Organizational Change Management: Effective Strategies to Drive Implementation Success

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1 BEST PRACTICES SURVEY: AGGREGATE FINDINGS REPORT Organizational Change Management: Effective Strategies to Drive Implementation Success November 2007

2 Table Of Contents Program Background and Study Objectives... 3 Participant Profile... 4 Executive Summary... 5 Defining Complexity... 6 Measuring Implementation Success... 9 Defining Leading Performance Complexity vs. Success Comparison of Staffing Profile Organizational Change Management Best Practices Study Conclusions and Recommendations P. 2

3 Program Background and Study Objectives PROGRAM BACKGROUND In March 2006 ASUG and SAP jointly launched a series of best practices surveys in areas of Business and IT Strategy. The Best Practices Survey Program serves as a forum for SAP customers to understand current and emerging trends in technology and business processes, identify drivers of performance and understand implications of adopting best practices. It complements the in-depth ASUG/SAP benchmarking program with a Best Practices assessment on the highest level. To learn more about the ASUG/SAP Benchmarking & Best Practices program, visit us online at ORGANIZATIONAL CHANGE MANAGEMENT SURVEY: STUDY OBJECTIVES Objectives: The study was designed to determine the scope, approach, and impact of Organizational Change Management (OCM) activities during a company s SAP implementation. Identify key performance drivers and establish a correlation to project performance Quantify the value of success achieved when moving from one maturity level to the next Understand what differentiates top performing OCM implementers from an overall perspective How to measure implementation success. Implementation success can be assessed based on four dimensions: On-Time Implementation: Was the project completed on time? On-Budget: Was the project on budget? On-Scope: Was the project was on scope? User Acceptance and Adoption: Overall, was the project accepted and were the users able to successfully perform their job? Complexity of Participants. Four complexity drivers were investigated for this survey: SAP Systems Complexity: How many SAP systems were implemented during the project? Regional Complexity: In how many regions was the SAP solution implemented? New Implementation or Upgrade: Is it a new SAP implementation or an upgrade? Language Complexity: How many languages were covered by the implementation? P. 3

4 Diverse Participation Organizations of all sizes, based on revenue, participated in the survey. In total, almost 120 responses were submitted, from companies covering various industries and sizes. There are over 110 different companies represented by the respondents. Participant Profile by Industry Participant Scope % of overall responses, n=117 % of overall responses, n=117 Utilities 7%, 8 Companies Retail 6%, 7 Companies Public Sector 6%, 7 Companies Prof Services 4%, 4 Companies Healthcare & Pharma 6%, 7 Companies Others 28%, 32 Companies Oil & Gas 4%, 5 Companies Automotive 4%, 5 Companies Chemical 5%, 6 Companies Consumer Products 9%, 10 Companies EC&O 3%, 4 Companies Hi Tech 6%, 7 Companies IM&C 5%, 6 Companies Life Sciences 3%, 4 Companies Media 2%, 2 Companies Mill Products 3%, 4 Companies Division/Region 37%, 43 Companies Entire Company 63%, 74 Companies Participant Profile by Revenue Participant Profile by No. of Employees % of overall responses, n=117 % of overall responses, n=117 N/A 11%, 13 Companies >$10,000 26%, 30 Companies $5,001-$10,000 6%, 7 Companies Under $500 33%, 39 Companies $500-$1,000 10%, 12 Companies $1,001-$5,000 14%, 16 Companies >50,000 4%, 5 Companies 25,001-50,000 3%, 4 Companies 10,001-25,000 17%, 20 Companies 5,001-10,000 10%, 12 Companies N/A 1%, 1 Company <1,000 34%,39 Companies 1,000-5,000 31%,36 Companies P. 4

