SAP INSIGHT

CENTERS OF EXCELLENCE:
OPTIMIZE YOUR BUSINESS AND IT VALUE

2006 ASUG/SAP Best Practices Survey

Table of Contents
Executive Agenda COE Success: Alignment of Business and Information Technology Factors Driving COE Implementation COE Maturity Matters Key Approaches to COE Best Practices Conclusion: Key Best Practices 1 3 4 5 7 13

CENTERS OF EXCELLENCE:
OPTIMIZE YOUR BUSINESS AND IT VALUE

EXECUTIVE AGENDA
Given the impact of IT, many companies are starting to think differently about their IT investments and strategies. Rather than grudgingly viewing IT as a set of tools necessary for doing business and sometimes as an expensive and cumbersome set of tools many companies are looking instead to gain value from their IT investments. They are focusing on reengineering and optimizing their support processes and on driving IT to enable their businesses and improve their operations as well as their bottom lines. A recently completed ASUG/SAP Best Practices study (see sidebar for study details) shows that centers of excellence (COEs) are the primary vehicle for delivering industry-led project and program excellence. Centers of excellence provide a standardized approach across an entire organization, with strategies and templates designed to facilitate and enhance project management processes and approaches. Staffed with knowledgeable business and IT teams, these centers are company resources for current practices, technologies, and emerging trends, and they are designed to enable joint IT and business solutions with greater value, consistency, and efficiency. The study identified three main factors that inspire companies to institute centers of excellence: the desire to manage and lower total cost of ownership (TCO), the need to increase the value of their IT investments, and a drive to focus on customer satisfaction. The study also found that among well-integrated, mature COEs, certain best practices winning strategies, approaches, and processes that produce superior performance in an organization correlate with success. The best-performing companies minimize TCO by optimizing their COEs, centralizing the organization, standardizing IT systems across the enterprise, managing performance, and focusing on customers. Finally, the study found that cooperation between business operations and IT is crucial to the successful implementation and operation of COEs.

ASUG/SAP CENTERS OF EXCELLENCE SURVEY

A centers of excellence (COE) best practices survey conducted by SAP and the Americas SAP Users Group (ASUG) from March to April of 2006 covered a wide sampling of businesses across several disparate industries. Fifty-nine companies took part in the study and came from a broad range of industries, including retail and wholesale, public sector, manufacturing, banking, and health care. Participants spanned the globe, with operations in Asia, Africa, the Middle East, Europe, South America, the United States, and Canada. Businesses also varied in size as measured in terms of the number of full-time equivalent (FTE) employees dedicated to their centers of excellence. The smallest, representing 25% of those surveyed, had from 1 to 10 FTEs, and the largest, 8% of the companies surveyed, had more than 150 FTEs. The number of years of operation of the COE was surveyed as well: 44% of companies had COEs in operation for less than 1 year; 15% for 1 to 2 years, 12% for 3 to 4 years, 15% for 5 to 6 years, 6% for 7 to 8 years, and 8% for more than 8 years. Survey respondents were given scores based on responses to questions about their individual level of best practices adoption in five key areas: total cost of ownership, organizational level, systems standardization, performance management, and customer focus. Companies were then assigned a level from one to five, corresponding with the maturity level of their COE best practices adoption score: level one, marginal; level two, implementing and refining; level three, repeating performance; level four, excellent and quantifiable performance; and level five, optimal performance.

Figure 1: Companies of all sizes and years of experience with their COE participated in the survey. In total, 59 responses were submitted.

