mySAP™ HUMAN RESOURCES AT DOW CORNING

SAP Case Study

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Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Study Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6The Silicone Industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Dow Corning: Company Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

The Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Problem: Decentralization Created Inefficiencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Solution: SAP R/3 Global Single Instance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

mySAP HR: Impact on Dow Corning HR Organization and Processes . . . . . . . . . . . . . . . . 9Business Process: Managing Global Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9– Before Implementing mySAP HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9– After Implementing mySAP HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10– Impact of mySAP HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Business Process: Time Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12– Before Implementing mySAP HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12– After Implementing mySAP HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12– Impact of mySAP HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Business Process (Phase 1): Net Payroll Outsourced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14– Before Implementing mySAP HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14– After Implementing mySAP HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Business Process (Phase 2): Net Payroll Process Brought In-House . . . . . . . . . . . . . . . . . . . . . . . . . . 16– After Implementing mySAP HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16– Impact of mySAP HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Business Process: IT Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

CONTENTS

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Summary of Business Process Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19ROI and Payback Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20– Calculation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Contact Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Questionnaire Design. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Data Collection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Data Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Appendix – Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23– Annual Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23– Ten-Year Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23– ROI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23– Payback Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Dow Corning initiated a cost-reduction strategy to maintain itsmarket position in the increasingly cost-competitive siliconeindustry. Niche entrants in the silicone market have created ashift from large-scale, bundled product and service offerings tovertical-specific, value-priced offerings. To remain competitiveamidst these new market dynamics, silicone manufacturershave needed to streamline processes, reduce costs, and rational-ize global operations.

Dow Corning responded to market pressures by first imple-menting a global single instance of SAP® R/3®, which supportsthe family of solutions contained in mySAP™ Business Suite.Dow Corning then took one of the solutions from this suite – mySAP™ Human Resources (mySAP™ HR) – and implementedit globally. The global single instance of mySAP HR has enabledDow Corning to transform itself from a decentralized organi-zation to one that is tightly integrated, from a global and verti-cal perspective. SAP technology provides the technologicalfoundation Dow Corning needs to support one of its strategicbusiness objectives, operational excellence. The fundamentalcomponents of operational excellence are:

• Reduction in global organizational barriers

• Decrease in redundant activities

• Reduction in cycle time for key business processes

The ROI calculated from the data collected at DowCorning was 163%. The payback period was 3.8 years, with a 10-year savings of U.S.$53.7 million.

mySAP HR has enabled Dow Corning to eliminate organiza-tional and technological redundancies, streamline HR-relatedbusiness processes, provide management visibility into the glob-al organization, and use HR to support strategic globalizationand cost-saving objectives. The solution centralizes the firm’sHR operations on one global database, while providing a multi-lingual environment that supports a wide range of currenciesand country-specific legal requirements.

The largest contributors to the total business-process savingsoccurred as a result of improvements in global employee man-agement – via both organizational management and personneladministration. These cost savings were derived from the re-allocation of HR staff resulting from the introduction of a morestreamlined, centralized global management model. Other costsavings were derived from the integration of time-managementand payroll areas and the creation of a more heterogeneousand standardized IT environment. Although reasonable busi-ness efforts were utilized to uncover an exhaustive list of thefinancial benefits associated with mySAP HR, it is unreasonableto suggest that all benefits have been identified; therefore, thisROI may be considered a conservative viewpoint.

EXECUTIVE SUMMARY

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STUDY OBJECTIVES

Gartner Consulting Inc., was commissioned by SAP to conducta third-party, unbiased assessment of the ROI of mySAP HR.The objectives were to showcase organizations whose HR teamshave demonstrated thought leadership, a positive impact onthe business, and potential quantifiable financial savings as theresult of a mySAP HR implementation.

This case study applied the Total Value of Opportunity (TVO)ROI methodology, designed by Gartner, to develop the results.The methodology-based results and their use by a client should not be deemed an endorsement of any client’s productor service, data, or sales technique. Gartner disclaims allwarranties, expressed or implied, of the fitness of results for aparticular purpose. Methodology results should not be deemedas an industry average and may vary from published Gartnerresearch.

