1505 how pacific coast building products transitioned its it department from a cost center to a...

Case Study: How PCBP Turned Its IT

Department Into a Profit Center Anton Karnaukhov, Pacific Coast Building Products

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Real Experience. Real Advantage.

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Learning Points

Establishing the value of exposing your internal IT resources to

demand from outside companies

Becoming more agile as an IT department

Retaining your top IT talent in these difficult economic times


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Return on Investment

The profit generated by providing consulting services to

external customers is a real reduction to overall IT cost of

your company and thus a direct increase to the “bottom line”


[ What We’ll Cover …

Overview of Pacific Coast Building Products

How did PCBP IT department become a profit center

IT co-op roadmap

Wrap-up

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[ Overview of Pacific Coast Building Products (PCBP)

Privately owned

In operation since 1953

Traditions

Committed to customer service

Committed to our environment

Committed to our communities

Approximately 2200 employees

SAP customer since 1998

Approximately 100 locations around 10 western states, Hawaii, and Canada

Manufacture, distribute, and install products for commercial and residential building

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[ Overview of Pacific Coast Building Products (cont.)

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Shared Services

Dis

tribu

tion

Man

ufa

ctu

ring

Contracting

PABCO

Basalite

Pacific Coast

Supply

Pacific Coast

Building

Services

Pacific Jet Charter

Material Transport

Pacific Coast

Companies, Inc.

(PCCI) – BEST /

BestXperts


[ Overview of PCCI — BEST Department

Business Enhancements Systems & Technologies (BEST)

Mission

We provide sustainable, innovative products, solutions, and

services designed to give Pacific Coast Building Products and its

subsidiaries a competitive advantage by leveraging technology,

information, and business process expertise

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[ BEST Department — By the Numbers

Total employees: 44

Sr. Management: 7

PMO and Training: 5

Technical Support: 7

Information and Development: 5

Master Data: 3

Business Process Experts (BPX): 7

System Administration and Design: 9

Customer Relationship: 1* – filled by various members

Supporting seven PCBP subsidiaries, two full time external customers, ad-hoc consulting services to other customers

SAP named users: 811 internal, 149 external

Computer users: ≈1200

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[ BEST Department — Application Portfolio

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IT co-op roadmap

Wrap-up

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[ Building Houses Became Really Hard

Collapse of the construction market in 2006

Rapid decline in demand

Large scale residential development is pretty much non-existent

anymore

Still no turnaround in sight

Large staff cuts throughout PCBP subsidiaries

Impact on salaries across the board

Pressure from subsidiaries to reduce IT costs

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[ The IT Demand Dilemma

IT skills are in high demand

SAP skills rank consistently as being some of the most sought

after in the industry

It took us years to build a stellar team of SAP professionals

Some of the top experts with numerous publications in SAP

professional journal, technical newsletters and magazines

We have always been very lean, with IT costs typically well below

1% of the company’s revenue

How do we keep our team together?

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[ IT Co-Op to the Rescue!

Originally conceptualized by Mike O’Dell – CIO of Pacific

Coast Building Products

Why couldn’t we share our IT expertise with external

organizations?

SAP experts get to do what they love the most – projects and

new implementations

Help reduce IT cost for both parties by utilizing economies of

scale and sharing solutions that have already been built

Create a profit sharing model to help BEST stay competitive with

our IT compensation

Enable optimal use of talent

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[ Fast-Forward Four Years

BEST now has a successful consulting practice

BestXperts

In spite of the abysmal state of the economy in building

materials we have not had to lay anyone off

In fact, we are actively hiring to keep up with external demand

The revenue that we bring into the company:

Allows us to reduce the admin charge for IT to our subsidiaries

significantly

Allows us to retain our talented IT personnel

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[ The New Face of PCBP IT Department

Seven major external customer accounts

Two successful end-to-end SAP ERP implementations

Hourly and monthly fee arrangements

SAP Basis support for a fixed monthly fee

SAP helpdesk and change requests for a fixed monthly fee

Hourly rate project engagements

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IT co-op roadmap

Wrap-up

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[ IT Co-Op Roadmap

Understanding the value of IT co-op

Building business buy-in

Transforming into an agile IT department

Retaining top IT talent

Getting started – a toolset for your IT organization

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[ Timing Is Perfect

Most companies are already actively looking for ways to

reduce IT costs

Economic pressures will make the possibility of reduced IT

cost much more appealing to the business

Making it easier for you to get business buy-in for the IT co-op

model

IT professionals are looking for new, exciting opportunities as

many industries are getting hammered by the economy

IT co-op will help you to differentiate yourself as an employer

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[ The Value of Agility

Identify and evaluate areas that bring the most business value and look for ways to outsource the rest

Some of the areas that PCBP has successfully outsourced include:

A large portion of ABAP development

SAP NetWeaver® BW daily load monitoring

QA testing

Expand the experience level of your IT staff

We’ve learned a number of new SAP technologies as a result of external customer projects

SAP General Ledger (formerly known as “New G/L”)

Collections Management

Gain access to talented IT staff in other IT organizations when you need it

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[ IT Co-Op Roadmap






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[ How to Get the Business to Support Your Transformation

Start off by utilizing other companies’ IT resources

Get buy-in from executive management

Emphasize new opportunities to:

Purchase solutions that others have already developed at a lower

cost than doing the work internally

Ability to utilize new technology in implementations at other

companies and then use this knowledge to implement them in your

own organization

Engage top business leaders to communicate the value of IT

co-op back to your IT staff

Don’t assume that everyone internally within your IT department

will love the idea of IT co-op

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[ Define the Profit Sharing Model

The PCBP model

A portion of the revenue goes towards covering the internal cost

of hours spent on external customers

A real reduction to overall IT cost of your company

Another portion is shared back with IT staff

Mostly driven by the number of hours and the rate of an individual

resource

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[ Retain Business Support for the Long Run

Establish designated Relationship Managers

Make sure your IT operations are in order

SLAs are established and easily visible

Task prioritization and coordination is key

Outside customers are simply additional business subsidiaries

Establish a clear approval path for new outside customers

Working for competing businesses, conflicts of interest, etc.