Overall Size of COE in FTEs

% of overall responses, N=59
>150 FTEs 8% 101-150 FTEs 6% 76-100 FTEs 6% 51-75 FTEs 10% 26-50 FTEs 15% 11-25 FTEs 29% 1-10 FTEs 25%

Geographic Coverage
% of overall responses, N=59
Australia, 5% Asia, 7% Africa, 2% Middle East, 4% Europe, 11% United States 31%

South America 9% North America 15%

Canada 15%

Industry Mix
% of overall responses, N=59
Discrete Manufacturing 14%, 8 companies

Years of COE Operation

% of overall responses, N=59
Greater than 8 years 8% 7 to 8 years 6% 5 to 6 years 15% 3 to 4 years 12% 1 to 2 years 15% Less than 1 year 44%

Other 19%, 11 companies Retail/Wholesale 7%, 4 companies CPG 11%, 7 companies Public Sector 5%, 3 companies

Process Manufacturing 14%, 8 companies

Services (Banking, Professional, Healthcare) 30%, 18 companies

COE SUCCESS: ALIGNMENT OF BUSINESS AND INFORMATION TECHNOLOGY

In looking in detail at centers of excellence, our recent ASUG/SAP Best Practices study found it is of paramount importance for successful centers of excellence (COEs) to ensure that business operations and IT are fully aligned and in synch. Such cooperation harmonizes business processes and corporate strategy with IT investments and strategy, maximizing effectiveness, success, and efficiency. This theme occurs again and again throughout the study results and has a profound impact on all aspects of COE operations. Indeed, its crucial to directly involve business operations in the design and scope of a center of excellence. After all, the business is and should be the main beneficiary of the work performed, enabled, and enhanced by a COE. The study clearly demonstrates the need for a balanced perspective between the overall business organization and IT in developing the center. And finally, a strong business focus is key to meeting and exceeding customer expectations.

FACTORS DRIVING COE IMPLEMENTATION

The best practices study found that three crucial needs initially drive companies to implement centers of excellence: Managing and lowering total cost of ownership (TCO) Enhancing value Focusing on customer satisfaction Moving beyond these three initial needs, key objectives of COEs include enhancing IT investment value, improving governance, managing change, improving support, and managing and lowering TCO. The study revealed that as centers of excellence become more mature, more accepted, and fully integrated into the operational fabric of the organization, these initial drivers evolve and become part of the core of its operation. As we will see in more detail later, this leads to the development of the right skills and talents to support the needs of the business in a cost-effective and efficient manner.

COE MATURITY MATTERS

The study shows that a number of factors influence the success of centers of excellence. The COE organization model, the IT system landscape, performance management processes and strategies, and sharpness of customer focus all contribute to the success or failure of a COE. In addition to these factors, study findings indicate that companies with more mature COEs achieve higher levels of value by implementing best practices. LEVELS OF COE MATURITY The survey assessed the maturity of participants COEs, ranking each into one of five levels, as shown in Figure 2. The study paints a picture of organizations by the level of maturity their COEs have reached. In the marginal or initial stage, level one, companies identify business processes and establish a COE organizational structure. IT generally uses a whats available instead of a whats best approach to systems implementation. Companies identify business processes, but they do not generally standardize or establish business processes across the organization, and they perform work on an ad hoc basis. Companies define process ownership only minimally, and they do not share documentation. They fail to establish performance measurement practices, and they do not define key performance indicators (KPIs). Project teams often follow informal practices, measuring only the basics, such as costs and schedules. Level one companies do not establish a customer focus as a primary driver, track and report on customer satisfaction, or report on performance management. Leadership is usually aware only of key milestones. Finally, these companies communicate with customers informally and in an unstructured way, and they lack clearly defined issue resolution practices. As COEs develop and mature (levels two and three), they make improvements across the board. The COE organization tends to centralize. IT systems evolve, instituting more definition and planning of functional and technical work. Business processes become standardized and documented, and process ownership is held by both the business units and the COE. At the highest levels of maturity (levels four and five), study findings showed companies reporting excellent COE performance. Organizations follow resource management plans. IT has centralized and standardized systems. Business processes are standardized with the enterprise, shared, documented, and measured. A dedicated performance team ensures that the company reaps the expected value. Formal performance management practices, training, and

Capability/Maturity

Maturity Levels of Centers of Excellence

Level 5: Optimal Performance Level 5: Optimal Performance Level 4: Excellent/Quantifiable Level 4: Excellent / Quantifiable Performance Level 3: Executing/Repeating Level 3: Executing / Repeating Performance Level 2: Implementing/Refining Level 2: Implementing / Refining Performance Level 1: Initial/Marginal Level 1: Initial / Marginal Performance