5 Executive Summary OCM Value Potential & ROI The effectiveness and success of any organization's strategic program depends in large part on how that organization manages human, technological, and organizational change. Implementing world-class information technology alone will not achieve the desired business results if the people affected aren't aware of how changes to business processes, roles, and responsibilities will affect them - nor will it succeed if they are not ready, willing, and able to use new skills and tools. Effective Organizational Change Management (OCM) enables organizational transition and user adoption. Our recent worldwide SAP survey of 118 implementations found that two of the leading drivers to successful implementation were leadership and sponsorship" and communications to clearly set expectations and manage organizational resistance. Experience has shown us that the success of any SAP implementation depends on how the project team addresses three critical elements of project readiness: people, processes, and technology. These three elements don't operate in a vacuum. In fact, they're intimately related, and success in any one of them depends on what you do with the other two. Key Performance Drivers Implementation Best Practices This study revealed that top performers in OCM, as defined by the highest level of results, have distinguishing practices in place which drive superior performance Timely completion of project amongst OCM leaders results in much better on-time delivery when compared to Laggards (2% delay in case of leaders whereas about 16% in case of laggards) Leaders drive closer project budget with 0.7% overshoot whereas the overshoot for laggards came out to be 12.4% Project Scope for leaders was successfully covered overall (0.7% under scope) whereas in case of laggards the project was under the scope by about 10% Leaders had an average user acceptance score of about 20% higher than laggards: 4.15 on a scale of 1 to 5 whereas the laggards had an average user acceptance score of 3.15 (1 being not acceptable and 5 being completely accepted) The study revealed that, while top performers follow an overall similar implementation approach, a few key differences exist: Best-run OCM participants are more proactive; they value OCM and establish the OCM program early during the implementation planning Leaders initiate OCM mostly in Project Preparation and Blue Print Phase Leaders make use of OCM tools and accelerators more than the laggards Relatively, Leaders give more importance to Leadership and Sponsorship, Skills and Competencies, Communications and Governance, Risk and Compliance when compared to Laggards. Surprisingly, the trend is reversed in case of Organization Alignment where Laggards place more importance than Leaders. Certainly this area is critical for all projects and needs to be addressed in order to prepare users to perform effectively. P. 5

6 Varying Implementation Complexity Many implementations had relatively large scale and scope. Over 80% of implementations covered more than one SAP module or ERP. Over 75% of implementations were new vs. upgrades. Over 40% of implementations were in more than one country, over 20% covered more than one language. Given these complexities, OCM plays an even greater role to achieve the targeted benefits. IT Systems used % of overall responses, n=117 New Implementation or Upgrade? % of overall responses, n=117 ERP Additional Modules 9% ERP Additional Modules 24% One SAP Module Only 19% 2-4 SAP Modules 9% N/A 2%, 2 Companies Upgrade 21%, 24 Companies New Implementation 77%, 91 Companies ERP Additional Modules 14% 5-7 SAP Modules 3% ERP Only 19% Country Scope of Participants % of overall responses, n=117 Language Complexity of Participants % of overall responses, n=117 NA 2.5%, 3 Companies 2-3 Countries 21.4%, 25 Companies Multiple Countries (>3) 23.1%,27 Companies 2-3 Languages 13.7%, 16 Companies N/A 4%, 5 Companies >3 Languages 10.3%, 12 Companies One Language 72%, 84 Companies One Country 53%,62 Companies P. 6

7 Varying Implementation Complexity (2) In addition to scope and geographic coverage, organizations resistance to the project and the expected change is also a key driver of implementation complexity. We measured organization s resistance to organization structure changes, business process changes, intercultural changes and to the project in general. Our analysis suggests that people are most resistant to business process change followed by general resistance to the project. Resistance to Organization Structure Change Resistance to Business Process Change Very Large, 8% NA/Can t Evaluate, 9% Very Small, 9% Very Large, 17% NA/Can t Evaluate, 6% Very Small, 3% Small, 6% Large, 23% Some, 26% Small, 19% Large, 42% Some, 32% Resistance to Intercultural Change Resistance to Project Very Large, 8% NA/Can t Evaluate, 10% Very Small, 18% Very Large, 9% NA/Can t Evaluate, 8% Very Small, 6% Large, 28% Large, 27% Small, 14% Small, 13% Some, 22% Some, 36% P. 7

