As a Chief Executive Officer focus on success, you're likely questioning if this significant investment truly delivers, or if untapped potential remains. This article helps you view SAP as more than an IT cost. Instead, see it as a potent instrument that, with CEO understanding and direction, can substantially improve performance and profitability.
The goal is to equip you with enough knowledge to ask insightful questions and guide your company effectively. We will look at SAP from a CEO's perspective, avoiding overly technical jargon. This approach aims to provide clarity and actionable strategies for executive leadership.
You might ask why my perspective on SAP is relevant to a CEO. My background isn't typical for an SAP consultant; it began far from the corporate tech environment. I grew up in Indiana, earned my pilot's license in high school, and even had a stint drilling water wells – early signs of an entrepreneurial spirit that appreciates practical results and efficiency.
This hands-on, problem-solving mindset was further shaped when I joined the Air Force. Initially, I served as a Crew Chief on F-4 Phantom jets. Later, I transitioned to a Flight Engineer role on C-130 cargo planes, experiencing firsthand the criticality of system reliability and meticulous record-keeping.
After completing my degree, I became a logistics officer. Here's when I got my MBA from the Webster University MBA program. This role placed me in vast aircraft maintenance depots, responsible for complex aircraft like the B-52 bomber and the C-5A Galaxy transport. I also managed a facility whose day-to-day operations included producing thousands of aircraft components, a true test of coordinating many moving parts and essential systems.
These experiences, maintaining sophisticated aircraft and their intricate supply chains, shaped my understanding of operational excellence and helped develop my management skills. The challenges were immense: ensuring aircraft readiness, managing spare parts inventories worth billions, and optimizing maintenance schedules with limited resources. These are not unlike the challenges a CEO faces in running a complex business, where visibility and control are paramount.
This foundation naturally led me to SAP. I obtained certifications in SAP Materials Management (MM), became an SAP ASAP Project Manager, a Business Warehouse (BW) consultant, and later a Strategic Enterprise Management (SEM) consultant. For a significant period, my primary role was Professional Services Manager, which involved extensive interaction with business leaders, including CEOs, understanding their operational pains and strategic objectives.
During these conversations, I encountered recurring themes: disconnected processes, lack of accurate data for decision-making, and struggles with scaling operations efficiently. Ultimately, these broken systems made corporate governance much more difficult, even for the most experienced Chief Executive Officer. Later, as an Industry Principal at SAP, my responsibility was to develop business for SAP. This required a deep comprehension of nearly all SAP modules and, critically, communicating their value proposition to CEOs – answering their most frequent question: "What truly is SAP, and what can it do for my company?"
Fundamentally, SAP is engineered to improve your company's financial performance. It achieves this by either increasing revenue through enhanced sales and customer management, or by reducing operational expenditures through greater efficiency. In essence, it's about optimizing the core mechanics of your business for better profitability.
It helps with your annual business and strategic planning process and facilitates financial planning. It helps with operations management, right down to the factory floor.
The system's origins trace back to a concept known as MRP II, or Manufacturing Resource Planning (often Master Resources Planning). MRP II was an early framework designed to methodically plan all the resources—materials, machinery, labor—required to produce and deliver goods or services. It aimed to bring order to complex manufacturing environments.
In the 1980s, when I first encountered MRP II, it comprised approximately 16 distinct modules. These modules focused on planning every component, tool, and resource within a factory setting. However, these systems often operated in silos, lacking real-time connectivity between different functional areas. It made business leadership more challenging, often hindering rather than helping corporate performance.
SAP revolutionized this by taking those foundational MRP II ideas and developing a commercial software solution. This new system linked manufacturing and operational functions directly with financial applications. This integration is the core strength of SAP, creating a unified view of business operations.
Think back to my Air Force experience. We faced the challenge of replacing thousands of disparate, legacy IT systems. These older systems were incapable of communicating with each other, making it exceedingly difficult to confirm if maintenance procedures were correctly followed or to accurately determine the true cost of any operation. The resulting inefficiencies and lack of transparency led to massive financial waste, amounting to billions.
