Proven and Successful Value Management Approaches

Drive Portfolio Management Success with

Proven Value Realization ApproachesWilliam Newman, CMC, BTPM

April 24, 2015 Public

Presentation to the

PMI GLC Symposium

© 2015 SAP SE or an SAP affiliate company. All rights reserved. 2Public

Agenda

Introductions

• The Challenge: Why we Place Value on Programs

• Portfolio and Programs: What Value Looks Like

• A Method for Value Management (BTM2)

• Tales from the Field: Examples of How Value is Captured

(and realized)

• Wrap-up: Summary and 5 Key Take-away Points

Adjourn


Introduction

William (“Bill”) Newman, CMC, BTPM

• Sr. Principal, SAP Business Transformation Services

• Over 30 years in industry, professional services

• Certified Management Consultant (since 1995)

• Business Transformation Program Manager (since 2014)

• Adjunct faculty appointments: Northwood University (International

Management), University of Oregon (Sustainability Leadership), University of

Michigan – Dearborn (Marketing Policy / MBA)

• Management Consulting Taskforce (Michigan Assn. of CPAs)

• Former National Board Member (Institute of Management Consulting)

• Professional Speaker (TEDx, Michigan Assn. of CPAs, Voice of America, The

Customer Edge, American SAP User Group, PMI, SAP Insider, others)

• Numerous articles on program oversight, stakeholder engagement, strategy,

value management, sustainable supply chain, social media

• Twitter (@william_newman) Google+ (+William Newman)

• LinkedIn (LinkedInfluencer) www.linkedin.com/in/wnewman

http://www.linkedin.com/in/wnewman

The ChallengeWhy we Place Value on Programs


Why We Place Value on ProgramsBusiness Value Drivers Define the Portfolio of Initiatives

The term “Value” is subjective, suggesting a

utility of some outcome or event or idea.

While many organizations and even industry

segments may share a common reference point of

view on value drivers, individual companies may

(likely) attribute higher value of some drivers.

Business value drivers suggest areas where an

organization might structure initiatives which can

be managed in a portfolio of programs and

executed to achieve desired outcomes.

Source: Valuation: Measuring and Managing the Value of Companies (Koller, 1994 as excerpted by McKinsey Quarterly)


Value Management

Why We Place Value on ProgramsFrom Portfolio to Programs to Project to Outcomes

At its core, ideas at the strategic level that could drive one or more business outcomes, can be

organized via portfolio of initiatives, funded programs and managed projects (think OPM3).

Value management – properly executed – can provide a mechanism to realize and harvest benefits.

This requires a program structure, as important as implementing the initiative itself.

Source: SAP Customer Value Engineering Point of View, SAP SE (2014)


Why We Place Value on Programs SAP Customer Achievement of Results, Reach Target Outcomes

For SAP Customers who employ a full life-cycle value management approach:

75%

reduce their overall

transformation program

duration

Duration

of customers

Source: The study was done by Prof. Dr. Robert Winter from the University of St.Gallen and Prof. Axel Uhl from the University

of Applied Sciences Northwestern Switzerland.

20%

spent on new projects, half of

what is needed to drive

growth and business

excellence²

of company budgets

Growth

97%

see an opportunity to derive

more value from their existing

SAP investment3

of companies

Results

SAP has been

working with its

customer based

for over 10 years

to bring active

value

management

approaches to

technology and

business

programs.

Portfolio and Program FrameworksWhat Value Looks Like


What Value Management Looks LikeOften Times “Value” is Hard to Recognize…

What story do you see when you

initially look at this picture?

Look again and see if you can find

other possible elements of

interest.

Perspectives can be varied based

on our frame of reference..

• Individually

• Culturally

• “Corporate-wise”

Adapted from The Culture of Organizations (Hofstede & Hofstede, 3d Edition 2010). Image: LG, MoIllusions.


What Value Looks LikeInherent Challenges to Determine “What is Value”

3 Key Challenges

1. Usually a difference between “experienced

value” and “funding value” (e.g. classic ROI

finance models)

2. Business case stated benefits not

managed across consistent process,

stakeholder groups throughout life of a

program or project

3. Market forces can change the “lens” of

perceived value, priority of program,

availability of resources (human, financial,

others)


What Value Looks LikeInherent Opportunities to Determine “What is Value”

3 Key Opportunities

1. Greater methods to capture “soft benefits”

(e.g. customer satisfaction, adoption

behavior, accuracy of usage)

2. Continuous value management across the

full lifecycle of a program (e.g. cradle to

grave) to ensure benefit realization.