8 Varying Implementation Complexity (3) Combining all complexity drivers, we found that 31% of projects were highly or very highly complex, 44% were moderately complex and 25% had low complexity. In the analysis we will investigate to what extent implementation complexity impacts project success, Return on Investment (ROI) and drives resource requirements. Complexity Drivers Functional Scope Overall Complexity by Participants % of overall responses, n=117 New Implementation vs. Upgrade Regions/Countries Languages User Resistance P. 8

9 Measuring Implementation Success Implementation success is determined by four dimensions: if the project is on time, on scope, on budget, and if the end user is satisfied with the new technology solution and is adopting it consistently to achieve successful performance. In the analysis, we will assess the impact of Organizational Change Management (OCM) on project success and look at drivers such as OCM resource allocation or adoption of Best Practices. Project Success External Factors Project Complexity On-Time Project Success Drivers OCM Resource Investment OCM Best Practices User Adoption & Satisfaction On-Scope Implementation Success On-Budget P. 9

10 Defining Leading Performance For the purpose of this study, we have identified two groupings of performance: leaders and laggards. We define leaders to be the 25% participants with the highest scores across all four areas those organizations which executed their implementation on-time and on-budget and on-scope and with the highest user acceptance. On-Time Completion N/A 23.1%, 27 Companies On-Budget Completion Accelerated 0.9%, 1 Company N/A 28.1%, 33 Companies On-Time 29.1%, 34 Companies Under Budget 10.3%, 12 Companies On Budget 25.6%, 30 Companies Significant Delays 18.8%, 22 Companies Some Delays 28.2%,33 Companies Significantly Over Budget 11%, 13 Companies Somewhat Over budget 25%, 29 Companies On-Scope Completion User Acceptance N/A 23%, 27 Companies Over Scope 18.8%, 22 Companies N/A 23.1%, 27 Companies Very High 21.4%, 25 Companies Significantly Under Scope 9%, 10 Companies Under Scope 23%, 27 Companies On Scope 26.5%, 31 Companies Low 6%, 7 Companies Medium 12%, 14 Companies High 37.6%, 44 Companies P. 10

11 Project Results: Leaders versus Laggards OCM ROI On average, leaders are much more On-Time, On-Budget, On-Scope and have a much higher user acceptance score when compared to laggards. The overall average in Time Delay is 11%, Budget overshoot is 9.5%, and Under Scope is 8% when calculated for all participants. Leaders experienced on average only 2% delays, 1% budget overruns, 1% scope slippage, and over 80% user acceptance. The question is often asked if OCM is necessary, and if it is, how much is enough? Clearly the results demonstrated by all survey participants, leaders and laggards, demonstrates a clear and positive impact on ROI resulting from application of OCM Best Practices. Project Results: Leaders vs. Laggards Leaders Laggards Leaders are the top 25% participants whose project had the best on-time, on-budget and on-scope delivery, and whose project had the highest user acceptance Laggards are the remaining 75% of participants with greater gaps in on-time, on-budget and on-scope delivery, and with lower user acceptance scope P. 11

12 Impact of Project Complexity Earlier, we defined project complexity based on scope elements and degree of resistance. Common sense would dictate that the most complex implementations will have the greatest challenge to be successful (on-time, on-budget, on-scope and with high user adoption), and our analysis shows that this is indeed the case, no surprise here. The good news is that even for the most complex projects multi module, multi country, with large change management challenges, 56% of projects were successful or highly successful. Highly Successful Success Score Successful Somewhat Successful Least Successful Complexity P. 12