When I view SAP, I see its integrated design as a direct solution to these types of profound, systemic issues. It provides the tools to plan and execute more effectively across your entire organization, from the shop floor to the executive suite. This leads to better resource allocation, informed decision-making, and ultimately, a stronger competitive position for your company.
SAP is far more than a software product; it's a global corporation with an extensive ecosystem of partners. These partners develop and market thousands of complementary add-on solutions. Many of these are highly specialized for nearly any industry imaginable, from dairy farming and complex manufacturing to professional legal services and even niche sectors like well drilling – a nod to my past experience.
This partner network includes a large contingent of independent SAP consultants. These professionals typically perform the majority of the detailed configuration and implementation work on customer projects. As a CEO, understanding this structure means recognizing that you have access to a wide array of specialized skills beyond SAP's direct employees.
Crucially, customers are an integral part of this SAP ecosystem. Your company's specific business challenges and requirements are, in fact, highly valuable to SAP. They provide the impetus for ongoing innovation and product development.
This dynamic creates a beneficial cycle: customer problems spur the development of new solutions or enhancements. SAP can then refine, productize, and offer these solutions to a wider market, supported by its service network. Furthermore, active user groups, such as the Americas' SAP Users' Group (ASUG), play a significant role by providing collective feedback and helping SAP align its product development with real-world customer needs.
For a CEO, the stability and substantial R&D investment of SAP as a company are also important considerations. Committing to an SAP platform means partnering with an organization that has a long-term vision and the resources to support evolving business requirements, strategic initiatives and technological advancements. This ecosystem provides both innovation and a degree of security for your investment.
Numerous companies operate SAP but fail to extract its full potential. A common reason is that initial implementation projects are often scaled back to meet budgetary constraints. The intention is usually to implement additional functionalities in subsequent phases, but these follow-up projects frequently do not materialize, leaving significant value unrealized for the CEO.
As an integrated system, SAP can capture performance data from every business process it manages. However, if these processes are not comprehensively configured within SAP, or if workarounds exist outside the system, "leakage" occurs. This means critical data isn't captured, leading to an incomplete picture of business performance. This can make preparing auditable financial statements directly from the SAP system difficult, to say the least.
Consider retailers, for example, who invest heavily in marketing and demand forecasting. Despite these efforts, how often does a customer search for a product on a store shelf only to find it out of stock? This lost sale, and the unrecorded customer intent behind it, frequently bypasses the system.
This failure to capture vital demand signals results in missed opportunities to refine forecasting accuracy and optimize inventory replenishment. Modern SAP solutions, particularly those incorporating Customer Relationship Management (CRM) and advanced business intelligence (BI) capabilities, are configured to capture and analyze such interactions, helping to prevent these losses and improve customer satisfaction. Another example could be in manufacturing, where manual tracking of machine downtime outside SAP leads to inaccurate Overall Equipment Effectiveness (OEE) calculations and missed opportunities for predictive maintenance.
To identify these gaps, tools such as the Industry Solution Composer (formerly Solution Map Composer) and the Business Process Repository within SAP Solution Manager can be very useful. These resources allow your team to map SAP's extensive capabilities against your current business processes. They serve as excellent starting points for pinpointing areas ripe for improvement and value extraction.
Additionally, SAP offers specialized services like Value Engineering and Business Transformation Services. These teams can conduct assessments to quantify potential value and help build a business case for further SAP optimization. As a CEO, you can direct your CIO or IT leadership to explore these avenues, asking specific questions like: "Are we leveraging the full scope of our existing SAP licenses?" or "Can a Value Engineering assessment identify quick wins for process improvement?"
Here's a simplified look at common initial SAP scope versus potential extended value:
| Functional Area | Common Initial Scope (Phase 1) | Potential Untapped Value (Phase 2+) |
|---|---|---|
| Finance | General Ledger, Accounts Payable/Receivable | Advanced Treasury & Risk Management, Real-time Financial Closing, Predictive Analytics for Cash Flow. |
| Sales | Order Entry, Billing | Integrated CRM, Mobile Sales Force Automation, Advanced Pricing & Promotions, E-commerce Integration. |
| Supply Chain | Basic Inventory Management, Procurement | Advanced Warehouse Management, Transportation Management, Integrated Business Planning (IBP), Supplier Collaboration Portals. |
| Manufacturing | Production Orders, Basic MRP | Manufacturing Execution Systems (MES) Integration, Quality Management, Predictive Maintenance, Detailed Shop Floor Control. |
| Human Resources | Payroll, Basic Personnel Admin | Talent Management, Succession Planning, Learning Management Systems, Employee Self-Service Analytics. |
Engaging with these resources can provide a clear roadmap for maximizing your SAP investment, directly impacting your company's efficiency and profitability.
