REPORT EXTEND THE VALUE OF SAP TO LABOR MANAGEMENT

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1 REPORT EXTEND THE VALUE OF SAP TO LABOR MANAGEMENT Corporate Headquarters Nucleus Research Inc. 100 State Street Boston, MA Phone: Nucleus Research Inc.

2 THE BOTTOM LINE Most companies have payroll rules with some complexity, such as multiple states and shift differentials or collective bargaining agreements. Nucleus found such companies achieve a greater ROI from using Kronos than SAP for time and attendance management because they can deploy faster, better reduce payroll error rate, and reduce application costs. SITUATION For most companies, there are a number of reasons to consider automating their time and attendance functions: Complexity. In order to accurately complete time and attendance tasks, managers need to track for a large number of employees complex variables, including hours worked, wage rates, pay rules, and leave time, such as sick days and vacation time. Payroll inflation. Because of the complexity of time and attendance tasks, manual systems are vulnerable to costly employee fraud and errors such as buddy punching or extra sick or leave-days that are incorrectly given because managers are overloaded with work rule complexity and attendance data. Productivity. In the absence of automation, time and attendance and payroll functions are labor intensive and costly. Employees must fill out time sheets that are then collected and re-keyed by payroll clerks into a payroll system so that checks can be cut. Compliance. Most work environments are subject to rules arising from collective bargaining agreements and state, local, or federal regulations. Achieving and documenting compliance is both difficult and time consuming, and noncompliance can result in costly penalties. In selecting a vendor for the automation of time and attendance functions, companies often face a choice between deploying a new, best-of-breed solution that is specially built for time and attendance functionality or extending their existing ERP system to employees whose time will be tracked. Companies, and in particular CFOs, often view extension of an ERP system to be a low-cost option, since most of the deployment costs have already been incurred. Additionally, ERP vendors in general, and SAP in particular, often propose extending ERP at little or no additional cost. Deploying a new, best-of-breed time and attendance application such as Kronos is often viewed as the more costly route, since it involves a new software purchase and deployment. Over the course of analyzing numerous deployments of time and attendance systems, Nucleus Research has learned that many companies with ERP deployments also have deployments of best-of-breed time and attendance solutions. In order to learn why companies sometimes choose a solution such as Kronos when automating time and attendance functionality, Nucleus spoke to customers of Kronos who chose to deploy Kronos rather than extend SAP. Companies analyzed in this report include heat transfer product manufacturer Modine, electronics manufacturer Molex, food and beverage company Nestle, appliance manufacturer Westinghouse, and large school departments in Florida and Missouri. 2

3 TOPICS Employee Management Applications Finance / Accounting Human Resources WHY COMPANIES CHOOSE KRONOS OVER SAP Nucleus found that using Kronos to automate time and attendance workflows rather than SAP translated into a number of key returns involving lower software costs, better data acquisition, and less customization. In fact, Nucleus found that SAP users tended to adopt Kronos as a way to extend their ERP platform to time and attendance functions and extend the value of their original investment in SAP. Specific benefits from using Kronos for SAP as either an alternative to SAP or an extension of SAP included: Higher ROI Lower overall costs Faster time to deployment Improved productivity Better data acquisition Better reporting Lower training costs. Higher ROI A major factor in companies selection of Kronos rather than SAP was Kronos s rule management capabilities, which significantly increases a company s ability to achieve ROI by reducing payroll error. Rules management is important because every workplace is subject to rules from a wide variety of sources including collective-bargaining agreements as well as federal, state, and local laws that determine how each employee should be paid for the time they ve worked. Because Nucleus has found the average company without automated time and attendance overpays its employees by an average of 1.2 percent and companies that deploy an automated time and attendance system tend to substantially reduce this cost, the more accurately and readily pay rules are programmed into the system, the higher the cost savings from a time and attendance deployment will be. ROI tip: given most companies complex payroll environments, the more complexity a time and attendance management system can handle, the greater the reduction in payroll error. Better rules management also reduces the costs of both initially deploying a time and labor management system and subsequently managing rules after it is deployed. Companies tend to select Kronos because it not only enables non-technical payroll staff to set the pay rules in the solution even during the initial deployment but it also can accurately handle relatively high levels of rule-environment complexity. For example, if a company were to conclude annual renegotiations of one of several union agreements, the payroll calculator in Kronos could be readily reprogrammed by a member of the payroll department, regardless of the number and complexity of changes that needed to be made to variables such as shift differentials, seniority, tardiness penalties, sick days, overtime rates, holidays, or legal regulations. 3