Figure 2

Time
5

communications are in place, and KPIs are refined, targeted, managed, monitored, and analyzed. A clear user governance structure is in place, and a transformation in thinking means that users are treated like partners. Most important, major changes are implemented through the lessons learned throughout the development and deployment of the COE. As COEs become more mature and optimize the adoption of best practices, making them core to COE operations, companies discover a need to develop talent to sustain the changing needs of the business in the most cost-effective manner. By the time a company has reached level five, it has fully adopted and internalized a center of excellence culture that helps optimize the IT systems, overall organizational performance, and customer satisfaction. GREATER COE MATURITY = INCREASED BEST PRACTICES ADOPTION Nearly 36% of the companies in the survey demonstrated a high level of maturity in their COEs. These companies have adopted best practices that improve acceptance of IT systems across the organization, shorten project times, control project costs, improve strategic management decision making, and increase return on investment.

According to the study, companies that have adopted the most COE best practices have COEs that are: Centralized, either with or without satellite offices, a clear key contributor to a lower TCO Implemented during the initial adoption and installation of their SAP solution Organized to include a key user program in which lines of business employees take the lead on facilitating the COE in their departments Aligned with a high level of standardization both within business units and across the entire enterprise Less likely to permit undue customization of systems Focused on the customer and adhering to the overall corporate mission and strategy Companies ranked by the survey at the highest level of maturity earned many key and valuable results. With a mature and fully integrated COE, a company can realize a higher level of acceptance of its IT system, faster project completion, controlled project costs, and improved strategic management decision making all benefits that contribute to an improvement in ROI. Tellingly, study findings showed that 62% of level four and five companies incorporate continuous improvement practices and programs into their business approach, whereas for 72%, COEs drive a strong alignment between the business and IT and ensure equal participation with the business.

KEY APPROACHES TO COE BEST PRACTICES

The study found five key actions in which the adoption of best practices has been shown to enable companies to optimize processes, meet their business needs and improve their bottom lines. These five actions are: Minimize TCO with an optimized COE Centralize the organization Standardize IT systems across the enterprise Manage performance Focus on the customer MINIMIZE TCO WITH AN OPTIMIZED COE The study identified a number of key benefits realized by adopting COE best practices. The first benefit is a reduced TCO the cost of implementation, execution, and maintenance directly due to the enablement of centers of excellence. Optimal COE performers, the survey found, significantly reduce TCO by centralizing to a high degree; standardizing system landscapes and business processes; minimizing software installations; and following a strategy of managed, limited systems customization. Make no mistake: managing TCO is important. But lowering TCO at the expense of the other four actions would clearly be shortsighted. The companies surveyed all recognize that COEs are instrumental in improving the return on IT investments. The study also found that SAP-certified COEs perform better than noncertified COEs. Successful centers are found in companies that implement strong lessons-learned approaches and that have a well-documented knowledge management process in place. Returning to an essential point, centers of excellence were shown not to be successful in companies without an equal, well-established partnership between the CIO and the business organization. However, even when a companys IT plan makes sound strategic and tactical sense, with a clear and compelling business case for the investment, several key barriers to achieving optimal value from an IT outlay still exist. Our survey revealed typical barriers whose effects can be ameliorated with an optimized COE: Unclear program value imperatives Executive disconnects on key business case assumptions Lack of value readiness due to entrenched organizational culture and technological factors, such as legacy systems Lack of program metrics keeping the focus on budget and deadlines Lack of ongoing value reviews to ensure that new IT capabilities deliver measurable value These barriers can lead to prohibitive costs and lost time due to IT changes, and they are a direct result of a lack of alignment between business and IT strategies. Quick fixes then result in higher longterm costs and decreased functionality, with more and more of the budget up to 80% according to our survey spent on simply maintaining the technological status quo. This leaves a company caught in a spiral of spending without achieving the results and return on investment it needs. The lack of an effective COE organization and processes leads to a failure to achieve business results, excessive TCO, and delayed realization of the value of IT investments. The study indicated that COEs enabled companies to reduce the TCO of their system applications. Indeed, survey participants achieved significant reductions, as shown in Figure 3.

