By using a novel approach to project management and ongoing operations, the team was able to quickly implement an SAP system that has improved several of its business processes and given the high tech company an industry-leading system for automating revenue recognition.

After a 22-week implementation process that culminated with a go-live in July 2007, Endeca now runs its business on a single instance of SAP ERP 6.0 — including SAP Financials, SAP ERP Human Capital Management, Sales and Distribution (SD), and Materials Management (MM).

The results speak for themselves. The Endeca SAP implementation has reduced the company’s financial close time by 30%, supported strong revenue growth with no additional hires, and improved the accuracy of the company’s expense management.

Expanding With an Eye on the Future

The backbone of Endeca’s business is its portfolio of enterprise search and knowledge management products, which help workers at large companies explore and analyze information stored anywhere in the company’s IT landscape. As a rapidly growing company — Endeca’s revenues jumped from $35 million to more than $100 million between 2005 and 2007 — with an eye on continued expansion, Endeca needed to replace its legacy accounting and professional services applications with a system that would scale to its goals without requiring additional back-office head count.

“We saw that the business was growing exponentially and knew that we needed an infrastructure that could support Sarbanes-Oxley compliance and allow us to run Endeca like a public company — that’s always been this team’s approach to our business operations,” says Dexter Johnson, assistant controller at Endeca and a member of the SAP project team.

Endeca had a specific need to improve its business processes to align with its growth strategy, especially in the area of revenue recognition. As a software company, the company is required to follow SOP (statement of position) 97-2, an accounting standard developed by the American Institute of Certified Public Accountants (AICPA) for revenue recognition from software sales, to determine the appropriate treatment of a transaction for revenue recognition purposes. Each transaction is unique depending on the arrangement with the buyer and the system needs to be flexible enough to handle each one.

Most software companies handle these requirements by implementing a daisy chain of manual interventions during the accounting processes. For example, a controller might review sales orders and create journal entries to indicate the appropriate accounting procedures to use, then pass the entry on to a staff accountant to post to the accounting system. Once these entries are completed, extensive reconciliations are necessary to ensure that the transactions were accounted for properly.

The danger of these manual systems is that errors might go unnoticed for weeks or months until spotted by an accounting review or audit. Endeca wanted to automate this entire process within SAP ERP, and to use SAP’s software best practices as a guide for improving its overall business processes.

“As we began the implementation, we were very open-minded as to how we might change our existing business processes to be more efficient. If SAP did something a certain way that was considered SAP business standard, we were going to try as much as we could to change our internal processes to align with that process and use the SAP standard as our gold standard,” says Johnson.

Chad Wright, director of enterprise applications at Endeca, says the company’s rapid growth made the SAP implementation an easy sell to the top levels of management. When he was hired in 2006, Endeca’s top managers already envisioned a platform on which to build the business.

“When I joined, one of the directives at the CIO level was to build an ERP strategy that would support us running our operations as though we were a public company, and having applications in place to support increased scalability and efficiency without having to grow the head count in the general and administrative department,” says Wright. “Senior management knew that in order to grow Endeca the way they wanted to, Endeca needed an infrastructure in place that would allow us grow to be a billion dollar company one day.”

Scrum as an SAP Project Management Tool

One of the keys to Endeca’s success in implementing the SAP system on budget and in just 22 weeks was a unique approach to project management. The company’s software engineers had adopted Scrum, a version of the Agile software development methodology, to successfully release new software products and versions quickly without sacrificing quality. Wright, who was drafting an enterprise applications development strategy, saw an opportunity to apply the Scrum methodology to the SAP implementation.

“We were looking at the ways we had seen SAP managed in the past, and at how we could do it better. So the terminology we use to manage expectations and set priorities within the ERP team is now consistent with what people are hearing throughout the company with other projects,” says Wright.

For more information on Scrum, see the sidebar “What is Scrum?”

The project team did not abandon the standard SAP project methodology in favor of Scrum, says Wright. Instead the team applied Scrum principles to SAP’s ASAP methodology to create a “blended” approach to project management.

For example, because Scrum was developed to help teams create complex software products quickly and flexibly, the methodology emphasizes frequent collaborative meetings between the project team and those designing the requirements. The Endeca SAP project team adhered to this principle throughout the implementation.

“Three times during the 22 weeks, we took the team off the front lines and put them in a conference room with all the users, and showed them what we had,” says Wright. “We did this for a couple of reasons. From a project management perspective it was quality assurance — I could see that our consultants were making progress on their deliverables, and how the business users on the project team were adapting to the new system. It also allowed the business users to perform a test drive on the new system and offer feedback earlier in the development process.”

