SAP Watch


April 7, 2008  11:04 AM

SAP’s unexpected infrastructure investment

JackDanahy Jack Danahy Profile: JackDanahy

SAP Ventures is one of the companies that has invested $15 million in Imprivata, an identity and access management technology company that offers both hardware and software. SAP Ventures was particularly impressed by Imprivata’s ability to “address compliance and insider security threats,” explained Jennifer Scholze, a partner at SAP Ventures.

This is a titillating investment because, as SAP Ventures claims, its strategy “may be independent of or central to SAP’s corporate strategic focus.” The Imprivata deal addresses three imbricated areas — identity management, security, and hardware — that currently happen to fall outside SAP’s corporate strategic focus, which prompts speculation about whether SAP is about to move more aggressively into any or all of these areas.

From SAP’s perspective, identity management is possibly the most interesting component of what Imprivata does. SAP archrival Oracle has an identity management suite, and has long been involved in the identity management space thanks to the authentication and security aspects of the core database product.

Being able to offer identity and access management, as well as a security later (as opposed to application-embedded security), allows a company to position itself as an application infrastructure provider. Oracle is possibly the only company that can mount a legitimate claim to being both an application infrastructure company and an enterprise applications company, allowing it to combine what SAP does with what companies like BEA, IBM, HP, and CA do.

Oracle came out of the infrastructure world to acquire a foothold in applications. The investment in Imprivata is a reason to wonder if SAP will eventually go in the other direction, i.e. from applications to infrastructure. If so, SAP will become a platform provider in the most profound sense of the word and gain the ability to complete against Oracle in markets that are currently closed off to SAP.

Demir Barlas, Site Editor

April 4, 2008  10:37 AM

Benioff v. Plattner: let history decide

JackDanahy Jack Danahy Profile: JackDanahy

Salesforce.com CEO Marc Benioff and former SAP CEO Hasso Plattner squared off in a Churchill Club-sponsored debate, at the Computer History Museum yesterday, on the topic of the future of enterprise software. Naturally, each man championed his company’s vision, with Benioff touting on demand (also known as SaaS) and Plattner highlighting the virtues of traditional licensed software.

As in all debates, there was a great temptation to name the winning debater rather than the winning position. On this count, Benioff’s verbal firecrackers (including a dare to build SAP applications on the Salesforce.com platform) won him the edge, as well as the suggestion that on demand will win a great deal of market share away from licensed software. The Churchill Club’s press materials for this debate stated that, “According to Gartner, 25% of all software will be deployed with the SaaS model by 2011. Deutsche Bank predicts 50% by 2013.”

The battle of personalities in the debate obscured objective consideration of the true issue, which was whether predictions like this indicate the imminent demise of traditional software. Price pressure was one of the important issues that wasn’t addressed directly. After all, on demand is hot not because people have an innate preference for Web-based platforms, but because the cost of ownership of on demand is lower than that of traditional licensed software.

One of the premises of the on demand model and its supporters is that this price pressure is an inevitable result of the commoditization of software. The argument goes that it is becoming simpler and simpler to build software; so simple, in fact, that people can build and customize their own software, as long as someone (such as Salesforce.com) provides them with a platform that includes development tools and other infrastructure.

But does increased ease of production mean commoditization? One trend worth thinking about is automobile production. In 1915, Ford’s highly efficient techniques meant that a brand new Model T could be sold for $6,900 in 2008 dollars. Today, however, even economy cars cost more than that. The trend simply didn’t continue. Part of the reason is that, even as production became more cost-efficient, people began to demand more of their cars. Contemporary automobiles are extremely advanced pieces of technology that have gone far beyond the Model T’s purpose of taking drivers from A to B.

Although Plattner didn’t make the point, and Benioff wouldn’t have accepted it, it’s still worth asking if there might be comparisons between the state of automotive technology and software. In the first years after the assembly line, Ford was able to reduce prices by over 400%, but over a long enough timeline, consumers demonstrated their willingness to pay for more complex technology rather than holding out for low prices (otherwise, the streets would be flooded by Yugos).