4 Companies stated that better rules management enabled them to improve payroll accuracy, reduce deployment costs, and minimize the ongoing cost of keeping rules updated: One manager whose organization was in the midst of a 3-year SAP deployment said, I know SAP really well, and I don t think of it as being able to handle much rule complexity in time and labor. Without good rules management, there s no cost savings. All of our bus drivers have different schedules. They drive different routes at different times. So we needed dynamic scheduling or we would have overpaid our drivers. Kronos had it. SAP would have required lots of customization by people who specialize in ABAP SAP s programming language I didn t know if they d be able to handle our ever-changing business rules. Better rules management impacts more than just payroll error. Companies that accurately manage rule environment complexity get fined less, get sanctioned by the unions less often, are subject to fewer lawsuits, and are in a better bargaining position when they sit down to renegotiate labor contracts. ROI tip: Kronos s rules management capabilities enable companies to not only reduce payroll error, but also avoid fines, penalties, lawsuits, and improve positioning in collective-bargaining negotiations. Lower overall costs When selling their ERP systems, vendors often sell multiple components as part of one contract and market the add-ons as additional value for free. This tactic is pursued in order to accelerate sales cycles, drive up adoption, and disrupt the sales efforts of best-of-breed vendors. Nucleus finds that there are often problems with the free software offered by ERP vendors it either never gets deployed or is deployed only after lengthy delays, extensive customization, or expensive code development. Companies deciding whether to use Kronos or SAP should be careful to consider the hidden development and customization costs of free software offered by ERP vendors. The customers who stated that Kronos s capacity for rule environment complexity was a factor in selecting Kronos also said the extensive customization and consulting costs required to deploy SAP was an important factor. These customers pointed out that any customization in SAP requires work by programmers or consultants proficient in ABAP, whose time is far more expensive than professionals in a payroll department who can set rules parameters in Kronos themselves. Other customers were more specific about the anticipated cost of customizing SAP for a time and attendance deployment: SAP would have required expensive customization. We don t consider ourselves a software developer. In my last job, we deployed SAP for time and attendance and it cost more than $300,000 just for configuration of the rules. The Kronos deployment I 4

5 just did here was at least as complex and cost only about $100,000 for everything, including servers, licenses, and badges. SAP was very vague about how much time and attendance would cost. Everyone else gave us a fixed bid. Despite SAP s aggressive tactic of offering free software, a number of customers stated per-seat software costs as a factor in selecting Kronos. When companies deploy a time and attendance solution, it is usually for tracking the hours of employees who are not users of an ERP system. But SAP tends to treat all users equally; a shop-floor worker will have the same per-seat cost as a salaried worker who uses SAP for tasks such as finance or purchasing. Kronos treats shop floor workers as people who are tracked by the solution rather than full-fledged users and has a far lower per-seat cost for these employees. End users readily identified the benefits of Kronos s pricing model compared to SAP s: You have to be a full user to do anything in SAP, and user seats cost between $1,800 and $3,000 each, with 15 to 20 percent maintenance. We just weren t going to pay that much to track every person working on the shop floor. We re tracking 180 employees time and attendance, and it wouldn t have been worth it to buy full SAP seats for each of them. We knew that the software and hardware would have been more expensive from SAP, and they couldn t even come up with a fixed-price bid that we could use to firmly estimate the cost of the deployment. Faster time to deployment Using SAP to acquire time and attendance data requires extending ERP and all its complexity to all of the departments and people whose time and attendance will be recorded. This can be a significant and costly undertaking, involving developers, architects, consultants, and departments other than personnel or payroll. Additionally, these professionals need to be proficient in or at least familiar with ABAP, SAP s proprietary programming language. All of this adds up to inflexibility and complexity that lengthens and complicates a time and attendance deployment if a company selects SAP as its vendor. ERP deployments are often multi-year projects, whereas Kronos deployments typically take less than a year. This means choosing to get time and attendance functionality as the result of a multi-year SAP deployment can be a costly decision for a CFO. For example, if a company with a $10 million payroll delays reduction to a payroll error rate of 1.2 percent for just six months, potential savings of $60,000 would be lost Because payroll is typically a company s largest cost, even a month s delay in automating time and attendance can have a significant impact on the bottom line. The rigidity and complexity of SAP also makes a company s payroll department highly reliant on IT professionals or SAP consultants for tactical tasks such as adding functionalities or fine tuning a deployment. Because Kronos enables rules setting by non-technical members of a payroll department and its functionality is 5