3. Deliberately choose how benefits will be

realized (economic capture, re-investment

in new innovations, etc.) rather than if

benefits will be realized (e.g. ready, fire,

aim).


What Value Looks LikeValue Management Program Lifecycle

A simple Value

Management Lifecycle

focuses on a sustainable

approach to drive on-

time, on-budget, on-value

performance.

Some key characteristics

follow a full lifecycle

approach similar to

quality management

initiatives.

Value

Management

Lifecycle

Plan

• How well are we performing

today?

• What will make us better?

• Are we willing to do

something about it?

Execute

• How do we enact the

recommended changes?

• How do we measure

progress?

• How do we get the right

visibility & accountability?

Institutionalize

• How do we ensure the

sustainability of VM?

• Where should VM live

in our organization?

Value Management Lifecycle


What Value Looks LikeThe Value Erosion Challenge

Source: Corporate Executive Board - Applications Executive Council Research (2013-14).

Expected Value

Poor Selection

and

Prioritization

Inefficient

Project

Execution

Poor

Absorption and

Value TrackingRealized Value

100%

50-65%

Building the Right Things Building Things Right Exploiting What We Built

5% – 10%

10% – 15%

20% – 25%

Traditional business case

methods alone have

fallen short on delivering

realized and expected

value. Monitoring and

management is required

now more than ever.


What Value Looks LikeKey Characteristics of Successful Value Management Programs

These foundational elements are embedded throughout

a value management process

Business Focus

Measurable Outcomes

Business (and IT) Commitment

Executive Support

Strong Change Management

Iterative Process

A Method for Value ManagementAs taken from the Business Transformation Management Methodology (BTM2)

Courtesy of the Business Transformation Academy

https://www.bta-online.com/

https://www.bta-online.com/


A Method for Value ManagementWhat Is Business Transformation Management?

What is Business Transformation?

Business transformation implies:

Fundamental and complex organizational changes within as

well as across companies alongside the value chain;

Business transformation can also radically alter the company's

relations with the wider economic and societal environment.

What is Business Transformation Management?

Business Transformation Management can be seen as a meta-

management discipline that is dedicated to the integration and

extension of individual management disciplines;

Business transformation management is the holistic

management of extensive, complex changes on which the

organization's future success strongly depends.

Source: Business Transformation Academy (BT Academy, 2014)


A Method for Value ManagementHistorical background of BTM2

The main driver for the development of this methodology is the

need to have a common, holistic, and cutting-edge approach to

manage large transformation initiatives.

It is a response to the limitations of single methods and

management approaches that have always been adopted

separately from each other.

It aims to be an end-2-end methodology covering the following

phases - envision, engage, transform and optimize.

Considering the complexity of business transformation projects,

it soon became evident that the existing methodological

instruments have their limitations and new approaches were

required.

The BTM² framework focuses on the management of the overall

set of disciplines within transformation management.



A Method for Value ManagementWhy Most Business Transformation Programs Fail

Findings Low success rate of business transformation projects (less than 40%)

Source: Isern et al. (2009)

25% Failure because of

technical reasons

e.g demands can not be mapped,

sizing problems, problems with

connecting legacy systems

75% are failing because of

non-technical reasons

e.g. non acceptance of the solution, skill problems,

communication problems, problems with project

resources as well as an inability to communicate

value proposition



A Method for Value ManagementWhy a new methodology?

The most prevalent reasons are:

Insufficient Stakeholder Management,

Lack of Strategy, and

Lack of Communication.

In addition, management executives deem their companies' transformation capacities as relatively low (Capgemini, 2009).

Why do most of the programs fail?

Demand: Organizations / companies are asking for more support for managing their transformation.

Challenge: There has been a lack of a holistic and scientifically proven Business Transformation

Management Methodology, so far.



Business Transformation Management Methodology (BTM²) The methodology consists of several disciplines – target groups

Process

Management

Define

processes

Identify gaps

and

weaknesses

Improve

processes

Implement

processes

…

Change

Management

Define drivers

for change

Define need for

change

Enable change

Drive change

…

Risk

Management

Define risks

Manage risks

Define quality

Measure quality

…

IT

Management

Define IT

requirements

Define strategy

Define roadmap

…

Meta ManagementProvide framework, orchestrate disciplines, understand interdependencies … across the portfolio.

