How to Best Understand SAP TCO Claims

What This Article Covers

  • SAP TCO
  • SAP’s Position on TCO
  • The Illusion of Lower SAP TCO

Introduction

TCO or total cost of ownership is the total cost of owning and operating an application.

TCO means making a model that accounts for the different cost categories. I have written the only book on enterprise software TCO. Many software vendors propose TCO, but when you review their models, they leave many costs out. In my view, software vendors cannot help customers come to a TCO because they have a conflict of interest on this topic.

I have written the only book on enterprise software TCO and performed thorough research on the topic. My conclusion is that most of the entities that talk about TCO, like software vendors and consulting companies don’t want their customers to know the TCO. In fact, while many software vendors propose TCO, when you review their models they leave many costs out.

In my book Enterprise Software TCO, I break the costs of enterprise software into:

  • Acquisition Costs
  • Implementation Costs
  • Hardware Costs
  • Maintenance Costs

SAP’s Presentation on TCO

SAP’s presentation on SAP TCO is very straightforward. According to SAP pretty much any new product they introduce reduces SAP TCO over the previous product that it replaces. SAP never presents any evidence for lowered SAP TCO, but of all the vendors in enterprise software, they talk about it the most. Which is interesting, because SAP is not known for having a low TCO. In fact, a primary reason why Deloitte, Accenture, IBM and others recommend SAP, even when the particular application in question does not meet the requirements of their customer very well is that they can make more money on SAP implementations than any other software. Now they always have some excuse for doing this (it is important to stick with SAP, integration costs will be lower, SAP’s functionality is weak now but it is growing), but regardless of the reason they give, they big consulting companies always prefer implementing SAP over all other alternatives. But if you won’t implement SAP they also have an Oracle practice. But if you don’t want to implement SAP or Oracle, you will generally hear that your purchase is not to their taste.

SAP applications are complicated and high in maintenance overheard, and this maximizes billing hours for the consulting companies. Consulting companies have a conflict of interest when it comes to TCO. They want their customers to buy applications that have the highest amount of implementation costs because those costs are revenues for the consulting companies.

I have spent a lot of time developing TCO calculators. However, whenever I do something in SAP, it is always far more difficult to do that “thing” than in any other application. As implementation and maintenance are by far the highest costs of enterprise software, it is hard to see how this does not directly translate to a higher TCO.

The Illusion of Lower SAP TCO

SAP receives benefits from continually talking about lowering TCO but never actually doing so. In fact, the TCO of SAP applications has been steadily rising as SAP moved into software categories where it brought uncompetitive products. This includes business intelligence, advanced planning, MDM, CRM, etc. The TCO of a failed application, that is an application that either barely goes

The TCO of a failed application, that is an application that either barely goes live (and is little used) or is never brought live is the highest of all. SAP could have lowered the TCO of its customers by not releasing any of these applications, but they preferred the extra revenues. SAP could have made its existing applications easier to integrate to, thus lowering their customer’s TCO, but SAP preferred to use the difficulty in integration to push their customers to buy more “pre-integrated” SAP products. Time and again, when SAP has had the option of lowering their customers TCO or maximizing their revenues,

  • Now, SAP could have lowered the TCO of its customers by not releasing any of these applications and focusing on their core product, but they preferred the extra revenues of diversifying into things that they weren’t any good at, and then using the integration back to the SAP ERP system to push out vendors that had superior applications.
  • SAP could have made its existing applications easier to integrate to, thus lowering their customer’s TCO, but SAP preferred to use the difficulty in integration to push their customers to buy more “pre-integrated” SAP products. Time and again, when SAP has had the option of lowering their customers TCO or maximizing their revenues, SAP has chosen the latter.

It is difficult to imagine any software vendor that has as many either failed implementations or implementations that are live but barely used than SAP. This is because SAP has the most difficult to implement applications in the enterprise software space. I say this as a SAP consultant who has worked on projects since 1997. Software companies do not publish their failures, so there is no way of knowing the actual failure rate of the different software vendors. So for those asking for data, it needs to be acknowledged that it is not available. But I write this based

This is because SAP has the most difficult to implement applications in the enterprise software space. I say this as a SAP consultant who has worked on projects since 1997. Software companies do not publish their failures, so there is no way of knowing the actual failure rate of the different software vendors. So for those asking for data, it needs to be acknowledged that it is not available. But I write this based upon seeing many SAP accounts over many years.

Conclusion

SAP customers should view claims by SAP regarding SAP TCO with great skepticism. The only report I am aware of that SAP has that is related to TCO was where SAP funded Forrester to provide a forecast of the SAP TCO of HANA. This report is so filled with errors and rosy projections and is not based on any actual projects that it qualifies as nothing more than marketing material.

To reasonably discuss SAP TCO, one must set up an agreed upon method on SAP TCO and the entity that performs the TCO calculation must be unbiased. SAP, or any other software vendor, or a consulting company that makes its money by implementing that particular software does not qualify.

References

TCO Book

TCO3

Enterprise Software TCO: Calculating and Using Total Cost of Ownership for Decision Making

Getting to the Detail of TCO

One aspect of making a software purchasing decision is to compare the Total Cost of Ownership, or TCO, of the applications under consideration: what will the software cost you over its lifespan? But most companies don’t understand what dollar amounts to include in the TCO analysis or where to source these figures, or, if using TCO studies produced by consulting and IT analyst firms, how the TCO amounts were calculated and how to compare TCO across applications.

The Mechanics of TCO

Not only will this book help you appreciate the mechanics of TCO, but you will also gain insight as to the importance of TCO and understand how to strip away the biases and outside influences to make a real TCO comparison between applications.
By reading this book you will:
  • Understand why you need to look at TCO and not just ROI when making your purchasing decision.
  • Discover how an application, which at first glance may seem inexpensive when compared to its competition, could end up being more costly in the long run.
  • Gain an in-depth understanding of the cost, categories to include in an accurate and complete TCO analysis.
  • Learn why ERP systems are not a significant investment, based on their TCO.
  • Find out how to recognize and avoid superficial, incomplete or incorrect TCO analyses that could negatively impact your software purchase decision.
  • Appreciate the importance and cost-effectiveness of a TCO audit.
  • Learn how SCM Focus can provide you with unbiased and well-researched TCO analyses to assist you in your software selection.
Chapters
  • Chapter 1:  Introduction
  • Chapter 2:  The Basics of TCO
  • Chapter 3:  The State of Enterprise TCO
  • Chapter 4:  ERP: The Multi-Billion Dollar TCO Analysis Failure
  • Chapter 5:  The TCO Method Used by Software Decisions
  • Chapter 6:  Using TCO for Better Decision Making

Who is the Most Accurate Source on SAP?

Want to find out? See... A Study into The Accuracy of SAP

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