One of the fastest-growing pieces of SAP's global business doesn't involve applications or middleware or maintenance fees or upgrades, but it's nevertheless becoming one of the cornerstones of the company's aggressive new strategy.
SAP calls it Value Engineering, and the basic premise is to aggregate the best practices and hard-earned knowledge and experiences of SAP's 100,000+ customers and then share those accumulated insights back with the company's global customer community.
While every IT company always promises to some extent to do similar things, most of those promises turn out to be primarily marketing fluff with fancy-sounding names that don't amount to much more than a handful of 3-year-old lightweight case studies tucked away in the corner of a hard-to-find website.
SAP, however, is into something quite different here, as evidenced by the title of the executive who heads up SAP's Value Management business unit: Chakib Bouhdary is chief strategy and customer value officer, and just this month added on a permanent basis the strategy component to his overall responsibilities.
The value management concept is rapidly winning followers among SAP's customers because businesses in every industry, after decades of stockpiling tens or hundreds of millions of dollars worth of technology, are now aggressively striving to find ways to use all of that stuff to increase their levels of performance, to seize opportunities more quickly, to cut unproductive costs, and to extract more value out of their enormous investments in IT in general and SAP software in particular.
In my opinion, SAP's value management program is the most-advanced effort of its kind and can serve as a template for other leading tech companies to emulate as they make the difficult transformation from IT vendors that sell sophisticated hardware and software to business partners that offer advanced business solutions along with deep-domain expertise and insights.
Of course, CIOs will continue to want and need great technology but beyond that they also want and need from their primary IT suppliers knowledge about how all that stuff can be used most effectively, examples of who's deploying it better than anyone else, and insights into how that advanced technology can help their companies can compete more aggressively and successfully in an increasingly cut-throat business environment.
Bouhdary, who in a past life was CIO of an industrial company and an SAP customer himself, says the broad-based value program within SAP reflects a larger change across the company that has put customers at the center of SAP's efforts, with new products and services predicated on fitting those needs.
In the past, the opposite model was in place: SAP produced complex and rigid software and by god those customers would just have to conform to the demands of that software.
"Within SAP, every project now includes one question that's asked over and over:
How does this help the customer?" Bouhdary said in a recent phone conversation. "And if people can't give you the answer in detail, then we should drop the project.
"For us, the purpose behind a new project should no longer be how much money we think we can make from the product, but rather how much value can it create for our customers."
Bouhdary says that SAP has accumulated enough experience in working with more than 2,000 SAP customers to know with certainty that the value-management approach produces significant business results.
A survey of more than 400 SAP customers that the company undertook with research firm AMR revealed that among companies with a value-management strategy and processes in place, 100% delivered projects on time or ahead of schedule; 88% delivered those projects below budget; and 60% extracted greater value than projected in the original business case, Bouhdary said.
"For lots of companies, they start off with a strong focus on value but then it slowly goes away and they are therefore unable to gain the maximum benefits," he said. "Our research shows that 87% of companies do a very thorough job at building the business case, but only 15% follow through and do a very good job at focusing on value in the actual implementation of the project.
"But where the results really show the need for end-to-end value-management programs is in the final phase of the project, which is optimization, because only 8-10% of companies retain their focus on value in this final phase.
"And so," Bouhdary said, "when they project is set to go live, they have no budget left, and the project doesn't live up to expectations, and it creates a culture where top executives become very leery of investing in further projects because the big payoff just isn't there."
SAP's value-management program has pulled together some impressive numbers and capabilities:
--More than 8,500 customers from around the world have completed the comprehensive surveys of how they use SAP products, and those respondents come from 25 industries. In the first half of this year, half of the completed surveys have come from India and EMEA.
--SAP offers more than 30 types of tailored benchmarking and best-practice surveys that can capture up to 700 KPIs and more than 1,000 different subset of best practices.
--Since the company launched its Value Academy workshops 18 months ago, more than 1,500 customer companies have participated. By the end of 2010, that number will exceed 2,000, and a total of 4,000 individuals from those 2,000 companies will have completed the program.
(For much more detail on the program from SAP, you can go to this portion of its website.)
One such Value Academy graduate is Anju Virmani, CIO of CargoJet, which handles global contract-shipments of a range of goods from zoo animals to hazardous materials.
"Within the SAP program, we compared our numbers with others from service industries—companies of similar size—and we found that the only area where we came up glowing was in A/R because most of our stuff is prepaid and we get about 80% of our revenue from 20% of our customers," said Virmani in a recent phone conversation from her office in Toronto.
"But other than that, there were many other areas where we learned we could find value. They were able to show us that if we implemented SAP best practices in finance, we could cut down on the time needed to close our quarterly books, and cut down our audit costs by providing our auditors with better information," Virmani said.
"They helped us calculate a payback period to see when our investments would pay us back with efficiencies—we could see that on a slide, the spot where we wanted to be—and showed us what things will look like two years down the road," she said.
"We're about 18 months into that, and our finance department has achieved significant time-savings to close our books. Our users were not terribly sophisticated, and it took a while to get them up to speed and see the benefits of doing things the right way. They told us it usually takes two or three years to reap the full value, and we're about 18 months into the project and we're definitely starting to see that."
Bouhdary is quick to point out that many of the elements of SAP's value-management programs are offered to SAP customers at no charge—the longer-term benefit, he says, is that "this creates a living and dynamic relationship across the value lifecycle and that leads to more value for customers over time."
In addition, SAP believes the program will help customers see SAP "as a partner for an extended journey instead of just as another vendor," particularly as those customers discover new ways to "make the leap from focusing all their time on things that are transaction-related and instead move up to analyses that are business-related."
And are there plans to weave the capabilities of value management into SAP's software?
"We intend to write these capabilities into our software with Sybase and Business Objects," Bouhdary said. "And not too long from now, we'll be able to build apps that have access to that rich content—that knowledge and data—that no one else could possibly know about. And that's going to be a very big competitive advantage for us.
"It's like what Apple did with the iPod: when technology meets music and content, and it's all defined by the customer, no one can compete with that."
Bob Evans is senior VP and director of
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