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Case Study: How PCBP Turned Its IT Department Into a Profit Center
Anton Karnaukhov, Pacific Coast Building Products

[ 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

Real Experience. Real Advantage.

[ 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

Real Experience. Real Advantage.

[ What Well 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ Overview of Pacific Coast Building Products (cont.)


Pacific Coast Building Services
Contracting

Pacific Jet Charter

PABCO Basalite

Manufacturing

Distribution

Pacific Coast Supply

Shared Services

Pacific Coast Companies, Inc. (PCCI) BEST / BestXperts


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Material Transport
Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ BEST Department Application Portfolio

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Real Experience. Real Advantage.

[ What Well 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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 companys revenue

How do we keep our team together?

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Real Experience. Real Advantage.

[ IT Co-Op to the Rescue!


Originally conceptualized by Mike ODell CIO of Pacific Coast Building Products Why couldnt 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ What Well 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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


Weve 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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
Dont assume that everyone internally within your IT department will love the idea of IT co-op

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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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
Weve 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ What Well 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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Real Experience. Real Advantage.

[ Resources
Legal document examples attached to this presentation
MSA, NDA, SOW, Consulting Agreement

Interview of our CIO Mike ODell about PCBP journey into IT co-op
http://searchsap.techtarget.com/news/2240037026/Companyshares-its-SAP-support-staff-with-others-to-cut-IT-costs

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Real Experience. Real Advantage.

[ 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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Real Experience. Real Advantage.

[ Questions?

How to contact me: Anton Karnaukhov Anton.Karnaukhov@BestXperts.com

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Real Experience. Real Advantage.

Thank you for participating.


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Real Experience. Real Advantage.