Do You Know When To Do SAP Custom Development?

Use SAP Best Business Practices For Commodity Processes But More Carefully Evaluate Competitive Processes

The debate and discussion around SAP best business practices usually assumes an “either-or” mindset. Either you use the SAP best business practices as they are, or you abandon them (for more background on SAP’s “Best Business Practices,” see What are SAP Best Business Practices Anyway).

Several commentators suggest you should not do a software vendor’s “best practices” because you adopt the herd mentality and are not competitive in the marketplace. They completely ignore the reality that some processes are commodities.

Commentators who are broadly against “best practices” have failed to recognize that there are different types of business processes. One type is what I call “commodity processes,” or the things you must do to run business but add little or no value to reducing cost, increasing revenue, or improving margins. The other type is “value-added” processes, where the process itself (not ancillary manual steps) directly aids in reducing cost, increasing revenue, or improving margins. Some business processes justify custom development when a standard solution will not do certain business critical processes (see e.g. Lower SAP Application Support Costs – TCO – by Reducing Custom Solutions).

Value-added processes must directly contribute to market share or address a specific pressure from a competitor, or they are commodity practices that are good candidates for best practices. By reducing costs or increasing revenue and margins, you are directly affecting your competitive position in the marketplace.

What Are Value Added Processes in the SAP Organization?

Let me clarify one thing here: a “value-added” process can be any process in a company. In one company or environment, a process may be a commodity process; however, in another company or industry, that same process may be a value-added process. The test for a value-added process is whether or not it gives your business marketplace competitive advantage. This process needs to reduce cost or increase revenue in more than a minimal way. Ask yourself: If you significantly increase your margins on a slow-moving, outdated, low-volume product or service, is it worth a huge amount of time and effort? Was the investment worth it?

Management’s primary responsibilities are to increase revenue, reduce cost, and improve margins.

A value-added business process generally has some type of reporting requirement and performance measure attached to it. If you have developed KPI’s, goals, metrics, or reports for a particular portion of your business processing, you can be sure it is a good candidate for special attention as a value-added process (see Why Indexed KPIs are Critical for Business Performance and Success and Using Key Performance Indicators for Building a Strategy Focused Organization).

What are Commodity Processes in the SAP Organization?

In most companies, commodity processes would include purchasing, warehousing, inventory, distribution, or other routine processes that do not have a direct impact on your competitive position.

If you are a third-party logistics provider, then your competitive processes would include warehousing and distribution. After all, it is the core of your business and what you do. However, in other businesses those would be commodity processes. If you are a consumer products company, then sales and marketing processes would be value added, whereas purchasing and inventory would be commodities.

SAP Software Best Business Practice Processes

While I have long advocated for business process engineering rather than software engineering, custom development is sometimes justified. The key to understanding when you might choose one approach or the other is whether a process (or sub-process) is a commodity process or a value-added process.

Considering cost, revenue, and margins separated from marketplace competitiveness is misplaced. Unless these factors create some significant competitive advantage or directly aligned business driver, then only standard functionality should be used.

When you consider your SAP software investment, paying special attention to value-added processes provides the greatest business benefit. Do not waste time or development effort on commodity processes. Rather, spend the time, effort, and money on change management for commodity processes. After the initial cost of change management, the Total Cost of Ownership (TCO) for these SAP processes is the least expensive (see Where do you Start with SAP Return on Investment or SAP ROI?). Regression testing, patches, fixes, new functionality, and all of the other things you do with SAP business applications will be easier and less expensive for commodity areas. After all, you pay SAP maintenance for the standard application areas– so keep it standard when you can.