonwealth’s total $3.5 billion spend being processed through the system in 2001 to over 80% in 2007  An increase in the number of registered suppliers from 20,000 in 2001 to 34,000 in 2007  An increase in the distribution of Commonwealth contract awards to suppliers from 23% in 2001 to more than 40% of the total supply base in 2007 Each of these results provides a clear indication of a dynamic and productive supply practice that has consistently delivered savings to both the Commonwealth and the taxpayers that support its infrastructure. 21
  23. 23. SAP Procurement for Public Sector Referencing the same metrics, what would a similar assessment on the part of SAP public sector clients reveal? Even more important, what incremental and quantifiable improvements would be realized with the introduction of a SAP Procurement for Public Sector (PPS) module? One point of reference that may help to answer this question is the reported success of the Canada Post SAP program. Like Virginia, Canada Post (CP) had struggled with previous initiatives. Recently, seven employees from CP (Buyers through to Directors) attended my Changing Face of Procurement Conference in Ottawa. During the 2-Day session these individuals indicated that based on past experience, rather than relying on the software vendor, CP took control of the program from the beginning. This included the utilization of a collaborative process strategy, in which stakeholders from areas of the CP operation that would be impacted by the new program were actively engaged in its development and implementation. While the CP team operated within an implementation framework which had been provided by a consultant (in this case Accenture), the defining element of their program was that they took full ownership and responsibility for its success. (Note: later this spring, a case study of the Canada Post program will be published.) The Microsoft Connection I recently wrote an article on the purported acquisition of SAP by Microsoft. This is not an entirely new story in that Microsoft had made a play for SAP in the past (2004). And without going into all the machinations surrounding such an occurrence from a business perspective, what was both interesting and applicable to this study is the impact of what was originally called the Mendocino project (Appendix F). Now available under the Duet brand, this collaborative interface between the two companies’ products (which was developed outside of the Merger and Acquisition talks) might actually prove to be somewhat beneficial in terms of an organization’s inclination towards an SAP-based initiative. 22
  24. 24. SAP Procurement for Public Sector Recognizing that adoption or end-user compliance is one of the main barriers to a successful program, the ability for project champions to leverage user comfort with known applications such as Excel to access certain functions within the SAP architecture could stimulate stakeholder buy-in, at least internally. By promoting the utilization of SAP through a familiar, easy-to-use interface the overall level of possible resistance may diminish to the point of making the SAP PPS offering more viable. The key of course will be the degree of dynamic connectivity that Duet offers between the MS software and the SAP application relative to an organization’s procurement practice. Given that one of the many benefits of Duet being advocated by Microsoft and SAP, is the purported short implementation timelines and lower corresponding costs means that further investigation would seem warranted. Certainly the Microsoft SharePoint Portal Server success that was reported in a June 2003 article demonstrate that Duet’s foundation is reasonably sound, at least from a feasibility standpoint. Titled School District Provides Web-base Access to SAP R/3 Financial Data with SharePoint Portal Server, the article stated, “When Seattle Public Schools needed to provide senior management with self-service access to data contained in its SAP R/3 financial system, the school district turned to Microsoft SharePoint Portal Server. In less than two weeks, the district implemented a solution that uses SharePoint Portal Server and a SharePoint plug-in from ERP- Link to extract reports from SAP and present them to users through an intuitive Web-based interface. Taking this approach has enabled Seattle Public Schools to avoid purchasing SAP desktop licenses for users who only need to view data and to reduce training costs by eliminating the need to teach so many extra people how to use the SAP desktop client.” 23