For new CEOs, or established leaders seeking fresh avenues for growth and efficiency, your existing SAP system is an excellent starting point for investigation. It's akin to "fishing where the fish are" because the potential for improvement is often significant. This untapped potential frequently stems from the typical SAP sales and implementation cycle, where initial projects prioritize core functionalities to stay within budget, leading to compromises.
Over time, particularly in large, multinational corporations deploying a standardized SAP template across different countries, many business-specific functionalities that provide a competitive edge can be overlooked or deferred. For instance, a distinctive customer service process that differentiates your company might be simplified to fit a global template, potentially diminishing its impact. As CEO, you can champion the review and potential reinstatement of such critical differentiators using SAP's flexible framework.
Meanwhile, SAP continuously releases enhancement packages. These packages deliver new features and functionalities that customers with active maintenance agreements can often activate with relatively minimal effort compared to new implementations. These enhancements can sometimes replace custom code your company developed years ago.
Transitioning custom code to standard SAP functionality means SAP assumes responsibility for maintaining and updating that feature, which is generally a cost-effective and lower-risk approach. SAP also frequently acquires other software companies to broaden its portfolio and integrate new technologies. Consequently, your SAP system likely contains a wealth of capabilities your organization isn't currently leveraging.
What specific opportunities might you uncover? In one project I managed for a major retail client, the initial implementation included only 26 distinct business processes covering finance, logistics, and HR. However, the standard SAP system offered over 2,500 documented processes.
We found that several legacy systems were retained, which ideally should have been replaced by standard SAP modules for better integration and data consistency. You might also discover third-party add-on applications that are now redundant because SAP offers similar, if not superior, native functions. A key CEO directive should be to have your IT and business teams thoroughly evaluate standard SAP capabilities before building custom solutions or renewing subscriptions for external add-ons.
This internal audit can reveal opportunities to reduce complexity, lower maintenance costs, and improve process efficiency by fully utilizing the tools you already own. It's about smart resource allocation and maximizing the return on your existing technology investment. Consider tasking your internal audit team or a specialized SAP group to identify these areas.
Every new leader aims to make a positive impact swiftly. If your company utilizes SAP, conducting a high-level system audit can be an effective way to identify immediate areas for operational improvement and cost savings. You don't need to perform the audit personally; your role is to ask probing questions and secure the appropriate internal or external expertise.
It's important to recognize that your IT landscape likely includes more than just SAP. I have seldom (actually, never) encountered a company that operates exclusively on SAP. Therefore, understanding how SAP integrates with other systems is also part of this assessment.
Begin by requesting a comprehensive system architecture diagram from your CIO or head of IT. Concentrate on the SAP components from a business process perspective. You will likely hear terms such as "Procure-to-Pay," which covers how your company buys goods and services, and "Order-to-Cash," which encompasses how you sell products, deliver services, and collect revenue.
Your objective is to determine if these fundamental end-to-end processes are performing optimally. Are there bottlenecks in procurement slowing down operations? Is your Days Sales Outstanding (DSO) for order-to-cash higher than industry benchmarks? The ultimate aim is to formulate a strategic plan to invest in system improvements that directly enhance profitability.
Key questions for your CIO could include:
Most companies initially implement only a fraction of SAP's total capabilities, primarily due to initial budget and timeline constraints. If your organization has been running core modules like FICO (Finance and Controlling), MM (Materials Management), and SD (Sales and Distribution) for more than five years without continuously incorporating new functionalities or staying current with updates—analogous to regularly updating your smartphone's operating system—your system is likely underperforming. These updates often provide significant performance improvements, new features, and critical security patches.