THE SILICONE INDUSTRY

The silicone product market has changed significantly since itsinception in 1943. Historically, silicone was viewed as a specialtyproduct, which enabled manufacturers to sell bundled offeringsthat included a wide array of additional services such as testing,implementation, and support. However, in recent years the silicone market has become increasingly cost competitive. Theonslaught of niche manufacturers has pushed silicone compa-nies to concentrate on cost-cutting strategies that reduce oper-ational overhead and allow for more competitive tactics.

Rather than offer bundled products that include full-serviceofferings such as testing and support, some silicone manufac-turers have released vertical-specific point offerings at lowerprices. Dow Corning has placed tremendous emphasis on stream-lining and restructuring its global organization in response tothese new competitive pressures. The company has created atwo-tiered branding approach that includes:

• The Dow Corning brand, which offers highly specializedbundled solutions that target complex vertical markets, suchas aerospace and defense

• The XIAMETER brand, which offers point solutions with a value-pricing structure that targets vertical markets wheresilicone products are more difficult to differentiate, such asconstruction

DOW CORNING: COMPANY BACKGROUND

Dow Corning is a joint venture between Corning Glass Works(now Corning Incorporated) and the Dow Chemical Companyfor the production of silicone products for commercial appli-cations. The company currently manufactures more than 7,000 silicone products and serves approximately 25,000 cus-tomers worldwide. Based in Midland, Michigan, it employsapproximately 7,500 people at 40 manufacturing and servicelocations around the globe. In 2002, Dow Corning salesrevenues were $2.6 billion.

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PROBLEM: DECENTRALIZATION CREATED

INEFFICIENCIES

Historically, Dow Corning has maintained a decentralized organizational structure (the silo model) supported by a simi-larly fragmented IT architecture. Company employees reporteddirectly into a country, region, or division that maintained acertain level of autonomy. In this organizational structure,employees lacked insight, coordination, and understanding ofHR-related global best practices and processes – the informationneeded to improve productivity and work behaviors. Figure 1illustrates the decentralized IT environment.

THE ENTERPRISE

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This fragmented organizational model was supported by an ITarchitecture that not only maintained each region on its owndatabase server but also allowed independent selection of busi-ness applications. The architecture ran on multiple platformsincluding Amdahl MVS mainframes, IBM VM mainframes, IBM AS400 servers, and other application-specific servers. Thisdecentralized environment led to an inefficient organizationaland technological structure that placed significant strain onoperational and fixed costs. The environment also preventedexecutives – who lacked insight into existing resources and assets– from making informed decisions on the global organization.In addition to overspending on redundant decentralizedsystems, Dow Corning was unable to fully leverage its globalassets.AMERICAS

SERVER

NorthAmerica

SERVER

SERVER

SouthAmerica

EUROPE ASIA

SERVER

Australia

SERVER

Japan

SERVER

SERVER

Other

SERVER

Figure 1: Decentralized Organizational Model

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SOLUTION: SAP R/3 GLOBAL SINGLE INSTANCE

In 1995, Dow Corning decided to shift its business strategy fundamentally by embracing the notion of an integrated, cross-functional global organization – an organization where people,processes, technologies, and assets are leveraged to create anagile, cost-effective firm. To enable this strategy, Dow Corningpurchased an enterprise version of SAP R/3 from which it couldimplement a global single instance of R/3. This global singleinstance enabled Dow Corning to implement best-practiceworkflows and cross-functional business processes worldwide –via the broad spectrum of applications available in mySAPBusiness Suite.

To date, Dow Corning is running all of its mySAP HR appli-cations on one global instance of R/3, which supports 9 languages, 7,500 users, and 50,000 materials. This global singleinstance is running on a robust infrastructure including SunMicrosystems servers and Oracle databases.

By moving towards a global single-instance database, DowCorning has been able to drive efficiencies into global processesand create a more agile global organization, thereby reducingoperational costs and enabling the company to compete moreeffectively in the price-sensitive silicone industry.