  25. 25. SAP Procurement for Public Sector If the Duet offering extends this capacity beyond the realm of static data access and retrieval to one in which a dynamic, real-world interchange between diverse stakeholders can be easily facilitated and incorporated into the procurement process, then they are on the threshold of major breakthrough. Closing Summary Through this study, we were able to determine that the PPS offering seems to represent an exercise in re-branding in which product enhancements or modifications have come about as a result of evolutionary experience versus an actual technological breakthrough. Specifically, product improvements would likely be based upon SAP public sector end-user experience and feedback. This being the case, the success experienced by similar public sector organizations would go a long way toward validating the decision to pursue a PPS strategy. (Note: in early January 2008 I received a call from a senior manager at King County in Washington indicating that after approximately 2 to 3 years and $38 million, the County’s SAP initiative “blew up” creating a political maelstrom. What is particularly interesting is that SAP used King County as a reference account in December 2007.) That said overall market experience within the private sector (i.e. Hershey, Hewlett-Packard etc.) should not be discounted in that it is also a reliable indicator of future success as it will identify the potential roadblocks or obstacles these organizations faced with their programs. To assist with the assessment process, I have included a number of additional case references for which the program details (via URL link) are available in the Appendices (Appendix G). It is strongly recommended that a member of any proposed project team be assigned to follow-up on these as well as the programs that have been referenced in this report’s main text. I would also suggest that if your organization is not already a member, it look at a possible America’s SAP Users Group (ASUG) membership. While the venue may be somewhat slanted in favor of SAP (it is difficult 24
  26. 26. SAP Procurement for Public Sector not to at least try and be positive about a product in which a significant investment has already been made) ASUG will nonetheless provide ready access to other users as well as important information that may prove beneficial in the ultimate decision to pursue the PPS option. In order to gain a “grassroots” perspective from an open community standpoint, it would also be worthwhile to check out the various Blogs and Social Networks as they will likely provide a somewhat different assessment of the SAP experience. However, given the absence of a moderator, it is particularly important to remember to be careful in terms of filtering the information that is received as you will want to separate personal opinion and “questionable facts” from truly useful information. As previously stressed, the application that is ultimately selected has very little to do with the success of any initiative, let alone an SAP-based program. Stakeholder response and acceptance are however critical elements. This means that a failure to effectively engage key stakeholders in a meaningful and productive way, ideally before a platform decision has been made should be the top priority. Following the lead of the Commonwealth of Virginia and Canada Post, I would recommend that discussion forums with essential stakeholders be scheduled, to collaborate on the construction of a Results Objective Table (Example B). Through this exercise valuable insight will be gained regarding the mindset of those individuals for which the program has supposedly been designed (or will be designed) to assist. 25
  27. 27. SAP Procurement for Public Sector Example B Economical Technological User Suppliers Low Cost of Ease of Ease of Use Ease of Use Ownership Integration with (Training & Back-End ERP Support) Good Budget Reliability Increased Non-Invasive Fit (Responsiveness) Efficiency Technology Achieve Fast ROI Minimal Support Performance Convenience (Productivity) Requirement Objectives and Speed (Support) (Expedited Delivery) Quantifiable Savings Re: Standardization Reliability Business Best Value Intelligence (Cost)* Flexibility Best Real World Maintain or “Value” Visibility Increase Revenue Standardization Enhanced Non- Supplier Adversarial Engagement © Hansen Consulting and Seminars Inc. 26
  28. 28. SAP Procurement for Public Sector In closing, it is our intention to provide both an informative and insightful lens through which the challenges and opportunities associated with an SAP-based public sector program can be objectively viewed. In reality, many of the concepts and methodologies presented in this paper can be easily adapted to any environment regardless of current vendor affiliation. By providing a simultaneously broad yet focused assessment of the factors that can and will influence the success of a public sector initiative we believe that this objective has been met. We of course welcome any feedback as well as questions. 27
  29. 29. SAP Procurement for Public Sector About the Author Jon W Hansen has been generating substantial savings for companies since he entered the high technology sector in 1983. Featured on CBC’s Venture program for his innovative Procurement Programs Jon continued his innovation as President of Parts Logistics Management Corp. (PLM) between 1997 and 2002. He sold PLM in 2001. He has also been honored as an Ottawa finalist for the Ernst & Young Entrepreneur of the Year Award in 2004 and 2005. Recognized as a leading North America Authority on improving supply chain management Jon is often retained by organizations such as the Purchasing Management Association of Canada (PMAC), the National Institute of Governmental Purchasing (NIGP) and the National Association of Educational Procurement (NAEP) to provide either a 1-Day orientation seminar or 2-Day accredited course based on his award winning Changing Face of Procurement Conference Series. This 4-Part Series has successfully provided both public and private sector organizations with the insights they have needed to effectively evaluate the viability of their e-procurement strategy (including RFP creation) or alternatively, to drive greater value from an existing e-procurement program. Linked In Profile: http://www.linkedin.com/in/jwhansen © Hansen Consulting & Seminars Inc. 28
