How to calculate theBusiness Case for a globalERP 2005 upgrade
Tobias Dosch – SVP, SAP Solution Management ERPJochen Hopf – SAP Business Consulting
31. October 2006
SAP AG 2006 / SAP Globalization Symposium 2006 / T. Dosch and J. Hopf / 2
Enable businessinnovation whilereducing IT costsImprove workforceproductivityEnsure compliance,controls and propergovernanceNeed greater visibility,predictability andcontrol
Why Are We Here Today?
Your IT situation
?Is the timeright to invest in anUpgrade to mySAP
ERP 2005?
How to develop a global business caseHow to decide on the right upgrade scenarioWhat are exemplary business case results
Multiple R/3 systems(and non-SAP) in andacross severalregions/countriesOutdated architectureRunning and stablesystem (probably withheavy modifications)High maintenance costand limited ability toinnovate
Yourbusiness demand
SAP AG 2006 / SAP Globalization Symposium 2006 / T. Dosch and J. Hopf / 3
Long-term FoundationNewly announced 5-year release cyclewith enhancement packagesMajor cornerstone in your overall ITstrategyERP upgrade decisionis important
Most Popular Processes*New G/LEmployee Self ServicesManager Self ServicesAdministering Employee HR dataCredit Management
Upgrade Value*87% met or exceeded ROI objectives*Performance impact company-specificMain drivers: DSO reduction, staffproductivity increase, TCO reductionStrategic value mainly perceived onflexibility and compliance
Upgrade Drivers* (in %)
Snapshot on mySAP ERP 2005
6
9
19
23
23
Technical infrastructure
Process re-design
Continuous compliance
Lower system cost
Additional functionality
* ASUG survey: 55 companies* Ramp-up feedback from >200 projects
* ASUG survey: 163 companies
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Agenda
Building a business case for an upgrade
Identifying your upgrade scenarios
Calculating your business case
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R/2 to ERP Evolution
Why a business case? Evolution of Value within SAP ERPSystems
NewDimension
Projectson-time andon-budget*
BenefitConcentration
Real-Time Scalability Flexibility/Platform
Concentrated DistributedConcentrated
Without business case:9%
With business case:91%
Consequence
SAP R/3
BusinessPrcess
Innovation
SAP R/2
mySAP ERP 2005
Mainframearchitecture
Client Serverarchitecture
Enterprise Servicesarchitecture
HRFI/CO
MM/PP SD
HCM
Operations
Financials
Corporate Services
Partner apps (Duet)
xApps
Manufacturing
Accounting
HR
Benefit size
Capture the entirepotential from
mySAP ERP 2005
* ASUG survey: 68 companies
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Truth about Business Cases
A good business case is valuable for…Alignment between IT and business perspectives within yourorganizationShowcase for value that IT brings to the business and corporatestrategyResults are quantified and owned by line executivesCreation of ownership/adoption in the organization for systemsdecisionOpportunity to review your overall IT strategyComparison IT investment and upgrade options with each otherand against other investment optionsImplementation plan is actionable and measurable
…but only 17%* of companies have a formal businesscase for their IT Projects
* Source: Meta Group Worldwide IT Trends and Benchmark Report 2002, Gartner Total Value of Opportunity Study 2003Forrester IT Measurement is still immature 2003
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Approach to Develop an Upgrade Business Case
Objective Identify value potential from an upgrade to mySAP ERP 2005
Identify currentsolution footprintIdentify businessscenarios withinsufficient systemsupport (whitespots)or where existingsystem capabilitiesare not leveragedIdentify prioritizedbusiness targets ofall LoBs and keyvalue drivers
Quantify results withControllingCalculate benefits ofsystem for next 3-5years for scenariosConsolidate tangibleand intangiblebenefits per areaValidate results withbusiness ownersCalculate NPV forgo/no-go decisionGet senior mgmtdecision
Get commitment fromsenior mgmt. tobusiness caseDetermine projectscope (systems, org.units, regions)Set up a projectorganization (IT, LoB,advisors)Decide on upgradescenarios to beinvestigatedSet up project plan
Identify most valuablefunctions included innew releaseMap delta/existingfunctionality towhitespots andbusiness targetsDetermine andprioritize improvementpotential withbusiness ownersAnalyze implemen-tation cost (IT &advisors)
BenefitAnalysis
CostAnalysis
Project SetupConsolidation& Calculationof the results
As-IsAssessment
III IVIIIa
IIIb
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Case Study A: Approach for Global High-Tech Customer
Industry:High-TechGlobalEmployees:>30,000Revenues:$8-12 billion
BackgroundFocus on building business justification for upgrade to mySAP
