Proven and Successful Value Management Approaches

Drive Portfolio Management Success with
Proven Value Realization Approaches
William Newman, CMC, BTPM
April 24, 2015 Public
Presentation to the
PMI GLC Symposium

© 2015 SAP SE or an SAP affiliate company. All rights reserved. 2Public
Agenda
Introductions
• The Challenge: Why we Place Value on Programs
• Portfolio and Programs: What Value Looks Like
• A Method for Value Management (BTM2)
• Tales from the Field: Examples of How Value is Captured
(and realized)
• Wrap-up: Summary and 5 Key Take-away Points
Adjourn

Introduction
William (“Bill”) Newman, CMC, BTPM
• Sr. Principal, SAP Business Transformation Services
• Over 30 years in industry, professional services
• Certified Management Consultant (since 1995)
• Business Transformation Program Manager (since 2014)
• Adjunct faculty appointments: Northwood University (International
Management), University of Oregon (Sustainability Leadership), University of
Michigan – Dearborn (Marketing Policy / MBA)
• Management Consulting Taskforce (Michigan Assn. of CPAs)
• Former National Board Member (Institute of Management Consulting)
• Professional Speaker (TEDx, Michigan Assn. of CPAs, Voice of America, The
Customer Edge, American SAP User Group, PMI, SAP Insider, others)
• Numerous articles on program oversight, stakeholder engagement, strategy,
value management, sustainable supply chain, social media
• Twitter (@william_newman) Google+ (+William Newman)
• LinkedIn (LinkedInfluencer) www.linkedin.com/in/wnewman

The Challenge
Why we Place Value on Programs

Why We Place Value on Programs
Business Value Drivers Define the Portfolio of Initiatives
The term “Value” is subjective, suggesting a
utility of some outcome or event or idea.
While many organizations and even industry
segments may share a common reference point of
view on value drivers, individual companies may
(likely) attribute higher value of some drivers.
Business value drivers suggest areas where an
organization might structure initiatives which can
be managed in a portfolio of programs and
executed to achieve desired outcomes.
Source: Valuation: Measuring and Managing the Value of Companies (Koller, 1994 as excerpted by McKinsey Quarterly)

Value Management
From Portfolio to Programs to Project to Outcomes
At its core, ideas at the strategic level that could drive one or more business outcomes, can be
organized via portfolio of initiatives, funded programs and managed projects (think OPM3).
Value management – properly executed – can provide a mechanism to realize and harvest benefits.
This requires a program structure, as important as implementing the initiative itself.
Source: SAP Customer Value Engineering Point of View, SAP SE (2014)

SAP Customer Achievement of Results, Reach Target Outcomes
For SAP Customers who employ a full life-cycle value management approach:
75%
reduce their overall
transformation program
duration
Duration
of customers
Source: The study was done by Prof. Dr. Robert Winter from the University of St.Gallen and Prof. Axel Uhl from the University
of Applied Sciences Northwestern Switzerland.
20%
spent on new projects, half of
what is needed to drive
growth and business
excellence²
of company budgets
Growth
97%
see an opportunity to derive
more value from their existing
SAP investment3
of companies
Results
SAP has been
working with its
customer based
for over 10 years
to bring active
value
management
approaches to
technology and
business
programs.

Portfolio and Program Frameworks
What Value Looks Like

What Value Management Looks Like
Often Times “Value” is Hard to Recognize…
What story do you see when you
initially look at this picture?
Look again and see if you can find
other possible elements of
interest.
Perspectives can be varied based
on our frame of reference..
• Individually
• Culturally
• “Corporate-wise”
Adapted from The Culture of Organizations (Hofstede & Hofstede, 3d Edition 2010). Image: LG, MoIllusions.

Inherent Challenges to Determine “What is Value”
3 Key Challenges
1. Usually a difference between “experienced
value” and “funding value” (e.g. classic ROI
finance models)
2. Business case stated benefits not
managed across consistent process,
stakeholder groups throughout life of a
program or project
3. Market forces can change the “lens” of
perceived value, priority of program,
availability of resources (human, financial,
others)

Inherent Opportunities to Determine “What is Value”
3 Key Opportunities
1. Greater methods to capture “soft benefits”
(e.g. customer satisfaction, adoption
behavior, accuracy of usage)
2. Continuous value management across the
full lifecycle of a program (e.g. cradle to
grave) to ensure benefit realization.
3. Deliberately choose how benefits will be
realized (economic capture, re-investment
in new innovations, etc.) rather than if
benefits will be realized (e.g. ready, fire,
aim).