  30. 30. SAP Procurement for Public Sector SAP Procurement for Public Sector White Paper Appendices 29
  31. 31. SAP Procurement for Public Sector APPENDIX A (Arapahoe County – Reproduced from SAP Reference Brochure) Arapahoe County, Colorado With a population of more than 520,000, Arapahoe County’s 806 square miles encompass nine school districts, 163 local improvement and service districts, and 14 incorporated communities – including Littleton, its county seat. Through efficient operations, Arapahoe County maintains a municipal operating budget of just $293 million and a staff of 1,800. As a result, the county boasts one of the lowest property tax rates in the Denver metropolitan area. Key Challenges • Numerous separate, stand-alone financial systems • Lack of visibility into financial operations • Outdated information – six to eight weeks old • Difficulty complying with new government reporting regulations • Inefficient procure-to-payment process • Multiple reconciliations required to keep information in sync • No vendor payment discounts taken Why SAP Was Selected • Best practices for state and local governments • Strong customer references • Positive customer site visits • Low risk – stable company • Significant investments in R & D • Flexible choice of databases • Excellent audit trail provided by SAP® application Implementation Best Practices • Strong management sponsorship • Low integration requirements • Low-cost infrastructure • Minimal customizations 30
  32. 32. SAP Procurement for Public Sector Low Total Cost of Ownership • Nine-month implementation cycle • On-time, on-budget implementation • Ongoing support cost 50% to 66% lower than average Financial and Strategic Benefits • Elimination of redundant financial systems • Improved timeliness and accuracy of key reports • Improved vendor relations and negotiating power • Improved visibility into information • Compliance with the latest government reporting requirements using automated reports directly from the system – the first county in the United States to do so • More staff time for value-added tasks • Increased vendor payment discounts taken Operational Benefits: Impact on Key Performance Indicators • Purchase order cycle time reduced 80% • Age of information in monthly reports reduced from six to eight weeks to real time • Full-time equivalents in accounts payable and purchasing reduced 50% • Financial close process time (annually) reduced by 150 hours Eliminating Multiple Financial Systems With just 1,800 employees, Arapahoe County had little need for multiple financial systems. But that was the legacy of a mainframe-based system and numerous “shadow” systems – including individual Microsoft Excel spreadsheets and Microsoft Access databases – assembled over a period of decades. Because those disparate systems couldn’t communicate with one another, answers to simple inquiries could take weeks. Purchase orders for even small expenditures took a week to process. Vendor payments were often late, causing project delays. Monthly reports took six to eight weeks to 31
  33. 33. SAP Procurement for Public Sector produce and print – by then already out of date. The lack of visibility made it difficult for officials to manage already constrained budgets, since it was virtually impossible to know how much money was currently available. An Investment in the Future In 2001, facing new government accounting and reporting standards as well as criticism from managers for inadequate reporting, the county decided to replace its antiquated software. After a careful review that included applications from PeopleSoft and JD Edwards, they chose an SAP® financial and procurement application. “SAP offered a powerful solution that was proven in other municipalities around the country,” says Kennedy. “We could see it had the functions to take our county into the future.” To conserve limited resources, Arapahoe County kept its SAP implementation very straightforward, with no customizations. The “plain vanilla” implementation was completed on time and on budget in just nine months. Lower Costs and Smoother Operations Since implementing its SAP application, Arapahoe County has experienced dramatic improvements in its total cost of ownership. Even more dramatic are improvements in overall operations. County officials now enjoy online, real-time visibility into financial, purchasing, and inventory reports – as well as transactional information. Purchase orders are now entered and expedited electronically in a matter of hours, not weeks – improving vendor relations and allowing greater price negotiation. Payments, too, are released far more quickly, allowing the county to keep projects running more smoothly and take advantage of vendor payment discounts. Staff members no longer need to reconcile various financial systems, giving them much more time for value-added tasks that leverage their professional skills. 32