“The global single-instance database

has been the best thing that has ever

happened to Dow Corning’s global

strategy.”

Jeff Scherting, E-Business and Finance Process Specialist

SERVER

Americas

SERVER

Europe

SERVER

SERVER

Asia

Figure 2: Global Platform – Centralized Model

As part of this ROI study, several business processes andoperations were evaluated, including:

• Global employee management (via both organizational management and personnel administration)

• Time management

• Payroll management

• IT operations

ROI calculations are based on a 10-year useful life period. Most HR-related technology purchases are expected to last theorganization at least 10 years (including upgrades), which islonger than can be expected for typical technology purchases.

BUSINESS PROCESS: MANAGING GLOBAL EMPLOYEES

Before Implementing mySAP HRPrior to implementing a change in organizational structure,each line manager at Dow Corning completed a paper form formanual delivery to the local HR representative. These paperforms were compiled and filed by the local HR representative,who made changes to the employee personnel record in thelegacy HRMS system. Each country maintained its own versionof the HRMS system, which gave managers limited visibilityinto the global organization. The cycle time required for thisbusiness process was approximately 10 business days.

Dow Corning implemented mySAP HR in 1998. The mySAP HRapplication provides a specific example of how Dow Corningwas able to reap significant benefits from the SAP R/3 globalsingle instance. This case study focuses only on the impact ofmySAP HR.

Historically, HR activity at Dow Corning was divided into three geographic areas – the Americas, Europe, and Asia. Eachlocation was supported by multiple on-site HR and payrollresources responsible for fulfilling HR-related process require-ments for that site or region. HR was required to respond to the needs of the region, which in many cases included the creation of customized, regional, or site-specific reports.

Although Dow Corning supported a human resourcesmanagement system (HRMS), each country had the option to choose whether or not they wanted to use it and to whatdegree. This option to use or not to use led to a series of dis-parate “islands of HR information.” To achieve its corporatecost-cutting goals, Dow Corning had to consolidate its businessprocesses by moving HR to a centralized, shared-services loca-tion.

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mySAP HR: IMPACT ON DOW CORNING HR ORGANIZATION AND PROCESSES

ASIA – JAPAN, AUSTRALIA, KOREA, AND CHINA

EUROPE – UK, BELGIUM, AND GERMANY

AMERICAS – U.S., CANADA, MEXICO, AND BRAZIL

MANAGER

Compiles org.info and needs

MANAGER

Fills out form

MANAGER

Sends to localHR rep

HR

Organizespaper files

HR

Gets fileapproved

HR

Mails approved fileback to line

manager

HR

Enters data into HRMS

Data goes into server

Manual Process Automated Process

Figure 3: Organizational Management – Before mySAP HR

After Implementing mySAP HRToday, the Dow Corning organizational management businessprocess is running on a blended, integrated, and global singleinstance of mySAP HR, which offers both organizational man-agement functions and personnel administration. The com-pany has established a global request system, which allows eachline manager to make an electronic request via an Intranetapplication routed directly to the shared-services HR depart-ment. The HR representative enters changes directly into thecentral database. Once the process is completed, workflow automatically notifies the line manager by e-mail.

Managers are now able to pull accurate organizational analyticsfrom the central database. The cycle time for this businessprocess is approximately 3 days.

Impact of mySAP HR mySAP HR enables the Dow Corning HR organization to sup-port the firm’s internationalization objectives as well as lowerthe cost and risk of potential noncompliance issues. In addition,mySAP HR has multiple language and currency capabilities andis fully Euro compliant.

A major strategic benefit resulting from the changeover tomySAP HR is the reduction in global organizational barriers. By integrating personnel administration and organizationalmanagement across the globe, mySAP HR helps Dow Corningeliminate many organizational redundancies.

