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Putting a Value on Non-Financial Performance Indicators

At SAP, we put a monetary value on how our operating profit is affected by selected non-financial indicators that measure, for example, how well we engage with our employees and inspire them to commit to our vision and strategy, support a healthy business culture, and succeed in reducing our carbon emissions.

To achieve this quantification, we created cause-and-effect chains that show how specific actions we take at SAP lead to shifts in behavior. This behavior impacts on our business and has a financial consequence.

Such analysis establishes more than just a correlation between non-financial indicators and financial impact. It also reveals why and how something such as employee engagement ultimately leads to gains or losses in business performance. We believe that such insights are a prerequisite for fully modeling the financial impact of non-financial performance.

Using Cause-and-Effect Analysis

To create and validate these chains of cause and effect, we turned to both internal and external stakeholders. We started with those inside SAP, meeting in small groups that rigorously examined the impacts of activities related to each of our non-financial indicators.

Next, we conferred with external stakeholders, including academics, financial investors, and industry peers, to vet our findings. Finally, we used real data from SAP to translate our cause-and-effect chains into a quantified impact on operating profit.

Documenting Financial Impact

Since 2014, SAP has used techniques such as linear regression analysis to document the financial impact of four non-financial indicators. We assess each indicator to see what a change of one percentage point (or 1% for carbon emissions) would mean for our operating profit. The results for 2016[1] are below:

Non-Financial Indicator

 

Increase in Operating Profit (€ million, non-IFRS)

Business Health Culture Index

 

80 to 90 (for a change by 1 pp)

Employee engagement

 

45 to 55 (for a change by 1 pp)

Retention

 

50 to 60 (for a change by 1 pp)

Carbon emissions

 

5 (for a reduction by 1%)

Case Study: Documenting the Financial Impact of a Healthy Work Culture

Our Business Health Culture Index assesses the health of both our organizational culture and our employees. Figure 2 shows how activities that support health at SAP strengthen our organizational culture and help our employees perform at their best. For example, we see that flexibility improves stress resilience and enhances the work and life balance. This leads to greater productivity, resulting in a higher operating profit.

Case Study: Calculating ROI for Our “Join In – Stay Fit!” Health Initiative

As part of the “Join In – Stay Fit!” program at SAP Germany, we implemented a number of measures to improve the work-life balance of our staff. These include workshops that raise health awareness and provide tips for employees on how to change unhealthy behavior.

Before and after the launch of the program, we mapped direct and indirect costs related to this activity. We also measured the impact of the program on employees’ work-life balance as well as its impact on the BHCI. In 2015, the program resulted in an ROI of 3.9 for the year of the investment. This means that operating profit increased €3.90 for every €1 invested during that year.

Promoting Sustainability Measures as a Way to Boost Financial Performance

Documenting the financial impact of non-financial indicators helps us move closer to achieving our sustainability goals. Rather than simply stating the business case for social or environmental change, we now have the numbers to back it up.

Our findings help us to shift the conversation for business leaders, investors, employees, and other key stakeholders, and firmly establish non-financial indicators as playing a crucial role in our financial success. As a result, engaging employees or reducing our emissions is no longer seen as a nice-to-have, but rather as essential to carrying out a successful business strategy.

Moving forward, we are promoting the use of sustainability measures as a way to improve financial performance, both inside and outside of SAP. By embedding this approach into our decision making and quarterly business reviews, our sustainability performance steers our business along with factors such as revenue and cost. Our goal is for all senior business leaders at SAP to recognize – and be held accountable for – the fact that improving such measures as employee engagement also boosts financial performance.

Embedding Non-Financial Performance Indicators into Our Solutions

We continue to share our methodology with our customers to help them win in the marketplace. We know that companies achieve higher operating profit – resulting from both greater cost efficiency as well as revenue growth – by addressing economic, social, and environmental considerations. More importantly, these companies are better equipped to lead in the future, as they navigate the world’s most pressing challenges and help to bring about long-term sustainable change.

Currently, our connectivity model focuses predominantly on internal issues within SAP. However, we are working to enhance our model to include the social, environmental, and economic impacts of SAP software and services when they are used by our customers.

Using the connectivity model, we have been able to embed non-financial key performance indicators into our solutions. We see this in our SAP Digital Boardroom offering built on the SAP BusinessObjects Cloud solution, for example. By incorporating this connection into our software, the integrated approach to financial and non-financial performance not only helps SAP but also our customers. In this way, we can turn our vision into reality: enabling our customers to use our technology to make the world a better place.

 

[1] These results reflect the quantification of a gross effect related to a change in a particular key performance indicator. They do not allow for any net impact measurement. The evaluation of required investment to change the non-financial indicator is excluded from the scope of analysis. The economic gross impact of a single indicator includes interdependencies with other indicators, hence our results do not allow for a cumulative effect across all indicators included in this report. All calculations are based on non-IFRS figures (as shown in our Integrated Report 2016).

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