  34. 34. SAP Procurement for Public Sector The county’s auditors have praised the system’s detailed audit trail, ease of use, and ability to drill down to source documents online – features that save significant time and money for both the auditors and Arapahoe staff. According to Kennedy, Arapahoe was the first county in the United States to comply with the latest government reporting requirements using automated reports generated directly from its software system. At the same time, the county’s close process, enabled by SAP software, saves an estimated 150 labor hours each year. The net result is a significant savings for the county’s taxpayers – along with a considerable improvement in the overall quality of county services. Looking ahead, Arapahoe County plans to implement a number of other SAP applications and is considering an upgrade. “We’ve seen the power of SAP applications,” Kennedy says. “And we’re very impressed.” www.sap.com/contactsap 50 080 245 (06/07) Printed in USA. © 2006 by SAP AG. All rights reserved. SAP, R/3, mySAP, mySAP.com, xApps, xApp, SAP NetWeaver, and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product and service names mentioned are the trademarks of their respective companies. Data contained in this document serves informational purposes only. National product specifications may vary. Printed on environmentally friendly paper. These materials are subject to change without notice. These materials are provided by SAP AG and its affiliated companies (“SAP Group”) for informational purposes only, without representation or warranty of any kind, and SAP Group shall not be liable for errors or omissions with respect to the materials. The only warranties for SAP Group products and services are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty. 33
  35. 35. SAP Procurement for Public Sector APPENDIX B (Article) Extending the Enterprise SAP: Are its customers happy? By Quocirca Published: Thursday 16 September 2004 SAP's financials are solid but are its customers satisfied? Only through keeping them happy will the European software giant be able to enjoy continued success. Quocirca's Dale Vile goes to the source to find out. This week SAP took some knocks in the press after one of its major customers, MFI, cited problems with an SAP supply chain implementation as a reason for poorer than expected financial results. Such stories occur from time to time and, not surprisingly, the media laps them up. For every horror story, however, there are many success stories that we never hear about. And since all of these projects are based on the same family of software, common sense tells us that other factors - such as the way these implementation projects are managed - are the most likely causes of failure. Despite these knocks, SAP continues to show strength with regard to financial results and market positioning - as was highlighted in silicon.com's recent vendor dossier. But, as the saying goes, past performance is not always a reliable indicator of future success. Siebel Systems, for example, saw its skyward growth turn into a nose dive over the course of a relatively short period of time. For the past three years, Quocirca has monitored SAP's health by interviewing over 100 of the largest SAP customers across Europe on a six- monthly basis. We ask the customers about their investment plans and the rationale behind them, as we find this is a good way of assessing the future potential of a vendor. 34
  36. 36. SAP Procurement for Public Sector This research has consistently revealed a high degree of commitment to SAP amongst its customers. Unlike Siebel, an investment in SAP is viewed as a strategic rather than a tactical decision by most customers. We have observed that SAP customers continue to broaden their use of SAP year on year - not pouring money into out-of-control open-ended projects but into structured, incremental rollouts. Of the 111 SAP customers Quocirca interviewed in June 2004, around three- quarters told us their level of ongoing investment would either continue or increase over the next two years. Less than 15 per cent said it would decrease, with the remainder not being sure. This was true of investment both at the overall programme level (including services) and on software licences, underlining a healthy outlook for SAP in terms of software revenues from its customer base. The reasons given for ongoing investment included bringing new subsidiaries or departments online and continuing rollouts to users in existing business areas as part of a phased implementation programme. Increasing deployment to 'occasional' users was particularly prominent. The rationale given was that allowing more employees to participate directly in automated business processes leads to additional operational efficiency gains and more accurate business visibility - two of the most common reasons for investing in SAP in the first place. In line with this theme, the most common