Is SAP’s ERP System Innovative?

Executive Summary

  • SAP’s ERP systems are often presented as a good application, even innovative, but we question this assertion.
  • To understand SAP ERP, it becomes necessary to understand how ERP was originally sold when SAP first became a well-known vendor.

Introduction to Whether SAP’s ERP Was Innovative

SAP claims to be an innovative application. The following quotation presents this.

“To be fair to SAP, they have great products and they have not so good products 🙂
SAP Business Suite is a great ERP when implemented properly and deployed on a scalable/reliable platform (ahem, e.g. Oracle).
You have correctly pointed out all those inaccurate claims on their other not so good products. However, this shouldn’t diminish those positive impacts of their very trusty and reliable Business Suite applications since 1992. Rational product development decisions should prevail over old feud though. Moreover, the rational thing to do is to continue the ECC product line way past 2030 with updates in technology and Business processes so that true innovations without disruption is what all customers can depend on.”

Is ECC a Good Product? Is it an Innovative Product?

There is a consensus that ECC is a good product. SAP’s entire existence is due to ECC.

However, is ECC innovative? To consider this question, let us consider the actual definition of innovation.

“Innovation can be defined simply as a “new idea, device or method”. However, innovation is often also viewed[by whom?] as the application of better solutions that meet new requirements, unarticulated needs, or existing market needs. Such innovation takes place through the provision of more-effective products, processes, services, technologies, or business models that are made available to markets, governments and society. The term “innovation” can be defined[by whom?] as something original and more effective and, as a consequence, new, that “breaks into” the market or society.” – Wikipedia

Therefore, innovative means the company came up with something that no one else came up with. It must be new. Now let us consider ECC.

ECC was just a better and broader implementation of something all the ERP vendors were doing back in the 1980s. At that time software vendors were acquiring MRP vendors, and incorporating MRP systems into financial systems to make “ERP.” The benefit was integration, but less discussed was that much was lost in this process. For example, it worsened the MRP systems, which is something I covered in this article Why are Companies Still Running MRP from ERP?

The idea was that with one system costs would decrease. However, can anyone look at the costs of ERP implementations and say this reduced costs?

Another problem is that ECC is so weak in so many areas that without Excel it would die.

The number one way to report and do analysis in ECC? Yes, that would be Excel. ECC has been fantastic for creating external spreadsheets. It seems that Microsoft does not get enough credit for ECC being able to function. 

ECC is Good Outside of Finance?

ECC is difficult to use in supply chain management (the area of functionality I have been consulting in for decades in SAP), and it received far less development effort than SAP’s FI/CO module. In fact, I consult with ECC customers that normally have great difficulty in managing the supply chain process with ECC. The supply chain functionality was hastily created by what looks to be force feeding supply chain books to developers. The forecasting functionality is virtually impossible to work with. I could go on and on. But this is why I recommend to companies that they do not perform MRP or forecasting or any supply or production planning in ECC.

Deloitte and Accenture on the other hand, desiring to bill the most SAP hours as possible, never recommend reducing the reliance on SAP, no matter how bad the functionality. The entire SAP consulting ecosystem exists not to help customers, but to bill as many hours in SAP as possible. Any approach that reduces this primary objective will never be recommended. SAP gives awards to consulting companies no matter how much they mistreat clients. Even WiPro won an award!

However, SAP proposes ECC is great for all of the things mentioned above. The result is now companies perform these functions in ECC with great difficulty. This issue extends to analytics (all ECC systems have separate analytics systems) to sales order management (CRM has taken much of ECC’s sales order origination function) (why SAP loves indirect access claims against Salesforce).

ECC, a System Propped Up By Customization, Other Systems and Excel

As time has progressed from the initial “sales job” for ECC as the Swiss Army knife of applications, ECC has given up increasing amounts of functionality to other better applications. No one seems to remember that this is not what SAP or their coalition of the billing said would happen. Originally CIOs wanted to get rid of their multiple systems, but decades later, ECC also has….you guessed it, many systems connected to it. And SAP is more difficult to integrate with other systems than any other vendor.

Without these systems, and without extensive customizations (something else that SAP lied to customers about), and without exporting to Excel, the frustration with ECC would have no release valve, ECC would be removed from companies at a far high rate. People that consider the popularity of ECC neglect to mention that ECC is propped up from so many dimensions. ECC can be considered like an old man. If four other people drive him around and give him his medication, he can have an active lifestyle. But without that external help, he is not going anywhere.

ECC is stable, comprehensive (a relative term I know), standardized, and probably a few more accolades…..but innovative? Companies that implemented ECC are better off than before they purchased ECC? Not the companies I see and that is not what the academic research indicates.

And as we will discuss, life is about to get even more difficult for ECC customers.

When and How ERP Became the Largest Software Category

ERP became the largest enterprise software category purchased during the 1980s, and it held onto this title until just recently until giving it up to CRM. But it did so without any evidence that ERP improved the condition of companies that purchased it and used it.

It is important to recall that SAP and consulting companies told customers that ECC was the only system companies would never need and would lower their spend. Over decades a tremendous number of companies have lied about the impact of ERP on customers, and because all of the money is on the side of the ERP “industrial complex,” they are never called out on their inaccuracy. These are the usual suspects. And they have something very important in common. None of them care about what is true.

