centers of excellence optimize your business and it value
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CENTERS OF EXCELLENCE:OPTIMIZE YOUR BUSINESSAND IT VALUE
2006 ASUG/SAP Best Practices Survey
SAP INSIGHT
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Table of Contents
Executive Agenda 1
COE Success: Alignment of Business and Information Technology 3
Factors Driving COE Implementation 4
COE Maturity Matters 5
Key Approaches to COE Best Practices 7
Conclusion: Key Best Practices 13
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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 thatcenters 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 ITsystems 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.
EXECUTIVE AGENDA
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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.
2
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 Geographic Coverage
Industry Mix
Australia, 5%
Greater than 8 years
8%
3 to 4 years
12%
Less than 1 year
44%
% of overall responses, N=59
Years of COE Operation
5 to 6 years
15%
1 to 2 years
15%
7 to 8 years
6%
Africa, 2%
Middle East, 4%
Asia, 7%
1-10 FTEs
25%
11-25 FTEs
29%26-50 FTEs
15%
51-75 FTEs
10%
76-100 FTEs
6%
101-150 FTEs
6%
>150 FTEs
8%
% of overall responses, N=59
% of overall responses, N=59
% of overall responses, N=59
Discrete Manufacturing
14%, 8 companies
Process Manufacturing
14%, 8 companies
Services (Banking,Professional, Healthcare)
30%, 18 companies
Public Sector
5%, 3 companies
CPG
11%, 7 companies
Retail/Wholesale
7%, 4 companies
Other
19%, 11 companies
United States
31%
Canada
15%North America
15%
South America
9%
Europe, 11%
ASUG/SAP CENTERS OF EXCELLENCE SURVEY
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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.
COE SUCCESS: ALIGNMENT OF BUSINESS AND
INFORMATION TECHNOLOGY
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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 loweringTCO.
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.
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Capability/Maturity
Time
Level 5: Optimal Performance
Level 4: Excellent / Quantifiable Performance
Level 3: Executing / Repeating Performance
Level 2: Implementing / Refining Performance
Level 1: Initial / Marginal Performance
Level 5: Optimal Performance
Level 4: Excellent/Quantifiable Performance
Level 3: Executing/Repeating Performance
Level 2: Implementing/Refining Performance
Level 1: Initial/Marginal Performance
Figure 2
Maturity
Levels of
Centers of
Excellence
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. TheCOE 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 andstandardized 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
COE MATURITY MATTERS
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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 thetime 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 bothwithin 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 ITsystem, 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.
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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 highdegree; 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-certifiedCOEs 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 resultof a lack of alignment between business and IT
strategies. Quick fixes then result in higher long-
term 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 businessresults, 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.
KEY APPROACHES TO COE BEST PRACTICES
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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. Well-
designed 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 COEregarding 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 to91% 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
Cost per Concurrent User FTE/100 Concurrent Users
No COE No COECOE COE
13%Cost is 13% higher
for those withoutCOEs
It is 17% more expensive
for those without COEs17%
Figure 3
The Impact
of COEs on
the Total
Cost of
Ownership
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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 on-
budget, 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, thestudy 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.
0
% of companies with a highdegree of standardization % of companies with road maps
17%
81%
Levels 4 and 5
63%
81%
Levels 4 and 5All companies All companiesFigure 5
Standardi-
zation and
Road Maps
in COEs
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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
% of companies measure performance
37%
58%
Levels 4and 5
Allcompanies
Figure 6: COE Performance Management
% of companies meet/exceedcustomer focus requirements
% of companies reportingcustomer satisfaction
% of companies with businessinvolvement at biweekly
review or feedback meetings
83%
100%
Levels 4
and 5
All
companies
54%
67%
Levels 4
and 5
All
companies
21%
33%
Levels 4
and 5
All
companies
Figure 7
Customer
Focus and
Satisfaction
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FOCUS ON THE CUSTOMER
Both COEs and the IT group must keep their focusever 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 thatfeedback 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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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 customer-
specific 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
The Benefits of a Certified COE
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 expectedgoals 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.
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