Is on demand the equivalent of the 1915 Model T–a product at the summit of its cost efficiency, but not able to meet consumer needs for advanced technology? Is there a limit to the market for do-it-yourself software customization, just as there’s a limit to the do-it-yourself car customization market? If we look at the consumer world, a century of consumption has proven that people are more willing to pay companies to customize and service big-ticket items (such as cars), but prefer to build, customize, and maintain low-ticket items. The on demand debate is really about whether the chasm from big-ticket to small-ticket buying behavior can be crossed in the software realm, and examples from other markets suggest that the chasm can’t be crossed. It would have been interesting to hear Benioff make the case for why enterprise software is fundamentally different, but the clash of personalities and marketing strategies at the Churchill Club prevented a substantive debate from taking place.

Demir Barlas, Site Editor


April 3, 2008  10:46 AM

How ERP speeds order-to-cash cycle

JackDanahy Jack Danahy Profile: JackDanahy

A recent Aberdeen survey co-sponsored by SAP discovered ERP’s ability to speed up the order-to-cash cycle in specific, measurable ways. The key takeaway is the following checklist of what best-in-class order-to-cash companies (those with the fastest cash flow) are doing:

  • Standardizing enterprise-wide procedures for quotation and order management.
  • Standardizing enterprise-wide procedures for order fulfillment and delivery.
  • Accurately and consistently executing credit checks throughout the order-to-cash cycle.
  • Integrating manufacturing and/or service operations, and coordinating them with customer service and logistics.
  • Accessing up-to-date order, delivery, and billing information in real time, on demand.
  • Offering customers visibility into order status via the Web.
  • Integrating enterprise applications end-to-end.
  • Automating credit checks, saving manual intervention only for exceptional cases.
  • Automating process steps, requiring only minimal manual intervention in case of exceptions.
  • Setting up automated alerts for process and performance exceptions.
  • Measuring on-time delivery, inventory, DSO (Days Sales Outstanding), profitability, and cash position as transactions occur.

These activities can be simplified by an ERP system that offers: electronic interfaces to banks; Advanced Planning & Scheduling (APS); Available to Promise (ATP); Business Intelligence (BI); Web-based electronic sales order management; Collaborative Planning, Forecasting, and Replenishment (CPFR) tools for inventory planning and management; and support for lean methodologies.

The business case for acting on this checklist is simple, argues Aberdeen. Coordinating people, parts, and processes so as to maximize on-time deliveries leads to satisfied customers from whom cash is easier to collect. That’s job #1; job #2 is to manage the credit risks involved with customers.

Streamlining the order-to-cash cycle is worth doing for the hard dollar benefits it brings, but it’s a fairly complex initiative because of all the processes it touches from sourcing to delivery. Thus, improving order-to-cash processes usually takes place as part of the larger process re-engineering required by an ERP implementation or upgrade. Consider this quote from a survey respondent: “By re-engineering our processes and modeling them in our ERP system we were able to reduce DSO by 40%. As our sales grew 30%, we were able to grow margins an additional 20% through reduced inventory of slow moving items. We also reduced late deliveries.”

Slow cash flow is often the kiss of death for businesses, particularly in the current economic climate. Given that only 20 percent of the 235 enterprises surveyed by Aberdeen have a highly automated and standardized order-to-cash system, many enterprises have apparently misunderstood the business case for acting on the checklist above.

Demir Barlas, Site Editor


April 2, 2008  1:15 PM

SAP’s heir apparent

JackDanahy Jack Danahy Profile: JackDanahy

As expected, SAP has nominated Léo Apotheker to be co-CEO along with Henning Kagermann. It is highly likely that Kagermann will step down from the position in 2009, leaving Apotheker in sole charge of SAP.