ERP 2005Business case took six weeks to analyze business benefits.Around 50 people involved from Lines of Business (25+), IT (10),
other advisors (5+)In functional scope for this upgrade: Financials, Corporate
Services, Analytics, End-User Service Delivery, Sales & ServiceGeographic focus: Europe and shared services location centers,
Cross-check in different regions where necessaryMethodology:
– Identify business goals of each Line of Business– Identify which major new capabilities are most relevant– Benefits assessment with key users of each business process affected
(correlation capabilities-goals, prioritization)
Lines of Business responsible for realizing quantified benefits
Approach
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Industry:TelecomGlobalEmployees:<5,000Revenues:$1-2 billion
BackgroundFocus on comparing upgrade optionsBusiness case took four weeks to analyze business benefitsAround 60 people involved from Lines of Business (30) mainlythrough workshops/video-conferencing, IT (20). Case preparedthrough external consultants.In Scope for this upgrade: Financials Systems and supportingapplicationsGeographic focus: All geographiesMethodology:
– Identify business goals of each Line of Business– Identify which major new capabilities and which existing capabilities
that are currently unused are most relevant– Benefits assessment with key users of each business process
affected
Lines of Business responsible for realizing quantified benefits
Approach
Case Study B: Approach for Global Financials UpgradeCase
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Agenda
Building a business case for an upgrade
Identifying your upgrade scenarios
Calculating your business case
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Objective and Scope: mySAP ERP 2005 Upgrade Scenarios
Strategic Business ImprovementFocus on functionality extension andimprovementEnablement of new and optimized businessprocesses and scenarios based on new ERPcore functionality
Functional UpgradeFocus on reduction of system complexityMaximization of SAP standard functionality byreplacing custom modifications
Technical UpgradeFocus on pure technology upgradeNo changes to used standard functionalityNo changes to system modifications
3
2
1
R/3 4.6c R/3Enterprise
mySAPERP 2004
mySAPERP 2005
SAP Releases
SAP
Stan
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izat
ion
Hig
hly
mod
ified
envi
ronm
ent
Lim
ited
num
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of m
odifi
catio
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tand
ard
func
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sN
ewfu
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nalit
ies
Starting Point
.
Target
1
2
3
Possible Upgrade ScenariosValue
Potential
Sweet spot for business case
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Path: Typical Roadmap Options for SAP R/3 Customers
“INNOVATE”(Consolidated R/3
customers)
“CONSOLI-DATE”
(Distributed R/3customers)
mySAPERP 2005
side-by-side
“GROW”(Consolidated R/3
customers)R/3 mySAP
ERP 2005Upgrade
R/3
mySAPERP 2005
mySAPERP 2005
Upgrade &MergeR/3
R/3
R/3
R/3
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Upgrade all instances first Merge all instances first Decision per SAP instance
Earlier access to features andbenefits of new SAP releaseDowntime during upgrade alwayseffects only one systemEarlier back in SAP mainstreammaintenance (avoiding additionalmaintenance fees)Retrofit of enhancements to SAPstandard is possible earlierProcesses are less complex
Fewer system to be upgradedStreamline of support organizationpossible earlierProcess harmonization beforeupgrade (but on potentially oldprocesses)
Optimization of supportorganization possible at laterstage (after merge)More systems to be upgraded
Later access to features andbenefits of new SAP releaseDown time during upgrade isrelevant for all companies in themerged systemProcesses are more complexPotential overlap with SAPextended mainstreammaintenanceRetrofit of enhancements is onlypossible at a later stage
Pro
Con
Systems wise earlier access tobenefits of new SAP releasesOptimized learning curveMost flexible alternativeDowntime effects could be takeninto consideration and from a riskperspective be optimizedOptimized sequence based onbenefit realization
Potential overlap with SAPextended mainstreammaintenanceMore systems to be
Decision matrix of a global SAP R/3 customer with a distributed system landscapechoosing an adoption path for mySAP ERP 2005
Case Study C: Decision Approach for Roadmap Option
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Globalization: Upgrade Options for Unicode Conversion
Directupgrade toERP 2005
Seeschedule for
more information:SAP Offerings
for UnicodeConversions
Yes
R/34.6c
ERP 2005unicodeUpgrade, directly followed by
Unicode Conversion
Upgrade
No
Do youcurrently
use MDMP?