driver for additional investment was increased access by field users via mobile technology. Looking at the challenges faced by SAP users over the years, integration between SAP and other systems has been a continuing theme. Traditionally, SAP systems have published proprietary interfaces that everything around them would need to adopt in order to communicate. This was to a degree a limiting factor on growth within existing accounts and certainly an Achilles' heel often exploited by competitors in bids for new business. As a result, SAP has been investing heavily in R&D to move its solutions onto open standards and a more service-oriented footing. The NetWeaver platform, which underpins the latest SAP offerings and allows easier integration with J2EE and .Net environments than previous products, is the result of this effort. 35
  37. 37. SAP Procurement for Public Sector NetWeaver is probably the single most significant product-related development to come out of SAP in recent times and customers have responded well to it. More than 70 per cent of the customers we surveyed regard NetWeaver-related benefits as compelling or significant in terms of operational cost reduction - particularly in relation to building and maintaining interfaces to other systems. Almost 65 per cent said they also expect NetWeaver to significantly reduce the cost related to extending and/or modifying SAP functionality. The findings of this research confirm that SAP is in the enviable position of having a strategic relationship with most of its customers. In addition, its customers acknowledge SAP is listening to them and making the right moves to make their lives as easy as possible. With such a firm position in its customer base and Oracle's antics with PeopleSoft continuing to undermine the credibility of the competition, the future does indeed look promising for the European software giant. For more information on the research outlined in this article, please contact Quocirca's Dale Vile at dale.vile@quocirca.com This story was printed from silicon.com, located at http://www.silicon.com/ Story URL: http://www.silicon.com/research/specialreports/enterprise/0,3800003425,39 124017,00.htm Related Articles: MFI gets caught in SAP trap Inventory woes lead to profit warning By John Oates → More by this author Published Tuesday 14th September 2004 11:19 GMT Story URL: http://www.theregister.co.uk/2004/09/14/mfi_sap_problems/ 36
  38. 38. SAP Procurement for Public Sector APPENDIX C (Case Reference) HP users decry Itanium, SAP issues and bad English Execs try to respond By Ashlee Vance in Chicago → More by this author Published Wednesday 18th August 2004 16:40 GMT The Shipping News But the biggest complaint against HP by far came as a result of its poor shipping practices. Many of these grumbles were covered here (http://www.theregister.com/2004/08/17/hp_ordersystem_stilldown/), but one user, who did not make that story, stood out. Bob Lewandowski, of ASAP Software in Illinois, was outraged by HP blaming a difficult SAP supply-chain software rollout for recent financial losses and shipping problems. "I can't get good delivery dates," he said. "It would help me if you would update channel partners so that we can get realistic delivery times. My guys come back and say, "Well, we can get IBM products but not HP products.'" "As a shareholder as well as a customer, it's hard for me to say there is a lot of benefit in keeping (customers) as all HP shops. It's hard for me to swallow, as a shareholder, that HP makes us customers pay for a consolidation of SAP that is supposed to save costs." Rather ironically, HP CEO Carly Fiorina was just bragging about HP's wonderful supply chain expertise back at the company's June meeting with analysts. "Fiorina said that HP would bring the same focus on execution to selling products and services in this new technology era, as it did with the HP- Compaq merger," according to this report (http://www.midrangeserver.com/tlb/tlb062204-story03.html). "In fact, it is 37
  39. 39. SAP Procurement for Public Sector the merger that made HP aware that the lessons it learned in streamlining one of the most complex manufacturing, supply chain, and IT operations in the world made it realize it had to change not only what it sells but how it sells. When customers buy into HP's Adaptive Enterprise approach to IT, what they are buying is a piece of that HP merger experience." After HP lost $400m in revenue from the failed SAP rollout, customers may well move as far away from the HP merger experience as possible. As RedMonk analyst James Governor puts it (http://www.redmonk.com/jgovernor/archives/000070.html), "HP is trying to build an application management business to rival IBMs. What better case study in proving your R/3 and Netweaver capability than a good old dogfood eating session - show everyone how to merge two SAP systems and they will come to you the next time they make a merger or acquisition and want to do the same thing. Who would go to HP now for a large scale SAP integration? The CEO just publicly said HP can't effectively manage such a project." "There was a time when IBM's sales force had some issues with a Siebel rollout. But the world at large never heard a thing. IBM wasn't about to criticize its most important CRM partner in public. Well HP just did exactly that." ® Story URL: http://www.theregister.co.uk/2004/08/18/hpworld_users_react/page2.html 38