Apotheker’s tenure at SAP began in 1995, when he founded and led SAP France and later Belgium. Apotheker led SAP’s Southwest Europe region from 1997 to 1999, and afterwards served as President of SAP EMEA (1999 to 2002). In 2002, Apotheker became President of Global Customer Solutions & Operations. Along with Shai Agassi, who joined SAP in 2001, Apotheker represented the company’s new blood. Agassi, an early contender for the position Apotheker now occupies, bowed out of SAP last year, leaving the future to Apotheker.

Apotheker will become the first non-SAP founder to lead the company. Born in Germany to immigrant Jewish parents, fluent in five languages, and resident of Paris, Apotheker is considerably more cosmopolitan than SAP’s past leaders, and his accession to the top spot is one more indicator that Walldorf is giving way to the world.

Demir Barlas, Site Editor


April 1, 2008  11:50 AM

Waste Management versus SAP: Allegations and details

JackDanahy Jack Danahy Profile: JackDanahy

Waste Management is suing SAP for over $100 million in damages alleged to arise from SAP’s “fraud” in misrepresenting its waste management software to the company. Those interested in learning more about the lawsuit can download the entire brief here: Waste Management versus SAP. If you lack the time to peruse this 52-page document, here are the key allegations:

“…SAP fraudulently induced Waste Management to license an ‘United States applicable’ Waste and Recycling Software solution”

“This software was represented to be a ‘waste industry standard solution with no customization required.'”

“SAP further represented that the Software was an ‘integrated end-to-end solution.'”

“Unknown to Waste Management, this ‘United States’ version of the Waste and Recycling Software was undeveloped, untested, and defective.”

“SAP knew that it had competition from other companies in landing Waste Management as a client, and it was keenly aware that Waste Management’s preferred solution was a proven, ‘out-o-f-the-box’ product that could be rapidly installed.”

“…the software modules used by SAP in its ‘United States’ version of the Waste and Recycling software had never been used together before and had never been tested in an actual productive business environment.”

“[SAP’s] pre-contract demonstrations were in fact nothing more than fake, mock-up simulations that did not use the software ultimately licensed to Waste Management.”

“SAP repeatedly stated that the capabilities and functionality of the software were exactly as appeared in the demonstration.”

“…the SAP implementation team had never before worked with the software SAP licensed to Waste Management.”

“…the software…was nothing more than beta software–i.e., software still in development and utterly incapable of running the operations of an American waste and recycling company.”

“The installed software failed to contain basic functionality that had been represented to Waste Management and was unable to run Waste Management’s most basic revenue management operation. Instead of making Waste Management aware of these known software problems, SAP attempted to re-program the core software code during the implementation process.”

“SAP purportedly utilized its knowledge of Waste Management’s business, gained in part through its employment of a former Waste Management controller [Dean Elger], to develop the software.”

“Based on SAP’s specific representations concerning the purported capabilities of its Software, the Business Case generated net annual benefits to Waste Management of between $106 million and $220 million per year.”

“[SAP represented] that it would implement the Software at Waste Management on a company-wide basis within 18 months, or by December 31, 2007.”

“Waste Management justifiably relied on SAP’s misrepresentations in agreeing to change orders and paying SAP additional fees to have SAP attempt to provide the very functionality that SAP had represented, during its sales campaign, was contained in its purportedly ‘out-of-the-box’ solution. Through its deceptive change order scheme, SAP improperly recovered its internal costs incurred in software development work that was supposed to have been its responsibility.”

“…the downporting and core code modifications have radically altered the Waste and Recycling Software licensed by Waste Management, to the point where that Software is incompatible for routine future upgrades.”

Details about this lawsuit were sketchy at first, but it’s clear from this document that Waste Management has very specific allegations to make. Furthermore, Waste Management keeps making the tantalizing claim that SAP’s own “internal documents” admit to these allegations. Now the justice system can sort it out.

