case 6 sap for atlam

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C A S E 6 Asian Journal of Case Research 4(S): 79 – 93 (2011)

SAP for ATLAM

AINI AMANa* AND GAZALI JAAFARb

ABSTRACTIt had been December 2001 and the management of ATLAM, a wholly owned organisation of MICT Berhad, had been asked to upgrade its accounting system with the PETRA group-wide SAP system. The move was anticipated to be overwhelming. Zulkifli Osman, the Finance Manager, had to critically assess the risks associated with the decision. He remembered a conversation that he had had with the Senior Finance Manager of PETRA where it had been mentioned that the costs of implementing SAP in ATLAM was not actually the main concern. It had been more of whether ATLAM’s staff would be ready to embrace the new system. With these in mind, he had to evaluate the decision to upgrade ATLAM’s current accounting system to the SAP system. The existing economic crisis acted as an additional element to the decision as Zulkifli had to ensure the best possible outcome for the organisation. The proposed SAP system was scheduled to be phased in by 1 April 2002 i.e. the start of the new financial year.

Keywords: Corporation Sector, Management, Accounting, Information Technology/System

ABOUT ATLAMThe need to train and prepare Malaysians for the maritime industry had been addressed with the establishment of Akademi Teknikal Laut Malaysia (ATLAM) on 15 August 1981. It was then subsequently privatised on 1 January 1997. Its vision was to be a leader in maritime education and training, while its mission was to facilitate value added learning via a conducive environment and provide excellent services to its clients. The academy, located in Melaka and Terengganu, had 195 staff by 2001; 89 of them were in administration and the remaining 106 in training.

a School of Accounting, Faculty of Economics & Business, Universiti Kebangsaan Malaysiab A member of the Malaysian Institute of Accountants (MIA) and the Chartered Institute of Management Accountants (CIMA), UK* Corresponding author: E-mail: [email protected]

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The management structure of ATLAM (Figure 1) consisted of a Chief Executive Officer, a Corporate Affairs Director, a Training and Education Director, a Finance and Accounts Manager, a Registrar, a Head of Marine Engineering, and a Head of Human Resource Management and Administration. Zulkifli had

Figure 1 Management structure of ATLAM

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been the Finance and Accounts Manager since 1995. The Finance and Accounts Department consisted of an Assistant Manager, a Senior Accounts Assistant, a Finance Executive and three Accounts Assistants (Figure 2). If SAP was to be implemented in ATLAM, a SAP executive had to be added to the department. This was to ensure that there would be someone to guide the key users of the system, who were to be the staff in Finance and Accounts, as well as related personnel from other departments.

Figure 2 Finance and accounts department structure

IT INFRASTRUCTUREATLAM overhauled its Information Technology (IT) facilities in 2000. Before this, they had been in a very poor state. A study on ATLAM was conducted in 1997 by the World Maritime University and it had deemed ATLAM to be behind its other compatriots in Europe and Japan in terms of IT infrastructure. The 1997 privatisation of ATLAM resulted in the introduction of new shareholders and brought the academy into the fold of the PETRA Group of Companies. This provided ATLAM with the access to better IT facilities. At the same time, it was identified that all of PETRA’s servers had to be consolidated to leverage its group-wide PETRANET network system. The PETRA IT Centre, based in Kuala Lumpur, hosted all of PETRA’s applications in terms of network utilisation and other related support resources. As far as ATLAM was concerned, applications would be resided off-site at the subsidiaries when needed i.e. technology constraints, insufficient bandwidth, etc.