The Sordid History of ERP

Looking back at the history of ERP, it is easy to see that ERP was purchased because it became a trendy item. Deloitte, Gartner, Accenture and a whole industry — all with a pro-ERP financial bias — all told companies they had to have an ERP system. My analysis of the academic literature is that ERP systems have a negative ROI (as covered in The Real Story Behind ERP).  And because of the high cost of SAP ECC implementations and ongoing maintenance and the fact that ERP systems don’t particularly enable companies to do things better than they did them before.

SAP ECC has a strongly negative ROI. SAP ECC implementations are the most expensive implementations that we track. We offer two online TCO calculators for ECC, one for large customers, and a second for extra large customers. Lidl just canceled a 7-year project that cost $500 million Euros. Many billion dollar and up R/3/ECC failures are all through SAP’s history. Imagine what happens to the ROI of ERP when the failures are taken into account?

Both software vendors and consulting companies have been very careful to never let their customers know the TCO of ERP. It would be ruinous to ERP sales, and therefore would not allow the most important driver in all of the ERP industry, namely quota attainment.

Trapped by SAP ECC and Lead to the Slaughter with S/4HANA?

Executives brought no standard of evidence to the decision making process with respect to ERP, never asking what proof vendors or consulting companies could point to. Executives within customers that purchased ECC were not so much “thinking” as following the adverse risk strategy of just “looking at what your neighbor is doing.”

Now these companies are stuck with ECC systems that offer little flexibility, are exorbitant to maintain, and with the introduction of S/4HANA have a highly unappealing upgrade path. S/4HANA cannot be upgraded from ECC, but is a full reimplementation, pounding customers budgets once again. This is truly outrageous, but the consulting companies are silent on this, presenting S/4HANA as a positive development. (the customer’s exorbitant TCO is money in consulting firm’s pockets)


Deloitte and Accenture’s perspective on software TCO can be understood by Matthew McConaughey’s speech in the Wolf of Wall Street. “You take your customers money and put it in your pocket.” This is how the SAP consulting companies think about their customers. 

With the introduction of S/4HANA, a system that over three years after introduction is still not ready to be implemented, SAP has made the entire value proposition of their ERP system from bad to horrendous. And this is before we get into the other questions of the even lower ROI products that customers often buy from SAP to connect to ECC, and the indirect access liabilities of HANA, which SAP stipulates as the database for S/4HANA.

Conclusion

Our conclusion is that while SAP R/3/ECC has been great for Deloitte, Infosys (and of course Oracle who loves those database revenues driven by ECC with 70% of all ECC instances using the Oracle DB), ECC has not been beneficial for customers that implemented it. That is these SAP customers would have been better off custom coding their solutions (or keeping their existing solutions). Moreover, now companies have SAP, they have SAP account reps trolling their hallways. These sales reps are insistent that their customers double down on their negative ROI SAP ERP investments with even more negative ROI investments into more SAP products that are a step down from ECC. And that with indirect access, customers may have to pay for connecting any non-SAP applications to the negative ROI SAP ERP application. The entire SAP scenario has completely lost the plot. And money rather than product drives every decision.

If only customers buying SAP ERP back in the 1980s and 1990s had any idea that this would be the eventual outcome of their trendy SAP ERP purchase.

Financial Disclosure

Financial Bias Disclosure

Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.

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References

https://en.wikipedia.org/wiki/Innovation

The Real Story on ERP

ERPThe Real Story Behind ERP: Separating Fiction From Reality

How This Book is Structured

This book combines a meta-analysis of all of the academic research on the benefits of ERP, coupled with on project experience.

ERP has had a remarkable impact on most companies that implemented it. Unplanned expenses for customization, failed implementations, integration, and applications to meet the business requirements that ERP could not–have added up to a higher Total Cost of Ownership for ERP were all unexpected, and account control, on the part of ERP vendors — is now a significant issue affecting IT performance.

Break the Bank for ERP?

Many companies that have broken the bank to implement ERP projects have seen their KPIs go down— but the question is why this is the case. Major consulting companies are some of the largest promoters of ERP systems, but given the massive profits they make on ERP implementations — can they be trusted to provide the real story on ERP? Probably not, however, written by the Managing Editor of SCM Focus, Shaun Snapp — an author with many years of experience with ERP system. A supply chain software expert and well known for providing authentic information on the topics he covers, you can trust this book to provide all the detail that no consulting firm will.

By reading this book you will:

  • Examine the high failure rates of ERP implementations.
  • Demystify the convincing arguments ERP vendors use to sell ERP.
  • See how ERP vendors take control of client accounts with ERP.
  • Understand why single-instance ERP is not typically feasible.
  • Calculate the total cost of ownership and return on investment for your ERP implementation.
  • Understand the alternatives to ERP.

Chapters

  • Chapter 1: Introduction to ERP Software
  • Chapter 2: The History of ERP
  • Chapter 3: Logical Fallacies and the Logics Used to Sell ERP
  • Chapter 4: The Best Practice Logic for ERP
  • Chapter 5: The Integration Benefits Logic for ERP
  • Chapter 6: Analyzing The Logic Used to Sell ERP
  • Chapter 7: The High TCO and Low ROI of ERP
  • Chapter 8: ERP and the Problem with Institutional Decision Making
  • Chapter 9: How ERP Creates Redundant Systems
  • Chapter 10: How ERP Distracts Companies from Implementing Better Functionality
  • Chapter 11: Alternatives to ERP or Adjusting the Current ERP System
  • Chapter 12: Conclusion