Demir Barlas, Site Editor


March 31, 2008  11:32 AM

The ERP Success Checklist

JackDanahy Jack Danahy Profile: JackDanahy

A recent academic paper–Chan and Lui, “Rescuing Troubled Software Projects by Team Transformation…”–discussed the components of ERP failure. The paper presented a handy checklist for what to do to help ensure a successful ERP project. Here it is, in no particular order of importance:

  • Top management support.
  • Realistic project objective.
  • Right ERP strategy.
  • Suitable ERP software and hardware.
  • Stable requirements or business processes during implementation.
  • Alignment with specific requirements.
  • Relatively rapid implementations.
  • Remaining within budget and scheduling constraints.
  • Good technical support from the vendor.
  • Good project management.
  • No task conflicts among team members.
  • Lack of culture clash.
  • Non-bureaucratic project organization.
  • Correct estimation of staff learning curve.
  • Positive user characteristics.
  • User involvement.
  • Honest information policy (no circulation of unfounded rumors).
  • Timely data migration.
  • Adequate technical know-how.
  • Non-problematic technology base.

At a very high level, this serves as a checklist of ways to avoid ERP failure, which has become a hot topic again, thanks to the SAP-Waste Management imbroglio.

Demir Barlas, Site Editor


March 28, 2008  10:09 AM

SAP certification: not worth much?

JackDanahy Jack Danahy Profile: JackDanahy

In India, many IT newcomers, known there as “freshers,” are more eager than ever to break into the SAP market, and often turn to third-party SAP certification as a way of doing so.

Typical of the expectation that certification leads to SAP work was a post on SAP’s SDN that read, “I have a friend of mine…[who] has a functional expereince [sic] of 10 years in sales with L.I.C and he has done SAP SD Certification in the month of November, from Genovate Mumbai he has still not got placed and he is lookin for his first SAP Break.”

Anyone who follows SAP forums or mail groups will be intimately acquainted with variations on this message: Which certification will get me an SAP job? The question gets asked over and over because the answer is too unpleasant for people to accept: Only actual SAP experience is a valid qualification. For people who can’t get on an SAP team in their current position, or endure the prospect of waiting five years or more to transition to a company implementing SAP, this is a traumatic answer. Psychically, it is easier to believe that an SAP foothold can be bought instead.

This irrational optimism is part of the reason that third-party SAP training and certification companies like Genovate prosper. Genovate, which does most of its business in India, routinely charges $3,142 for single SAP courses lasting about ten days. That’s more money than the average Indian makes in a year, and the ten days of simulations are a far cry from the three years of actual experience that employers are seeking.

It’s important to note that, at least on the surface, Genovate doesn’t market itself as an SAP job placement service. Many Genovate trainees are working professionals who come for job-relevant training, a perfectly legitimate and value-added service. But many Genovate trainees are also “freshers” who think that certification will get them an SAP job. These people clearly haven’t done their research, or else they’d know that, in the SAP job market, Genovate certification (unlike actual project experience) doesn’t count for anything special.

This raises a question I’d like to ask our readers: In the end, does the SAP certification market function as a kind of tax on ignorance? Is there something shady about it, or does the fault lie entirely with the gullible freshers?

Demir Barlas, Site Editor


March 27, 2008  10:11 AM

SAP sued by Waste Management

JackDanahy Jack Danahy Profile: JackDanahy

Waste Management, which spent $100 million on SAP software and characterized the project as a “complete failure” in a lawsuit filed March 20, is out for blood. The company seeks damages, including punitive damages, from SAP, whose Waste and Recycling Software software was excoriated by Waste Management in the text of the lawsuit. In part, the lawsuit alleges that, “Unknown to Waste Management, this ‘United States’ version of the Waste and Recycling Software was undeveloped, untested and defective.”