BTM2

Program/ Project Management

Set standard, manage scope, manage costs, manage resources, align deliverables, …

Strategy Management

Value

Management

Define benefits

Plan realization

Realize benefits

Evaluation

results

…

Competence

and Training

Management

Define learning

concept

Identify gaps

Develop concept

Realize concept

…

Define vision

Define strategy

…

Tales from the FieldHow Value is Captured (and Realized)


Tales from the FieldValue Mapping – Essential to Sound Benefits Realization Planning

Based on our review of major transformation programs,

successful companies demonstrate that value does not

stop with the acceptance of a business case.

Instead this process continues through the full portfolio of

program execution, with active value monitoring and

execution in a parallel work stream.

A key ingredient of the BTM2 approach includes value

mapping. Value mapping defines the key performance

indicators (KPIs) with tangible outcomes, stakeholders

responsible to make change to enable those outcomes,

and process and performance improvements (PPIs)

required to realize outcomes and benefits.


Tales from The Field:Business Case Decomposition with Value Mapping / 1

1. Select Value Drivers

2. Determine Key

Process Changes

3. Define Key Performance

Indicators

FOCUS

4. Establish ownership of

process changes and Value Enablers

The technique of identifying

business process improvement

opportunities for business

case value drivers and

how to measure

them

Timing

Before the design phases – requirements are key inputs to the design


Tales from The Field:Business Case Decomposition with Value Mapping / 2

Important considerations

Ensure a collaborative process - input across functional and organizational silos

Use team members who are familiar with benefits and processes within scope

Leverage process pain points documented in the business case to help identify what is

broken/needs to be fixed

Participants

Business process owners

Business stakeholders

Subject matter experts

Appropriate implementation

project team members


Tales from The Field:Selecting the Right Value Drivers is Essential

Sample Financial

KPIs

Reduce SG&A

Reduce COGS

Value Driver/

Benefit Objective

Benefit Category

Reduce Working Capital

Benefits/

Value

Opportunity Area

$ XXXImprove manufacturing yield and quality

Manufacturing Execution• Manufacturing costs as % of

COGS

$ XXX Reduce direct material spend Sourcing & Procurement • Direct spend as % of COGS

Standardize financial reports and process definition$ XXX Finance

• Cost of financial analytics as % of SG&A

Reduce indirect material spend$ XXX Sourcing & Procurement• Indirect material spend as %

of SG&A

$ XXX Reduce raw material inventory Manufacturing Planning• Days on hand Raw Material

Inventory

$ XXXReduce Finished Goods inventory

Sales and Operations Planning • Days on hand FG inventory

$ XXXReduce # of disputes and write off’s

Customer Service & Compliance

• Deductions as % of sales

$ XXXIncrease revenue through reduced churn

Sales and Customer Service• Net revenue growth %

• Net profit growth %

Increase Revenue

Growth

Here?

Here?

Here?


Tales from The Field:

Key Process Changes to Enable Benefits

Key Process Changes

Clear linkage to a business benefit

Process change requirements

Significant impact on benefits achievement

“Fix” a current problem, position for future requirements

Ability to measure process effectiveness

Key Process Changes are not

Refinement of the business objective -“Reduce inventory by reducing raw material

inventory”

Goal oriented generalization without a clear financial impact - “Clean up our master

data”

Vague process change that lacks specifics - “Implement VMI” vs. “Implement VMI for

‘x through z’ commodities with long-term pricing contracts”

Statement of application software functionality - “Implement inventory management”



Defining Key Process Changes

Value Driver Benefit Value Opportunity Areas Financial KPIs Owner

Sourcing and

Procurement

Indirect material spend

as % of SG&AName

Reduce indirect material spend

$xxxM

Key Process Changes Process KPIs (PPIs) Owner

Implement strategic sourcing processes and enabling technology

to establish and manage supplier contracts in a way that reduces

supplier community, reduces prices and drives supplier delivery

performance

% materials covered under supplier contracts

% reduction of prices paid for selected materials, year over year

% supplier compliance on agreed to delivery and quality terms

Name

Name

Name

Implement simplified requisitioning and purchasing processes and

enabling technology to drive compliance with supplier contracts

and reduce “maverick: spend

Purchases as a % of total outside of agreed to contracts, # and $

# and $ of Maverick spend, by period, region and business

Name

Name

Implement material master data management processes to

reduce redundant material masters based on common form, fit or

function

Number of new material master records created per period

Number of redundant/ common material master records, % of

total, by category

Name

Name



Driving to Process and Performance Improvements (PPIs)