  40. 40. SAP Procurement for Public Sector APPENDIX D (Case Reference) CxO Extra Cadbury IT glitch takes £12m chunk out of profits Can you ever have too much chocolate? By Andy McCue Published: Thursday 8 June 2006 UK confectionary giant Cadbury Trebor Bassett (CTB) has taken a £12m hit on its profits after IT problems caused too many chocolate bars to be produced. CTB was left with a glut of chocolate products at the start of the year, after the rollout of a new SAP-based enterprise resource planning (ERP) system led to an excess of chocolate bars building up at the end of 2005. The build-up of chocolate bars caused by the IT problems was then exacerbated by a slow start to the UK confectionary market in 2006, when many people's New Year diets kick in after the over-indulgence of the festive season. As a result CTB was forced to put hefty discounts on its product lines - which include Crunchie, Double Decker and Cadbury's bars - to clear the high levels of inventory that had built up. This led to a total hit of £32m on CTB's first quarter financial figures, £12m of which the company said was directly related to the IT problems. Todd Stitzer, CEO of CTB's global parent company Cadbury Schweppes, cited "stock issues related to the implementation of new IT systems", adding that it had contributed to a challenging start to the year for the confectionery and drinks group's European region. 39
  41. 41. SAP Procurement for Public Sector The new UK computer system is part of a five-year IT transformation project called Probe to integrate the Cadbury Schweppes' supply chain, purchasing, manufacturing, distribution, sales and marketing systems on a global, £200m SAP-based ERP platform. Cadbury Schweppes is aiming for £500m efficiency savings from the Probe project but rollout has been far from smooth and the project was beset by problems and delays when it was first introduced in Australia in 2002. The Probe ERP system was finally launched in the UK at CTB in July last year. A spokeswoman for CTB said the IT problems relating to the UK rollout have now been resolved. Story URL: http://www.silicon.com/cxoextra/0,3800005416,39159392,00.htm Related Article Comment/Post: Alastair Sorbie, CEO, IFS Location: High Wycombe Occupation: CEO Comment Cadbury Schweppes, a SAP MFI re-run The £12m product surplus at Cadbury Schweppes caused by a bad SAP supply chain strikes me of MFI’s SAP disaster two years ago. It just goes to show that what some regard as a safe choice can cost you your share price, your results, and even your job. The days of the global wall-to-wall five-year rollout are over, and businesses can only benefit as a result. SAP needs to learn from its customers, enable them to become more agile, and integrate their business processes. In the current economic climate you need to be able to respond quickly to change, and not remain shackled by unresponsive systems that can’t react immediately to changes in supply and demand. 40
  42. 42. SAP Procurement for Public Sector SAP’s recent attempts to jump on the SOA bandwagon show that even the software giant itself is aware that it needs to spend time and resource on breaking down those monolithic apps. Comment/Post URL: http://www.silicon.com/cxoextra/0,3800005418,39159392,00.htm?PROCESS= show&ID=20074231&AT=39159392 41
  43. 43. SAP Procurement for Public Sector APPENDIX E (Gate Methodology Reference) Gate Methodology Have you tried Or, get the control back! our new SAP Everyone has heard the horror stories of cost Blog overruns on SAP programmes. While there are a Aggregator few factors which are outside the control of the yet? programme managers (e.g. business change, funding withdrawn) the majority of the responsibility lies at their door. From the programme managers viewpoint it is essential to get early warning that things are starting to slip. One of the quickest way to lose your job is to surprise your board 4 weeks from go- live with the message that the programme is 6 months late. One of the best ways to get this early warning is through implementing a gate methodology which forces a structured review of the programme at pre- defined checkpoints along the way. In essence you build gates at the exit points of the major phases of the programme. Naturally these are also the entrance points to the next major phase. Let's assume that you have five major phases as follows: Scope & Plan, Design, Build, Test, Go- Live. You would then have five major gates as well - each positioned at the exit point of the five phases: Gate 1 - Exit Scope & Plan, Gate 2 - Exit Design, Gate 3 - Exit Build, Gate 4 - Exit Test and Gate 5 - Go-Live. Potential criteria for each of these gates could be as follows: 42