The Scrum approach proved a valuable asset in terms of change management for the company’s users. By the time the SAP system went live in July 2007, users had already seen the system multiple times even before user training and testing began.

Scrum was not only an effective approach for the initial SAP implementation project — it has also proven a valuable methodology for managing the ongoing operations of the system. Scrum’s iterative approach to testing and releasing new functionality has helped the SAP team manage system changes quickly. Two years after the initial implementation, Endeca boasts a negligible product backlog of change requests that is efficiently managed by the business and IT teams.

“The Scrum methodology wasn’t limited to the initial implementation. We use that methodology now to enable ourselves to be flexible, to manage expectations, to get early feedback, and to roll out new functionality to the business,” says Miklos Palfi, SAP developer at Endeca.

Changing Processes, Managing Expectations

Because the project team sought to use SAP best practices as a guide for improving the company’s business processes, team members knew there would be a significant change management effort involved. For example, the standard SAP practice for order entry required greater effort from the person responsible for that job in order to streamline back-end accounting processes. The Endeca project team relied heavily on two team members recruited from the business side — business analysts Rachelle Begley and Dan Schnock — to help design the new system.

“From the beginning of January, they lived and breathed SAP every day, and had the perspective that there were better or different ways to do things throughout the SAP process. The people who were in the order management roles at the time just didn’t have the seniority or transactional know-how to assess whether they wanted transactions processed a certain way. They also did not have a management reporting perspective to understand how the data would be viewed once the transactions were entered into the system. Dan and Rachelle were able to drive that process to lead us to better system functionality, more efficient business processes and better reporting,” says Johnson.

The updated process requires a greater volume of keystrokes from the employee creating the sales order, says Begley. However, the system is better able to handle carve-outs, such as discounted service arrangements or other modifications to a standard transaction that have accounting implications.

When a new sales order is entered now, it is structured so that any carve-outs are handled automatically — as opposed to creating a sales order and having someone from finance pick it up a few days later, analyze it, and create a journal entry to adjust the order through the general ledger which also has subsequent reporting implications,” she says.

Because the employees responsible for order entry and most of the accounting staff had little or no experience with an ERP system, the Endeca team incorporated basic SAP training into its typical user training curriculum. And because they had already seen the system several times before user training began, the users were able to adopt the new software and business processes quickly.

Migration and Challenges

Migrating the company’s existing data from the legacy accounting and order entry systems into SAP proved challenging for the team because of incorrectly entered data in the legacy system and the requirements for recording deferred revenue.

The team first had to review existing orders to ensure they were entered correctly. Orders that were entered incorrectly had to be fixed, and the team spent considerable time formatting data in Microsoft Excel and Access in order to upload it into SAP properly. Once the data was fixed and properly formatted, the team spent about two weeks entering the orders into the SAP system.

To ensure that all relevant data — including fixed assets, general ledger balances, accounts receivable, accounts payable, and master data — had been entered properly, the team enacted two mock go-lives which were key to the on-time and smooth execution of the real go-live effort.

“We ran into several issues, to be sure. But that was a huge part of making our actual go-live go relatively smoothly,” says Schnock.

The team ran into an even larger issue — one that threatened to derail the implementation completely — during one of the mock go-live tests, when it discovered that the way the SAP system accounted for deferred revenue from non-USD transactions was in conflict with US Generally Accepted Accounting Principles (GAAP). The SAP system revalued deferred revenue from non-US countries based on current monthly exchange rates, rather than the historic rate that existed at the time of the initial transaction.

“We came to a point a few weeks before go-live where we summoned the Executive Steering Committee to discuss our options,” says Wright.

“Working with our partners, we quickly crafted a workaround that met both our short-term business needs and our longer-term revenue recognition requirements. This allowed us to hold aside our non-USD transactions until such time we had SAP-supported code in place for historical rate conversions.”

Endeca brought the issue to SAP’s attention through a connection at Yash Technologies, a Gold Channel SAP Partner that assisted in the Endeca project. The Endeca team worked closely with a developer at SAP headquarters, who was able to fix the issue and make the solution available to SAP customers through service packs.

6 Lessons Learned

Endeca project team members shared six key lessons learned during the 22-week implementation.

1. Minimize customization

Because Endeca’s goal was to implement the SAP system rapidly — and to use SAP best practices as a guide to changing its own business processes, it was critical to keep customization to a minimum. Endeca uses primarily out-of-the-box functionality from SAP Financials, and required mostly configuration changes for its SAP Sales and Distribution (SD) module.

