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03_17325 SAP Insight COE.

qxp 11/8/2006 10:07 AM Page 1

SAP INSIGHT

CENTERS OF EXCELLENCE:
OPTIMIZE YOUR BUSINESS
AND IT VALUE

2006 ASUG/SAP Best Practices Survey


03_17325 SAP Insight COE.qxp 11/8/2006 10:07 AM Page 2

Table of Contents
Executive Agenda 1

COE Success: Alignment of Business and Information Technology 3

Factors Driving COE Implementation 4

COE Maturity Matters 5

Key Approaches to COE Best Practices 7

Conclusion: Key Best Practices 13


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CENTERS OF EXCELLENCE:
OPTIMIZE YOUR BUSINESS
AND IT VALUE
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EXECUTIVE AGENDA

Given the impact of IT, many companies are starting The study identified three main factors that inspire
to think differently about their IT investments and companies to institute centers of excellence: the
strategies. Rather than grudgingly viewing IT as a desire to manage and lower total cost of ownership
set of tools necessary for doing business – and (TCO), the need to increase the value of their IT
sometimes as an expensive and cumbersome set of investments, and a drive to focus on customer
tools – many companies are looking instead to gain satisfaction.
value from their IT investments. They are focusing
The study also found that among well-integrated,
on reengineering and optimizing their support
mature COEs, certain best practices – winning
processes and on driving IT to enable their
strategies, approaches, and processes that produce
businesses and improve their operations – as well as
superior performance in an organization – correlate
their bottom lines.
with success. The best-performing companies
A recently completed ASUG/SAP Best Practices minimize TCO by optimizing their COEs,
study (see sidebar for study details) shows that centralizing the organization, standardizing IT
centers of excellence (COEs) are the primary vehicle systems across the enterprise, managing
for delivering industry-led project and program performance, and focusing on customers. Finally,
excellence. Centers of excellence provide a the study found that cooperation between business
standardized approach across an entire organization, operations and IT is crucial to the successful
with strategies and templates designed to facilitate implementation and operation of COEs.
and enhance project management processes and
approaches. Staffed with knowledgeable business
and IT teams, these centers are company resources
for current practices, technologies, and emerging
trends, and they are designed to enable joint IT and
business solutions with greater value, consistency,
and efficiency.

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ASUG/SAP CENTERS OF EXCELLENCE SURVEY


A centers of excellence (COE) best practices operation of the COE was surveyed as well: 44%
survey conducted by SAP and the Americas’ of companies had COEs in operation for less
SAP Users’ Group (ASUG) from March to April than 1 year; 15% for 1 to 2 years, 12% for 3 to 4
of 2006 covered a wide sampling of businesses years, 15% for 5 to 6 years, 6% for 7 to 8 years,
across several disparate industries. Fifty-nine and 8% for more than 8 years.
companies took part in the study and came from
Survey respondents were given scores based on
a broad range of industries, including retail and
responses to questions about their individual
wholesale, public sector, manufacturing,
level of best practices adoption in five key areas:
banking, and health care. Participants spanned
total cost of ownership, organizational level,
the globe, with operations in Asia, Africa, the
systems standardization, performance
Middle East, Europe, South America, the United
management, and customer focus. Companies
States, and Canada.
were then assigned a level from one to five,
Businesses also varied in size as measured in corresponding with the maturity level of their
terms of the number of full-time equivalent (FTE) COE best practices adoption score: level one,
employees dedicated to their centers of marginal; level two, implementing and refining;
excellence. The smallest, representing 25% of level three, repeating performance; level four,
those surveyed, had from 1 to 10 FTEs, and the excellent and quantifiable performance; and level
largest, 8% of the companies surveyed, had five, optimal performance.
more than 150 FTEs. The number of years of

Figure 1: Companies of all sizes and years of experience with their COE participated in the
survey. In total, 59 responses were submitted.