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MANAGER

Compiles org. infoand records

MANAGER

Electronically enters request

HR

Receives electronic update

form

HR

Inputs into SAP

SAPPull analytics on org. structure

Asia

Europe

Americas

Manual Process Automated Process

Figure 4: Organizational Management – After mySAP HR

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The solution affects two business processes related to managingthe global employee:

• Personnel administration – management of the individual

• Organizational management – management of the enterprise

To see how mySAP HR impacts business, one need only look at the cycle-time reduction it has effected in the personneladministration business process. Personnel administration isnow standardized across the globe, with all information flowinginto a centralized HR organizational structure. The centrali-zation and automation of personnel administration processeshas reduced HR cycle time from 10 days to 3.

Over the past few years, Dow Corning’s HR workforce has been reduced by approximately 60%. Thus mySAP HR resultedin reallocation cost-savings to each business process area. The savings attributable to the organizational management busi-ness process is $2.3 million (approximately 30% of total HRreallocation savings); the cost-savings attributable to thepersonnel administration business process is $2.7 million(approximately 35% of total HR reallocation savings).

Because mySAP HR offers an insight into the company’s world-wide organizational structure, it reveals redundancies that existacross the organization. This insight helped Dow Corning personnel administrators and organizational managers scaledepartments to meet the global needs of the company whileadhering to the specific configuration requirements of each single-country installation.

Dow Corning worked to achieve globalization and cost savingswhile it dismantled or reallocated numerous business units. In thepast, this would have required the HR team to realign the orga-nizational structures manually by going into individual personalprofiles. But with mySAP HR, the team could simply “drag-and-drop” features needed to realign the structure, saving time.

“A single global instance for HR enables

an enterprise to have a complete data-

base of global employee information,

which reduces the costs of maintaining

accurate and consistent information. In

addition, the single global HR repository

allows enterprises to more easily under-

stand the demographics and

capabilities of the workforce and to

make better decisions about how to

structure the organization.”

Jim Holincheck, Research Director, Gartner

Personnel Administration Total Time to Business Process Complete Transaction

7 business days Total time savings per transaction

3 business daysAfter mySAP HR

10 business days Before mySAP HR

Category Description Annual Cost Savings

$5.0 millionTotal Annual CostSavings

Approximate savings of $2.7 million

Percentage of time freed up,which provided Dow Corningwith the option to reallocatepart of the HR staff (35%).Represents 35% of total HRreallocation savings.

HR head count reallocationresulting from new personneladministration

Approximate savingsof $2.3 million

Percentage of time freed up,which provided Dow Corningwith the option to reallocate partof the HR staff. Represents 30% oftotal HR reallocation savings.

HR head count reallocationresulting from neworganizationalmanagement

Table 1: Cycle-Time Reduction for Personnel Administration Table 2: Quantitative Impact of mySAP HR

BUSINESS PROCESS: TIME MANAGEMENT

Before Implementing mySAP HRPrior to implementing mySAP HR, Dow Corning used a varietyof time-collection methods. Once time entry was completed,the time data was manually delivered to a local HR represen-tative for coding into the HRMS system. As part of the codingprocess, the HR representative matched pay/time codes againsttime worked, identified inconsistencies, and corrected errorsmanually. Once the time was reconciled manually, an HR representative uploaded the data into payroll.

After Implementing mySAP HRToday, Dow Corning employees can enter time via two methods – card/badge readers or direct entry via Employee Self Services (ESS), an application available in mySAP HR. All data, regardless of collection method, is uploaded directlyinto the time-management module. At a specified time eachday, time data is reconciled. mySAP HR has built-in intelligentbusiness rules that allow for the automatic evaluation of pay/time codes against Dow Corning work rules.

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EUROPE – UK, BELGIUM, AND GERMANY

AMERICAS – U.S., CANADA, MEXICO, AND BRAZIL

EMPLOYEE

Enters time(varies by location)

HR

HR rep looks for and

correctserrors

HR

Local HR rep codespay/time

Manual Process Automated Process Manual Process Automated Process

Figure 5: Time-Management Process – Before mySAP HR Figure 6: Time-Management Process – After mySAP HR

Local HR rep types time data

into legacy payrollprocessing system

AMERICAS

U.S.

EUROPE

UK, Belgium, and Germany

SAP

Time Management

SAP

Payroll

Time management is now integrated with payroll. The solution’s automated business rules not only streamline theprocess but also create more accurate time-managementand payroll systems (because the rules are being appliedconsistently).

