Get Optimized: Make Your SAP System Work Better Now
Oona Flanagan with Paul Ovigele, ERPfixers
October 2017
This paper addresses some of the many strategic reasons why a functional optimization project is highly beneficial to undertake, how it will help companies with a move to S/4 HANA, and recommendations on SAP best practices for organizations considering a functional optimization. Functional optimization means more than making your system or program run faster. Here, it refers to an undertaking that will bring improvement and increased efficiency to the entire enterprise-wide standard. A functional optimization is an optimal way of aligning your business processes with standard SAP functionality. It is as much about creating a strategic mindset across the entire business as it is about a specific tool. This paper highlights several reasons why viewing a functional optimization as an integral part of a business-wide strategy, rather than as a system extra, creates a path to a more user-friendly system and better total cost of ownership.
Why a Functional Optimization is (Probably) Necessary
There are many strategic reasons to change an SAP setup. This is frequently true, for example, in cases where companies may have implemented SAP many years ago or have a new parent company with a different SAP configuration. Companies normally have tight project timelines, restricted budgets, and outsourced staffing during implementations. As a result, implementations often are not tailored or thoughtful and are therefore suboptimal to meet a business's specific system requirements. Something akin to a one-size-fits-all model is unfortunately frequently used in implementations, leaving a system that works but does not work "smart" or as well as it could work had the implementation been thoughtful. What we mean here is that a sub-optimal implementation often leaves the business with a system that does not operate as efficiently and cost-effectively as it can. It is not living up to its potential, and as a result, neither is the business. On the flipside, a company may have too many customized functionalities in SAP, where moving to a standard functionality would make the system more streamlined. A functional optimization can go a long way to correct this discrepancy. Here's how:
Conducting a functional optimization allows for best practices to be used, allowing the company to work more efficiently with fewer resources. Customers understandably want to know how they can fully utilize their existing SAP standard functionality without having to customize the system. If the customer already has a customized system, they are finding that, when they move to S/4 HANA, their customized solutions are often not compatible. They are bringing their inefficiencies ("garbage") into the new system. By having better control and access to data, the company is in a better position to make faster and more-accurate decisions, improve profitability and competitiveness, reduce costs and increase cash flow.
This isn't to say that all implementations were done sub-optimally. However, even if this is a system that has been used to relatively good effect for say, 20 years, it may very well become incompatible as most businesses make the migration to S/4HANA. Most, if not all, businesses will therefore benefit from an optimization assessment that parses out what can stay as customized and what will work better being optimized. Whatever pre-existing inefficiencies are present, these will not be solved simply by a migration.
What Does a Functional Optimization Do?
Let's say there is a system that's already been implemented, perhaps years ago. Often, the system is inefficient, cumbersome, and frequently frustrating to its users. It is not "tailored" or customized. In a one-size-fits-all or outdated system, a lot of time, money and effort are being put into a system, and the company is not getting what it should out of it because the system is not mapped correctly to the specific business processes. A thoughtful functional optimization ultimately saves time and money by providing the customer with a customized system that makes sense for their specific business needs. This does not necessitate a new order for more expensive software to see immediate results. Rather, it's a process that looks at software that already exists and how it can be better used. Many SAP companies are not fully utilizing their system. This is worth saying again: instead of buying more software as a first resort to solve inefficiencies, conducting an optimization allows the business to optimize what it already has in place.
Changing Business Requirements
Often, a business model has changed or a company wants to take advantage of a new functionality such as the New General Ledger (New GL) or, more recently, S/4HANA and their original SAP blueprint is no longer appropriate or sensible (S/4HANA is discussed in further detail below). A parent company may have made acquisitions since the original implementation that don't always fit its original system design. In each of these scenarios, undergoing an optimization makes sense.
One example that many companies in North America still are mitigating the results of involves the Y2K paranoia in 1999. At that time, industry thinking was that any company that implemented SAP would be able to resolve its Y2K problems. Conventional wisdom held that SAP would fix the anticipated problems. As a result, many companies implemented SAP for this reason alone. But few of these implementations were tailored to the workings of that specific company. SAP was adopted without considering how they could utilize the system or leverage it to help the business, and many opportunities for efficiency remain unleveraged to date.