Total cost of ownership is one of the most difficult metrics to benchmark. Even when using the most common metrics cost per user, full-time support employees per 100 users companies often dont obtain adequate results, or the results of their analyses are misleading. For example, consider the often-used TCO metric of lowest cost per user. Welldesigned IT solutions often decrease the number of users needed to support business processes. But this highly favorable outcome typically creates a higher cost per user. The same is true of the converse. If a company has too many users, perhaps because of poor process structures or training, it achieves a low cost per user but this low value is misleading because it is due to undesirable factors. This does not imply that per-user metrics lack value; it merely suggests that companies require multiple metrics to make valid, balanced business decisions. The survey identified specific best practices crucial to clearing these barriers to reducing total cost of ownership: Certification of the center and equal partnership between the business organization and the COE regarding daily operations The institution of value checkups that ensure value is being achieved and that lessons learned are being adopted and incorporated Strong continuous improvement practices

Strong alignment between business and IT and an equal partnership in the business CENTRALIZE THE ORGANIZATION Organizations with centralized COEs, the survey found, have better consistency and coordination, leading directly to less duplication of effort. These organizations configure and develop their IT systems by process or functional area instead of by business unit, leading to more efficient, more streamlined systems operations. The survey results are clear on this subject: 87% of all respondents COEs are centralized, and this percentage climbs to 91% for the best-performing companies. A higher percentage of these mature companies address the full solution life cycle in the scope of their COEs. Furthermore, 46% of COEs address the full solution cycle, from business case development to continuous improvement and support. These best-in-class COEs evaluate the impact of changes on all areas of the business and efficiently allocate support services across their areas of responsibility. Organizations that have aligned resources with either new projects or support initiatives are more likely to contribute directly to lower staff turnover, ensuring that they retain talent and mitigate the risk of knowledge loss. The survey shows that the development and deployment of a key or power user program is

The Impact of COEs on the Total Cost of Ownership

Cost per Concurrent User

Cost is 13% higher for those without COEs

FTE/100 Concurrent Users

It is 17% more expensive for those without COEs 17%

13%

Figure 3
8

COE

No COE

COE

No COE

crucial to the overall excellence and success of COEs. Power users are employees of a business unit who are proficient in the use of the IT system, with a higher level of applications knowledge and experience than their peers. These power users are responsible for helping their coworkers effectively use the software and correctly execute business processes and functions. As the first level of support, power users reduce the number of calls into the COE for help and result in labor cost savings. Our study found that 62% of COEs have key or power users in place. The survey identified an important area for improvement: the alignment of the corporate organization. Only half of companies report that they are aligned by business process, revealing that theres still room to improve IT efficiency by aligning systems by functionality. Key best practices found among COEs with optimal organization include the following: Centralize centers of excellence, both pre- and postimplementation Build an optimal team with a strong power user program in place that is staffed by the business Ensure COEs address the full solution life cycle from business case development to continuous improvement and support to achieve the expected ROI

Build COEs as early as possible Bifurcate support and new project work STANDARDIZE IT SYSTEMS ACROSS THE ENTERPRISE The degree to which IT systems are standardized across the entire business organization plays a key role in the successful implementation of COEs. The study revealed that a high degree of process standardization, a minimum of application and solution installations, and limited systems customization are all crucial to establishing and driving effective control of IT and business costs. This reduces operating costs, ensuring that measurable value is realized. While 17% of all companies reported a high level of standardization, an impressive 65% responded that upgrade plans were in place. Sixty-three percent of companies have system road maps in place, with the degree of planning ranging from a current view to five-year future views. Echoing a central theme revealed in the study, an effectively optimized COE takes the standard IT support model a step further than the norm becoming proactive and forming a partnership with the business unit. This partnership delivers solutions that are true collaborations of IT and the business unit, resulting in solutions with greater value, consistency, and efficiency.

