Lest We Forget SAP

The "smart money" seems to be betting against SAP. I hear all the time about the company's bleak prospects for the future. A client conversation last week reminded me of how strong SAP’s position is, despite its many issues.

This client, a worldwide manufacturer, is investing hundreds of millions of dollars in SAP software for its worldwide supply chain, financial management and reporting, inventory and order management, etc. The new SAP environment will replace hundreds of disparate applications and, ideally, result in far more efficient operations, far better visibility into operations, and far more uniform products around the world. The members of this client’s SAP implementation team have finished SAP implementation marathons before (at other employers). They know the good, the bad, the ugly.

In this manufacturer, SAP is sticky for four reasons.

  1. For better or worse, SAP is the firm's next worldwide IT foundation. Not Web 2.0/cloud/agile/social/[insert hot new tech here]; plain old SAP. That means ABAP, with a tip of the hat to Java and Microsoft. Why? SAP's apps and platforms are proven in the kind of large-scale worldwide business support this firm requires. The firm can find people who know how to implement and run big SAP installations. The implementation and operational problems are pretty well known. None of these things can be said about the hot new technologies. 
  2. SAP is good enough. "SAP's tools may not be the greatest, but they are good enough," was the way the implementation team leader put it. Good enough is the enemy of best of breed. Good enough means this firm will squeeze as much from its investment in SAP software as possible, limiting the number of additional tools they buy to reduce complexity and cost. They will try to use SAP's integration middleware (Process Integration, or PI) as a worldwide ESB rather than adopting the leading integration software. They may use SAP Portal rather than Microsoft SharePoint. Our most recent analysis of NetWeaver suggests best of breed is a better choice for complex enterprises, but to this implementation group, SAP's tools are a more attractive choice.
  3. ROI is assumed. Based on their past experiences, the SAP implementation team understands that their project's financial benefits may be disappointing, even illusory. The project will create a more consistent IT foundation, but the benefits of that foundation may have been oversold, may be unachievable without process and culture changes that are too hard to complete. Their employer having cast the die with SAP, the team is committed until production and the firm is committed for 10, 20, or more years.
  4. Support for the new system requires a long-term investment. The team leader's biggest worry is about how the firm will support the new SAP implementation worldwide. Support means not only providing reliable IT operations in far-flung markets, but also training, process adaptation, talent upgrades, software lifecycle management for the new system. Investments in these "soft" aspects of the SAP project, once begun, will also be hard to turn away from. Better to remain on the course, solving problems as they arise, than start over again.

I don't think this firm is a unique data point. Multiply its situation by thousands of organizations, and SAP finds itself with a strong base of business that is locked in for many years. SAP's ability to acquire new revenue streams and products adds to its market strength. (Oracle has similar strength: No matter what people think of Oracle's various business applications, that software will stick around and generate loads of revenue for a long, long time.)

Those who are ready to write off SAP -- or already have written the company off -- are overly dramatic. SAP is by no means assured a thriving future, but its strong position gives the vendor time to stabilize itself and find new sources of growth. The obvious place to find growth is by selling more stuff to existing customers. The question for customers heavily invested in SAP software: When SAP comes calling with a great new extension to your investment in apps, why should you buy? Hopefully, not only because it is easier that way.

Comments

Delusional

Since 199 SAP's Return on its R&D expense (when measured in Software License Revenues) has gone from 2.74 to 1.64 (it peaked at 2.98 in 2001), a decline of 40%. So, exactly how much time do you think they will need to "stabilize" and "find new sources of growth"?

Dont write SAP off

Nice post John. No one should write SAP off by any means. As you mentioned above and based on my decade plus experience....... SAP is the best enterprise application to consolidate major org systems. It is costly and complex to implement but worth the return on investment and to have a long term robust IT infrastructure to support business growth.

SAP Program Manager