Best practices in IT restructuring and management: Page 3

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Success and its lessons

The impact of R/3 is inextricably woven together with business process reengineering (BPR). ADI’s return on investment (ROI) in R/3 is a combination of the benefits accrued from the integrated suite of applications, along with its BPR efforts. Scalea analysts determined that the company’s return on the R/3 investment over the first four years (mid-1995 to mid-1999) would be around $212 million.

Selling, marketing, and logistics functions were the largest contributor to the return. Over this four-year time frame, analysts at Scalea estimated a $162.5 million gain from reduced selling, marketing, and logistics costs. ADI’s SG&A costs plummeted from a high of 29% in the early 1990s to around 15% in the 1998 fiscal year.

Other tangible gains included approximately $6.7 million in inventory savings over four years, due to improved inventory management. The Scalea analysts also projected a $38 million return from 1995 to 1999, due to streamlined financial processes, including chopping one week out of the monthly closing process. Soft, or indirect, benefits were not considered in the analyst projection, but they are nonetheless real and valuable: for instance, ADI now has many happy customers.

Looking back over the implementation, ADI managers took note of the IT-related decisions that contributed to achieving the high ROI. These include:

  • Software selection. Choosing a package with functions that most closely resembled what ADI wanted to do turned out to be important. It reduced the amount of time required to implement the software and caused the least amount of disruption. As it turned out, SAP has emerged as the clear ERP leader.

  • Planning and preparation. ADI prepared detailed planning documents addressing almost every IT aspect of the project. Although some went unused, the planning exercise itself was valuable, IT managers attest. Many organizations today still don’t do effective upfront planning, which hurts the entire implementation effort, notes Hurwitz Group’s Bonadio.

  • Team management. ADI presented the R/3 project as a plum assignment, attracting top-notch people. "You cannot afford not to have your best people on this," says ADI’s Dundon. Liberal incentives and on-going team-building efforts kept turnover at zero during the key rollout period.

  • Communications. ADI embarked on an extensive communications program, including a monthly newsletter, to manage expectations and overcome the natural resistance to change. Major decisions and potential delays were flagged and explained in advance.

  • Training. ADI adopted a hierarchical training model. Once core team members had been trained by SAP and the consultants, they trained local trainers who, in turn, trained their own groups. This ensured local SAP expertise where and when it was needed. A help desk, just a telephone call away, provided backup support, and the installation of a CD-ROM drive on the network allowed online searches of all documentation.

On the other hand, there certainly are places where, knowing what managers do now about SAP implementations, ADI could improve. Specifically, analysts today question ADI's extensive BPR prior to the implementation:

"Companies now are more likely to do the business reengineering as part of the implementation," notes AMR’s Shepherd. The combined BPR-implementation approach helps to collapse the time.

In general, "companies do less business process reengineering now," adds Greenbaum of Enterprise Applications Consulting.

Then and now

ADI considers its SAP implementation a great success and, at the time, it surely was. But the ERP market and SAP have evolved considerably since then. If ADI were to undertake the project today, it would progress differently.

For example, the instability of ADI's initial version 1.x release of SAP delayed the project. Today, SAP releases are rock solid, notes Greenbaum. SAP's entire approach to releases is different, ensuring that organizations get a production-ready release out of the box.

Similarly, the implementation methodologies ADI employed were rudimentary. Today, "methodologies are much better," says AMR’s Shepherd. And the whole issue of expertise is different. ADI had few choices when it came to finding knowledgeable consultants. "There is enormous choice now," Shepherd continues, although this expertise still is not cheap.

Back in 1993, ADI's adoption of SAP included the widespread conversion to PCs and client/server computing, which further burdened the project’s financials and training efforts. Organizations implementing SAP today already have converted to PCs, LANs, and client/server computing. If anything, they are ready to move on to thin-client, Web-based computing.

Companies still shortchange training, though. When SAP implementations fail to deliver the expected benefits, notes Greenbaum, it usually involves user rejection, user frustration, and angry users undermining the system. Early training and education can mitigate such reactions. ADI could have done more with training, but the company got away with its minimally sufficient and relatively inexpensive approach.

But one thing remains the same. ADI's 156% ROI, determined by Scalea analysts, looks good anytime, and that is what really counts. With the advances SAP has made in stability and faster deployment, along with the widespread availability of SAP expertise, organizations should be able to achieve the kind of gains ADI experienced faster and cheaper.

Alan Radding, based in Newton, Mass., is a freelance writer specializing in business and technology. He can be reached at

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