Overall Size of COE in FTEs Geographic Coverage


% of overall responses, N=59 % of overall responses, N=59
>150 FTEs Australia, 5%
8% Asia, 7%
101-150 FTEs United States
Africa, 2%
1-10 FTEs 31%
6% Middle East, 4%
25%
76-100 FTEs
Europe, 11%
6%
51-75 FTEs
10%
South America
11-25 FTEs 9% Canada
26-50 FTEs
29% 15%
15% North America
15%

Industry Mix Years of COE Operation


% of overall responses, N=59 % of overall responses, N=59

Discrete Manufacturing Greater than 8 years


Less than 1 year
Other 14%, 8 companies 8%
44%
19%, 11 companies 7 to 8 years
6%

Retail/Wholesale 5 to 6 years
Process Manufacturing
7%, 4 companies 15%
14%, 8 companies
CPG
3 to 4 years
11%, 7 companies
Services (Banking, 12%
Public Sector Professional, Healthcare) 1 to 2 years
5%, 3 companies 30%, 18 companies 15%

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COE SUCCESS: ALIGNMENT OF BUSINESS AND


INFORMATION TECHNOLOGY
In looking in detail at centers of excellence, our Indeed, it’s crucial to directly involve business
recent ASUG/SAP Best Practices study found it is of operations in the design and scope of a center of
paramount importance for successful centers of excellence. After all, the business is – and should be
excellence (COEs) to ensure that business – the main beneficiary of the work performed,
operations and IT are fully aligned and in synch. enabled, and enhanced by a COE. The study clearly
Such cooperation harmonizes business processes demonstrates the need for a balanced perspective
and corporate strategy with IT investments and between the overall business organization and IT in
strategy, maximizing effectiveness, success, and developing the center. And finally, a strong business
efficiency. This theme occurs again and again focus is key to meeting – and exceeding – customer
throughout the study results and has a profound expectations.
impact on all aspects of COE operations.

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FACTORS DRIVING COE IMPLEMENTATION


The best practices study found that three crucial The study revealed that as centers of excellence
needs initially drive companies to implement become more mature, more accepted, and fully
centers of excellence: integrated into the operational fabric of the
organization, these initial drivers evolve and become
 Managing and lowering total cost of ownership
part of the core of its operation. As we will see in
(TCO)
more detail later, this leads to the development of
 Enhancing value the right skills and talents to support the needs of
the business in a cost-effective and efficient manner.
 Focusing on customer satisfaction
Moving beyond these three initial needs, key
objectives of COEs include enhancing IT investment
value, improving governance, managing change,
improving support, and managing and lowering
TCO.

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COE MATURITY MATTERS


The study shows that a number of factors influence practices, and they do not define key performance
the success of centers of excellence. The COE indicators (KPIs). Project teams often follow
organization model, the IT system landscape, informal practices, measuring only the basics, such
performance management processes and strategies, as costs and schedules. Level one companies do not
and sharpness of customer focus all contribute to establish a customer focus as a primary driver, track
the success or failure of a COE. and report on customer satisfaction, or report on
performance management. Leadership is usually
In addition to these factors, study findings indicate
aware only of key milestones. Finally, these
that companies with more mature COEs achieve
companies communicate with customers
higher levels of value by implementing best
informally and in an unstructured way, and they
practices.
lack clearly defined issue resolution practices.
LEVELS OF COE MATURITY As COEs develop and mature (levels two and three),
The survey assessed the maturity of participants’ they make improvements across the board. The
COEs, ranking each into one of five levels, as shown COE organization tends to centralize. IT systems
in Figure 2. evolve, instituting more definition and planning of
functional and technical work. Business processes
The study paints a picture of organizations by the become standardized and documented, and process
level of maturity their COEs have reached. ownership is held by both the business units and the
In the marginal or initial stage, level one, companies COE.
identify business processes and establish a COE At the highest levels of maturity (levels four and
organizational structure. IT generally uses a “what’s five), study findings showed companies reporting
available” instead of a “what’s best” approach to excellent COE performance. Organizations follow
systems implementation. Companies identify resource management plans. IT has centralized and
business processes, but they do not generally standardized systems. Business processes are
standardize or establish business processes across the standardized with the enterprise, shared,
organization, and they perform work on an ad hoc documented, and measured. A dedicated
basis. Companies define process ownership only performance team ensures that the company reaps
minimally, and they do not share documentation. the expected value. Formal performance
They fail to establish performance measurement management practices, training, and

