July, 2008

SAP-related scandal in Burnaby

The city of Burnaby, B.C. is playing host to an unfolding SAP-related scandal that is pulling some shady practices into the light.

On May 30, 2005, a report from Burnaby’s Finance and Civic Development Committee officially recommended a purchase of SAP to the Burnaby City Council. The project, however, faltered badly, as original implementation partner Telus walked away after one year later, and Burnaby saw the costs of the SAP project skyrocket from $10 million to $30 million (in Canadian dollars, which are nearly on a par with U.S. dollars these days). That in itself is nothing new, and it isn’t SAP’s fault. There are plenty of ill-prepared project teams and unrealistic CIOs out there, and typically it’s the implementer’s fault that SAP can’t be brought on line properly. But what happened after the failure is beginning to take on the reek of scandal.

Consider that, in late 2007, the Burnaby City Council commissioned a third party to write an assessment of the SAP project. The third party chosen was a company named APT International Business Sciences, which has an odd background: there is no independent mention of the company’s existence before 2007, and the APT Web site (still under construction as of press time) was only registered in November, 2007, and from the address of the Rotary Club of West Vancouver, not an APT office. It seems convenient that APT’s Web site came into existence at almost exactly the same time that the Burnaby City Council needed a report to justify its SAP decision (although APT itself claims to have been founded in 2002). But, more damningly, the registrar of the APT Web site and one of the three co-authors of the Burnaby report was Peter Everett, a former SAP Canada employee currently with Impac Services. Everett’s name does not appear on the APT Web site; indeed, the APT Web site does not contain the names of principals, contact information, customer information or indeed anything else of substance other than a generic welcome message.

Given that SAP Canada sold Burnaby its SAP product, it may well be a conflict of interest to have an ex-SAP Canada employee so closely involved in the writing of the Burnaby SAP project justification report. Combine that with the fact that APT is not a research firm or consultancy with a long track record, and in fact has no verifiable corporate presence other than a shell of a Web site, and it’s possible that the Burnaby City Council colluded with APT (perhaps with Everett running lead) in an effort to justify itself. The Burnaby City Council ended up paying APT $100,000 for a 23-page report and, in return, got a fig leaf of legitimacy for its failed SAP project.

However, neither the report itself nor the city council’s relationship with APT have gone over well with Burnaby resident David Field, who spent months trying to access the report through Canadian Freedom of Information (FOI) laws. Field forwarded SearchSAP a copy of the report, which simply asserts that the costs of the SAP system and consultants are “reasonable,” without defining what “reasonable” might mean.The report contains no numbers or other hard evidence to exonerate Burnaby of incompetence or overspending, and it relies largely on the city and SAP’s notes and records to reach the conclusion that it does.

Local elections in Burnaby are coming up, and some disgruntled voters are going to express their displeasure about the millions of taxpayer dollars wasted on SAP cost overruns (to say nothing of the $100,000 report) by voting down the city’s mayor.

Peter Everett did not respond to an opportunity to comment on this blog entry.

Demir Barlas, Site Editor

SAP opens the door to Rimini Street

Rimini Street, which offers technical support for end users running Oracle, SAP, and other enterprise applications, recently reported a strong first half of 2008, buoyed partly by an influx of SAP customers.Two SAP decisions are making the rest of 2008 look even brighter for Rimini Street. First, SAP decided to increase SAP support pricing so that all end users will eventually have to pay 22% of license revenue for support. Secondly, SAP decided to close TomorrowNow, a Rimini Street competitor.

To those SAP users up in arms about the increase in the cost of SAP support, Rimini Street is offering a simple value proposition: “We will charge you 50% of what you’re paying your vendor for support,” says Dave Rowe, VP of Marketing with Las Vegas-based Rimini Street. Anecdotally, Rowe notes that many SAP users have already reached out to Rimini Street to learn more. “The phone is ringing off the hook,” he enthuses.

SAP’s angle, which new SAP Executive Board member Bill McDermott reiterated for SearchSAP yesterday, is that the increased price of support simply reflects a higher level of SAP service. Even so, some SAP users will not be needing that level of service and will consequently look to shave off the cost of support by migrating to providers such as Rimini Street. For its part, SAP may have little choice in raising the cost of support, as this is part of a margin war with Oracle and other enterprise applications software providers. Anyway, if SAP end up losing support customers, it could always buy Rimini Street — although, after the bitter pill of the TomorrowNow acquisition, any such move is probably unlikely.

Demir Barlas, Site Editor

Gartner: SAP tops in ERP, CRM and SCM

Research firm Gartner has ranked SAP #1 in 2007 market share in enterprise resource planning (ERP), customer relationship management (CRM), and supply chain management. This is the third straight year in which SAP dominated all of these categories.
According to Gartner, in 2007 SAP controlled:

• 27.5% of the ERP market.
• 25.35% of the CRM market.
• 22.4% of the SCM market.