ERP 2005non-
unicode Convert
R/3 4.6c orhigher?
R/3 4.7 orERP2004?
CombinedUpgrade &UnicodeConversion
R/34.6b
or lower
ERP 2005unicode
Unicodeconversionbeforeupgrade
Yes
No
Yes
No
R/34.7 orhigher
Convert Upgrade ERP 2005unicode
>90%of customers
Directupgrade toERP 2005
Upgrade ERP 2005non-
unicode
ConvertR/34.6b orlower
ERP 2005unicode
Temporary “Go-Live” with ERP 2005 and MDMP, Disclaimer needs to be signed
R/34.7 orHigher
(unicode)
R/34.6b orlower
ERP 2005unicodeUpgrade, directly followed by
Unicode Conversion
Twin Upgrade& UnicodeConversion
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Agenda
Building a business case for an upgrade
Identifying your upgrade scenarios
Calculating your business case
SAP AG 2006 / SAP Globalization Symposium 2006 / T. Dosch and J. Hopf / 16
What is the Business Case for an Upgrade to mySAP ERP2005?
Compliance, governance and controlAdoption of standard processesImproved visibility and transparencyEnablement of innovation and flexibilityImproved base for decisions
Reduction of maintenance cost– Remove unused modifications– Replace modifications w standard functionality– Avoidance of additional maintenance cost– Instance Consolidation
Reduced development cost for improvement projectsReduced operations cost
Ability toQuantify
Value of anUpgrade toERP2005
Strategic
“Hard”BusinessBenefits
TCOReduction
Source of Value
Reduction days sales outstandingReduction of bad debtDecrease in travel costImproved real estate utilization…
Type of Value
“Soft”BusinessBenefits
Core ERP 2005Capability
Analytics,ESOA,GRC,SEM, UI
Employee productivityImproved HR staff productivityFaster financial close…
FSCM, TravelMgmt, RealEstate MgmtESS, MSS,HR, New G/L
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StrategicUpgradeIndustry:High-TechGlobalEmployees:>30,000Revenues:$10-12 billion
BackgroundFinancials
– Financial Supply Chain Mgmt– New General Ledger– Corporate Governance
Corporate Services– Real Estate Management– Travel Management
Operations– Procurement– Sales and Service
Analytics– Analytics– Strategic Enterprise Management
Technical– ERP Technical Features– Other Technical Enhancements
Key Value Drivers
Case Study A: Business Case Results (1/2)
Positive impact on thebusiness due to
reduced days salesoutstanding (in somesubsidiaries)increased employeeproductivity due tohigher usability ofsystemenhanced SOXcompliance due toincreasedtransparency andhigher dataconsistency
Benefits
SAP AG 2006 / SAP Globalization Symposium 2006 / T. Dosch and J. Hopf / 18
Major deltafunction
Helps achieve BusinessTargets Potential Business Benefits
CreditManagement(FSCM)
Minimize default riskfactorsIncrease quality assuranceand SOX complianceStandardization andautomization of processes
Reduces risk, reduce need for general provision for doubtful debtsSupports compliance with SOX, Basel IIAvoids high manual effort for credit information researchHelps establish one unique credit policyCombine internal data on customer credibility with external rating information
CollectionsManagement(FSCM)
Increase efficiency by costsavingsLive best class processes
Improve days sales outstandingReduce high manual effort for collections by telephone
TravelPlanning(Travel Mgmt.)