  44. 44. SAP Procurement for Public Sector Gate 1 - Exit Scope & Plan  Is there a scope document, and does it cover all aspects of scope including functionality requirements, modules to be implemented, geography, gaps, interfaces, organisational  aspects, technical aspects, data conversion etc  Is there a plan, and does it include detailed tasks (nothing longer than two weeks), with resource names mapped to tasks, and is it resource balanced (no simple task)  Is the design team mobilised  Is there a design authority in place, and is the change control process agreed  Is the sandbox SAP system ready, and is there a client strategy document agreed Gate 2 - Exit Design  Has the design been documented, including SAP transactions identified, and signed off by the business? A design walkthrough is strongly recommended.  Have critical areas of the design (depending on your business) been prototyped in the sandbox  Have all gaps and interfaces been identified, specified and estimated  Has the data required been identified and mapped to legacy (ignore this at your peril), and have the data conversion programmes been identified and specified at a high level  Have the roles required been identified  Have control requirements been identified  Has the plan been updated, and (if necessary) the scope document updated 43
  45. 45. SAP Procurement for Public Sector Gate 3 - Exit Build  Has the system been fully built and unit tested in the development system (not the sandbox), and signed off by the business. A config walkthrough is strongly recommended.  Have the gaps and interfaces been fully built and unit tested (this is a grey area)  Have the data conversion programmes been built and unit tested (this is not a grey area)  Has the system gone through any scenario- based validation (a step up from unit testing)? It is probably best to include this in the Design phase since you cannot be fully satisfied your requirements have been met until you run business scenarios through the system.  Has the configuration been fully documented, and the design documentation updated (if necessary)  Have the roles been built  Have the control requirements been built  Has the plan been updated, and (if necessary) the scope document updated Gate 4 - Exit Test  Has the system been fully tested in the test system (not the development system), and signed off by the business. A test walkthrough is strongly recommended.  Have the gaps, interfaces and data conversion programmes been fully tested and signed off  Have the user procedures been documented and tested Has the training material been 44
  46. 46. SAP Procurement for Public Sector completed and tested  Has the system been tested by running converted data through it (warning: expect to do this four or five times before it works properly)  Have all critical test problems been resolved. Gate 5 - Go-Live (done a few days prior to go-live)  Have the users been trained  Are the user procedures in place  Is the user documentation in place  Did the data conversion work  Is the support team in place  Is your 'cutover control room' ready, manned 24 hrs, and have detailed cutover plans in place (this might have started already for the data conversion)  Have you done a trial cutover  Do you have a contingency plan  Everyone feeling well rested? Then push the button! For the programme to actually exit the gate, you hold a gate meeting at which each team is required to demonstrate (not only verbally claim) why the feel that they have satisfied all the criteria. Pre-gate meetings will probably be required about 4 weeks out to help the teams finalise their positions. Usually, but not always, post-gate meetings are required where teams resolve any issues which arose during the gate meeting itself. Properly implemented and executed, a gate methodology provides and excellent early warning system and should be looked at by every project. URL Link: http://www.thespot4sap.com/Articles/Gate%20Methodology.asp 45
  47. 47. SAP Procurement for Public Sector APPENDIX F (Article - Duet) Code-named Mendocino, the solution addresses the inefficiencies and inconsistencies inherent in the gap between desktop productivity tools and enterprise business applications -- and the pressing need to connect information workers with enterprise processes in the context of their standard work environment, the Microsoft Office System. Links  Official website - Duet  Press Release - Project Mendocino  SAP and Microsoft Announce First Joint Product Designed to Revolutionize How Information Workers Access Enterprise Applications This jointly designed and developed solution boosts information-worker productivity by eliminating costly duplication of effort, the time required to find critical corporate information, and the need for additional training. Leveraging the openness of the .NET and Enterprise Services Architecture infrastructures, Mendocino exposes selected business process functions and data from mySAP ERP 2004 through Microsoft Office 2003. As a result, information workers will be able to perform corporate-driven tasks such as time management, budget monitoring, organization management, and leave management through their desktops, using features such as:  Extended application menus  SAP-specific smart panel  Business analytics delivered through Microsoft Excel  Smart business documents in Microsoft Word  Outlook synchronization between Microsoft Exchange and SAP processes Mendocino enables a new level of continuity between information-worker and enterprise business applications, unifying information and processes and dramatically simplifying the way information workers access and use enterprise applications. The solution delivers significant benefits, including: 46