Inside the larger ERP category, SAP was also the leader in financials and human capital management (HCM), a category whose leader in thought and market share used to be Oracle-acquired PeopleSoft. However, Oracle and its vast number of acquired companies have proven unable to catch SAP in market share numbers.

Demir Barlas, Site Editor

Users rebel over SAP’s higher maintenance fees

Recently, SAP decided to raise support costs from 17% to 22% percent of licensing costs on the basis that all users would henceforth receive Enterprise Support instead of the more basic Standard Support. The change, which will be immediate for new customers and phased in for existing customers, is meeting with stiff and public resistance from the UK and Ireland SAP Users Group. Alan Bowling, Chairman of the group, issued a press release stating that, “The mandatory nature of this change along with the increase in cost has received hugely negative feedback from our membership to date.” Bowling further characterized the increased fees as “particularly difficult…to accept.”

The UK and Ireland SAP Users Group even included DSAG, the German-speaking SAP user group, in the spirit of revolt, noting that, “along with…DSAG we are sceptical that the Enterprise Support offering is sized appropriately and we remain concerned on its suitability for many small and medium-sized enterprises.”

SAP has consistently maintained that the increase in support costs was a customer-driven phenomenon, but the UK and Ireland SAP Users Group’s press release puts that claim into serious dispute. Even before the press release, it was clear that many smaller SAP users would simply have no use for Enterprise Support.

It’ll be worth watching to see if smaller SAP users intend merely to complain about the cost of support, or whether they will take action, perhaps by migrating to a third-party support provider.

Demir Barlas, Site Editor

Kagermann: SAP “too male” but not too German

Henning Kagermann, co-CEO of SAP, had some interesting things to tell Germany’s Die Welt recently. Here are some of his more colorful disclosures:

• SAP, having added four non-Germans to its Executive Board, no longer considers itself “too German”; however, Kagermann recognizes that the company is “too male.” It remains to be seen if this recognition will result in the appointment of any women to the highest echelons of SAP.
• Kagermann thinks that SAP should add a senior executive and/or Executive Board member from Asia.
• SAP will be spending 12% of sales on R&D, down from its current 14%. This will improve SAP’s profitability.
• Don’t expect SAP to dilute its commitment to its native Germany. SAP plans to maintain its German development resources despite Germany’s shortage of engineers and environment of high wages.

In terms of executive diversity, maybe SAP can take some tips from arch-rival Oracle’s appointments of Charles Phillips and Safra Catz.

Demir Barlas, Site Editor

Levis blames SAP for falling profitability

Levi Strauss, the iconic jeans company, has experienced a 19% drop-off in U.S. sales, and a 98% collapse in Q2 08 profitability. In an SEC filing and subsequent conference call, Levi Strauss placed much of the blame for the bad performance on SAP.

Levi Strauss, which began to roll out SAP globally in 2003, has certainly faced a challenging technology environment of late. From an IT perspective, the earlier part of this decade was dominated by trying to achieve compliance with Wal-Mart’s electronic trading mandates; afterwards, Levi Strauss installed SAP in its Asia-Pacific operations. The subsequent SAP project in the U.S. may have been rushed. Whatever the case, things came to a head in Q2 08 as Levi Strauss’ electronic systems simply shut down for a week. In addition to the platform problems, the company has also had to cope with falling demand for Dockers.

Levi Strauss hasn’t abandoned SAP, and is in fact hiring as many as 11 SAP consultants and experts to work in the company’s San Francisco headquarters. Nor has the company claimed that the SAP software is buggy; indeed, as most of Levi Strauss’ direct competitors successfully use SAP, that would be a hard claim to make.

CIO David Bergen, who was the SAP champion at Levi Strauss, is apparently no longer with the company, as his picture and biography on the Levi Strauss Web site were quietly dropped earlier this year (however, Bergen’s LinkedIn page still claims that he is CIO of Levi Strauss).

It’s worth noting that ex-CIO Bergen came from the IT application development world. He had only two years of experience as a CIO before joining Levi Strauss in 2000. From a risk management perspective, it was unjustifiable for Levi Strauss not to hire a senior CIO, well-versed in process-driven implementations and project management, to preside over the company’s IT strategy at such a critical time. Perhaps the company has paid the price for this decision.

In any case, SAP says that the software problem at Levi-Strauss is over: “We have a strong relationship with Levi Strauss and they successfully leverage SAP solutions to support many areas of their business,” stated SAP spokesperson Lindsey Held. “As part of this close partnership we work together to quickly resolve any challenges that arise. The software-specific challenge noted in their earnings was immediately addressed by the organizations involved and is largely solved at this point.”

Demir Barlas, Site Editor

SAP explains certification

After a long period of official silence on matters related to certification, SAP finally made some things clear to SearchSAP in a recent podcast. Here are the big takeaways:

*According to an internal SAP survey, 82 percent of hiring managers find SAP certification to be important or very important when making a hiring decision.

*if you’re going to invest in certification, invest in SAP’s own three-tiered certification offering, which is the only official, SAP-recognized certification offering in the marketplace. Lots of third parties currently offer SAP ‘certification,’ but SAP is going to be more aggressive about regulating these kinds of claims.