For instance, basic Sales and Distribution (SD) effectively handles sales order processing. However, to truly cultivate deep customer relationships and personalize engagement in today's market, functionalities available in SAP's Customer Relationship Management (CRM) solution, which integrates tightly with the core ERP system, are invaluable. Similarly, if your field teams lack mobile access to real-time inventory data or service information directly from SAP, you are probably missing opportunities for efficiency and improved customer service, which translates to leaving revenue on the table.
A frequently neglected yet critical area is the Material Requirements Planning (MRP) strategy within SAP. These settings dictate how SAP plans your material procurement and production, influencing inventory levels, stock availability, and production schedules. MRP parameters are typically configured during the initial project implementation and then, often, are not revisited.
This "set it and forget it" approach can be detrimental. I have encountered MRP strategies that remained untouched for over a decade, even while the company experienced persistent stock-outs or, conversely, excessive obsolete inventory. The operational data clearly indicated a need for adjustment, such as changes in lead times, demand patterns, or business models (e.g., shifting from make-to-stock to make-to-order).
However, teams can be hesitant to modify these core settings for fear of disrupting operations. As CEO, you can encourage a periodic review of MRP strategies, especially when business conditions change, to confirm they align with current market realities and support, rather than hinder, your supply chain performance. A misaligned MRP strategy can lead to increased costs through rush orders and excess inventory, or lost sales due to unavailability.
Another potent area for leveraging SAP is in demand generation. SAP itself utilizes its own systems extensively to identify sales opportunities and orchestrate marketing campaigns. Even if your company is primarily using the core Sales and Distribution module, you can execute highly targeted marketing offers and promotions.
Customer lists can be segmented based on purchasing history, demographics, or other attributes stored within SAP. These lists can be uploaded directly or integrated from external marketing automation platforms like HubSpot, which offers cloud-based connectors to SAP CRM. For example, you could identify customers who previously purchased a specific product and offer them a complementary item or an upgrade, or target customers in a specific region with a promotion relevant to local events.
The key is to achieve granular customer segmentation. Without this precision, your marketing efforts risk being too broad, diminishing their effectiveness and potentially allowing more agile competitors to capture market share. Leveraging the data within your SAP system can significantly sharpen your marketing focus and improve campaign ROI.
Astute investors, including prominent figures like Warren Buffet, reportedly consider a company's use of SAP as a positive indicator during due diligence. When Berkshire Hathaway was acquiring the BNSF railroad, BNSF's existing SAP system was viewed favorably. For an investor, a well-implemented SAP system often signals more reliable and transparent financial reporting, which simplifies valuation and risk assessment.
For BNSF, the benefits of SAP extended far beyond financials. They leveraged the platform to enhance critical operational areas such as asset maintenance, employee training and development, rail safety protocols, and overall organizational productivity. Possessing both the robust technical infrastructure of SAP and the skilled personnel to manage it effectively is crucial for attracting significant investment and instilling investor confidence.
Certain venture capital and private equity groups I am familiar with employ a specific strategy when acquiring businesses. They often direct new portfolio companies to implement SAP, typically beginning with the financial modules, almost immediately post-acquisition. They bypass the conventional lengthy ERP selection process.
The rationale behind this approach is their experience that SAP provides one of the fastest paths to obtaining dependable financial data and establishing comparable performance metrics across diverse companies within their portfolio. This capability allows them to benchmark key performance indicators (KPIs) like gross margin, operating expenses, and inventory turnover, even among businesses in disparate industries, facilitating better oversight and strategic guidance.
Companies facing financial difficulties, or even those undergoing bankruptcy proceedings, sometimes choose to implement or upgrade their SAP systems. This can be a strategic move to make the business more appealing to potential buyers or to lay a stronger foundation for emerging from challenging times. Investment bankers find it easier and quicker to assess a company's financial health and prospects if its data is managed on a widely recognized and standardized platform like SAP, which provides a common language for financial analysis.
Beyond transparent financials, SAP helps these companies instill process discipline, achieve better cost control, and improve operational visibility – all essential elements for a successful turnaround and sustained future performance. It signals a commitment to operational excellence.