6 far more focused, its deployments are narrower in scope and complexity. Companies stated that this minimizes customization, code development, and the involvement of departments other than personnel. Kronos is pretty flexible when it comes to using the same instance in every plant with minimal modifications, so it can be repeated across the plants more easily than SAP would. All Kronos needed was a little integration work and setting of rules. SAP would have needed a lot more in terms of programming and user interfaces. Payroll departments that use Kronos for time and attendance rather than SAP have more control over their deployments and these deployments are less complex, costly, and time consuming. Improved productivity When selecting a time and attendance system, companies need a solution that will not interfere with or complicate workers workflows or productivity. Because SAP treats all employees as if they are full-fledged users, it requires an employee who wants to record their arrival or departure on the shop floor to complete at least one sign in and tab through several screens all at a fixed PC using a keyboard. This is a far more time consuming workflow than is required with Kronos s system, which allows employees to record arrivals and departures at a bar-code reader or biometric device. For most companies, avoiding the addition of new workflows was a major reason for selecting Kronos rather than SAP: Here is the problem with SAP s production planning: when you arrive at the shop floor, you turn on a PC, then you log on, then you log on to SAP, then four screens in you record the fact that you ve arrived at work. Then you log out so that the guy waiting in line in back of you can do the same thing. For tracking bus drivers hours, we went with Kronos instead of SAP, because there are just too many keystrokes and windows to go through for basic tasks. If payroll had its way, we d use Kronos for everything. With Kronos, operators on the shop floor don t have to touch a single computer screen, since everything is barcode based. Only supervisors should access computers, and only for reporting, exception reporting, and analysis. Companies can improve their employees productivity by using Kronos Terminals for time and attendance rather than a PC-based SAP time and attendance solution. Better data acquisition Companies that use Kronos say that it is easier to gather data than it would have been with SAP, and that they are able to acquire more data of a higher quality. Kronos acquires data through lightweight, small, and easily-deployed bar code scanners or biometric readers. This means that more of them can be deployed at more work areas than would be possible with the PC-based SAP system. Because Kronos time clocks are easily customized to refine the data they capture, companies have a great deal of flexibility in determining what time and attendance data points it will capture. 6

7 Because of its superior data-acquisition capacity, end users typically consider Kronos a high-roi complement that extends the value and functionality of their ERP system: Before deploying Kronos, we had been collecting time cards. SAP never gave you a way to bring electronic punch data into its system. Right until we switched to Kronos, we had people staring at time cards and retyping the data into SAP. With the Kronos clocks, we don t do that anymore. We acquire all our data through Kronos and its time clocks. SAP doesn t have time clocks anyway. So Kronos processes the data, and then Kronos Connect transmits it into SAP. So Kronos is basically our time and labor front end to SAP. We installed Kronos as a data-collection front end for SAP. Attendance and activities data goes into Workforce Central, then it gets uploaded into SAP. Using Kronos as a time and labor front end to SAP is about more than just an easier better way to input time and attendance data into SAP. It enables a company to cost effectively leverage more value from their SAP investment, without increasing its reliance on or investment in SAP. Better reporting Kronos has pre-defined and end-user driven reporting capabilities that enable companies more flexibility in creating the reports they need with less time spent by either developers or report builders. Kronos gives us all of the shop floor reports that we need based on relatively simple queries. It required no report writing, unlike on the SAP side. All of our labor reporting comes out of Kronos, and we make some customized reports in Crystal. We can do this ourselves, but in SAP we this would have required a lot more development, customization, and involvement of the IT department or consultants. Lower training costs Because the features and functionality in Kronos are tightly focused on time and attendance, it is far easier to learn to use than SAP, which is an ERP system designed for technologically sophisticated users and requires far more training. When we deployed Kronos, the shop floor people needed only procedural training about how to use a bar code scanner. SAP has every bell and whistle imaginable in it, but it was not designed with ease of use in mind. This is a problem with an hourly workforce, where ease of use is extremely important. Employees who record their time and attendance at a Kronos terminal require far less training than users of SAP. CONCLUSION When selecting a time and attendance vendor, companies should be aware that they can earn a higher ROI as a result of better rules management, lower software costs and less deployment complexity by adopting a time and attendance solution from Kronos rather than one offered by SAP. Customers have indicated Kronos s capacity for complex rules management, combined with SAP s higher per-seat 7

8 software costs, workflow complexity, and deployment complexity led them to select Kronos as their time and attendance solution rather than SAP. In fact, many of the companies that Nucleus analyzed deployed Kronos as a way to not only acquire time and attendance data, but also improve time and attendance workflows, and extend the value of their investment in SAP. Nucleus Research is a global provider of investigative technology research and advisory services. Building on its unique ROI case study approach, for nearly a decade Nucleus Research has delivered insight and analysis on the true value of technology and strategies for maximizing current investments and exploiting new technology opportunities. For more information or a list of services, visit, call , or info@. 8