Another common example involves the acquisition of a business entity by a new parent company. When a parent company uses SAP it usually means that its acquisition must migrate to SAP. But trying to fit the template of the parent company onto the acquisition can - and often does - create many process system gaps. It results in a system mish-mash. This invariably leads to inefficiencies and frustrations.
By far the biggest factor affecting companies that run SAP inefficiently is the "total cost of ownership" - how much is being spent to run and manage the system? A functional optimization allows the business to reduce the total cost of ownership of its current software. It is largely safe to assume that every company wants to have a SAP system that runs seamlessly without the need to keep tweaking and fixing. Yet the amount of money being spent to manage a system that is based on a sub-optimal implementation is more than would be spent on an optimized system. A functional optimization represents cost savings and greater efficiency.
Ideally, a functional optimization is carried out by an independent third party without a stake in any future implementation. They can take an objective look at the system and make non-binding recommendations therein. This is an especially important step to take ahead of an S/4HANA migration, as discussed below. Companies with the adequate internal resources to conduct an optimization themselves should not be discouraged from doing so. However, it is rare that a full-time staff member or department can simultaneously devote the necessary resources. Most companies simply lack the bandwidth to carry out an optimization assessment without taking away from their day-to-day resources.
It is essential that the functional optimization be placed at the forefront of business strategy, rather than something to be confined to a certain department or team. A functional optimization means cleaning up the path and giving a clearer path forward either for current business processes or for planned implementations and migrations. Optimization should not be considered a retrospective activity. If optimization is put at the forefront of strategy, it creates much greater efficiencies across the entire business and, therefore, becomes an integrated part of operations and direction.
The diagram below was taken from a 2015 KPMG study called SAP Value: A Balancing Act (see https://assets.kpmg.com/content/dam/kpmg/pdf/2016/05/SAP-value-a-balancing-act.pdf for link)
S/4HANA and Functional Optimization
Conducting a functional optimization is especially important for companies considering a migration to S/4HANA in the near future. Here, it makes sense to prepare the path even if an implementation is not immediately planned. By undergoing a functional optimization now, this will ensure that the system is clean and compatible with S/4HANA if and when the migration takes place. If the business does not optimize before going S/4HANA, whatever inefficiencies ("garbage") it currently has in the system will be brought over with it in the migration. The same problems will keep occurring, but this time on a new, more-expensive platform. If, on the other hand, the business optimizes now - ahead of a migration - it will be have a much cleaner path to leverage the new functionalities as S/4HANA automatically assumes that the business is working on a best practices SAP system.
SAP Best Practices
SAP Best Practices ("best practice") for Implementation is a set of proven methodologies that allows a business to align its business processes with standard SAP functionality. SAP has not only written Best Practices in lines of business, industries, technologies, migration and integration, but it also provides process maps and other tools. See https://rapid.sap.com/bp/# to access the Best Practices Explorer for both SAP ERP and S/4HANA solutions.
This is a useful tool and many problems that are discovered after the fact arguably would not have occurred had best practices been followed. Utilizing Best Practices can help smooth the pathway specifically to S/4HANA and more generally for system-wide functional optimizations.
Making the Case for a Functional Optimization
To make the business case for an optimization project, simply outlining the inefficiencies of the system may not be sufficient justification. The financial benefits to be attained from the following improvements also should be highlighted, including:
- increased productivity
- better and consistent reporting and analysis
- transparency of information across the group
- faster time-to-close
These tangible benefits can be combined with intangible benefits such as improved morale and more-effective communication across the organization to make the case for a functional optimization assessment.
The First Step - Review
Undertaking an optimization project may additionally be prompted by any of the following scenarios: corporate strategy, expansion, cost reduction considerations, moving to the cloud, or support issues. In any of the instances above, the first step of undertaking an optimization is conducting a system review.
The review should ideally be carried out by external resources in order to present a business case for the final work. Ideally, these will not be the same experts who would be in line to implement said recommendations. The company may have the skills and human capital internally to determine areas of improvement, what the issues are, and whether these can be fixed in the existing system by changing a few processes, implementing support packages, amending a bit of configuration, etc. In either case, the same questions will be asked.