Maturity
Levels of
Capability/Maturity

Centers of
Excellence
Level 5:5:Optimal
Level OptimalPerformance
Performance
Level 4:4:Excellent
Level Excellent/Quantifiable
/ Quantifiable Performance
Level 3:3:Executing
Level Executing/Repeating
/ Repeating Performance
Level 2:2:Implementing
Level Implementing/Refining
/ Refining Performance
Level 1:1:Initial
Level Initial/Marginal
/ Marginal Performance
Figure 2
Time
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communications are in place, and KPIs are refined, According to the study, companies that have
targeted, managed, monitored, and analyzed. A adopted the most COE best practices have COEs that
clear user governance structure is in place, and a are:
transformation in thinking means that users are
 Centralized, either with or without satellite
treated like partners. Most important, major
offices, a clear key contributor to a lower TCO
changes are implemented through the lessons
learned throughout the development and  Implemented during the initial adoption and
deployment of the COE. installation of their SAP® solution
As COEs become more mature and optimize the  Organized to include a key user program in
adoption of best practices, making them core to which lines of business employees take the lead
COE operations, companies discover a need to on facilitating the COE in their departments
develop talent to sustain the changing needs of the
 Aligned with a high level of standardization both
business in the most cost-effective manner. By the
within business units and across the entire
time a company has reached level five, it has fully
enterprise
adopted and internalized a center of excellence
culture that helps optimize the IT systems, overall  Less likely to permit undue customization of
organizational performance, and customer systems
satisfaction.
 Focused on the customer and adhering to the
overall corporate mission and strategy
GREATER COE MATURITY =
INCREASED BEST PRACTICES Companies ranked by the survey at the highest level
ADOPTION of maturity earned many key and valuable results.
Nearly 36% of the companies in the survey With a mature and fully integrated COE, a company
demonstrated a high level of maturity in their can realize a higher level of acceptance of its IT
COEs. These companies have adopted best practices system, faster project completion, controlled
that improve acceptance of IT systems across the project costs, and improved strategic management
organization, shorten project times, control project decision making – all benefits that contribute to an
costs, improve strategic management decision improvement in ROI.
making, and increase return on investment. Tellingly, study findings showed that 62% of level
four and five companies incorporate continuous
improvement practices and programs into their
business approach, whereas for 72%, COEs drive a
strong alignment between the business and IT and
ensure equal participation with the business.

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KEY APPROACHES TO COE BEST PRACTICES

The study found five key actions in which the well-established partnership between the CIO and
adoption of best practices has been shown to enable the business organization.
companies to optimize processes, meet their
However, even when a company’s IT plan makes
business needs – and improve their bottom lines.
sound strategic and tactical sense, with a clear and
These five actions are:
compelling business case for the investment, several
 Minimize TCO with an optimized COE key barriers to achieving optimal value from an IT
outlay still exist. Our survey revealed typical barriers
 Centralize the organization
whose effects can be ameliorated with an optimized
 Standardize IT systems across the enterprise COE:
 Manage performance  Unclear program value imperatives
 Focus on the customer  Executive disconnects on key business case
assumptions
MINIMIZE TCO WITH AN OPTIMIZED
 Lack of value readiness due to entrenched
COE
organizational culture and technological factors,
The study identified a number of key benefits such as legacy systems
realized by adopting COE best practices. The first
benefit is a reduced TCO – the cost of  Lack of program metrics keeping the focus on
implementation, execution, and maintenance – budget and deadlines
directly due to the enablement of centers of  Lack of ongoing value reviews to ensure that new
excellence. IT capabilities deliver measurable value
Optimal COE performers, the survey found, These barriers can lead to prohibitive costs and lost
significantly reduce TCO by centralizing to a high time due to IT changes, and they are a direct result
degree; standardizing system landscapes and of a lack of alignment between business and IT
business processes; minimizing software strategies. Quick fixes then result in higher long-
installations; and following a strategy of managed, term costs and decreased functionality, with more
limited systems customization. and more of the budget – up to 80% according to
Make no mistake: managing TCO is important. But our survey – spent on simply maintaining the
lowering TCO at the expense of the other four technological status quo. This leaves a company
actions would clearly be shortsighted. The caught in a spiral of spending without achieving the
companies surveyed all recognize that COEs are results and return on investment it needs.
instrumental in improving the return on IT The lack of an effective COE organization and
investments. The study also found that SAP-certified processes leads to a failure to achieve business
COEs perform better than noncertified COEs. results, excessive TCO, and delayed realization of
Successful centers are found in companies that the value of IT investments. The study indicated
implement strong lessons-learned approaches and that COEs enabled companies to reduce the TCO of
that have a well-documented knowledge their system applications. Indeed, survey
management process in place. Returning to an participants achieved significant reductions, as
essential point, centers of excellence were shown shown in Figure 3.
not to be successful in companies without an equal,