Process and Performance Improvements (PPIs)

Key Process Change KPIs

Improve Procurement efficiency to reduce off contract material spend Material Spend under

contract (%)

Value Enabler Enabler

Type

Supporting Information Owner Planned

Completion

MAT1A 1. Policies

impacting goods

purchasing

2. Policies

impacting when

forecasting can

be changed

Policy Objective: To ensure the purchasing policy is upheld

Importance: Fundamental to ensure limitation of off-contract spend

Challenge: History reflects a significant amount of procurement that

occurs off-contract rather than what ABC executives are driving to in

order to reduce costs

[Name] [Date]

MAT1B Master data of

materials

(material master)

with

inconsistencies

Master Data Objective: To ensure that the most accurate data is utilized to enable

material consumption effectively

Importance: Key to ensuring that procurement is effective – materials

not purchased if available

Challenge: Significant work effort required to identify and validate

current materials available

[Name] [Date]

MAT1C Education and

Training

Training &

Process

Objective: Create the ability to utilize these powerful procurement

tools, processes and policies to drive majority spending to on-contract

Importance: Enables significantly improved procurement sourcing

Challenge: Balance between taking advantage of the technology while

still taking advantage of the value of the knowledge and experience

within the ABC organization

[Name] [Date]

Process Performance

Improvements (PPIs) are

changes to the operating

model which a business owns

required to effect the right

conditions to realize the

benefits and outcomes (such

as KPI improvement,

increased customer

satisfaction, etc.)

This is as important or even

more important than

getting the initial business

case right, without this no

benefits are harvested!



Avoiding Barriers, Focusing on Enablers

Identify action items to drive

adoption

Assign responsibility

Develop mitigation plans

Manage organizational

change

Measure and report

progress

aligned compensation

appropriate org structure

good analytics

clear policy reporting

good skill set

adequate facilities

updated technology

master data quality

strong c-level support

change readiness

Target Benefit

Achievement

Value Enablers

inadequate facilities technology limitations otherother wrong skill set poor master datapoor analytics low change readiness other

other wrong org structure mixed c-level supportunclear policy misaligned compensation other

Key Value Enablers

Value Barriers



One Customer’s Success

A global F500 component manufacturing company has implemented a successful business transformation program to optimize its Order to Cash (OTC) and Procure to Pay (PTP) process and

mobilize its North America organization.

Outcomes

• Consistent, centralized billing processes with fewer errors and greater visibility

• Customer engagement at lower cost• Better responsiveness to changing market conditions• Mobile platform for future innovation• Automated, linked and integrated processes to replace manual, paper-

based activities• Job-focused workforce rather than paper-work burdened employees• Sustainable employee accountability with improved tracking tools and

reporting• Mobile fields operations via smart phones deployment• Increased personnel efficiency• reduction in specialty chemical

inventories

“[Our] value-added partnership with SAP has given us big support during our major transformation program. But it has also given us a go-forward

methodology that we can adopt and use for future projects. We constantly see the true value that we are achieving on a regular basis.”Director – Financial Systems Optimization

Wrap UpSummary and 7 Key Take-away Points


5 Key Take-away Points

1. Value is in the eye of the beholder. Value as a representation of utility can mean different things to

different audiences and stakeholder. A consensus view is important.

2. Successful value management requires its own lifecycle, in parallel and integrated with program and

portfolio management activities.

3. A meta-model approach (like BTM2) can help link the dimensions across strategy and other

complimentary domains of value management across the portfolio.

4. Selecting the right value drivers (think starting point) is important to align to desired outcomes (think

ending point). You need to know where to begin to know where you want to go.

5. Techniques like value mapping where the key changes required to achieve

benefits, with stakeholder owners, and monitoring, increase the likelihood of

benefit realization.


Summary and Discussion

© 2015 SAP SE or an SAP affiliate company. All rights reserved.

Thank youContact information:

William Newman, CMC, BTPM

Senior Principal, Business Transformation Services

SAP America, Inc.

[email protected]

@william_newman

+1 (248) 724-6844

mailto:[email protected]

http://www.twitter.com/william_newman

Proven and Successful Value Management Approaches

Business

Transcript of Proven and Successful Value Management Approaches