13 OCM Resource Investment How many project resources should be allocated against Organizational Change Management, and how should they be spending their time? Results show a clear trend that participants with greater revenue and higher complexity require more efforts for OCM compared to the ones with lower complexity and revenues. In the same revenue bucket, the ones with higher complexity require more efforts in terms of Full Time Equivalents (FTEs) when compared to the ones with decreasing order of complexity. The results are the same if we keep complexity constant, the companies with higher revenue required more efforts when compared to those with lower revenue. The trend is steepest in the case of most complex process across various revenue buckets. These resource numbers identify FTEs, so as a result may include time spent by other project team members on OCM efforts (i.e. role definition and change impact analysis) as well as extended OCM team members from outside the project supporting business readiness, communications, etc. Revenue Bucket <$500M $501M - 1,000M $1,001M-5,000M $5,001-10,000M >$10,000M Low Complexity N/a N/a 8.3 Moderate Complexity 2.7 N/a High Complexity Highest Complexity 3.1 N/a N/a N/a 20.5 Average OCM Resources Assigned by Revenue and Complexity Band (FTE) Note: N/a means that no company within the given revenue and complexity segment submitted data P. 13

14 OCM Resources: Dedicated vs. Part Time, Internal vs. External With increasing project complexity, survey participants used more full time dedicated resources and more external resources; for example, for most complex projects, over 90% of OCM team resources were dedicated fulltime to Organizational Change Management. Similarly, with increasing project complexity, more external OCM consultants were used over 40% of the OCM team was external for most complex projects. More complex projects require more dedicated fulltime resources and more external consulting support % Full Time OCM Resources by Project Complexity % External Resources by Project Complexity P. 14

15 OCM Resource Profile While OCM resource investment is mainly driven by project scale and complexity, there are some distinct differences between how leaders and laggards allocate and focus their OCM resources. Reasonably, Leaders had a greater investment in Team Leadership reflecting the scale of their efforts, and also a large portion of effort to Skills and Competencies. On the other hand, relatively speaking, Laggards allocated more resources on Governance, Risk and Compliance (GRC) as well as Communications (25% for Laggards versus 13% for Leaders). This difference in allocation of effort shows that leaders have a broader and more comprehensive definition and focus for their OCM efforts. Really OCM isn t an either/or situation, but rather one of investment across all areas of OCM as needed or possible by project. Others Governance and Compliance Incentives and Rewards Organizational Alignment Staffing Profile Communications Leadership and Sponsorship Team Leadership Skills and Competencies P. 15

16 Importance of OCM Fundamentals Each of the respondents were asked to place a priority for a broad set of OCM activities (scale 1 to 5, with 5 high). This feedback reinforces those components we know to be foundational as highest priority for an effective OCM approach: stakeholder identification & communication, rationale for change and engaged leaders and sponsors. P. 16

17 OCM Best Practices Leaders companies with the most successful implementations understand the importance of best practices for OCM, and adopt them largely for their projects. For each of the dimensions measured we have shared the activities identified as OCM Best Practices and we have measured the application and coverage of best practices versus importance rating. Given experience of respondents is provided post implementation, this is a good indicator of where OCM efforts spent are most relevant and valuable. Overall OCM Best Practices : 1. The same attention was paid to getting the right OCM team resources at the right time as for the process and technical teams 2. A specific and defined OCM methodology was followed during the implementation 3. OCM activities were integrated into the overall project work plan 4. Process and technical teams were educated on OCM tasks 5. Knowledge transfer objectives were agreed and executed between OCM consulting and internal resources Note: Best Practices were measured on a scale of 1 to 5 for both importance and coverage. Coverage: 1 = No coverage during the project - best practice was not employed 5 = Best practice was fully deployed on the project N/A = Not available/do not know Importance: 1 = Not important 5 = Extremely important P. 17

18 Best Practices Strong Leadership and Sponsorship This dimension of OCM had a high score rating for both leaders and laggards. Overall adoption of Leadership and Sponsorship best practices are higher in the case of leaders, thus focusing more on areas such as engaging leaders and sponsors in overall change planning and assessment. Best Practices identified for Leadership & Sponsorship: 1. Preparation of business case for change 2. Stakeholder assessment 3. Change readiness assessment 4. Risk assessment 5. Leadership engagement plan and execution 6. Business readiness plan and execution Note: Best Practices were measured on a scale of 1 to 5 for both importance and coverage. Coverage: 1 = No coverage during the project - best practice was not employed 5 = Best practice was fully deployed on the project N/A = Not available/do not know Importance: 1 = Not important 5 = Extremely important P. 18