Impact of mySAP HR The solution’s time-management capability has enabled DowCorning to reduce redundant and manual activities, leading tothe reallocation of a portion of the HR staff. This reallocationsaved the company approximately $1.9 million. One of themost compelling benefits of mySAP HR is its ability to apply workrules in a consistent and automated fashion, which increasesthe overall accuracy of both time-management and payroll. Inthe past, HR representatives had to account for pay/time codeson a manual basis, which led to error-prone time accounting,thus an inaccurate payroll. Today, mySAP HR handles all ofthese integrated transactions.

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Category Description Annual Cost Savings

Approximate savingsof $1.9 million

Percentage of time freed up,which provided Dow Corningwith the option to reallocatepart of the HR staff. Represents25% of total HR reallocationsavings.

HR head count reallocation resultingfrom new time-management process

Table 3: Quantitative Impact of mySAP HR on Time-Management Process

Before Implementing mySAP HRPrior to mySAP HR, the payroll process at Dow Corning wasentirely manual – with the exception of the actual calculationof the payroll. The process began when the payroll site repre-sentative reconciled and loaded time into the payroll system.Next, the payroll was run and third-party requests and pay-ments completed. Finally, Dow Corning issued checks or directdeposits to its employees. The cycle time for this process wasapproximately four days.

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“The complexity of payroll is underesti-

mated by everyone but HR. mySAP HR

has helped Dow Corning manage this

complexity on a global scale.”

Kent Philpot, HR Business Process Leader & HR Service Center Manager

Manual Process Automated Process

PAYROLL

Third-partyrequests

THIRD-PARTY

Third-party payments

(garnishments,United Way)

PAYROLL

Payments aredistributed toemployees

PAYROLL

General ledgerand accountspayable arereconciled

PAYROLL

Payroll site rep reconciles

time

PAYROLL

Data is loadedinto payroll

PAYROLL

Payroll is run

Figure 7: Payroll Process – Before mySAP HR

BUSINESS PROCESS (PHASE 1):

NET PAYROLL OUTSOURCED

Dow Corning is using the payroll function implemented in theUnited States to demonstrate how one country benefited frommySAP HR technology. The solution’s payroll function hassince been implemented in other countries including Germany,Belgium, and the United Kingdom. The net results and benefitsof these implementations are similar; however, slight modifi-cations were made based on country-specific requirements. Aspart of an ongoing process, Dow Corning will continue to eval-uate payroll processes worldwide and to implement the newpayroll module in countries where a business case is justified.

After Implementing mySAP HRDow Corning implemented the gross payroll capabilities ofmySAP HR in 1999 but for many reasons, including Y2K, thecompany decided to outsource its net payroll process. Becauseof the payroll automation functions built into mySAP HR(including time management and gross payroll), the companywas able to automate several process steps. But because DowCorning was using a third-party payroll outsourcer, several

manual steps remained, and many interfaces were needed toensure effective communication between the outsourcer andDow Corning. In addition, the synchronization required tocompare the master data could take more than 24 hours. As aresult, the potential cost savings derived from the new payrollcapabilities were offset by the highly manual processes neededto outsource the net payroll. Thus the cycle time remained thesame – four days.