*According to SAP’s tracking of its 120,000 certified consultants, certification is most important at the early stages of an SAP career, but fades in importance later on. It is in response to this that SAP offers a ‘master’ tier of certification to recognize and reward senior-level consultants.

*SAP’s certification seeks to encourage and enable lifelong learning. It is part of the process of becoming a better SAP consultant. Thus, certification is not an end but a means.

It’s human nature to be afraid of open-ended processes. The biggest problem in the SAP careers marketplace is the skills shortage, which is itself a function not just of a manpower shortage but of a conniving attitude to SAP credentials. On many SAP job boards, it isn’t unusual to learn of SAP newcomers attempting to cheat on their interviews, inflating their experience, or otherwise misrepresenting their skills. We’ve long maintained that SAP has to take the lead in addressing this problem, and the SAP certification podcast indicates that it is very much on Walldorf’s mind.

Demir Barlas, Site Editor

InBev’s Anheuser-Busch takeover: an SAP win-win

Anheuser-Busch has agreed to a $52 billion takeover offer from Belgian beer company InBev. The deal will create the world’s largest beer company and generate plenty of possibilities in the SAP domain, as both companies are SAP customers. Anheuser-Busch runs SAP online procurement and supply/demand chain applications (the BudNet portal tracks distributor sales in order to give Anheuser-Busch an almost real-time picture of demand) as part of its larger use of SAP for Consumer Products; Anheuser-Busch is also a Business Objects customer. InBev runs SAP CRM and HCM.

Since InBev and Anheuser-Busch don’t significantly overlap in terms of their use of SAP, there’s a clear opportunity here for InBev to take over (and, indeed, globalize) the SAP software that Anheuser-Busch has successfully implemented in the U.S. Meanwhile, InBev could export its SAP CRM and HCM instances to Anheuser-Busch’s operations.

It’s rare for two large companies in the same space to have such different SAP footprints, but in this case there’s a lot of upside for InBev. The combined entity will have a comprehensive, non-overlapping portfolio of SAP resources that could be very valuable in improving global sales and execution processes.

Demir Barlas, Site Editor

Menasha wins SAP sales tax lawsuit

Menasha, a packaging company in Wisconsin, installed SAP R/3 in 1995. Some media reports estimate that the project cost roughly $23 million, including $5 million for a license, and over $16 million in expenses incurred as a result of paying SAP, Deloitte, and other consultants to modify the R/3 system; documents filed with the Wisconsin Court of Appeals indicate that the total cost was over $46 million. Whatever the case, Menasha reportedly made 3,000 changes to the SAP software after purchase.

Menasha paid Wisconsin over $342,000 in sales tax for the SAP transaction but argued that, because the system was so heavily modified, sales tax was not in fact owed on it (state tax codes typically levy tax on out-of-the-box software purchased by businesses, which is counted as tangible property under the law, but not on customized software). After thirteen years of litigation, the Wisconsin Supreme Court agreed with Menasha and ruled that the state could not collect sales tax on customized software. This has profound implications for Wisconsin, which will now have to pay back $265 million to businesses who have paid such sales tax over the years. SAP and other enterprise applications customers in Wisconsin who have modified their systems should anticipate receiving these sales tax refunds soon. The ruling brings Wisconsin into line with other states whose tax codes forbid taxation of modified software.

One pertinent question raised by the ruling is why sales tax is collected on enterprise software at all. True enterprise software is always modified, and not in any trivial way; as in Menasha’s case, it is the rule rather than the exception for consultants, integrators, and other providers of value-added services to modify enterprise software for business use. Logically, then, enterprise software should only be taxed as tangible property when such value-added services providers are not present and the software is truly out-of-the-box.

The ruling in Menasha’s case should encourage all U.S.-based SAP, Oracle, and other enterprise applications users to aggressively challenge their state department of revenue’s procedures. Under the letter of the law, there is no such thing as non-modified enterprise software, so why not attempt to recoup all sales taxes paid on such software?

Demir Barlas, Site Editor

Update: SAP module reorganization?

It all started with a quote from Ray Wang of Forrester Research, as he mentions that SAP might be “getting rid of terms like ERP, SCM, etc, and transforming it all into about seven sections.” A comment that suggests a loss of individual labels for software modules and a focus on suites.

This was too interesting to let go, so I dug a bit deeper and contacted SAP for a comment. The SAP spokesperson I contacted mentioned Jim Hagemann Snabe and his appointment to the executive board. This was beginning to make sense; Snabe is responsible for product development of SAP’s Business Suite family of applications. Now the question seems to be: Is there a direct relation between Ray Wang’s comment and Snabe’s executive board status?

I spoke with Saswato Das, Director of Global Communications for SAP, regarding Snabe’s interaction, and all he could tell me was: “typically when one person takes over there is some change.” He went on to say that he could neither confirm nor deny the comment… but I wonder what he meant by “some change.” Am I the only one that is confused by all this?

Eric Samuels, Assistant Editor