Waste Management came to SAP via the “Safe Passage” program that was supposed to entice PeopleSoft users to SAP during Oracle’s drawn-out bid for PeopleSoft. At the time, Waste Management was a company in crisis. SEC Administrative Proceeding No. 3-10513 had found the following: “As early as 1988, members of Andersen’s audit engagement tram recognized that Waste Management employed ‘aggressive’ accounting practices to enhance its earnings.” In the brouhaha that followed, Waste Management’s board fired the company’s management.

Waste Management’s executive suite attained their current positions in 2004. As such, it seems that the company had a lot on its plate at once: overcoming an crisis, appointing new leadership, and launching a major ERP project.

This is not to say that Waste Management’s lawsuit is mistaken. No one can know for sure until after the wheels of justice turn. However, as it is, something seems lost in the telling. How could a company spend $100 million on software that is “undeveloped, untested and defective”? More pertinently, how could these facts about the software be “unknown” to management? ERP implementations can take years, and are accompanied by rigorous testing and planning. If SAP’s software is indeed a “complete failure,” Waste Management’s executives might well have been asleep at the wheel; no one should pay $100 million and wait two years to find out they’ve bought a defective product. If SAP’s software turns out not to have been to blame, Waste Management will still have done damage to SAP’s share price and reputation — for how long, no one can tell.

Demir Barlas, Site Editor


March 26, 2008  9:41 AM

SAP’s Korean R&D center

JackDanahy Jack Danahy Profile: JackDanahy

SAP will establish an R&D center in Seoul, South Korea, according to Korea.net. The deal, brokered by the Ministry of Knowledge Economy and the Korea Trade-Investment Promotion Agency (KOTRA), will see SAP hire 53 employees and invest $21 million over the coming three years.

SAP Korea will be the third R&D center of note in Asia, joining SAP Labs India and SAP Labs China. Korea.net reports that SAP Korea will be dedicated to business intelligence (BI) and database management.

In addition to establishing the R&D center, SAP has signed a partnership with South Korean company Samsung SDS aimed at growing SAP’s share of the Asian ERP pie while expanding the IT service opportunities available to Samsung SDS in the region. Samsung SDS CEO Kim In mentioned China as a big target of the alliance: “The mutual and comprehensive partnership will help us sustain the domestic ERP market of 10 percent annual growth and lay a solid foundation for the rapidly expanding Chinese ERP market.” Analyst David Mitchell of Ovum is bullish on the Chinese opportunity, but sees challenges ahead: “The Chinese ERP consulting, implementation and management services market is going to be an extremely contested ground. Korean companies will attack it.”

Demir Barlas, Site Editor


March 24, 2008  2:39 PM

CNET: SAP “second fiddle to Oracle”

JackDanahy Jack Danahy Profile: JackDanahy

An article published recently by editor Michael Kanellos on CNET described SAP as playing “second fiddle to Oracle.” The phrase is buried in a post about why green technology can provide a boost to European IT, and isn’t backed up by any kind of market share numbers. It’ll be interesting to see how SAP responds to this, as the company typically gets its hackles up when portrayed as anything but the leading (by revenue) company in enterprise applications.

Kanellos isn’t necessarily interested in market share, as the first part of his article is more about the weakness of European brands. In this regard, he’s the second media figure today to opine that the SAP brand is weak. Earlier, in an interview with SAP executive Bill McDermott, the Philadelphia Inquirer noted that, “Many people see SAP’s signs in train stations and airports, but don’t know what you do.”

The counterargument is that people who make technology buying decisions do know what SAP does, even if the person on the street doesn’t. If you’re interested in the strength of the SAP and Oracle brands, try canvassing the executive suite rather than the airport.

Kanellos’ article might be more of an attempt to wrangle up some free controversy and page views, reminiscent of when he claimed that the iPhone (currently doing $2 billion of business per quarter) would “largely fail.” That comment generated a lot of heat in the blogosphere and in the Apple community, and this one might in the SAP world, but in both cases it may be best to take the commentary as entertainment rather than news.

Demir Barlas, Site Editor


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