In addition, ATLAM was to follow PETRA’s IT infrastructure standards where such functions were involved i.e. telecommunications (LAN and WAN),

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network computing, server and desktop administration, and voice and video data handling and maintenance. It was to use PETRA’s standard desktop software i.e. NADII 2000, SAP, OA, and all relevant intranet applications. ATLAM’s IT solutions were implemented in 2001, based on three objectives that were relevant to the establishment of a campus-wide network, which had been classified as the Project’s Phase 1:

1. To link core buildings into the network: the Administration Buildings (No. 16 & 17), the Library (No. 27), the Office Block (No. 23), and the Academic Office (No. 7)

2. To establish networked Office Automation (OA) tools, notes mail, and a centralised softcopy filing facility for a maximum of 250 users (local area networks (LAN) and applications), and

3. To link ATLAM to the PETRA Network (PETRANET) so as to allow the use of group-wide applications such as the Digital Library and the SAP system (wide area networks or WAN).

The total cost for the implementation of Phase 1, anticipated for completion in 2002, had been RM1.3 million.

ACCOUNTING SYSTEMBefore 2001, ATLAM relied on a customised single-user system bought from a vendor. The academy’s desktop computers (PCs) were solely used to enter accounting entries. The system had not been functioned to produce financial reports. In light of the circumstances, ATLAM needed to look for alternatives to upgrade its accounting system. At that point, the ones available had been ACCPAC, an accounting package, and PETRA’s group-wide SAP system. Table 1 shows the preliminary study conducted by the top management on the functionalities.

SAP stood for Systems, Applications and Products in data processing. It was an integrated business applications package that covered most functions of an organisation. SAP had been created by SAP AG, founded in Germany in 1972. The SAP R/2 version was released in 1975. This was followed by SAP R/3 version in 1992. The SAP R/3 core modules had the following: Financial Accounting (FI), Controlling (CO), Asset Management (AM), Sales & Distribution (SD), Materials Management (MM), Human Resources (HR), Plant Maintenance (PM), Project Systems (PS), BASIS System. ATLAM had the alternative to implement all of SAP R/3 or exclude the Plant Maintenance, Project System and BASIS System modules. Table 2 shows costs analysis of implementing SAP.

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Table 1 ACCPAC vs. Petra’s group-wide SAP

ACCPAC SAP

A fast track implementation software that was ready for use within a short period of time.

Implementing the system involved a number of months.

Had vendor-ready support; system’s “how-to” limitation did not represent obstacle.

Had in-house support from SBS team of Petra Group; system’s operational “how-to” limitation was negligible.

A close resemblance to the standard PETRA Chart of Accounts, requiring slight modification to account codes.

The standard Chart of Accounts was applicable to all companies within the PETRA Group under the SAP system.

The system could run segmental reporting - account codes would be used to reflect the respective accounts to the corresponding segments (e.g. by department). No provision for separate cost centres. Complex segmental reporting was possible but required add-on software to produce the necessary results.

Cost centres could be maintained separately, allowing for complex segmental reporting e.g. divisional profit and loss, variance analysis etc. A development of the cost centre hierarchy was necessary.

No provision for integration of accounting data with other PETRA units.

Provision for integration of data e.g. inter-company invoicing, made possible via “Electronic Inter-Company Billing” (EIB).

System maintenance e.g. data backup, hard disk space etc. would have to be done manually by staff.

System maintenance and support were possible. IT Support, providing leeway for quick resolutions.

Audit points raised during procurement process might not be resolved.

Audit points raised during procurement process might be resolved with the provision of the Materials Management Module (MMM).

Zulkifli believed that implementing SAP involved unique risks and challenges. He knew that it was important to have a defined project scope. It made it necessary to keep the entire project focused on delivering the implementation with the identified functionalities. This would ensure that the new solution would fit with the existing business model. A change in current business rules was anticipated to be necessary to ensure a smoother transition to the SAP system.