Let's be direct. Occasionally, to realize the complete advantages of an SAP implementation, the CEO must personally champion the initiative and drive it to completion. This leadership role is not always easy or popular. SAP projects invariably affect nearly every department and individual within an organization.
Change, even when beneficial for the company as a whole, often meets resistance. Departments may resist due to concerns about job security, the need to learn new skills and processes, a loss of familiar routines, or a perceived reduction in departmental autonomy. Only the top leader, the CEO, can effectively navigate these challenges, reinforce the strategic importance, and confirm the project remains aligned with its objectives.
How does this active CEO involvement manifest? I once witnessed a CEO physically move his desk to sit alongside the project manager (me) during a critical phase. This symbolic action powerfully communicated to the entire organization that the project was a top priority and had his unwavering support.
More commonly, executive sponsorship is delegated. However, this approach can be less effective if the delegated sponsor lacks genuine decision-making authority or if their personal or departmental incentives are not directly tied to the project's success. The most effective strategy involves clear delegation of tasks coupled with unambiguous authority and accountability, similar to command structures in the military, where roles and responsibilities are explicitly defined.
Furthermore, well-structured financial and non-financial incentives, cascading from executive leadership down to key users and project team members, are one of the key differences between successful and unsuccessful projects. These incentives must directly support the achievement of the SAP project's specific business goals, fostering a shared commitment to success. Clear and consistent communication from the CEO to the entire business throughout the project is also vital to maintain momentum and address concerns proactively.
Undertaking an SAP implementation can be a demanding process; there is no way to minimize that reality. However, a vast number of success stories across diverse industries testify to its profoundly positive impact. Companies have achieved significant outcomes, such as accelerated market share growth, quicker product development cycles, enhanced regulatory compliance, and substantial cost reductions.
The critical factor in achieving these successes is the definition of clear, measurable business goals, supported by solid financial metrics, from the outset. If these predefined objectives are met or exceeded, the considerable effort and investment are unquestionably justified. This underscores the importance of a benefits realization plan that is tracked post-implementation.
Based on my extensive experience, nearly every client I have collaborated with has witnessed rapid, quantifiable, and positive outcomes when their SAP project was managed effectively with strong governance and effective communication by the Chief Executive Officer. The SAP software itself is rarely the primary source of project difficulties. True success hinges on developing a robust business case and maintaining an unwavering focus on the strategic end goals, all consistently driven by a compelling CEO vision and steadfast leadership.
This business case, from a CEO's viewpoint, should clearly articulate the expected return on investment (ROI), its alignment with the overall corporate strategy, and how it will mitigate operational risks or create new competitive advantages. It's the CEO's role to continually reinforce these strategic objectives, especially when the project team encounters the inevitable complexities and pressures of a large-scale transformation.
So, what are the principal insights a CEO should understand about SAP?
As a CEO, deep technical knowledge of SAP isn't required. However, a solid understanding of its potential benefits, common pitfalls, and overarching strategic importance to your business is crucial. SAP transcends being just software; it functions as a powerful operational engine for your enterprise.
When a CEO actively shapes and directs the company's SAP strategy, the system can become a significant catalyst for improved financial results and more streamlined operations. This leadership helps align the technology with the company's most ambitious goals. Confirming that your SAP system consistently works to support, rather than hinder, your business objectives is a fundamental responsibility of contemporary CEO leadership.
Effectively leveraged, SAP can genuinely transform how your business operates, competes, and innovates in its market. It is not a one-time project but an evolving platform that, with ongoing attention and strategic guidance, can continue to deliver value for years to come. This commitment to continuous improvement with SAP is a hallmark of forward-thinking executive management. Want to learn more about what a CEO should know about CEO? Get my FREE ebook "CEO's Guide to SAP" by clicking the button.
We are a full-service Hubspot Certified Inbound Marketing and Sales Agency. We provide unbiased SAP Advisory Services to CEO's who want to get additional value from their systems. In addition, we work to integrate your SAP System with Hubspot and Salesforce, where we have a deep delivery capability based on years of experience. Please our book a meeting service to get started.