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Total cost of ownership is one of the most difficult  Strong alignment between business and IT and an
metrics to benchmark. Even when using the most equal partnership in the business
common metrics – cost per user, full-time support
employees per 100 users – companies often don’t CENTRALIZE THE ORGANIZATION
obtain adequate results, or the results of their Organizations with centralized COEs, the survey
analyses are misleading. For example, consider the found, have better consistency and coordination,
often-used TCO metric of lowest cost per user. Well- leading directly to less duplication of effort. These
designed IT solutions often decrease the number of organizations configure and develop their IT
users needed to support business processes. But this systems by process or functional area instead of by
highly favorable outcome typically creates a higher business unit, leading to more efficient, more
cost per user. The same is true of the converse. If a streamlined systems operations. The survey results
company has too many users, perhaps because of are clear on this subject: 87% of all respondents’
poor process structures or training, it achieves a low COEs are centralized, and this percentage climbs to
cost per user – but this low value is misleading 91% for the best-performing companies. A higher
because it is due to undesirable factors. This does percentage of these mature companies address the
not imply that per-user metrics lack value; it merely full solution life cycle in the scope of their COEs.
suggests that companies require multiple metrics to Furthermore, 46% of COEs address the full solution
make valid, balanced business decisions. cycle, from business case development to
The survey identified specific best practices crucial continuous improvement and support.
to clearing these barriers to reducing total cost of These best-in-class COEs evaluate the impact of
ownership: changes on all areas of the business and efficiently
 Certification of the center and equal partnership allocate support services across their areas of
between the business organization and the COE responsibility. Organizations that have aligned
regarding daily operations resources with either new projects or support
initiatives are more likely to contribute directly to
 The institution of value checkups that ensure lower staff turnover, ensuring that they retain talent
value is being achieved and that lessons learned and mitigate the risk of knowledge loss.
are being adopted and incorporated
The survey shows that the development and
 Strong continuous improvement practices deployment of a key or power user program is

The Impact Cost per Concurrent User FTE/100 Concurrent Users


of COEs on
the Total Cost is 13% higher It is 17% more expensive
Cost of 13% 17%
for those without for those without COEs
Ownership COEs

Figure 3
COE No COE COE No COE
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crucial to the overall excellence and success of  Build COEs as early as possible
COEs. Power users are employees of a business unit
 Bifurcate support and new project work
who are proficient in the use of the IT system, with
a higher level of applications knowledge and
STANDARDIZE IT SYSTEMS ACROSS
experience than their peers. These power users are
THE ENTERPRISE
responsible for helping their coworkers effectively
use the software and correctly execute business The degree to which IT systems are standardized
processes and functions. As the first level of support, across the entire business organization plays a key
power users reduce the number of calls into the role in the successful implementation of COEs. The
COE for help and result in labor cost savings. Our study revealed that a high degree of process
study found that 62% of COEs have key or power standardization, a minimum of application and
users in place. solution installations, and limited systems
customization are all crucial to establishing and
The survey identified an important area for driving effective control of IT and business costs.
improvement: the alignment of the corporate
organization. Only half of companies report that This reduces operating costs, ensuring that
they are aligned by business process, revealing that measurable value is realized. While 17% of all
there’s still room to improve IT efficiency by companies reported a high level of standardization,
aligning systems by functionality. an impressive 65% responded that upgrade plans
were in place. Sixty-three percent of companies have
Key best practices found among COEs with optimal system road maps in place, with the degree of
organization include the following: planning ranging from a current view to five-year
 Centralize centers of excellence, both pre- and future views.
postimplementation Echoing a central theme revealed in the study, an
 Build an optimal team with a strong power user effectively optimized COE takes the standard IT
program in place that is staffed by the business support model a step further than the norm –
becoming proactive and forming a partnership with
 Ensure COEs address the full solution life cycle the business unit. This partnership delivers
from business case development to continuous solutions that are true collaborations of IT and the
improvement and support to achieve the business unit, resulting in solutions with greater
expected ROI value, consistency, and efficiency.