Value Management Program Lifecycle
A simple Value
Management Lifecycle
focuses on a sustainable
approach to drive on-
time, on-budget, on-value
performance.
Some key characteristics
follow a full lifecycle
approach similar to
quality management
initiatives.
Value
Management
Lifecycle
Plan
• How well are we performing
today?
• What will make us better?
• Are we willing to do
something about it?
Execute
• How do we enact the
recommended changes?
• How do we measure
progress?
• How do we get the right
visibility & accountability?
Institutionalize
• How do we ensure the
sustainability of VM?
• Where should VM live
in our organization?
Value Management Lifecycle

The Value Erosion Challenge
Source: Corporate Executive Board - Applications Executive Council Research (2013-14).
Expected Value
Poor Selection
and
Prioritization
Inefficient
Project
Execution
Poor
Absorption and
Value Tracking
Realized Value
100%
50-65%
Building the Right Things Building Things Right Exploiting What We Built
5% – 10%
10% – 15%
20% – 25%
Traditional business case
methods alone have
fallen short on delivering
realized and expected
value. Monitoring and
management is required
now more than ever.

Key Characteristics of Successful Value Management Programs
These foundational elements are embedded throughout
a value management process
Business Focus
Measurable Outcomes
Business (and IT) Commitment
Executive Support
Strong Change Management
Iterative Process

A Method for Value Management
As taken from the Business Transformation Management Methodology (BTM2)
Courtesy of the Business Transformation Academy
https://www.bta-online.com/

What Is Business Transformation Management?
What is Business Transformation?
Business transformation implies:
 Fundamental and complex organizational changes within as
well as across companies alongside the value chain;
 Business transformation can also radically alter the company's
relations with the wider economic and societal environment.
What is Business Transformation Management?
 Business Transformation Management can be seen as a meta-
management discipline that is dedicated to the integration and
extension of individual management disciplines;
 Business transformation management is the holistic
management of extensive, complex changes on which the
organization's future success strongly depends.
Source: Business Transformation Academy (BT Academy, 2014)

Historical background of BTM2
The main driver for the development of this methodology is the
need to have a common, holistic, and cutting-edge approach to
manage large transformation initiatives.
It is a response to the limitations of single methods and
management approaches that have always been adopted
separately from each other.
It aims to be an end-2-end methodology covering the following
phases - envision, engage, transform and optimize.
Considering the complexity of business transformation projects,
it soon became evident that the existing methodological
instruments have their limitations and new approaches were
required.
The BTM² framework focuses on the management of the overall
set of disciplines within transformation management.

Why Most Business Transformation Programs Fail
Findings  Low success rate of business transformation projects (less than 40%)
Source: Isern et al. (2009)
 25% Failure because of
technical reasons
e.g demands can not be mapped,
sizing problems, problems with
connecting legacy systems
 75% are failing because of
non-technical reasons
e.g. non acceptance of the solution, skill problems,
communication problems, problems with project
resources as well as an inability to communicate
value proposition

Why a new methodology?
The most prevalent reasons are:
 Insufficient Stakeholder Management,
 Lack of Strategy, and
 Lack of Communication.
In addition, management executives deem their companies' transformation capacities as relatively low (Capgemini, 2009).
Why do most of the programs fail?
Demand:  Organizations / companies are asking for more support for managing their transformation.
Challenge:
 There has been a lack of a holistic and scientifically proven Business Transformation
Management Methodology, so far.

Business Transformation Management Methodology (BTM²)
The methodology consists of several disciplines – target groups
Process
Management
 Define
processes
 Identify gaps
and
weaknesses
 Improve
processes
 Implement
processes
 …
Change
Management
 Define drivers
for change
 Define need for
change
 Enable change
 Drive change
 …
Risk
Management
 Define risks
 Manage risks
 Define quality
 Measure quality
 …
IT
Management
 Define IT
requirements
 Define strategy
 Define roadmap
 …
Meta Management
Provide framework, orchestrate disciplines, understand interdependencies … across the portfolio.
BTM2
Program/ Project Management
Set standard, manage scope, manage costs, manage resources, align deliverables, …
Strategy Management
Value
Management
 Define benefits
 Plan realization
 Realize benefits
 Evaluation
results
 …
Competence
and Training
Management
 Define learning
concept
 Identify gaps
 Develop concept
 Realize concept
 …
 Define vision
 Define strategy
 …