Wright says adopting business processes to the software, rather than the other way around, is advantageous because it gives the team more flexibility to respond more quickly to system changes and plan for the future without hiring an army of administrators and developers.

“Those of us who came from an SAP background knew that the more customization, the more difficult it would be to support,” he says.

2. Stick to what you do best

As a growing company, Endeca did not boast the full infrastructure required to implement and support an entire SAP system. However, rather than bringing a host of new employees on board to handle critical SAP functions, Wright decided to stick with the company’s core competencies and offload the rest of the work to vendors.

For example, rather than hiring a team of Basis administrators or leaning on its own in-house network administrators, Endeca chose to outsource its Basis management to Capgemini.

“We chose to focus on the people we have internally who are not only good at SAP, but are also strong business people,” says Wright. “We wanted to build our team around our ability to understand, analyze, and promote software business practices.”

3. Choose your team wisely

Because Endeca was solidly focused on adapting its business processes to the SAP system, the project team needed to be staffed by employees with strong knowledge of the business. Choosing well-versed business analysts was a key element of the project’s success, as team members were able to spot issues quickly and suggest ways to improve the design of new transactions or processes since they clearly understood the inefficiencies in the existing processes. Figure 1 shows the composition of the Endeca project team.

Figure 1

The Endeca project team featured several members from the business and IT units, as well as resources from partners and vendors, such as Yash Technologies, Cast Iron (a middleware provider), and ADP (Taxware provider)

“The SAP landscape is so vast, your implementation really comes down to the people who are doing it,” says Wright. “It’s not only the internal resources that already know your business, but your consultants and their domain experience as well. Sometimes you’re really at the mercy of what they know from both a business and systems perspective — so you need to be careful when selecting partners.”

4. Stay in control

Endeca worked with several outside vendors to complete the implementation, including Yash Technologies, Capgemini, ADP, and Cast Iron. Maintaining firm control of the project proved invaluable, as Endeca resisted calls to bring on an outside project manager and pushed back against ideas the internal project team was unsure about.

“We built relationships with our partners with whom we were comfortable going back to them and saying ‘That’s not good enough – we need to find another way,’” says Johnson. “Open and honest idea sharing was something that Chad established from the outset, so when the consultants were brought into the fold, we were able to calmly work through issues and collaboratively build solutions.”

5. Don’t delay the reports

Providing better visibility into the company’s financial data was a primary driver for the SAP implementation at Endeca. The project team made a point of collecting reporting requirements from all levels of the Finance and Accounting group at the start of the project. Even though the majority of reports were not completed until after go-live, the project team was able to ensure that data was being captured appropriately on the front end to meet the back-end reporting requirements.

Having the reporting requirements defined early allowed the project team to plan for necessary access to critical financial data during the initial period after go-live so that normal business operations were not interrupted.

6. Make sure everyone is clear on the requirements

Communication is vital to the success of every project at every stage. Endeca learned the value of ensuring that the internal project team and consulting team are clear on all of the requirements and capabilities of the new system after go-live, when the project team realized that the functionality to use USD as the global reporting currency had not been set up.

Endeca has several global locations, each with its own company code and local currency, but uses USD as its global currency. The project team was able to correct the issue after go-live, but Wright says the challenge underscores the need to have all parties on the same page from the earliest stages of the project.

Increased Integration on the Horizon

Now that Endeca has had its SAP system up and running for two full years, the project team says the implementation has provided significant improvements to its business processes and growth strategy. The standard reports created in the SAP system have increased the self-sufficiency of users by giving them trustworthy, real-time information.

The SAP system also helps Endeca maintain its drive to govern itself as it were a public company. Since going live on SAP, Endeca has weathered two IT audits with only minor feedback around user account administration.

“For people who have been through IT control audits, it can be a difficult experience. It can be worse than a financial audit,” says Johnson. “That gave us confidence because we had excellent change control and excellent processes — which was the ultimate validation of the entire project.”

The company is now exploring ways to build even more of its strategic initiatives from the SAP system. Wright says the company is currently evaluating a professional services automation system, and has explored integrating its own enterprise search technology with the business intelligence capabilities of SAP BusinessObjects. The company is also considering a Portal implementation to service tasks currently outside the SAP system, such as purchase requisitions.

“We’re looking to find ways to expand the footprint of SAP and automate more of our business processes,” says Wright.

Davin Wilfrid

Davin Wilfrid was a writer and editor for SAPinsider and SAP Experts. He contributed case studies and research projects aimed at helping the SAP ecosystem get the most out of their existing technology investments.

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