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Author's profile photo Derrick Steiner

The Best Really Do Run SAP

TECHNOLOGY ENABLES BETTER BUSINESS OUTCOMES

Business leaders typically invest in technology to improve business performance, solve problems, achieve operational excellence, and generate shareholder value.  Nevertheless, investment is sometimes still lagging, in part because the value of such a digital transformation is difficult to observe.

  • While 96% of executives identified digitization as a strategic priority, only 26% have a strategy in place1
  • However, digital transformation can unlock $100 trillion of value for business and society over the next decade2

We see the positive impact of information technologies on the business performance of our customers every day, but we wanted to explore this empirically on a macro scale.  With the help of Standard & Poor’s Capital IQ repository of annual financial statements for 11,000 publicly traded companies representing $53 trillion in global commerce, we conducted an objective data driven assessment of our customer base and their business performance over time.  Analyzing and comparing SAP customers to non-SAP customers, SAP customers amongst themselves based on their digital maturity, and SAP customers amongst their industry peers as defined by S&P Capital IQ’s industry classification.

Do “The Best” run SAP? Are customers who are truly committing to digital transformation and embracing the Intelligent Enterprise achieving better business outcomes? To help answer these questions, we enlisted a team of data scientists from SAP to objectively explore this, their efforts resulted in the creation of the Best Run Intelligence (BRI), and we’re very excited to share the results with you.

 

THE BEST REALLY DO RUN SAP

Over the past 5 years SAP Customers have outperformed non-SAP Customers in the three areas of business performance measured: ‘Finance’, ‘Supply Chain’, and ‘Procurement’3,4

  • In Finance, SAP Customers experienced 7% better Cash Conversion Cycle5 vs. Non-SAP Customers
  • In Supply Chain, SAP Customers experienced 6% better Days Inventory Outstanding6 vs. Non-SAP Customers
  • And in Procurement, SAP Customers experienced 3% better Cost (as a % of Revenue) vs. Non-SAP Customers

Figure 1. 5-year analysis of SAP Customers vs. non-SAP Customers in the three areas of business performance measured: ‘Finance’, ‘Supply Chain’, and ‘Procurement’.

 

The figure above shows SAP Customers have experienced shorter Cash Conversion Cycles (e.g. 73 days average for SAP Customers, versus 78 days for Non-SAP Customers in 2019); better Days Inventory Outstanding (e.g. 78 days average for SAP Customers, versus 83 days for Non-SAP Customers in 2019); and better costs as percentage to revenues (e.g. 83% average for SAP Customers, versus 86% for Non-SAP Customers in 2019).

The business impact of operational excellence

So, what! What do these operational KPI improvements mean to the business?

Operational Improvement Per unit of business The Business Impact
A 1-day improvement in the Cash Conversion Cycle (CCC) Per $1B in revenue Can represent $2.7M in working capital
A 1-day improvement in Days Inventory Outstanding (DIO) Per $1B in inventory Can represent $2.7M in working capital
A 1% reduction in Cost Per $1B in spend Can represent $10M in cost savings

 

SAP CUSTOMERS TRULY EMBRACING DIGITIZATION & THE INTELLIGENT ENTERPRISE, RUN EVEN BETTER

The analytical assessment also evaluated business performance amongst SAP customers themselves, comparing companies more digitally mature adopting SAP’s latest Intelligent Enterprise technologies to those less mature.

SAPs ‘Intelligent Enterprise Index’ objectively measures the extent to which a customer is adopting SAPs latest technology, such as S/4HANA, SAP Cloud and Analytics Products, and automatically assigns a score of 0 – 10 through a statistical algorithm.  These are then grouped into low (0 – 5), medium (6 – 8) and high (9 – 10) adopters.  S&P business performance data over the past 5 years were analyzed and compared between the groups.

The data assessment indicates that ‘High Adopters’ of SAP solutions, or those scoring high in SAPs Intelligent Enterprise Index, realized better business outcomes compared to low and medium adopters.  High Adopters improved their Cash Conversion Cycle 65% – 200% more over the past 5 years compared to low and medium adopters, Days Inventory Outstanding 25% more, and Cost (as a % of Revenue) 100% more3,4,7.  Furthermore, when comparing these low, medium and high adopters to their industry peers as defined by Standard & Poor’s industry classification, the High Adopters impressively outperformed low and medium adopters as well3,4.

No matter how you look at it, The Best Really Do Run SAP.  There is a compelling correlation between SAP solution adoption and business performance.  SAP solutions help customers improve their operational performance, solve business problems and generate shareholder value.

 

CALL TO ACTION

SAP is here to support you in your journey to becoming an Intelligent Enterprise and to become an even better Best Run company.  Start the journey by requesting a Best Run Intelligence industry peer benchmark of your business performance in Finance, Supply Chain and Procurement or a copy of our Best Run Intelligence Study from your SAP partner.  The Study provides additional insights of how the Best Run SAP and our industry peer benchmark will compare your Cash Conversion Cycle, Days Inventory Outstanding, and Cost (as a % of Revenue) to your industry peer average and top quartile as defined by S&P Capital IQ.  In addition, this complimentary analysis calculates the potential cash flow and profitability opportunities of closing these operational gaps, if there are such opportunities…

We look forward to speaking with you—and helping your company be Best Run!

 

 

1. Deloitte. Boldly Reinventing The Enterprise, 2020  2. World Economic Forum. Digital Transformation Initiative, 2018   3. Standard & Poor’s Capital IQ.  11,246 Companies with publicly available data, all industries, global ~ representing $53T in annual revenue in 2019   4. SAP Intelligent Enterprise Index for SAP Customers   5. The Cash Conversion Cycle is the amount of time capital is tied up in the buying (DPO), production (DIO), and sales (DSO) process before it’s converted to cash inflow. CCC = DSO + DIO – DPO.  Reducing the CCC improves working capital and cash flow   6. DIO is a financial ratio that indicates the average time in days that a company takes to turn its raw materials into finished goods and ultimately sales  7. High adopters improved their CCC by 5% over the past 5 years where medium adopters improved their CCC by 3% and low adopters CCC deteriorated 5%.  Low and medium adopters both had a deterioration in DIO of 4% whereas high adopters only 3%.  High adopters improved their Cost as a % of revenue by 2% where low and medium adopters improved by 1%.  

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      Author's profile photo Tony Martinez
      Tony Martinez

      A great read, Derrick.

      Very interesting mid-range data that gives us a unique and important glimpse into how sustained investing in business information technology (SAP's IE solutions being a great example), can lead to differentiated business performance results.

      Look forward to seeing more analysis like this!

      Author's profile photo Prasun Goel
      Prasun Goel

      Great post, Derrick !

      Technology is at the core of achieving "Best Run" Business performance and SAP is the Intelligent platform powering that core.

      Author's profile photo Kate McNeel
      Kate McNeel

      Interesting analysis.

      Take a look at the Good Jobs Institute. Their research shows that companies need engaged workforce along with operational excellence.

      Author's profile photo Henner Schliebs
      Henner Schliebs

      great article. For an evolutionary follow-up I would suggest to add a few more data points, maybe around COGS as percentage of revenue, or Cost of finance as percentage of revenue or similar. For those interested colleagues we have deep insight into savings potential across all spend categories based on customer adoption of our products and our SAP Procurement portfolio, just ping me :-]