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Table 2 Estimated costs (RM) of PETRA’s group-wide SAP system

Year 1 2 3 4 5 6

Accountant’s time and efficiency

- 400,000 800,000 1,200,000 1,600,000 2,000,000

Technical expertise cost savings

600,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000

Process and procedures cost savings

500,000 900,000 1,200,000 1,5000 1,800,000

Average SAP license cost

- 150,000 200,000 225,000 250,000 250,000

Cost to convert old data to new data

100,000 160,000 180,000 560,000 600,000 640,000

Cost of overheads 300,000 420,000 490,000 560,000 600,000 640,000 Cost of system

maintenance and firewalls

60,000 120,000 130,000 140,000 150,000 160,000

Cost of hardware expansion

- 260,000 300,000 340,000 380,000 400,000

Cost of training 500,000 800,000 900,000 1,000,000 1,100,000 1,300,000

THE FIRST MEETING: FRIDAY, 22 JANUARY 2002Zulkifli scheduled a meeting to discuss on the new system upgrade on 22 January 2002. He had invited Sani (Project Manager), Gopal (User Project Manager), Lim (User Representative) and Kamal (Functional Analyst) to discuss about implementing SAP in ATLAM.

Zulkifli : Goodmorning, guys!Ourmain agenda today isto decide on whether we can implement SAP asour new accounting system. As you’d probablyremember, it was back in December 2001 thatthemanagementdecidedtoswitchto thePETRAgroup-wide SAP system. This new system shouldbereadyfortotalcutoverby1April2002.

Lim : Sorry to interrupt, but why SAP? Why not anyothersoftwarepackage?WhynotACCPAC?

Zulkifli : Well,blameitontimeconstraint.Atthemoment,it’s viewed as urgent that we implement a newsystemsincethedecisiontoupgradehasalreadybeenmade.

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Lim : ATLAM had been billed by the hour when theSAPBusinessSupportTeamcameover. Itwasn’tcheap!Weshouldbethinkingofsavingmoney.Ifwe implement SAP, we need to consider beyondthosenumbers thatwehave.Weshouldconsiderbothfinancialandnon-financial informationandtheirstrategicimplicationsinthelong-run.

From what I hear, with ACCPAC, it costsapproximately RM50,000. This depends onthe scope of functions, the number of users, itsinstallation costs, the training required etc.WithSAP,theinitialsoftwareitself(inclusiveofprojectexpenses and thePIFSandMMMmodules)willcostusaboutRM1,000,000.

Zulkifli : Well....

Lim : Whatabouttheannuallicensefees?Thelicenseisbasedonaoneuserper-taskformula.SoeachuserwillhavetobegivenanID1.Anddon’tforget,itisasecurityissue.Forallinternalcontrolandauditpurposes,wehavetoallocateoneIDperuserpertask.That’sgoingtocostus.

Our 2001 capital expenditure came toRM6,703,570, of which RM5,000,000 was forthis SAP implementation. It’s huge! Let’s see.ThehardwarehadbeenRM2,000,000, the initialsoftware license another RM1,000,000, thetraining costs went up to RM1,271,550, and thecustomisationworktotalledtoRM72,840.

Zulkifli : I know.Don’t thinkwe’ve not given any thoughtabout it.Theonlyway tocut thecostof licenseswouldbetolimitthenumberofusers.Infact,(herefers to thefiguresbeforehim)RM1,188,841ofour capital expenditure would be financed byinternalfunds;thebalancewouldbecomingfromthe PETRA group. Our working capital savingshavebeenestimatedtobeatRM900,000inYear1,RM1,200,000inYear2,andRM1,500,000inYears3,4,5and6.

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Lim : At this moment, it’s impossible for ATLAM tobear the SAP implementation costs and theaccompanying operational costs. ATLAM’s cashflowasatDecember2001wasatadeficit.Imean,takealookatthis(hewavesanoteonAppendixA)! Plus, I don’t think it’s viable to implementSAP inATLAM.As faras Iknow,SAP’ssuitableforthemanufacturingindustry,nottheeducationindustry.

Zulkifli : Howcanyousaythat?I’vebeenrunningone-to-oneSAPdemoswithsomeofourstaff.Theyseemedalright.AllIknowisthatweneedtomakethisSAPprojectcomealiveandtheonlywaytodothatistoensuregoodprojectplanningandscheduling.

