SAP Business Profitability Management by Acorn
Q: Who is the SAP BPM business user?
A: He/She is not necessarily the same as the CO-PA user
Currently a high level of interest in the SAP community exits to understand the Corporate Performance Management (CPM) roadmap. One important component of the CPM roadmap is the SAP Business Profitability Management (BPM) solution by Acorn Systems. In the past, the words “profitability management” and SAP were typically understood to mean the Profitability Analysis (CO-PA) application within the Controlling module of the ERP system. There is ample opportunity to compare and contrast these two systems. See the Best Practices for Profitability Management with SAP Business Profitability Management and CO-PA from my SAP colleague Jean-Hubert Guillot, for starters. But the feature/function interpretation is not as meaningful without a grounding on how the users of these two applications are different.
It is crucial to anchor all discussion on the SAP CPM product roadmap with the concept of the business user in mind. In the case of SAP BPM, the business users are analysts, managers, and directors responsible for financial planning and analysis and which typically report up to the office of the CFO. Be clear that the BPM target audience is not directly involved with the repetitive processing tasks of financial data like invoices or payroll that are handled suitably in the ERP system, although they may have management oversight to those responsible for the recurring function . Further, the business user may not even be familiar with the details of the company’s period-end processes that originate in the in Finance and Controlling applications, such as document postings, assessments, settlements, and other types of allocations. Although the business user is probably a consumer of the outputs from these processes.
CO-PA users, on the other hand, are likely to be familiar with the details of the value flow within the ERP system because the Profitability Analysis application is so deeply integrated to other modules in the system. They know, for example, how each invoice price and discount condition maps to each value field to perform price waterfall analysis; commonly used by the consumer packaged goods (CPG) industry and other trading companies of hard goods. Users of CO-PA data at discrete manufacturing & process companies understand the tight integration to Product Costing. They utilize the hooks into the bills of materials and routings or recipes, and the variances from production for their profitability reporting. While this integration really makes a great selling point for SAP, yet the users of CO-PA data are also encumbered by these value flows due to their complex integration.
What if the CO-PA user wanted to look at customer or product profitability in a different view than offered by a standard or even actual costing approach? For example if they wanted to utilize activity-based costing methods to assign indirect expenses to customer and product dimensions. They often turn to another system or an off-line analysis. This is because the cost flows through the Finance & Controlling applications serve mainly bookkeeping and budgeting purposes (revenue recognition, inventory valuation, departmental control, etc.).
If you are a CO-PA user at a services company, the main value flows result from the mapping of cost elements. Many of the values originate directly from FI postings, while others may flow into CO-PA from period end settlement of a project or order, or from an allocation from a cost center. Too often however these scenarios involve high data volumes and can result in performance issues in the ERP system. CO-PA users are often left no choice but to aggregate their data and to lose wanted levels of detail. And once the system is setup, changes to the value flows are difficult to make and the possibility for what-if kinds of analysis are impractical. The ability to evolve the tool and quickly respond to changes in the business environment is often limited.
The CO-PA users become natural reporters of historical profitability data, as it is structured in the ERP system during the implementation phase of the SAP ERP system. Not often will CO-PA reports uncover examples of unprofitable customers or products, because the cost accounting approaches and related pricing policies do not lend themselves to it. Yet the research by Robert Kaplan at Harvard Business School and Steven Anderson the founder of Acorn Systems, conclude a majority of products and customers do result in profit leakage.
The business users for BPM are, on the other hand, likely key influencers in the company’s operations and strategy. As such, they have information needs that are different than that which is likely available in the ERP system.
They may for example want to look at costs and profits differently than captured in the ERP system for statutory reporting. See for example the many whitepapers on using Time-Driven Activity-Based Costing available from the Acorn website at http://www.acornsys.com/. BPM users may want to consider what effect to the P&L would opening or closing a new facility. BPM users are able to model the cost impact if their company consolidated their support activities (A/P, A/R, H/R, Credit, etc.) into a shared services organization, just to name a few examples.
The SAP Business Profitability Management tool by Acorn delivers these abilities to a new audience of business users within the enterprise. As you will hear more, the tool is flexible and easy to use. Important to note, the definition and execution of the models are done by the business user. Involvement from IT is limited to the initial setup of the hardware and installation of the software, and with some data acquisition and interface requirements. Even with the friendliness of the software, the BPM solution is proven to be highly scaleable for large data volume environments
In my next blog, I’ll build some analogies between SAP terminology and that which came from Acorn, which I hope you find insightful.