19 Best Practices Skills & Competencies Overall adoption of Skills and Competencies best practices are higher in the case of leaders, thus focusing more on areas like execution of training plans and skills assessments. Also, there is a bigger gap in terms of Importance and Coverage for Laggards. Skills and competencies includes the area of training, and so not surprisingly had a high coverage rating. The lower importance rating shows that there are other OCM dimensions than training that drive user adoption. Best Practices identified for Skills & Competencies: 1. Assess skills and competencies for impacted stakeholder groups 2. Execution of training plan to address skills and competencies Note: Best Practices were measured on a scale of 1 to 5 for both importance and coverage. Coverage: 1 = No coverage during the project - best practice was not employed 5 = Best practice was fully deployed on the project N/A = Not available/do not know Importance: 1 = Not important 5 = Extremely important P. 19

20 Best Practices Organization Alignment Interestingly, Laggards find Organization Alignment more important when compared to Leaders whereas the adoption is lower in the case of Laggards. This gap for Laggards between importance and coverage highlights the significance of understanding and managing change impacts to support user adoption, i.e. if I had to do this over again, what would I do more of?. Best Practices identified for Organization Alignment: 1. Change impact analysis 2. Formalized organizational redesign based on changes resulting from SAP project deployment Note: Best Practices were measured on a scale of 1 to 5 for both importance and coverage. Coverage: 1 = No coverage during the project - best practice was not employed 5 = Best practice was fully deployed on the project N/A = Not available/do not know Importance: 1 = Not important 5 = Extremely important P. 20

21 Best Practices Communications Both Leaders and Laggards invested more coverage on Communications compared to their importance rating. The demand for communication is always high from the organization and can often feel like over communication on the part of the OCM Team or project resources. Best Practice identified for Communications: 1. Structured communications plan for all stakeholder groups Note: Best Practices were measured on a scale of 1 to 5 for both importance and coverage. Coverage: 1 = No coverage during the project - best practice was not employed 5 = Best practice was fully deployed on the project N/A = Not available/do not know Importance: 1 = Not important 5 = Extremely important P. 21

22 Best Practices Governance & Compliance Both Leaders and Laggards experienced greater coverage on Governance and Compliance best practices than their importance rating. Some activities related to this dimension are decision making, security definition and roles and regulated compliance requirements (i.e. Sarbanes- Oxley) which are critical to project success but may not be the highest drivers of user adoption. Best Practices identified for Governance & Compliance: 1. Governance and decision-making structure 2. Effectiveness of governance and decision-making processes Note: Best Practices were measured on a scale of 1 to 5 for both importance and coverage. Coverage: 1 = No coverage during the project - best practice was not employed 5 = Best practice was fully deployed on the project N/A = Not available/do not know Importance: 1 = Not important 5 = Extremely important P. 22

23 Best Practices Incentive and Reward Management Both Leaders and Laggards invested a higher level of coverage relative to importance in Incentive and Reward Management best practices. The activities listed as best practices in this dimension can be particularly time consuming when necessary, i.e. new assignment of roles and job placement and are sometimes not immediate in nature (performance management and incentives and rewards) and so are often overlooked. Best Practices identified for Incentive and Reward Management: 1. Changes to performance management as a result of new stakeholder roles 2. Changes to incentives and rewards as a result of new stakeholder roles 3. Assignment of roles/job placement and hiring Note: Best Practices were measured on a scale of 1 to 5 for both importance and coverage. Coverage: 1 = No coverage during the project - best practice was not employed 5 = Best practice was fully deployed on the project N/A = Not available/do not know Importance: 1 = Not important 5 = Extremely important P. 23

24 Summary: Coverage of Best Practices Given the importance of business unit adoption to achieve OCM results, it is not surprising that both Leaders as well as the Laggards invest the most effort in areas like Skills and Competencies, Communications and Governance and Compliance. Beyond that, however, Leaders invest significantly more across all OCM best practices resulting in a more comprehensive definition and application of OCM.. These organizations recognize the importance of strong leadership, initial planning of project, effective stakeholder engagement, communications, business readiness, etc. Interestingly, the degree of coverage by Leaders was only slightly greater in some areas, yet, this incremental investment in OCM brought significant improvement in results for leaders in overall success of the projects (as defined earlier). Leaders focus more on Communications, Governance and Compliance and Skills and Competencies P. 24