Gopal : Youmake itseemall tooeasy.Look,youhaven’teven discussed about the SAP implementationsince the initial announcement last month!Anyway, I agree with Lim.We just can’t get theuserstouseSAPnow.Theywillnotbeabletoseehowit’sgoingtohelpthemwithinthisshorttime.

Sani : Holdon,everyone.We,atSAPBusinessSupport,have worked on several SAP projects in otherPETRA units before, andwe knowwhere you’recoming from.Whatwe usually do is thatwe getthesenioraccountsclerkstoparticipateinapilotsession so that they’ll learn how to use it firstbeforerollingitouttotheothers.Yes,Iadmit,atfirst, the responsewill seemmiserable, but frompastexperiences,weknowwecanmanageit.Wejustneedtofigureoutonhowtoeasethemintoit.

Beforethat,youguysreallyneedtoagreeonthis-ACCPACorSAP?Let’stakea10minutebreak…it’shotinhere!

Lim : Agreed.ButI’veanothermeeting.Let’smeetagaintomorrow.Wemaythinkdifferentlythen.

Zulkifli : Ok.Inthatcase,perhapsweshouldstopnow.Let’sgettogetheragaintomorrowand,hopefully,allofuscancometoanagreement.Thanks,guys!

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THE SECOND MEETING: SATURDAY, 23 JANUARY 2002

Zulkifli : Heyeveryone.I...(beforeZulkiflifinisheshislines,Liminterrupts).

Lim : Zul,Icouldn’tsleepawinklastnight.AllIdidwasthinkaboutthisSAPimplementationbusiness

Youhavenoclueaboutwhat’sbeenhappeningintheFinanceandAccountsDepartmentatATLAM.We’vebeentryingsohardtogetsomecorporateattention.SAPisimpracticalhere,itisimpossible!Wedon’tevenhaveenoughPCsinthedepartment!HowoneartharewetouseSAP?Imean,wecan’tbesayingtothemthattheycanusethePCsfromthe other departments. That’s just not practical!SomeofthestaffhaveneverusedaPCbefore.It’sjust crazy to think that all ofATLAM’s staffwillneedtouseSAP.

Zulkifli : Look.Wewillgivethemtimetoadjust.Soonerorlater,they’lleventuallylearntousethesystemwiththerightdatatoproducetherightreport.They’llquickly see that their livesaregoing tobemadeeasierbyusingSAP.Imean,beforetheyknowit,they’lllearntousethePCtoo!You’resupposedtobethinkingaboutturningATLAMaround.It’snotaboutyou,youknow.

Gopal : Let’s face it,we’reanolddivision.We justdon’thaveenoughPCs in thedepartment tomake thispractical.Wedon’tevenhavethespaceavailabletohousethemifwehadany.NowaycanwerolloutSAPbytheendofApril.We’realreadyinourthirdweekofJanuary.Noway!

Lim : Thanks,Gopal.Zul,rememberpre-2001?ATLAMhadthiscustomisedsystemboughtfromavendor.It was a single user system. The PCs were onlyusedtoenterdebitsandcredits.

Zulkifli : Lim, just so youknow that thisplan for thenewInformation Technology (IT) infrastructure inATLAMstartedoutin2000.ThisneedforSAPis

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morecriticalnowand,sinceATLAM’sprivatisation,thefocusismovingnolongertowardsreportingonexpensesbutmoreofreportingonprofitandloss.Furthermore,weareaPETRAsubsidiaryand,likeitornot,ATLAMhastolinkitssystemtoPETRA’stomatchwiththegroupreportingstructure.

Lim : But, SAP can’t produce an accounting reportanyway.Andtheendreportthatit’sabletomanagewill not meet ATLAM’s requirement for internalreporting.Ifyouwanttorequestforacustomisedreport, it’s going to cost about RM10,000 perreport.TheonlywaytosavecostistotransferthedatafromtheSAPdatabasetoExcelandproducethereportviaExcel.What’sthepointthen?