  48. 48. SAP Procurement for Public Sector  Higher productivity -- By providing easy access to enterprise applications, Mendocino removes the need for redundant tasks and enables information workers to participate directly in automated processes.  Better decision-making -- Mendocino eliminates information inconsistencies between desktop and enterprise applications, providing information workers with a solid foundation for decision- making.  Audit traceability and transparency -- By facilitating consistent and proper use of corporate processes, Mendocino reduces personal, ad hoc workflows and mitigates the risk of non-compliance with corporate workflows and policies.  Fast user adoption -- Mendocino's familiar user interface is instantly usable by all information workers, which leads to a higher degree of business process automation across the organization. Mendocino will be sold and supported by Microsoft and SAP. The product will become available for early access to select customers in the fourth quarter of 2005. Article URL Link: http://www.erpgenie.com/interfaces/mendocino.htm Related Articles: Cover Story Microsoft and SAP: Bittersweet Symphony Microsoft and SAP have a successful Duet together, but they'll be less harmonious as they battle for ERP supremacy. Partners might be forced to take sides. 47
  49. 49. SAP Procurement for Public Sector March 01, 2007 by Lee Pender http://rcpmag.com/features/article.aspx?editorialsid=693 Steve Ballmer: Microsoft Business Summit 2005 Remarks by Steve Ballmer, CEO, Microsoft Corporation Microsoft Business Summit 2005 "Together, We Build Business" Redmond, Washington - September 7, 2005 http://www.microsoft.com/presspass/exec/steve/2005/09- 07BusinessSummit.mspx SAP and Microsoft Introduce Duet Software; Bringing Together the Worlds of Productivity and Enterprise Applications Companies tout on time delivery, early customer adoption and new business scenarios for Duet, formerly known as “Project Mendocino.” http://www.itweb.co.za/office/sap/0605040812.htm School District Provides Web-based Access to SAP R/3 Financial Data with SharePoint Portal Server (Published: June 2003) When Seattle Public Schools needed to provide senior management with self-service access to data contained in its SAP R/3 financial system, the school district turned to Microsoft SharePoint Portal Server. In less than two weeks, the district implemented a solution that uses SharePoint Portal Server and a SharePoint plug-in from ERP-Link to extract reports from SAP and present them to users through an intuitive Web-based interface. Taking this approach has enabled Seattle Public Schools to avoid purchasing SAP desktop licenses for users who only need to view data and to reduce training costs by eliminating the need to teach so many extra people how to use the SAP desktop client. 48
  50. 50. SAP Procurement for Public Sector APPENDIX G (Case Study Index – Additional Case References) Erie County works with IBM for enterprise-wide business transformation IBM Business Consulting Services worked with Erie County, the second largest county in the state of New York, to implement a SAP project, replacing decades-old systems and restructuring core processes while cutting operating costs and improving system performance. Published date: 13-Dec-2004 Erie County leads the way to shared citizen services with SAP and IBM Erie County engaged IBM Global Business Services to review its full systems architecture, including the apparently fixed business processes it was designed to serve. IBM helped Erie County to initiate a business process and IT transformation that has put it at the top of the... Published date: 30-May-2006 http://www-01.ibm.com/software/success/cssdb.nsf/CS/STRD- 6Q9H83?OpenDocument&Site=gicss67sap&cty=en_us Nova Scotia Liquor Corporation builds a robust retail environment with IBM and SAP Working with IBM Global Business Services, the NSLC decided to adopt industry best practices, and reengineered both its business processes and its IT landscape to fit around a new SAP for Retail solution. This business transformation was achieved within 12 months – on time... Published date: 09-Oct-2007 http://www-01.ibm.com/software/success/cssdb.nsf/CS/STRD- 77TDNW?OpenDocument&Site= 49
  51. 51. SAP Procurement for Public Sector Successful modernisation of Council Services Independent report identifies LogicaCMG helping to enable a 72 per cent Return on Investment on IT systems at London Borough of Waltham Forest An IT system designed to join up services across the Council and improve customer care is literally paying for itself, according to a recent independent report by a leading IT analyst. The new system, SAP, will save the the Council 72% of the original cost of purchasing and installing it in its first five years. This will be achieved through more efficient working and is equivalent to £5.3 million. http://www.lbwf.gov.uk/index/council/about/e-government/sap-roi- report.htm 50

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