ROI Models- How to Implement Predicted Labor Savings?
In my experience, labor efficiency saving (aka labor saving) is one of the most significant benefit categories in the return on investment (ROI) models to evaluate SAP/IT investments.
While justifying/ calculating labor saving is the easy part, implementing the recommendations is another story.
Customers are often nervous about implementing the plan to realize labor savings, which is generally construed as a suggestion to cut resources. It is very important to first understand the rationale behind proposed labor savings and then create a plan which is practical and employee-friendly, and also minimizes business interruptions.
Labor Saving- What is it?
I have observed that Operations/Finance Executives pay close attention to labor saving while evaluating ROI models. They want to make sure that business case for the proposed SAP/ IT investment has clearly defined and logically derived labor savings.
The all important question to qualify any labor saving opportunity is- Will implementing SAP/IT solution reduce effort and save productive time for a business user?
Consider following examples of labor savings:
- Business users analyze transactional information several times faster enabled by SAP HANA, resulting in quick business decision making (“Improved processing”)
- Business users wanting to purchase items from SAP/SRM, browse electronic catalogs over cloud enabled supplier network, and instantly create purchase order (“Improved access to data”)
- Sales representative on travel checks the inventory status of finished goods on SAP ERP and Mobile solution via his/her mobile device, and gives customer a firm delivery commitment on the spot (“Improved Productivity enabled by Mobility”)
- Business users avoid time-consuming manual process steps due to SAP’s automated workflow features (“Improved automation”).
Some labor savings can be computed relatively easily and attributed directly to time potentially saved by someone in a specific job functions. Some other labor savings are either calculated indirectly and/or benefit a group of people in a more “general sense”.
How to minimize business disruptions and also realize labor savings?
Some managers jump the gun, and start cutting head-count somewhat randomly and pre-maturely in anticipation of benefits from SAP/ IT investments. But they risk business disruptions, and reduced morale/ loyalty among employees.
In my opinion, the restructuring of resource model must factor in professional aspirations and personal welfare of employees, while also doing what is right for the business.
To illustrate this point, let me elaborate upon the following example I had also cited in my earlier blog- Big Return on Investments (ROI) from IT Projects- Reality or Hype?
- An SRM/e-Procurement deployment typically results in business users save productive time via their ability to purchase items on their own, using Amazon.com shopping-cart type features of SAP SRM application
- The self-service nature of SRM application may reduce the need for “Professional Buyers” in the purchasing department, especially for routine purchases such as office supplies
- Purchasing department can also enforce the use of corporate contract via the use of SRM, and thus save cost for the corporation. It will need to hire more contract specialist and commodity managers for an improved management and tracking of corporate contracts
- Consider this situation for a company implementing SRM. On one hand it may reduce the number of “Buyers”, but also hire more “Contract Specialists” to drive and maintain the contract management program
- So, the inference is obvious- Instead of cutting Buyers from the work-force, and hiring more contract specialists, it would make most sense to train buyers to become contract specialists where feasible.
The above example illustrates how the companies can be smart and yet be sensitive in dealing with re-structuring of the labor force in order to realize gains of labor savings
I welcome your views on this topic.
I am a Sr. Principal with SAP America. Prior to SAP, I worked at a large consulting firm as Partner and management consultant. Please respond to this blog on SCN. You may email me privately @ email@example.com