To Whom Does Your IT Department Owe Its Allegiance?

What this Article Covers

  • The Concept of SAP as Legacy and What it Means
  • What Replaces SAP?
  • TCO Versus ROI
  • The Logic of Stripping out Non-ERP SAP Applications
  • Selling the Opportunity of SAP?

Introduction

In a comment on my article How to Best Understand SAP as Legacy for Software Companies I was asked the following question.

If SAP is legacy, what ERP software will take its place? or if businesses are going to purchase better individual software for business functions, won’t SAP just purchase them?

I wanted to take the time to address the first part of this question in an article. To do so I need to review the concept of SAP as legacy and what it means.

The Concept of SAP as Legacy

In my article How to Best Understand SAP as Legacy for Software CompaniesI outlined how SAP has not been successful outside of ERP.

If we look at one SAP application after another, they disappointed after implementation. The list of applications and my categorization of them are included in that article so I won’t repeat the listing and categorization in this article. But the important observation from any objective review of SAP’s applications is that the concept or strategy of implementing more than the ERP system from SAP has not resulted in good outcomes for the implementing companies. It has of course been great for SAP consulting companies and for SAP itself. In fact, the over the implementation of SAP would have to be categorized as one of the great wastes of resources in the history of IT. Implementing a non-ERP SAP application with a large SAP consulting partner is easily the worst value in IT, and there really is not a close second. At Brightwork Research & Analysis there are a number of online TCO calculators, and in my estimates SAP has the highest TCO in every category.

TCO Versus ROI

Yet, the story is far worse than just this. This is because TCO is only part of the equation. SAP has so many incapable applications outside of its ERP application that they have great difficulty adding value to companies. There are winners and losers here. SAP is very good for the resumes of those that work in IT, which explains IT’s blind adherence to SAP regardless of the outcomes for the users of these systems. Therefore in addition to the highest possible costs, in most cases outside of ERP, SAP customers also get the worst software usability and the lowest possible user uptake. A perfect example of this is the SAP BW application which consumes massive IT resources while delivering comparably few reports.

There are winners and losers here.

SAP implementations are very good for the resumes of those that work in IT, which explains IT’s blind adherence to SAP regardless of the outcomes for the users of these systems. This is very much like doctors who recommend medicines to patients that are on a patent when an identical generic is available. Pharmaceutical companies have greatly increased their revenues by financially incentivizing doctors to recommend drugs that are good for the doctor’s and the pharmaceutical company’s bottom line. Pharmaceutical companies have been very effective at doing this, which shows that very few doctors have made the decision to place their patient’s financial interests ahead of their own. This explains how Nexium is prescribed by roughly 97% of doctors over Prilosec (which is a generic and came off of patent), even though they are virtually chemically identical.

Therefore in addition to the highest possible costs, in most cases outside of ERP, SAP customers also get the worst software usability and the lowest possible user uptake. A perfect example of this is the SAP BW application which consumes massive IT resources but is able to produce very few actual reports. In a previous article, I questioned whether SAP BW could even survive as an independent product.

The Logic of Stripping out Non-ERP SAP Applications

Looking at SAP as legacy means in most cases keeping the ERP systems that were already installed. But it means diversifying away from SAP outside of ERP. This breaks down a bit differently depending upon the size of the company in question.

  • A Strategy for Smaller Companies: Many smaller companies were lulled into purchasing ECC due to false statements by SAP and the SIs about it being much easier to implement and maintain than it was in the past. However, nothing changed in ECC to make these things true; it was all marketing smoke. Like the Run Simple campaign. Those smaller companies may in some circumstances want to remove ECC as it is too high in overhead and can’t justify its yearly expense.
  • A Strategy For Larger Companies: For larger companies that keep ECC, or in most cases keep ECC, looking at SAP as legacy means decommissioning the non-ERP SAP applications. Presently many IT departments are hiding how little value these applications are adding…for career reasons.

Selling the Opportunity of SAP?

The idea that future versions of these problem applications will improve things is no longer tenable if one is objective on the topic. If the individual does not care about business value and just want to keep more SAP on their resume for career purposes, then keeping these SAP applications makes sense. And this is why IT members should be directly queried as to where their loyalties lie, and why they continually defend ineffectual applications from SAP.

SAP as legacy means acknowledging what is obvious from the large number of projects that we receive information from.

  • SAP is not capable of developing effective products outside of ERP.
  • SAP is far more of a marketing organization than a software development company.
  • SAP only has the market share they do in the products outside of ERP because of the tie into ERP and because the major IT advisors are in SAP’s pocket. Therefore SAP customers can receive large returns from dropping non-SAP ERP applications and putting in competitive applications that are selected for the actual characteristics of the application, rather than to meet the sales quota of a partner at an SI, or to pump up IT resumes.

Conclusion

As the problems with non-ERP SAP applications become impossible to continue to ignore, the question of the loyalty of so many IT departments to SAP becomes a question that should be surfaced. What is apparent is that in many cases those that work in IT departments have preferred to put in uncompetitive SAP applications that while they have cost the companies mightily, they have been good for the careers of these IT decision makers.

Outside of the ERP system, SAP applications have become liabilities rather than assets for the companies that implemented them. This brings up the topic of to whom do these decision makers owe their allegiance, to the companies that employ them or, through their careers, to SAP.

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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