Utilize highest possible level of business management for this

approval process (CEOs, division Presidents)

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[ IT Co-Op Roadmap






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[ Get More Done As A Customer

Ability to utilize IT resources from other companies on demand

As opposed to typical consulting firms, most IT shops will be comfortable with an on-demand hourly model since they have plenty of internal demand to keep them busy

Ability to purchase completed solutions from other SAP shops at a much lower cost than developing the solution yourself

We’ve sold a number of solutions that we have built for PCBP to our external customers at a fraction of our internal development cost — WIN-WIN

AR Payment Application – WebDynpro

Reduced the average time to process an A/R payment by 50%

Reduced the total number of screens from 12 to 3

SD pricing mass maintenance transaction

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[ Keep Pace with New Technologies As An IT Provider

Implementing new solutions in other organizations will

potentially make it easier for you to implement them internally

Implementing and seeing Collection Management in action at an

external customer makes it a lot easier for us to plan and

execute the implementation internally

Consultants wanted to charge $50k

We got it done for $6k

Helps us understand true effort and cost involved

Ability to stay on top of newest technology from SAP

SAP NetWeaver® Business Client, SAP General Ledger, etc.

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[ IT Co-Op Roadmap






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[ How to Retain and Acquire Top IT Talent

A profit sharing model can allow your company to offset

recent salary freezes and stagnation that have happened due to

a bad economic climate

Talented IT professionals often look for companies with

abundance of challenging, project-based work

Being a profit center you will be able to potentially outsource or

delegate a larger volume of support to less costly resources

Very few IT shops are currently engaged in an IT co-op model,

so this can serve as a differentiator from other employers

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[ Joys of Being a Profit Center

Marketing your IT department

Logo, slogan, etc.

Sales

How do you acquire new external customers and projects?

At PCBP we tried having a dedicated sales rep, but stepped away

from that approach

Today we rely on word of mouth and a third-party IT co-op web

site to find new customers and jobs

Up-sell and cross-sell with your existing external customers

Making collection calls

Who ever thought you would be calling customers who are past

due on their payments

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[ IT Co-Op Roadmap






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[ Making Sure You Are Legally Protected

Prepare a set of standard legal documents

Master Services Agreement (MSA)

Statement of Work (SOW)

Non-Disclosure Agreement (NDA)

Consulting Agreement (for outside consultants)

Samples are provided with this presentation

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[ Using Your SAP ECC System As a Profit Center

CO - Controlling

Create a separate profit center in SAP for your IT department

SD – Sales and Distribution

Create a separate sales organization, sales office, and plant in SAP

so that you can create sales orders and billing documents

PS – Project Systems

Track each outside project and collect labor and/or material

costs

MM – Materials Management

Utilizing purchase orders to post costs for external resources

and expenses directly to a project

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[ Tracking Revenue and Costs

Assign the sales order item to a WBS element of the project

to track revenue

Create activity types for each employee/pay level to represent

internal hourly cost

Assign activity type to employee master data (Infotype 315)

Post actual hours through CO transaction KB21N to the WBS

element of the project

Post overhead distributions/allocations via transactions KSU5/

KSV5 to the WBS element of the project

Rent, administrative costs

Settle projects to profitability analysis at month-end for gross

margin reporting

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[ Tracking Actual Hours

Microsoft SharePoint can be used as a starting point

SAP transaction CAT2 is an alternative but was more effort for

what PCBP needed

PCBP uses a third-party SaaS tool

Robust API so we built an ABAP interface to post actual hours

from the tool into SAP

We are working with the vendor to make our ABAP interface

available for other companies to use

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[ Finding Jobs

Use your existing network of IT professionals to spread the

word

Engage your IT management to seek IT co-op opportunities in

local IT user groups and organizations

Contact us! We are in the process of building a network of IT

shops that want to share their resources.

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IT co-op roadmap

Wrap-up

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[ Resources

Legal document examples attached to this presentation

MSA, NDA, SOW, Consulting Agreement

Interview of our CIO Mike O’Dell about PCBP journey into IT

co-op

http://searchsap.techtarget.com/news/2240037026/Company-

shares-its-SAP-support-staff-with-others-to-cut-IT-costs

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[ Key Learnings

Right now is the perfect time to engage in IT co-op

Build business buy-in early and start at the top of executive

management

Implement dedicated relationship managers to stay close to

both internal and external customers

Become a more agile IT shop by utilizing resources from other

IT organizations on-demand

Acquire and retain top IT talent by exposing them to exciting

new project work and offering an IT profit sharing plan

Utilize SaaS tools to get up and running quickly

Being a profit center is awesome!

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[ Questions?

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How to contact me:

Anton Karnaukhov

[email protected]


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[

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1505 how pacific coast building products transitioned its it department from a cost center to a...

Documents

real advantage

real reduction

line real experience

competitive advantage

residential building

innovative products

pcbp subsidiaries impact

consulting services