Zulkifli : Look, Lim … Gopal, it’s a little late to becomplainingnowthatyoudon’thavetheresourcestodoyourjob!

You’rethisclosetolearningaboutthebestsoftwareknown to the industry and you’re complaining?Whathappenedbetweennowandwhen youfirstaccepted to be in the project? You want out ofSAP?Go talk to Faris, the project sponsor. TellhimthatATLAMisnotreadyforSAP!Untilthen,SAPstays.

Kamal : Cooldown,Zul.Guys(lookingatLimandGopal),personally,withSAP,we’llstillgoingtobedoingthesametypeofwork;it’sjustthatwe’llbedoingthem better, faster, and needing fewer resources.We’ll be able to better integrate our operationaldata, and access that data quicker, and that’sgood for decision making. At the same time,implementingSAPwillputusinastrongpositiontoleveragefuturetechnologicalimprovementsandprocess innovations. I anticipate thatwe’ll growwiththesystemovertime.

Lim : I hope that’s true, Kamal. The thing is, the SAPdatabase is pretty much centralised across allPETRAsubsidiaries.Iforeseeproblemsindealing

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with centralised data in thatmassive volumes ofdata are likely to lead to ‘traffic jams’ with thethousands of users using the system at the sametime.

Sani : Noworriesaboutthat,Lim.PETRAhasapolicy.Ifanyofuswanttorunareport,wemustrunthereportafter4pmtoavoidthe‘trafficjam’.

Gopal : What about back-ups? What if the system‘crashes’?With all the transactions going on atone time, there’sapossibilityof losingdata,youknow.

Zulkifli : That’sgoodinput,Gopal.Thanks.We’lldefinitelytake that into consideration.Now, going back tothat issueabout ‘user rejection’ issues. I suggestwetrainthem.

Sani : True. We can always train the users. Trainingfull-time takesabout threeweeks.Eachuserwillprobably receive about 3-5 days of training onprocessandsystemaspects.Trainingwillbehands-on, team-oriented, and continuously mentored,and oriented around employees’ job roles likeprocessing customer orders, moving inventoryaround,andmakinggeneralledgerentries,ratherthanjustusingtheR/3system.

Gopal : Youdoknowthattraditionalsystemstrainingwillnot work very well for the SAP implementation,right? This is not about a technology changebut it’s also about a change in work processes,culture, and habits. These are very difficultthings to change. You’re talking about changingattitudes and job roles that have been ingrainedinemployees’mindsforyearsand,insomecases,decades. Systems training will likely overwhelmless sophisticated users and they’ll think, ‘DearGod,I’venoclue towhat this isallabout.WhatamItodoifthescreenfreezes?HowdoIhandleexceptions?I’msuretofail.’

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Sani : I understand. But training’s not about how theyshouldusethesystem;it’sabouthowtheyshoulddo their jobwhileusing the system. Inourcase,it’s going to be more of a regular on-the-jobtrainingrather thansystems training.Employeesareexpectedtoapproachthisassomethingthat’sgoingtohelpthemdotheirjobsbetter.

Kamal : Agreed.Atleast,35ofthemneedtobetrainedtoensurethattheyareabletouseSAP.ThetrainingshouldnotbelimitedtojustFinanceandAccountsbutweshouldalsoincludeotherdepartments.

Zulkifli : Thanks.We’vetakenthatintoconsideration.WhatweneedtodoistodevelopatrainingscheduleandIthinkwecandiscussthatandotherrelatedissuesinthenextmeeting.Areweagreedthattheuserswhoaregoingtobeusingthesystemwillhavetobe trained? I think one to twoweeks of trainingwilldo.Forthosewhodonothaveanaccountingbackground, their training isgoing toneedmorethantwoweeks.