% of companies with key/power % of companies aligned by


The Effect user programs in place business process
of Key or
Power 86%
User
Programs
62%
57%
50%

Figure 4
All companies Levels 4 and 5 All companies Levels 4 and 5
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This concept, understandably, applies to system MANAGE PERFORMANCE


upgrades as well. Over 70% of companies that Where performance management is concerned, the
reported late or over-budget projects did not have a study found top performers consistently track
COE in place. Simply put, COEs help ensure on- operating costs and COE investments according to
budget, on-time upgrades by facilitating the clear plan. This must be accompanied by consistent and
definition of an upgrade plan and path. frequent reporting so that companies can take
The survey highlighted the importance of several corrective actions to avoid overruns.
best practices regarding systems standardization: The survey reported that 37% of respondents have a
 Align noncore business with best practices to formal process in place to measure COE
minimize customization performance and that most reviews are conducted
quarterly or twice yearly. Top-performing
 Manage road maps and strategies, making sure companies demonstrated a clear advantage here,
they are in place and updated periodically with 58% of level four and five companies reporting
 Standardize system setup, applying it across the that they have a formal performance management
enterprise to the greatest extent possible plan in place.

 Minimize the use of third-party applications It is also important to be selective and keep a sharp
focus in performance measurements – measuring
 Implement and follow system upgrade plans too many metrics can be counterproductive. One
third of companies in the survey said that they
measure four to six KPIs per project.

% of companies with a high


Standardi- degree of standardization % of companies with road maps
zation and
Road Maps
81% 81%
in COEs

63%

17%

Figure 5
All companies Levels 4 and 5 All companies Levels 4 and 5
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% of companies measure performance The survey identified a number of performance best


practices adopted by top-performing COEs:
58%
 Ensure strong performance management
approach for the COE

37%  Link performance management to the business


case to ensure ROI is met and report on results
 Establish common rules and practices for
measuring performance
 Periodically review KPIs to ensure that they
actually measure performance and promote
appropriate behavior
All Levels 4
companies and 5  Measure value, customers, operations, and
resources
Figure 6: COE Performance Management
 Develop service-level agreements (SLAs) in an
ongoing dialog with customers
 Track and communicate key metrics

% of companies meet/exceed
Customer customer focus requirements
Focus and
Satisfaction 100% % of companies reporting
customer satisfaction
83%
% of companies with business
67%
involvement at biweekly
54% review or feedback meetings

33%
21%

Figure 7 All Levels 4 All Levels 4 All Levels 4


companies and 5 companies and 5 companies and 5
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FOCUS ON THE CUSTOMER We found that while 83% of companies reported


Both COEs and the IT group must keep their focus that their COE meets or exceeds their customer
ever on the bottom line. This essentially means that focus requirements, COEs are not generally well
a project must achieve high customer satisfaction connected with business customers. Limited
ratings to be deemed successful. business involvement at all levels leads to lower
customer satisfaction. Only a third indicated
The survey findings showed a seemingly obvious business involvement in the steering committee,
correlation, but one that is important and and bimonthly stakeholder participation is even
sometimes missed: frequent communications with more limited at only 17%.
customers contribute to improved customer
satisfaction levels. The survey identified a number of customer focus
best practices adopted by top-performing COEs. Top
The ability to track and report on customer performers:
satisfaction is also a contributor to ensuring that
feedback is made available to the COE and that  Achieve high customer satisfaction by ensuring
corrective actions can be taken in an appropriate active business involvement with the core team,
and timely manner. Most companies reported a very steering committee, and stakeholders
high level of customer focus, but, perhaps  Establish a user governance structure
surprisingly, only 54% of companies surveyed
explicitly report on customer satisfaction. Even  Use SLAs to facilitate communication with
among those that do report explicitly, very few customers
involve customers in the review and feedback
communication cycles.