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OUTSOURCER

Outsourcer runs net payroll

OUTSOURCER

Outsourcer requests

Dow Corningapproval

PAYROLL

Dow Corning checks for errors

and sends approvalback to outsourcer

OUTSOURCER

Outsourcer returns net payroll to Dow Corning

OUTSOURCER

Outsourcer distributes payments(paper check, directdeposit) including

tax filings

PAYROLL

Dow Corningreconciles payrollto general ledger

and AP

EMPLOYEE

Employee inputs time

SAP

SAP evaluates time

SAP

SAP runs gross payroll, including

all third-party deductions

PAYROLL

Gross payroll sent to outsourcer

Manual Process Automated Process

Figure 8: Phase 1 Implementation: Net Payroll Process Outsourced

BUSINESS PROCESS (PHASE 2): NET PAYROLL

PROCESS BROUGHT IN-HOUSE

After Implementing mySAP HRToday, the solution’s time-management and payroll capabilitiesare being fully implemented, and payroll outsourcing has beennearly eliminated. The tightly integrated payroll process, whichincludes net payroll functions, allows for the automatic flow ofdata between the systems and eliminates the time-consumingand paper-intensive manual tasks that existed prior to full im-plementation. Payroll-management functions at Dow Corningare now run on a global single instance; however, the payrollsystem is run separately within each country because of locallegal requirements. mySAP HR has enabled Dow Corning tobring its total payroll process back in-house and to use third-party sources only for selected activities. The total cycle timefor payroll is now one-and-a-half days.

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Manual Process Automated Process

Figure 9: Phase 2 Implementation: Net Payroll Process Brought In-House

SAP

Time Management

SAP

PayrollGeneral Ledger

Dow Corning estimates that the cost savings gained by bringingthe payroll process in-house are $700,000 per year, a figure thatincludes both United States and Belgium. In 2002, Dow Corningimplemented electronic pay stubs within the ESS application inthe United States, which allows employees to view pay stubselectronically. This pay-stub capability led to cost savings inpaper, printing, and mailing equaling $100,000 per year in theUnited States. Currently, Dow Corning is investigating elec-tronic pay stubs in Europe, which will reduce the company’soverall costs even more.

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Category Description Annual Cost Savings

$ 1.1 millionTotal Annual CostSavings

$100,000 per year in the United States only

Reduction in mailing, printing,and paper costs resulting fromthe switch to electronic paystubs in the United States

Pay-stub costreductions in the United States

$300,000 per year for Belgium and the United States

Outsourcing costs no longerneeded because in the UnitedStates and in Belgium all pay-roll functions are now in-house

Outsourcing costreductions

$700,000 per year Reallocation of payroll personnel

Payroll head count reallocation

Table 5: Quantitative Impact of mySAP HR on Payroll Process at Dow Corning

Impact of mySAP HRThe solution’s payroll capabilities provide Dow Corning with numerous benefits including:

• Integration with time-management functions

• Improved quality and accuracy of pay slips

• Reduction in number of interfaces

• Reduction of complexity involved in the process

• Reduction in use of outsourcers

• Transfer of both gross and net payroll processes in-house

• Improved control over payroll process

Key to the success of the new payroll component is its integra-tion with time management. This integration allowed for acompletely automated, accurate, and near-real-time direct-loopfeedback between the time-management database and the payroll business process. Automation efficiency has enabledDow Corning to bring payroll back in-house while reducingstaff from six to two, leading to cost savings of approximately$700,000 per year. A major driver behind this cost-saving staffreallocation was the reduction in payroll cycle time from fourdays to one-and-a-half days.

Payroll Total Time to Business Process Complete One Transaction

2.5 days Total time savings per transaction

1.5 days After Phase 2 implementation of mySAP HR

4 daysAfter Phase 1 implementation of mySAP HR

4 daysBefore implementation of mySAP HR

Table 4: Time Saved by Using mySAP HR in the Payroll Process

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Dow Corning was able to realize exceptional IT-related benefitsfrom implementing mySAP HR globally. Most of these benefitswere driven through the centralized architectural design of the solution, its ability to integrate with other robust back-endapplications in mySAP Business Suite, and the consistent use ofglobal business processes. The implementation of mySAP HRcreated a more heterogeneous and standardized IT environ-ment, decreasing the maintenance and support associated withthe previous, decentralized environment and reducing thepressure on the company’s IT department. In HR alone, IT hasmoved from maintaining five systems to maintaining only one.

As a result of the global change to a new environment, the Dow Corning IT department was reorganized on a federalizedmodel, centrally managed. This structure has enabled the com-pany to take a more disciplined approach to IT processes and to reduce the number of local IT resources needed to maintainthe system.

Based on before-and-after studies conducted at Dow Corning, it was estimated that the IT operational/support cost savingsrealized by the introduction of mySAP HR are approximately$1.6 million per year.