Tales from the Field
How Value is Captured (and Realized)

Tales from the Field
Value Mapping – Essential to Sound Benefits Realization Planning
Based on our review of major transformation programs,
successful companies demonstrate that value does not
stop with the acceptance of a business case.
Instead this process continues through the full portfolio of
program execution, with active value monitoring and
execution in a parallel work stream.
A key ingredient of the BTM2 approach includes value
mapping. Value mapping defines the key performance
indicators (KPIs) with tangible outcomes, stakeholders
responsible to make change to enable those outcomes,
and process and performance improvements (PPIs)
required to realize outcomes and benefits.

Tales from The Field:
Business Case Decomposition with Value Mapping / 1
1. Select Value Drivers
2. Determine Key
Process Changes
3. Define Key Performance
Indicators
FOCUS
4. Establish ownership of
process changes and Value Enablers
The technique of identifying
business process improvement
opportunities for business
case value drivers and
how to measure
them
Timing
Before the design phases – requirements are key inputs to the design

Business Case Decomposition with Value Mapping / 2
Important considerations
 Ensure a collaborative process - input across functional and organizational silos
 Use team members who are familiar with benefits and processes within scope
 Leverage process pain points documented in the business case to help identify what is
broken/needs to be fixed
Participants
 Business process owners
 Business stakeholders
 Subject matter experts
 Appropriate implementation
project team members

Selecting the Right Value Drivers is Essential
Sample Financial
KPIs
Reduce SG&A
Reduce COGS
Value Driver/
Benefit Objective
Benefit Category
Reduce Working Capital
Benefits/
Value
Opportunity Area
$ XXX Improve manufacturing yield and
quality Manufacturing Execution
• Manufacturing costs as % of
COGS
$ XXX Reduce direct material spend Sourcing & Procurement • Direct spend as % of COGS
Standardize financial reports and
process definition$ XXX Finance
• Cost of financial analytics as
% of SG&A
Reduce indirect material spend$ XXX Sourcing & Procurement
• Indirect material spend as %
of SG&A
$ XXX Reduce raw material inventory Manufacturing Planning
• Days on hand Raw Material
Inventory
$ XXX Reduce Finished Goods
inventory Sales and Operations Planning • Days on hand FG inventory
$ XXX Reduce # of disputes and write
off’s
Customer Service &
Compliance
• Deductions as % of sales
$ XXX Increase revenue through
reduced churn Sales and Customer Service
• Net revenue growth %
• Net profit growth %
Increase Revenue
Growth
Here?
Here?
Here?

Key Process Changes to Enable Benefits
Key Process Changes
 Clear linkage to a business benefit
 Process change requirements
 Significant impact on benefits achievement
 “Fix” a current problem, position for future requirements
 Ability to measure process effectiveness
Key Process Changes are not
 Refinement of the business objective -“Reduce inventory by reducing raw material
inventory”
 Goal oriented generalization without a clear financial impact - “Clean up our master
data”
 Vague process change that lacks specifics - “Implement VMI” vs. “Implement VMI for
‘x through z’ commodities with long-term pricing contracts”
 Statement of application software functionality - “Implement inventory management”

Defining Key Process Changes
Value Driver Benefit Value Opportunity Areas Financial KPIs Owner
Sourcing and
Procurement
Indirect material spend
as % of SG&A
Name
Reduce indirect
material spend $xxxM
Key Process Changes Process KPIs (PPIs) Owner
 Implement strategic sourcing processes and enabling technology
to establish and manage supplier contracts in a way that reduces
supplier community, reduces prices and drives supplier delivery
performance
 % materials covered under supplier contracts
 % reduction of prices paid for selected materials, year over year
 % supplier compliance on agreed to delivery and quality terms
Name
Name
Name
 Implement simplified requisitioning and purchasing processes and
enabling technology to drive compliance with supplier contracts
and reduce “maverick: spend
 Purchases as a % of total outside of agreed to contracts, # and $
 # and $ of Maverick spend, by period, region and business
Name
Name
 Implement material master data management processes to
reduce redundant material masters based on common form, fit or
function
 Number of new material master records created per period
 Number of redundant/ common material master records, % of
total, by category
Name
Name

