Many media organisations using SAP ERP have an ageing implementation focused on financials, HR and, sometimes, limited implementation of the logistics modules to support the finance implementation. Post implementation these systems can go into a cycle of underinvestment as sponsors move on, and executives struggle to understand the value of the initial investments.
This can lead to a degree of stagnation as organisations then undertake only essential maintenance. The initial business cases and benefits can quickly get lost. Within a few years the SAP ERP system may be seen merely as an expensive, inflexible way of producing point-in-time financial statements and inaccurate margin reporting (as nobody understands the rules that apportion costs and revenues). This leads to a vicious circle, as a lack of business interest in improving information in the ERP platform beyond the merely financial leads to a further lack of perceived value generated. In the end the platform is seen as an expensive burden to the business, which can even go so far as to look at replacing the ERP system.
Why replacing the SAP ERP system can be a costly mistake
This is a major mistake. The costs of migrating away from SAP, even to a “tier-two” alternative, are frequently underestimated as the migration itself can suffer from incompatible data structures. Interfaces also need to be recreated and retested often several times, and the level of business change to learn and understand a new system is hard to compute. The final nail in the coffin of this approach is that businesses often take a like-for-like approach to functionality, leaving a new ERP that delivers no more value than the SAP ERP which it replaces.
So what is the alternative? The alternative is to maximise the value in the existing SAP ERP platform
This has three concrete advantages:
- It doesn’t require significant new licensing
- It can generate real business impact in the short term as the data is already there and available
- It can supplant reporting which is being run in other systems of the landscape, reducing the need for internal reconciliation and ensuring ‘one source of the truth’.
But the biggest benefit is in the improved reputation of the platform. Transforming the question from “how can we move away from SAP?” to “how can we generate even more value?”
Often there is reluctance to attempt projects of this type because they can lead to challenges with the source data, but there is chicken and egg thinking to this. Until value adding reporting is made available, there is no incentive to ensure data is correctly entered. Once the reporting is in place this will drive improvements in data collection as the business recognise the value of correct data entry. This disrupts the vicious circle. Quickly the value of the data that is being collected becomes more apparent and this itself helps support the business case for more strategic systems renovations.
Six areas that are under-represented by reporting in the media sector
1. Cycle time reports
WBS elements are often used to collect fixed project costs in reporting. They can provide some degree of analysis on cost types incurred, and provide work in progress accruals and settlement to profitability analysis. However, taking a more longitudinal perspective it is possible to view the length of time different product types take to come to market and to understand at what stages in the fabrication cycle the majority of costs are incurred. An analysis of these patterns can help to reduce the overall time to market as well as moving spending nearer to the back end of the cycle.
2. Customer performance reporting
Typically credit controllers identify customers who are overdue for payment. This type of reporting is well understood and most SAP ERP systems provide relatively good age-of-debt and overdue customer reports either directly or through integration with other credit management tools. However, there is a lot more information that can be extracted from ERP about customer behaviour. On the finance side this is about how well payment terms are exploited and whether different terms or payment discounts could be used to incentivise certain customers. On the relationship side, the number and size of credit notes compared to the average can be an important indication of customer dissatisfaction.
3. Supplier performance reporting
The control over goods suppliers can be very strict, but relationship management of service suppliers is often more informal. Media companies often feel that the benefits are too small to tackle procurement issues head on, but without licensing further components for supplier management, there is already a wealth of information in a standard ERP purchasing system that can be used to understand suppliers. Some indicators can determine how well a supplier is delivering, for example the length of time that service confirmation differs from plan. Limited category management can be also be managed purely through ERP without buying expensive additional software. Prices can be compared between similar suppliers by intelligent grouping. Once small steps are made in this direction a much stronger business case can be made for going further and increasing the functionality.
4. Balance sheet analysis
Much of the focus has historically been on drawing P&L from the ERP system. High level cash flow reporting is also often taken from the core system, but there is often little breakdown provided to align the cash impacts with where spend is actually taking place. There is a parallel question of how quickly revenues translate into cash. Most royalty contracts assert that royalties are due on cash received, not on revenue, but for ease of calculation and matching many media companies pay away on revenue as a proxy, but they can be unaware of the impact this has on their cash position.
There is also often a lack of analysis around investments. In the broadcast sector working capital bloat can occur around programme investments. Channel managers who are incentivised purely on profit have little incentive not to run up stocks of unused programmes, as these often only impact their bottom line at the point at which they are aired. Better analysis of content investments and better attribution of investment to managers is the answer; but the underlying data is more than likely already available in the fixed asset module of your ERP.
5. Exception reports
Another type of reporting which is relatively easy to produce from existing SAP systems, but is very underexploited, is exception reporting. Reporting of this type can quickly highlight when KPIs go outside of certain predefined limits. This could be used to identify and highlight underperforming IP or territories from a margin perspective.
6. Trend analysis
Point-in-time analysis can be supplemented by trend reporting. Looking at how data series change over time. Examples of this could be revenue by territory – where targeting growth areas for marketing spend can drive first mover advantage. If this is supplemented with product type or genre information it can improve market segmentation.
Remember much of this reporting can be produced with very limited investment. Not all these types of reporting will be relevant for all media organisations, but I strongly believe in the principle of looking for places where existing information can add significant value to your organisation without breaking the bank on licensing new tools. Once the system is delivering real value to the organisation, then is the time to look at upgrades and increased functionality.