The Effect of Key or Power User Programs

% of companies with key/power user programs in place

86%

% of companies aligned by business process

62% 50%

57%

Figure 4
All companies Levels 4 and 5 All companies Levels 4 and 5
9

This concept, understandably, applies to system upgrades as well. Over 70% of companies that reported late or over-budget projects did not have a COE in place. Simply put, COEs help ensure onbudget, on-time upgrades by facilitating the clear definition of an upgrade plan and path. The survey highlighted the importance of several best practices regarding systems standardization: Align noncore business with best practices to minimize customization Manage road maps and strategies, making sure they are in place and updated periodically Standardize system setup, applying it across the enterprise to the greatest extent possible Minimize the use of third-party applications Implement and follow system upgrade plans

MANAGE PERFORMANCE Where performance management is concerned, the study found top performers consistently track operating costs and COE investments according to plan. This must be accompanied by consistent and frequent reporting so that companies can take corrective actions to avoid overruns. The survey reported that 37% of respondents have a formal process in place to measure COE performance and that most reviews are conducted quarterly or twice yearly. Top-performing companies demonstrated a clear advantage here, with 58% of level four and five companies reporting that they have a formal performance management plan in place. It is also important to be selective and keep a sharp focus in performance measurements measuring too many metrics can be counterproductive. One third of companies in the survey said that they measure four to six KPIs per project.

Standardization and Road Maps in COEs

% of companies with a high degree of standardization

81%

% of companies with road maps

81% 63%

17%

Figure 5
All companies
10

Levels 4 and 5

All companies

Levels 4 and 5

% of companies measure performance

58%

The survey identified a number of performance best practices adopted by top-performing COEs: Ensure strong performance management approach for the COE Link performance management to the business case to ensure ROI is met and report on results Establish common rules and practices for measuring performance Periodically review KPIs to ensure that they actually measure performance and promote appropriate behavior Measure value, customers, operations, and resources Develop service-level agreements (SLAs) in an ongoing dialog with customers Track and communicate key metrics

37%

All companies

Levels 4 and 5

Figure 6: COE Performance Management

Customer Focus and Satisfaction

% of companies meet/exceed customer focus requirements

100% 83%

% of companies reporting customer satisfaction

67% 54%

% of companies with business involvement at biweekly review or feedback meetings

33% 21%

Figure 7

All companies

Levels 4 and 5

All companies

Levels 4 and 5

All companies

Levels 4 and 5

11 1

FOCUS ON THE CUSTOMER Both COEs and the IT group must keep their focus ever on the bottom line. This essentially means that a project must achieve high customer satisfaction ratings to be deemed successful. The survey findings showed a seemingly obvious correlation, but one that is important and sometimes missed: frequent communications with customers contribute to improved customer satisfaction levels. The ability to track and report on customer satisfaction is also a contributor to ensuring that feedback is made available to the COE and that corrective actions can be taken in an appropriate and timely manner. Most companies reported a very high level of customer focus, but, perhaps surprisingly, only 54% of companies surveyed explicitly report on customer satisfaction. Even among those that do report explicitly, very few involve customers in the review and feedback communication cycles.

We found that while 83% of companies reported that their COE meets or exceeds their customer focus requirements, COEs are not generally well connected with business customers. Limited business involvement at all levels leads to lower customer satisfaction. Only a third indicated business involvement in the steering committee, and bimonthly stakeholder participation is even more limited at only 17%. The survey identified a number of customer focus best practices adopted by top-performing COEs. Top performers: Achieve high customer satisfaction by ensuring active business involvement with the core team, steering committee, and stakeholders Establish a user governance structure Use SLAs to facilitate communication with customers

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CONCLUSION: KEY BEST PRACTICES