Generally, the review should include: documenting the as-is processes, both to ensure that any business-critical processes are not missed and to highlight areas that can be improved, such as where processes have deviated from best practices and are no longer efficient.
Finance and Procurement
Here, there are many areas to quantify savings. Some of these include using self-service catalogs, automating the purchase order approval process, using only approved vendors to negotiate better discounts, receiving and sending invoices electronically, and flipping POs (allowing a supplier to convert a PO into an invoice and transmit that invoice to the customer that placed the PO). In these instances of optimization, time and resources will no longer be wasted chasing paperwork or signatures. In addition, using electronic documents will reduce storage costs.
Cash Management
Having the system download statements from the bank, import them, and match payments to customer accounts automatically means resources can be directed at exception reporting; this will ensure tighter credit control and improve cash flow.
Bank fees can also be reduced if in-house cash is used to drive inter-company and foreign currency payments through virtual accounts instead of paying fees at the banks.
Sales and Inventory
Better profitability analysis and reporting will do things like aid in targeting the right customer, prevent stock outages, and improve production. Mobile devices and the Fiori user experience may also encourage use of SAP and reduce the need for training. It should also be possible to come up with KPIs to show how things could be improved against industry averages.
The results of the review should provide a roadmap of how complex the recommended changes will be and, also, what greater efficiencies and cost savings can be expected. This really gives power to the business to decide how much or how little to implement or even when or how to do so. Ultimately there are three possible routes to take. The first two apply regardless of whether the decision is made to move to the New General Ledger or S/4HANA or simply to adopt best practices for a smoother move later, if at all.
Determining the Best Route
A business's options will depend on the type of changes desired, the timeline for execution, and whether the optimization recommendations will be carried out all at once or in a phased approach. The best route may also depend on cash flow and internal or external resources. For instance, it would not be prudent to have the entire finance team in workshops, testing and training during period- or year-end closing. Other questions to ask may include whether it is desirable also to implement other cloud solutions such as Ariba, Concur and how these will fit.
The complexity and cleanliness of both transaction and master data may be another factor which points to one option over another. Whether the business converts the master data or uploads it, fields will require specific formats and mandatory fields must be filled. The overarching goal is a clean system. No business would wish to transfer over inefficiencies ("the garbage") to a new system when making the effort to optimize.
Converting the Existing System
In an ideal world, the least disruptive and cheapest route is to make changes in the existing system. However, this will need certain settings and master data to be kept in order to be able to access historical records. In this case, changing certain processes may be difficult or impossible. It may be possible to set up new company codes or a new client, but some changes will affect all company codes.
New GL and New Asset Accounting are mandatory on S/4HANA, but introducing new parallel ledgers once migrated is available since the S/4HANA 1610 on-premise version, with conversion to document splitting expected in 1709. If that is required functionality, depending on the timing (New GL migration can only be done at year-end) it may be better to set up an initial project for the New GL migration to be followed by conversion to S/4HANA later.
Depending on what functionality is chosen to implement, it is worth noting that migrating an existing system has little or no disruption to existing business processes and relatively little training is necessary. The disadvantage is that this may mean that some bad practices and not-so-clean master data are also carried over, along with the historical transactions. This is another reason why running a functional optimization ahead of a planned migration is especially compelling.
If a move to S/4HANA is immediately planned, this can be done by converting the existing system but only if the business intends to stay on premise. It may be possible to move to a different hardware first. However, there will need to be a conversion to the databases before shifting the Business Suite to S/4HANA.
Greenfield Implementation
A Greenfield Implementation (or reimplementation) on a new ECC or S/4HANA system means it's possible to migrate individual or groups of companies at any period-end. The advantage is that such an implementation allows the business to use ready-to-run processes rather than re-invent the wheel. The disadvantage is that companies can rarely upload much historical data, mainly because of the complications of trying to map transactional data posted under old processes.
If the business is a good fit for standardization, the S/4HANA Cloud version (on a secure multi-tenanted public cloud) will probably be cheaper, more flexible, and completely standard. Associated costs are operating rather than capital expenditure (Capex), there is no initial outlay for the hardware and software, and everything is maintained for the business with mandatory quarterly upgrades. However, there is limited access to the configuration, custom programming is not allowed, and Fiori is mandatory (no SAP GUI option).