By integrating its global business processes with mySAP HR,Dow Corning was able to achieve the following:

• Reduced IT organizational barriers

• Increased global consistency (internal and external) for IT activities

• Reduced redundant development and maintenance activities

• Improved management of global updates

• Eased customer/supplier collaboration through consistent IT infrastructure

• Reduced the time required to introduce new features andfunctionalities

BUSINESS PROCESS: IT OPERATIONS

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Dow Corning was able to realize significant cost savings through the implementation of mySAP HR. The greatestsavings occurred as a result of improvements in global employee management – via both personnel administration and organi-zational management. These cost savings were derived from thereallocation of HR staff, resulting from the introduction of amore streamlined, centralized global management model. The integration of time management and payroll led to a re-allocation of resources, elimination of outsourcers, and onlinedelivery of pay stubs. Additionally, Dow Corning witnessed asignificant cost reduction within IT operations, due to theimplementation of the single global instance.

SUMMARY OF BUSINESS PROCESS FINDINGS

Business Overall Cost Cost 10-Year 10-Year Process Savings Savings Overall Cost Cost

Contribution per Year Savings Savingsper Year Contribution Contribution

$53.7 million100%$10.5 million100%Total

$4.0 million7.4%$9 million8.6%Other EffeciencySavings

$8.1 million15.2%$1.6 million15.3%IT Operations/Support

$5.5 million10.2%$1.1 million10.5%Payroll

$10.0 million18.6%$1.9million18.0%TimeManagement

$14.1 million26.3%$2.7million25.7%PersonnelAdministration

$12.0 million22.3%$2.3 million21.9%OrganizationalManagement

Table 6: Annual and Ten-Year Cost Savings

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ROI AND PAYBACK PERIOD

CalculationROI entails isolating and adding the net present value (NPV)cost-reducing and revenue-enhancing benefits introduced bymySAP HR, and then dividing this sum by the present value of the total investment. Though there are definitely revenue-enhancing benefits associated with HR automation, because of the nature of the HR function, we are not able to isolate anyof these benefits with the same confidence level as the cost-reducing benefits.

For the purposes of this study, the time period investigated wasa 10-year useful life period. Although there are industry dis-crepancies regarding anticipated useful life periods, because ofthe nature of HR enterprise software and the expectations ofcustomers, this period proved to be the most useful life periodfor the calculation of the ROI and payback period for HR appli-cations.

The payback period is essentially a ratio and proportion calcula-tion that compares all of the financial benefits realized in 10 years to the time it would take to have that investmentreturned. For example, financial benefits/one year = invest-ment/X years, then solve for X.

The investment estimate includes all of the costs involved inlicensing, deploying, debugging, and maintaining mySAP HRsoftware and services, although this estimate does not includeany indirect, soft, or overhead costs. In most cases, the indirectand soft costs would either be negligible or too difficult toquantify while the overhead costs would be consistent regard-less of the HR automation strategy implemented.

The ROI calculated from the data collected at DowCorning was 163%. The payback period was 3.8 years, with a 10-year cost savings of $53.7 million.

Overall, both the ROI and payback periods calculated aboverepresent very positive and realistic numbers. Although theconsultants made reasonable efforts to uncover an exhaustivelist of the financial benefits associated with mySAP HR, theycould not be expected to identify all of them. Therefore thisROI may be conservative.

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The global single instance of mySAP HR (supported by theglobal single instance of SAP R/3) enabled Dow Corning to better meet its strategic objective of operational excellence by:

• Eliminating organizational and technology redundancies

• Streamlining HR-related business processes across the globalorganization

• Providing management visibility into the global organization

• Enabling HR to support the firm’s strategic globalization and cost-saving objectives

mySAP HR allowed Dow Corning to centralize HR activities onone global platform while supporting country-specific issuessuch as language, currency, and legal/compliance requirements.By reducing the redundant, manual tasks involved in HR time-management and payroll functions, the global single instanceof mySAP HR also helped Dow Corning reduce operationalcosts, streamline its HR organization, and improve its positionin the cost-competitive silicone market.

