An SAP center of excellence (COE) is an effective way to obtain lasting value from your SAP deployment. Dan Haynes, principal at Deloitte Consulting LLP, and David Jantzen, director at Deloitte Consulting LLP, follow a highly developed process for creating a COE that involves a focus on collecting the best talent, setting guidelines for the COE structure, integrating the COE into your business partnerships, and setting metrics to help ensure lasting success. Many companies already rely on an internal group of experts to support their SAP projects, says Jantzen. “I think that whether they call it a COE or not, every company needs to set up an organization to maintain, care for, and improve their SAP project after it goes live.” Haynes said companies “look at the tremendous size of the investment they just made in an ERP implementation and recognize that there is a need to keep going to get the value and return out of it they need to.” He says a COE should focus on improving business efficiency, continuously enhancing new tools and capabilities to meet evolving business requirements, and maintaining the solution on an ongoing basis. However, a COE should not be confused with a basic IT maintenance organization. In addition to routine care, the COE should focus on change management and advancing the organization. “SAP projects are very different from traditional IT projects,” says Jantzen. “They bring together a very diverse, multi-disciplined team and usually have very high stakes in improving the business and gaining good, solid ROI.” While most SAP implementations are fairly standardized today, Jantzen and Haynes say COEs vary greatly from company to company. Haynes attributes this to the vast procedural and operational differences from company to company. “My impression is that the reason why COEs have the greatest variability is because they tend to reflect every organization’s unique culture and bias toward how an ERP solution may impact them. Because of that wide variety in terms of cultures and biases, I think it creates a large variation in how COE’s are implemented,” he says. To avoid a loosely organized COE implementation, Jantzen and Haynes recommend focusing on the four steps below. Achieving success in these aspects of COE formation can translate into further success throughout the life cycle of your SAP project, they say.

1. Appoint Powerful Leadership

A highly effective COE starts with carefully chosen and talented leadership. When deciding who will fill the leadership role in your COE, be sure to pick someone who “knows how the business is run and has the respect and credibility of the other business functions,” says Haynes. A high level of business knowledge will support the COE leader’s ability to know what’s right for the company, while having great respect within the organization can garner faith in the project and its success. Haynes suggests choosing someone who is executive level and from the business side of the organization to meet these criteria. According to Haynes and Jantzen, after the leadership role is filled by the best qualified candidate, that leader will be responsible for three key tasks:

• Developing a charter. The COE leader should create a charter that outlines specific strategies, cost requirements, and the overall business case of the COE. When spending is tight, this charter will help stakeholders view the COE not merely as a cost center, but instead as a necessary function that brings savings and value to the business.
• Prioritization and investment. An effective COE must do more than just break-fix and standard maintenance tasks. “The true value of the COE will be around participation and the broader strategic efforts within the company,” says Haynes. To accomplish this, the COE should be business led, not IT led, so it knows what’s going on in the business and how its goals can be achieved. Additionally, Haynes feels the COE must be sure to focus spending on the future of the organization, not just on the “squeakiest wheel.”
• Attracting and retaining talent. Possibly the most important factor in generating value from a COE is seeking out the best-available talent. This allows the COE to influence positive change for the business. “Talented people want to work for someone who inspires them and makes them want to be a part of something special,” says Haynes.

In addition to drawing in the best people for the COE, leadership must lay out clear career development models for their employees that show a future after their involvement in the COE. Without that comprehensive career path, it will be more difficult to convince highly talented people to sign on to the COE. “Because COEs are usually new organizations, they may not understand how this is going to help them five years down the road after they’ve been successful within the COE,” says Jantzen.