Lim : It’s not going to be that easy, especially sinceATLAM was previously a government agency.These individuals are strong characters and arequite conservative. They went through a badexperienceduringATLAM’sprivatisationexercise.Some of the positions had to be cut off to savecosts.They’reafraidthatthesamething’sgoingtooccurhere.

Sani : Please tell them, not to worry. Their positionsare not going to be affected. I’ve talked to thetop management. There’s not going to be anycostcuttingintermsofhumanresources.Infact,implementing SAPwill allowus to savemore intermsofincreasingeffectivenessandefficiencyofaccountsandreportpreparation.

Zulkifli : Agreed.Iproposeforacost-benefitanalysissothatwe can ensure that the benefits of implementingSAPwillbehigherthanACCPAC.

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Letmesummarisewhatweneedtodobeforethenextmeeting.Wemustoutlineourimplementationstrategies with regard to staff, financial positionand organisational infrastructure to ensure thebestpossibleoutcomeforATLAM.

Firstly, we need to perform a feasibility studyof SAP and a cost benefit analysis in order toensure that the decision to implement SAP isviable. Assuming that depreciation’s going to beat 34% for six years, the internal rate of returnat 25%with a discount rate of 10%,we’ll needtocompute the followingaspartof theanalysis:initialinvestment,after-taxcashflowsforYears1through6,paybackperiod,netpresentvalueandinternalrateofreturn.

Secondly,weneedtoprepareaworkingschedule–let’suseaGanttchartoraPertChartforthis-toensureatimelyandsuccessfulimplementation.

And,finally,weneedfindwaysonhowtoovercomestaffresistancetothisSAPimplementation.

Suddenly,Alice,thesecretaryknockedatthedoorof themeeting room.She said that theirmeetingroomhadbeenscheduledforanothermeetingandtheyhave toend themeeting soon.Manypeopleweregatheringoutsidethedoor.Zulkifliendedthemeetingonthespot.Theteammemberscollectedtheirpapersandlefttheroom.

TWO WEEKS AFTER THE MEETINGKamal met Zulkifli at the corridor.

Kamal : WhathappenedtoLim?

Zulkifli : Ithadtobedone.Timewasterscannotsimplybetoleratedintheprojectteam.

Kamal : Wait. I thought, officially, he withdrew from theproject.

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Zulkifli : No,notexactly.Iregretthatithadtoendthewayitdid.HewasveryupsetaboutSAP.Heraisedtoomanyissuesandaskedtoomanyquestionsintothereliabilityofthesystem.Iwasafraidthathewouldinfluencetheotherswithhisviews.

Kamal : Wait aminute. I disagree.He’s very experiencedandheknewwhathewasdoing.Hewascriticalbut his ideas should have been taken intoconsideration.Therewasnoneed togethimoutfromtheprojectteam!

Kamal’s comments hit Zulkifli hard that he took another look at his action of terminating Lim from the project team. Did he do the right thing?

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APPENDIX A

Cash Flow As at 31 December 2001

Net cash inflow from operating activities RM 196,000Return on Investment and servicing of finance

Income from endowments received 386,000Other income from investments and interest received 114,000Interest paid (71,000)

Net cash inflow from return on investments and servicing of finance 431,000Taxation -Capital expenditure and financial investment

Net acquisition or tangible fixed assets (411,000)Net acquisition of endowment asset investments (409,000)Endowment received 766,000

Net cash outflow from capital expenditure and financial investment (54,000)

Net Cash inflow before use of liquid resources and financing 573,000

Management of liquid resourcesNet disposal of short term investment (644,000)Financing (309,000)

(Decrease)/Increase in cash (380,000)

Reconciliation of net cash flow to movement in net debt(Decrease)/Increase in cash for the year (380,000)Management of liquid resources 644,000Financing 309,000Change in net debt 573,000Net debt at 1 January (4,038,000)

Net debt at 31 December (3,465,000)

case 6 sap for atlam

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