mySAP Human Resources www.sap.com/hr

Gartner Consulting – Market and Business Strategieswww.gartner.com/3_consulting_services/practice/mbs.jsp

CONCLUSIONS CONTACT INFORMATION

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QUESTIONNAIRE DESIGN

The figure below depicts the review of secondary research fromvarious sources, which formed the foundation for designing thequestionnaire. Included in the questionnaire were underlyinghypotheses around the specific business processes within thetarget firm. The objective of the questionnaire was to test thebusiness-process hypotheses and isolate measurable qualitativeand quantitative benefits.

DATA COLLECTION

The questionnaire was administered to collect data from thefollowing two scenarios:

• Before a company deployed the technology

• After a company deployed the technology

On-site interviews were conducted at the target firm. The goalwas to have an interactive session enabling the identification ofqualitative and quantitative benefits for each business process.We interviewed various constituents including representativesfrom HR, finance, line management, information technologyand employees of the firm. The HR representative interviewedhas specific responsibilities for the business processes isolated inthis case study. In a few instances, respondents were unable orunwilling to answer some questions because they did not actu-ally know the answer or they thought they would be divulgingproprietary information.

DATA ANALYSIS

Upon completion of data collection, the information wasreviewed for accuracy and consistency. Spreadsheets were created to separate the qualitative and quantitative data andcategorize it into the before and after scenarios. The qualitativedata was examined to extract the overarching nonquantitativebenefits.. The quantitative data was then analyzed for cost andrevenue changes realized after the introduction of the tech-nology.

METHODOLOGY

WORLD WIDE WEB

ANNUAL REPORTS

RESEARCH

COMPANY PRESSRELEASES

TRADE MAGAZINES

I-BANK REPORTS QUESTIONNAIRE

ANALYSTS

CONSULTANTS

FOUNDATION

Figure 10: Questionnaire Design Process

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The case studies were based on Gartner Consulting’s ROImethodology and definitions, which evaluate explicit cost-savings or revenue-enhancing benefits associated with HR-related business processes.

Annual SavingsAssessing the savings for the first year that the technologycomponent is operational.

Ten-Year Savings For the purposes of this study, the time period investigated wasa 10-year useful life period. Due to the nature of HR-specificenterprise software and the expectations of customers, thisperiod proved to be the most useful life period for the calcula-tion of the ROI and payback period for this study.

In many cases, the financial benefits are introduced at differentperiods of time. Measuring the total cost savings over the 10-year useful period of the product can provide additionalvisibility into cost savings. One cannot simply multiply theannualized cost savings by 10. But rather, one must take intoaccount the staggered introduction of products and variousgrowth rates of each benefit. Cash flows are corrected forpresent value, and a 35% corporate tax rate is applied to the savings. Again, in the end, total cost savings will be far differentthan multiplying any of the annual cost savings by 10 (the useful life period).

ROIThe present value of the net financial gain or loss expressedas a percentage of the present value of the funds invested togenerate that gain or loss. In other words, NPV of the cashinflows divided by the present value of the cash outflows. The cash inflows are usually in the form of cost decreases orrevenue enhancements. Cash outflows are usually in the formof licensing fees, upgrade costs, maintenance, debug, hardware,and so on. Once the time period of each cash inflow and out-flow are understood, these flows can be put in present value byusing the prevailing debt rate. Taking the present value ensuresthat the value of a currency today is corrected for future con-sideration

In most cases, cash inflows (cost savings and revenue enhance-ments) are estimated to grow (or decline) with the anticipatedgrowth rate of the company. Since growth rates are difficult toestimate, or as in some cases it is considered proprietary infor-mation, it is financially sound to assume that cash inflowremains constant (zero growth) throughout the useful lifeperiod of the product.

Payback PeriodThe length of time required recovering the cost of an invest-ment. This is calculated as the cost of project/solution dividedby the annual cash flows. All other things being equal, the better investment is one with the shorter payback period.

APPENDIX – DEFINITIONS

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