Driving to Process and Performance Improvements (PPIs)
Process and Performance Improvements (PPIs)
Key Process Change KPIs
Improve Procurement efficiency to reduce off contract material spend Material Spend under
contract (%)
Value Enabler Enabler
Type
Supporting Information Owner Planned
Completion
MAT1A 1. Policies
impacting goods
purchasing
2. Policies
impacting when
forecasting can
be changed
Policy Objective: To ensure the purchasing policy is upheld
Importance: Fundamental to ensure limitation of off-contract spend
Challenge: History reflects a significant amount of procurement that
occurs off-contract rather than what ABC executives are driving to in
order to reduce costs
[Name] [Date]
MAT1B Master data of
materials
(material master)
with
inconsistencies
Master Data Objective: To ensure that the most accurate data is utilized to enable
material consumption effectively
Importance: Key to ensuring that procurement is effective – materials
not purchased if available
Challenge: Significant work effort required to identify and validate
current materials available
[Name] [Date]
MAT1C Education and
Training
Training &
Process
Objective: Create the ability to utilize these powerful procurement
tools, processes and policies to drive majority spending to on-contract
Importance: Enables significantly improved procurement sourcing
Challenge: Balance between taking advantage of the technology while
still taking advantage of the value of the knowledge and experience
within the ABC organization
[Name] [Date]
Process Performance
Improvements (PPIs) are
changes to the operating
model which a business owns
required to effect the right
conditions to realize the
benefits and outcomes (such
as KPI improvement,
increased customer
satisfaction, etc.)
This is as important or even
more important than
getting the initial business
case right, without this no
benefits are harvested!

Avoiding Barriers, Focusing on Enablers
 Identify action items to drive
adoption
 Assign responsibility
 Develop mitigation plans
 Manage organizational
change
 Measure and report
progress
aligned compensation
appropriate org structure
good analytics
clear policy reporting
good skill set
adequate facilities
updated technology
master data quality
strong c-level support
change readiness
Target Benefit
Achievement
Value Enablers
inadequate facilities technology limitations other
other wrong skill set poor master data
poor analytics low change readiness other
other wrong org structure mixed c-level support
unclear policy misaligned compensation other
Key Value Enablers
Value Barriers

One Customer’s Success
A global F500component manufacturingcompanyhas
implemented a successful business transformation program to
optimize its Order to Cash (OTC) and Procureto Pay (PTP) process
and
mobilize its North America organization.
Outcomes
• Consistent,centralizedbillingprocesseswithfewererrorsandgreater
visibility
• Customerengagementat lowercost
• Betterresponsivenesstochangingmarketconditions
• Mobileplatformforfutureinnovation
• Automated,linkedandintegratedprocessestoreplacemanual,paper-
basedactivities
• Job-focusedworkforceratherthanpaper-workburdenedemployees
• Sustainableemployeeaccountabilitywithimprovedtrackingtoolsand
reporting
• Mobilefieldsoperationsviasmart phonesdeployment
• Increasedpersonnelefficiency
• reductioninspecialtychemical
inventories
“[Our]value-addedpartnershipwithSAPhasgivenusbigsupportduringourmajortransformationprogram.Butithasalsogivenusago-forward
methodologythatwecanadoptanduseforfutureprojects.Weconstantlyseethetruevaluethatweareachievingonaregularbasis.”
Director–Financial SystemsOptimization

Wrap Up
Summary and 7 Key Take-away Points

5 Key Take-away Points
1. Value is in the eye of the beholder. Value as a representation of utility can mean different things to
different audiences and stakeholder. A consensus view is important.
2. Successful value management requires its own lifecycle, in parallel and integrated with program and
portfolio management activities.
3. A meta-model approach (like BTM2) can help link the dimensions across strategy and other
complimentary domains of value management across the portfolio.
4. Selecting the right value drivers (think starting point) is important to align to desired outcomes (think
ending point). You need to know where to begin to know where you want to go.
5. Techniques like value mapping where the key changes required to achieve
benefits, with stakeholder owners, and monitoring, increase the likelihood of
benefit realization.

Summary and Discussion

© 2015 SAP SE or an SAP affiliate company. All rights reserved.
Thank you
Contact information:
William Newman, CMC, BTPM
Senior Principal, Business Transformation Services
SAP America, Inc.
william.newman@sap.com
@william_newman
+1 (248) 724-6844

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