25 Best Practices Proactiveness of Organization In the case of Leaders, 44% of the participants initiated OCM early during the implementation planning which shows the proactiveness of organization to change. The Leaders also continued OCM throughout the project to support challenges. In contrast, only 22% of participants amongst Laggards initiated OCM during planning and project preparation phase. A more reactive approach (OCM initiated in response to immediate project crisis) could be seen in case of Laggards (12% of the total effort) in comparison to Leaders (only 4% of the total effort). Top performers establish OCM early during implementation planning Do not know/na/no OCM OCM was initiated throughout the course of the implementation in recognition of the project challenges OCM initiated in response to immediate project crisis OCM was initiated through the systems integrator OCM established during the implantation planning and valued by organization P. 25

26 Best Practices Project Phase for OCM Activities Both Leaders and Laggards have been pretty successful in implementation of OCM in either Project Preparation or Blue Print phase where as Leaders are performing slightly better in this as well. About 66% of the participants amongst Leaders implemented OCM early compared to about 60% in case of Laggards. Also a sizeable population, about 16% of the Laggards implemented OCM in Final Preparation, Go-Live or Support phase. Top performers initiate OCM mostly in Project Preparation and Blue Print Phase Project Preparation Blueprint Realization Final Preparation Go- Live Support Do not know/na P. 26

27 Implementation Best Practices Use of OCM Tools Use of OCM tools and accelerators is almost double in case of Leaders (37% in case of Leaders whereas only 22% in case of Laggards). Survey results showed that OCM tools and accelerators support OCM activities, enhance the transition, and thus play an important role in overall project success. Top performers use OCM Tools more than others User of OCM Tools (Leaders) User of OCM Tools (Laggards) P. 27

28 Study Conclusions and Recommendations Conclusions This study reconfirmed that Organization Change Management drives project success and ROI Adoption of OCM Best Practices and use of OCM tools leads to superior implementation results OCM Best Practices support completion of project on-time, on-budget, on-scope and with higher user acceptance Recommendations User adoption and OCM activities continue beyond go-live, after a successful implementation, companies should establish a continuous improvement process to continuously measure adoption and performance Benchmarking should be at the foundation of the continuous improvement process as it helps to identify performance gaps, to prioritize improvement opportunities, to establish arguments for the discussions with the internal stakeholders, and to identify Best Practices and track improvement over time The ASUG/SAP Benchmarking and Best Practices program offers a variety of Benchmarking and Best Practices surveys in major areas such as Finance, Human Capital Management, Supplier Relationship Management and Procurement, IT, Supply Chain, and Customer Contact Management Visit for more information P. 28

29 Australia/NZ Analysis Given the significant number of respondents to the survey from Australia/NZ we have added specific analysis related to this population. P. 29

30 Participant Profile (Based on Country) Participant Profile (Based on Country) Not Provided, 26% Australia, 15% New Zealand, 10% Canada, 2% France, 1% Mexico, 2% United States, 44% P. 30

31 Comparing Complexity (Overall vs. Australia/New Zealand) Combining all complexity drivers, we found that for overall survey results 30% of projects were highly complex, 45% were moderately complex and 25% with low complexity, whereas in case of Australian/New Zealand participants, complexity was fairly low. More than 90% of the participants had least complex or moderately complex processes. Most Complex (>16) High Complexity (11-15) Moderately Complex (6-10) Least Complex (0-5) P. 31

32 Project Results: Australian/New Zealand vs. All Participants Overall, participants from Australia and New Zealand have a slightly higher margin in performance based on On-Time, On-Scope, On Budget completion of project along with a better user acceptance score. This is inline with the analysis as the previous page shows that overall complexity is also less for Australia/New Zealand participants Project Results: Australia/NZ vs. All Participants P. 32

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