2. Define the Organization

After you choose the best qualified leadership for your COE, detail a clear reporting and staff structure. This clarity will allow you to organize the long-term plan for your COE, avoiding issues involving the organization. Haynes and Jantzen recommend focusing on two facets of configuration: the reporting structure and the staff structure. The Reporting Structure “The COE has to be organized in a fashion that optimizes the integration of different departments so there are no silos and so it optimizes the teamwork within the organization,” says Jantzen. Communicating common goals and work processes with other departments or groups beforehand can greatly reduce the chances of issues arising in the future. Just as important as reporting to other areas of the business is the reporting structure within the COE organization. Jantzen feels that a COE is better served by a hard-lined, or direct, reporting structure, rather than a matrix style. A matrix organizational structure can lead to employees who are unsure of their priorities for different groups or projects, whereas a hard-lined structure “creates the most effective top-down accountability,” says Jantzen. “It enables the COE to maximize the amount of value it offers the organization because it achieves very common goals and focus.” Staff Structure When structuring your COE, don’t overlook how important your staff is. The people and skills you bring into the project need to be superior and diverse to accomplish the desired objectives. When choosing technical staff members, Jantzen recommends choosing those with cross-functional knowledge of IT. “You need the traditional IT skills, as well as business analysts, developers, and configuration experts,” he says. In addition to technical knowledge, make sure your staff has an ample supply of business experts. “You need process experts – those folks who know the existing way the business works and the requirements of the business, but also see how it can be better so that they’re not stuck in the status quo. They need to understand how they can transform themselves to improve,” says Jantzen. He says having staff members who know processes like Lean and Six Sigma will help in the improvement of existing processes as well. Lastly, because the COE should be working to greatly improve the organization, your team should include change management experts. With organizational improvements come process improvements for which employees need to be trained. Having staff who understand change management related to large corporate cultures means your new processes, reinforced by training and education, will have the chance to become permanent. COEs should seek to secure the most qualified talent available to make up their staff to produce the greatest value. Many times, Haynes and Jantzen have witnessed situations in which the COE will require top talent at the same time that many other projects require the same thing. At a recent client, a manager asked why he should give the SAP project the best resources available when he had 10 other initiatives asking for the same thing. “A COE defines new business processes,” Jantzen replied. “If you put average people on a COE you’re going to get average, suboptimized processes that have to be executed by hundreds of thousands of people.” It is essential to use the best resources available for a COE so that talent can trickle down to the people and processes that make up the rest of the company.

3. Build Tight Partnerships

Though a COE’s ability to achieve its objectives lies in its own strength, partnerships can make or break the organization. Both internal and external partnerships are key to bringing others on board. Internal  Internal partnerships should be forged with the business side to help the COE determine exactly where pain points are, what processes can be executed more efficiently, and how additional value can be added to the business. A tighter relationship with the business increases the COE’s likelihood of improving business results and decreases the probability that setbacks will be caused by miscommunications or lack of knowledge. A close partnership with the business can position your COE to identify effective process improvements and savings. “Success starts with a strong relationship with the business so that the COE leadership truly understands in detail what the priorities, issues, and challenges of the business are,” says Jantzen. As mentioned earlier, having a highly respected COE leader and a strong charter will have a great impact here by maintaining the day-to-day internal partnership. External Just as important as the connection between the COE and the business are the connections between the COE and outside partners. According to Jantzen, historically, the breakdown of COEs happens when the end of the SAP project turns into the end of the major relationship with the company’s application management services (AMS). After go-live, many companies only used the AMS for technical problems that arose rather than as a lasting collaborator in the COE’s strategy for improving business processes. Now, however, companies are realizing the benefit of a stronger post-go-live relationship facilitated by a COE. “Leading COEs are putting a heavier focus on business value generation and process improvement,” says Jantzen. This change is seen most clearly in the creation of a Service Level Agreement (SLA): Rather than the established method of writing up an SLA to focus on trouble ticket resolution, development hours involved, and other IT-related tasks, they’re moving more toward process improvements and changes that bring specific value to the business. This increasingly popular method leads to improved business processes over time, not just until the SAP project is complete.

4. Create Strict Metrics 

After you’ve built the strongest COE you can, staffed it with the most talented people possible, and established strong partnerships to support it, you need to create metrics for its continuing effectiveness. Metrics help define the value of the COE to the business to prove its worth and impact. “We’ve got too many sites we know of without metrics established so the COE tends to devolve over time into just a system maintenance type shop,” says Haynes. To help prevent this from happening within your organization, he says, establish metrics early to lead the progress of your COE in the future. Haynes recommends following two guidelines to create the most effective metrics:

• They should be business-focused.

Metrics should be business-focused, not IT-focused, for the COE to reach its goals. COEs are created to measure and improve business performance. Your metrics shouldn’t be focused on system performance or other IT-related benchmarks that take up time and resources that should be spent determining the COE’s value to the business.

• They should be created with input from both the COE and the business.

At the beginning of the fiscal year and when the COE takes on a new project, metrics must be jointly agreed upon by the COE and the business. “This process can be long and arduous in the beginning,” says Haynes. “The business and the COE are still trying to figure out each other’s role, how much they want to commit to each other, and how much influence each of them has over the ultimate solution. This area takes time to improve and streamline as the COE’s role is implemented within the organization.”

Haynes stresses that COE metrics should mesh well with the pre-existing business metrics as it is easier to achieve metrics that are aligned with the business’s goals. Metrics that exist outside the scope of the business’s metrics can create issues when the COE and the business are trying to accomplish different things. Some of the common metrics that Haynes has seen COEs concentrate on have been order-to-cash cycle time, support-to-touch labor, inventory turnover, and on-time delivery.