The ASUG/SAP survey made three overriding factors abundantly clear. First, companies with more mature COEs can keep their eyes constantly on the prize of managing customer satisfaction without losing focus on TCO. Second, COE models that are formed in a spirit and atmosphere of collaboration and cooperation, aligning business and IT, can better address issues of continuous improvement, leading to an effective COE with optimized operation. And third, companies that deploy centers of excellence realize a lower TCO of their enterprise IT system. OVERALL KEY BEST PRACTICES Several critical best practices emerged among the highest ranked companies (level five). The performance drivers that have the highest impact on COE value achievement are the following: Centers of excellence affect on-target, on-value performance when they manage all processes and functions from problem definition to resolution including support-level functions and roles, escalation procedures, corrections, interface handling and error correction procedures, help desk training, performance metrics definition and problem analysis, road map strategy, and design. A documented knowledge management process drives on-time and on-budget performance and needs to include knowledge repository build, documentation requirements for support and knowledge packaging, training and help desk routing, and resolution certification. A centralized COE design drives effective delivery. This centralized structure is a key contributor to lower TCO. Limiting the amount of customization contributes to a faster time to market because it simplifies and shortens the testing and implementation phases. Centers of excellence are most effective when enacted during the initial system implementation phase. Business-owner involvement in decision making drives on-time, on-budget performance. All optimal COEs have adopted a business process owner model. Formal power user programs significantly influence programs achieving their expected goals and value. All organizations with optimally performing COEs have a power user program in place. Staffed by the business unit outside of the COE, power users provide the first line of support to the business user community.

The Benefits of a Certified COE

Your company can derive many direct benefits from implementing a certified center of excellence, including the following: Providing a proven approach for the effective implementation, maintenance, and improvement of business solutions A familiar and clearly defined starting point for business users, providing assistance with application and support issues and supplying up-to-date product and business process information Management and easy availability of experience and expertise to every corporate unit in equal measure Fast adoption of the business solution to meet changed market requirements or internal changes Roll out of best business processes in the corporate units Increased COE competence and expertise through training and experience Close, individualized end-user support through the in-depth knowledge of COE staff about customerspecific situations and the position within the group Clear definitions of measurable expectations that are then communicated and monitored to ensure consistency in standards of quality and customer focus
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ABOUT THE SOURCES

ABOUT SAP SAP is the worlds leading provider of business software.* Today, more than 36,200 customers in more than 120 countries run SAP applications from distinct solutions addressing the needs of small and midsize enterprises to suite offerings for global organizations. Powered by the SAP NetWeaver platform to drive innovation and enable business change, SAP software helps enterprises of all sizes around the world improve customer relationships, enhance partner collaboration, and create efficiencies across their supply chains and business operations. SAP solution portfolios support the unique business processes of more than 25 industries, including high tech, retail, financial services, healthcare, and the public sector. With subsidiaries in more than 50 countries, the company is listed on several exchanges, including the Frankfurt stock exchange and NYSE under the symbol SAP. For more information, please visit www.sap.com.
* SAP defines business software as comprising enterprise resource planning and related applications such as supply chain management, customer relationship management, product life-cycle management, and supplier relationship management.

ABOUT THIS SURVEY The ASUG/SAP Benchmarking and Best Practices program is open to participants on an ongoing basis. Companies are encouraged to participate annually to track trends, share best practices, and measure value realization. In addition to centers of excellence, ASUG/SAP Benchmarking programs exist for several additional areas, including human resources, finance, supply chain planning, manufacturing, new product development and introduction, customer contact centers, total cost of ownership, and governance, risk, and compliance. If you are interested in participating in any of these efforts, or if you would like additional copies, please contact: SAP America Inc. ASUG/SAP Benchmarking and Best Practices Program 20 Perimeter Summit Boulevard Atlanta, GA 30319 Tel: +1 404-943-6477 Fax: +1 404-943-4290 E-mail: benchmarking@asug.com

ABOUT ASUG ASUG is an independent, volunteer-run association that facilitates knowledge transfer among the community of SAP customers by providing customer-driven educational opportunities, professional networking, and a forum to influence the future product and service direction of SAP year-round. ASUG maintains a unique position within the SAP community through its combination of highly focused education tools, access to both subject matter experts and SAP executives, and personal networking opportunities. As a result, members from any size company continuously solve their SAP-related business problems more efficiently and cost-effectively, realizing a significant return from their membership. For more information, please visit www.asug.com.
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