If, however, the implementation cannot be managed without a number of modifications and greater input on when upgrades occur, or if the business desires to manage its own system, then on-premise may be the better route, as there are also various Cloud, non-Cloud and hybrid options available.
Landscape Transformation
Long-term, "big-bang" projects have a number of risks and a greater chance that the goal posts will keep changing. The business or economic climate is not static and the planned version of software may already be out of date by the go live. Central Finance available with S/4HANA allows a number of companies to continue with their existing system, whether it is ECC6 or a legacy system, but they can simultaneously post real-time into an S/4HANA finance system.
This is the quickest way to take advantage of the benefits of S/4HANA Finance without the upheaval of migrating a number of systems at the same time. The workload is mainly mapping, which is carried out using the SAP SLT (System Landscape Transformation or SLT Replication Server). It even allows drilldown to some original documents, such as if the business posts a sales order to an ECC system. Although only the financial posting is made to S/4HANA, it is possible nevertheless to drill down to the billing document and sales order in ECC from the S/4HANA system. It allows a selective migration, such as going live on S/4HANA first with the companies or areas with the highest return on investment (ROI) and lowest total cost of implementation (TCI). Central Finance can be used for everything else, transferring the others in a phased approach later.
Methodology
Once the initial business case for a functional optimization assessment has been approved and the project team has been identified, or hired, and change management and implementation partners are ready to go, there are additional methodologies to approach the project besides a Greenfield Implementation.
Even if you select a Greenfield Implementation, there is presently a move towards smaller-phased projects using accelerators (such as SAP’s Rapid Deployment Solutions) to deliver value quickly. For instance, Activate is the new, more-agile methodology, which replaces ASAP. It has three pillars:
- Best Practices
- Guided Configuration
- Methodology
Activate works with on-premise, cloud, and hybrid solutions. With ASAP, businesses built a blueprint of what was required and consultants fit it to SAP. With Activate, customers are guided to the best practices solution, leveraging preconfigured business content.
Stages of Activate:
Discover: Here, the business is given a standard SAP system to try out and understand the functionality available.
Prepare: This phase works out the implementation plan and resources.
Explore: The project team carries out fit-gap analysis and verifies which model scenarios are in scope and whether they are a good fit for the business.
Realize: The solution is built and incrementally tested based on the requirements from Explore.
Deploy: The configuration is transported to production and is ready for the go-live and support.
(Content available as part of the Rapid Deployment solution includes process maps, configuration documentation, predefined test scripts, migration templates, and integration information with other SAP Cloud solutions).
Carrying out a functional optimization represents a more tailored SAP system with greatly reduced inefficiencies and frustrations, especially for those looking to migrate to S/4HANA. Often, implementations are carried out in less-than-ideal circumstances, frequently rushed or ill-conceived to the specific needs to the company. Additionally, company needs may have changed over time, but the operating system has not kept pace. Conducting a functional optimization may offer great surprises to the business that thought it was stuck with what it had. Efficiencies and system "tricks" may be discovered that solve headaches immediately. Optimization rotates the outcomes, allowing for an SAP system that works more for the business and that is tailored to its needs and character, and creating a much more efficient system.
Addendum
Here are a few additional recommendations to keep in mind before embarking on a functional optimization:
- Get the right project sponsors and change management to drive change from the top down. A functional optimization should be viewed through the lens of company-wide strategy.
- Get agreement on group policies up front, such as credit control, fixed assets, or payment terms.
- Don’t expect experienced employees to be able to keep up a full-time job and devote time to the project.
- Avoid scope creep - set and manage your expectations and goals.
- Ensure master data is clean or cleanse it - GIGO ("Garbage In, Garbage Out").
- Keep modifications to a minimum.
- Don’t try to exactly match your current processes or try to bend SAP to fit. Use best practices and improve your processes.
If you have any questions, additional information to add here, comments to make, or would like more information on functional optimizations, we'd love to hear from you!
info@erpfixers.com