Increase travel policycomplianceReduce cost
ESS User Interface for all travel processes => Higher satisfaction and adoption bytravelersOnline booking for hotel, air, car => Enables volume bundling, reduce extra cost (e.g.shuttle)Hotelbooker.org integration in process & automatic policy checks => Direct savings, lessdata entry for travelers by straight through processing, higher adoption of hotelbookerPotential savings by connecting low cost carriers to standard booking interfaceShow cost information about reservations for approvers prior to trip, Travel-related budgetreports in MSS => Avoid travels, Increase cost awareness and transparency
Real EstateManagement
New room booking systemBetter reporting andanalysis functionsSpace Management withinone location
Room reservation * => higher efficiency and process standardization in roombooking/administration, increase room utilizationRE Analytics, Master Data Management => Remove existing Excel spreadshets /decrease effort of manual maintenance / increase automizationSpace Management => Increase utilization of existing rooms
Case Study A: Examples for Detailed Business CaseResults (2/2)
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FunctionalupgradeIndustry:TelecomGlobalEmployees:<5,000Revenues:$1-2 billion
BackgroundBusiness case results show 2-3x value from upgrade tomySAP ERP2005 in comparison to upgrade to 4.7
Case Study B: Business Case Results for FinancialsUpgrade
Upgrade to Version 4.7can deliver ~$20-25 Min benefits
Additional benefitsfrom mySAP~$50-65 M
Benefit in 2006 $1.7 M $3.0 M $4.2 M $7.4 M
Annual Benefits after ramp-up $2.7 M $4.8 M $7.4 M $19.1 MProject Cost $8.1 M $9.9 M $10.7 M $15.2 M
Start Year for full Savings 2007 2007 2007 2008
$70-90Cumulative Incremental 5 Year Benefits (2006-2010) Likely Scenario ($ M)
Upgrade toVersion 4.7Financials
Upgrade to mySAPFinancials
Expanded Scope(incl. HR)
$20-25
$35-40
$20-25 M$20-25 M$20-25 M
$10-15 M$10-15 M
$40-50 M
Consolidate andleverage Version
4.6 B
$10-15 M
$10-15
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Further Information
MySAP ERP and SAP NetWeaver:
Homepage mySAP ERP: http://service.sap.com/erp
mySAP ERP Solution Browser: http://solutionbrowser.erp.sap.fmpmedia.com
Homepage: SAP NetWeaver: http://service.sap.com/netweaver
Development News: http://service.sap.com/developmentnews
Releasenotes: http://service.sap.com/releasenotes
Release Strategy: http://service.sap.com/releasestrategy
Maintenance Strategy: http://service.sap.com/maintenance
Online Knowledge Product: http://service.sap.com/okp
SAP Upgrade Info Center:
Homepage: http://service.sap.com/upgrade
mySAP ERP Upgrade: http://service.sap.com/upgrade-erp
SAP Upgrade Road Map: http://service.sap.com/upgraderoadmap
SAP Upgrade Newsletter: http://service.sap.com/upgradenewsletter
SAP Upgrade Tools and Services:
SAP Upgrade Tools: http://service.sap.com/upgradetools
System Switch Technology: http://service.sap.com/upgradetech
SAP Solution Manager: http://service.sap.com/solutionmanager
Overview and order information: http://service.sap.com/upgradeservices
Upgrade Services of SAP Consulting: http://service.sap.com/ufg
Safeguarding: http://service.sap.com/safeguarding
SAP AG 2006 / SAP Globalization Symposium 2006 / T. Dosch and J. Hopf / 21
Questions
Tobias DoschSolution Management ERP
SAP AG
Jochen HopfSAP Business Consulting
SAP AG