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CONCLUSION: KEY BEST PRACTICES

The ASUG/SAP survey made three overriding  A documented knowledge management process
factors abundantly clear. First, companies with more drives on-time and on-budget performance and
mature COEs can keep their eyes constantly on the needs to include knowledge repository build,
prize of managing customer satisfaction without documentation requirements for support and
losing focus on TCO. Second, COE models that are knowledge packaging, training and help desk
formed in a spirit and atmosphere of collaboration routing, and resolution certification.
and cooperation, aligning business and IT, can
 A centralized COE design drives effective delivery.
better address issues of continuous improvement,
This centralized structure is a key contributor to
leading to an effective COE with optimized
lower TCO.
operation. And third, companies that deploy centers
of excellence realize a lower TCO of their enterprise  Limiting the amount of customization
IT system. contributes to a faster time to market because it
simplifies and shortens the testing and
OVERALL KEY BEST PRACTICES implementation phases.
Several critical best practices emerged among the  Centers of excellence are most effective when
highest ranked companies (level five). The enacted during the initial system implementation
performance drivers that have the highest impact phase.
on COE value achievement are the following:
 Business-owner involvement in decision making
 Centers of excellence affect on-target, on-value drives on-time, on-budget performance. All
performance when they manage all processes and optimal COEs have adopted a business process
functions from problem definition to resolution owner model.
– including support-level functions and roles,
escalation procedures, corrections, interface  Formal power user programs significantly
handling and error correction procedures, help influence programs achieving their expected
desk training, performance metrics definition and goals and value. All organizations with optimally
problem analysis, road map strategy, and design. performing COEs have a power user program in
place. Staffed by the business unit outside of the
COE, power users provide the first line of support
to the business user community.

The Benefits of a Certified COE


Your company can derive many direct benefits from implementing a certified center of excellence,
including the following:
 Providing a proven approach for the effective implementation, maintenance, and improvement of
business solutions
 A familiar and clearly defined starting point for business users, providing assistance with application
and support issues and supplying up-to-date product and business process information
 Management and easy availability of experience and expertise to every corporate unit in equal
measure
 Fast adoption of the business solution to meet changed market requirements or internal changes
 Roll out of best business processes in the corporate units
 Increased COE competence and expertise through training and experience
 Close, individualized end-user support through the in-depth knowledge of COE staff about customer-
specific situations and the position within the group
 Clear definitions of measurable expectations that are then communicated and monitored to ensure
consistency in standards of quality and customer focus
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ABOUT THE SOURCES

ABOUT SAP ABOUT THIS SURVEY


SAP is the world’s leading provider of business The ASUG/SAP Benchmarking and Best Practices
software.* Today, more than 36,200 customers in program is open to participants on an ongoing basis.
more than 120 countries run SAP® applications – Companies are encouraged to participate annually
from distinct solutions addressing the needs of small to track trends, share best practices, and measure
and midsize enterprises to suite offerings for global value realization. In addition to centers of
organizations. Powered by the SAP NetWeaver® excellence, ASUG/SAP Benchmarking programs
platform to drive innovation and enable business exist for several additional areas, including human
change, SAP software helps enterprises of all sizes resources, finance, supply chain planning,
around the world improve customer relationships, manufacturing, new product development and
enhance partner collaboration, and create introduction, customer contact centers, total cost
efficiencies across their supply chains and business of ownership, and governance, risk, and
operations. SAP solution portfolios support the compliance. If you are interested in participating in
unique business processes of more than 25 any of these efforts, or if you would like additional
industries, including high tech, retail, financial copies, please contact:
services, healthcare, and the public sector. With
SAP America Inc.
subsidiaries in more than 50 countries, the company
ASUG/SAP Benchmarking and Best Practices
is listed on several exchanges, including the
Program
Frankfurt stock exchange and NYSE under the
20 Perimeter Summit Boulevard
symbol “SAP.” For more information, please visit
Atlanta, GA 30319
www.sap.com.
Tel: +1 404-943-6477
* SAP defines business software as comprising enterprise resource planning and
related applications such as supply chain management, customer relationship
Fax: +1 404-943-4290
management, product life-cycle management, and supplier relationship E-mail: benchmarking@asug.com
management.

ABOUT ASUG
ASUG is an independent, volunteer-run association
that facilitates knowledge transfer among the
community of SAP customers by providing
customer-driven educational opportunities,
professional networking, and a forum to influence
the future product and service direction of SAP
year-round.
ASUG maintains a unique position within the SAP
community through its combination of highly
focused education tools, access to both subject
matter experts and SAP executives, and personal
networking opportunities. As a result, members
from any size company continuously solve their
SAP-related business problems more efficiently and
cost-effectively, realizing a significant return from
their membership. For more information, please
visit www.asug.com.

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