SAP

Executive Summary

• ERP systems were proposed to reduce complexity.
• The result was that landscapes became even more complex.

Introduction

This book was hatched during a conversation with a longtime friend who works in SAP Basis—the infrastructure area of SAP that is concerned with installing and maintaining the SAP applications. During our conversation he made the following comment:

“Look at the typical SAP landscape at a company. It now has so many applications that it eliminates what was supposed to be the advantage of ERP in the first place.”

My friend’s statement got me thinking: what is actually known about the benefits of ERP?

ERP significantly predates my introduction to working on IT projects, and because ERP has been on every project in which I have been involved, I have What I discovered through my research was that my colleague’s single observation was only the tip of the iceberg, only one example of what turned out to be multiple false assumptions about ERP put forward by multiple entities over many years. I actually held several false assumptions regarding the benefits of ERP myself; I had never analyzed the issue closely and had been fed a steady stream of misinformation about ERP by biased parties and those who simply repeated the message they had heard from others. However, after I read the academic research on ERP, I was appalled to find unsubstantiated statements about ERP made repeatedly and routinely by individuals who presented themselves in their articles as knowing something about the ERP market. Of all the technologies I have researched, the coverage of ERP that I found was probably the worst journalism I have ever encountered. In fact, based on my research, I concluded that the vast majority of articles on ERP are misleading and not useful to people who are attempting to truly understand ERP. Of course, the articles are extremely useful to companies that wish to sell ERP software or services. Interestingly, ERP is a topic that has not been analyzed critically outside of academic literature. For those who believe that—at any time, at any place—the best determining factor of what is true is what most people think, this will not be a good book for you. Examples of when the prevailing opinion is incorrect are simply too easy to point out for anyone to be able to propose that generally agreed-upon opinions are correct. For instance, at one time, various gods explained all physical phenomena.

The Commonality of Believing False Things

In ancient Egypt, there was a wind god, a sun god, a god of the harvest, a god that ate the sun in the evening and gave birth to the moon and did the opposite in the morning. In ancient times people literally believed that physical phenomena could be controlled by praying to or making offerings to these gods. If that example is from a time too long ago for you, consider this: within the past one hundred years, the most prestigious universities in the US declared that women could never work in medicine because they would become hysterical at the sight of blood. More recently, US intervention in other countries was based upon a “domino theory,” a proposal that was never proven, never meant to be proven and was simply a justification for the violation of most of the treaties that the US had signed. These are the tip of the iceberg with respect to beliefs that were widely never actually seen a project without an ERP system.

Henry Ford received the Grand Cross of the German Eagle, the highest medal Nazi Germany could give to a non-German. However, you won’t find this story in any Ford commercial; if something does not fit with the desired history narrative, it is conveniently altered until the desirable storyline is created. For this reason, the great frequency with which the biggest and most prestigious institutions have been wrong is underestimated enormously. It is therefore quite likely that many commonly held beliefs today are wrong; in fact, it is easy to demonstrate that they are.

ERP as Just Another False Belief

There are many areas where the commonly held—and institutionally held— opinions are at odds with research in the area, and ERP is such an area. During my research, I found some statements that amounted to: “ERP must be beneficial because so many highly paid executives cannot be wrong.” However, couldn’t the same statement be made about mortgage-backed securities and credit default swaps? AIG, Goldman Sachs and Bear Stearns love them; these companies are chock full of smart people, so how could they be wrong? People who are well disposed toward ERP will most likely read this book (actually they will most likely not read it) and reject it out of hand; how can people agree with something that is counter to their financial benefit? Obviously, if a person consults in ERP, that person is going to be sold on ERP. Who would ever be so thick as to believe something that could negatively affect their pocketbook? If you are a partner at a large consulting company that implements ERP systems and your large house and large Lexus have been paid for by ERP implementations, you will not want to read this book—guaranteed—and you will not want other people to read it. Your life would be more difficult if this information got out. However, if you are one of these partners, the problem is that you will have nothing but anecdotal evidence (you have seen ERP work and provide value to clients), argumentum ad numerum (lots of companies use ERP and how can they be wrong?), or ad hominem (the author must not know what he or she is talking about), because the research on ERP will not support what you are telling your clients nor your luxurious lifestyle. Very few people have suggested what I propose in this book, so it’s rare that people have even had to confront the question of the evaluation of evidence regarding the benefits of ERP. I can anticipate the negative responses because one person, Cynthia Rettig, wrote one of the few articles that were not critical of ERP in an ancillary way, but were critical of ERP’s foundation. Many of the criticisms of her article fell into categories listed in the previous paragraph (argumentum ad numerum, ad hominem, etc.).

Even the most educated part of society—people with PhDs in the sciences—finish their academic careers still clinging to the idea that new discoveries disproving the theories upon which they built their careers must somehow be wrong. A famous example of this is Albert Einstein. Einstein was eerily prescient about most of his scientific hypothesis; in fact, he is widely credited with seeing fifty years beyond any of his contemporaries. However, when he made predictions about the new science of quantum mechanics, he was incorrect. Niels Bohr—a thought leader in what was an entirely new field and who did not follow rules of “large” physics—was proven correct. It turns out that God does play with dice after all. The desire to find evidence to support one’s already existing hypothesis and to filter out contradictory information is called “confirmation bias.” It is one of the most powerful of cognitive biases and exists in all of us—except not necessarily to the same degree in each individual, and not to the same degree in each individual at each age in their lifetime. Confirmation bias explains why things that are learned early in life, no matter how false, are adhered to so strongly into adulthood. It explains why advertisers will pay more to reach younger viewers than older viewers.

The Young Impressionable Brain

The young brain is the most malleable; it exhibits what neurologists call neuroplasticity and as such, it can learn new things quickly. As the brain ages, it develops specific neural connections (actually, the development of knowledge means creating some neural connections at the expense of other neural connections), meaning that it becomes increasingly “hard-wired” for particular thoughts and particular ways of thinking as we age. Although sometimes suggested, it is not true that the best-educated people are immune to confirmation bias. The more an individual has invested in any philosophy or course of action, the more they have to lose by adapting to a new way of thinking. In fact, merely following advice can reduce the ability to question that advice, particularly if that advice comes from an entity with some type of authority. The investment can be both psychological as well as real (in that one receives negative real-world consequences for changing one’s views). Both of these factors—the psychological need to protect previous mental investments as well as real-world consequences of changing one’s views—frequently combine to prevent people from changing to a new and better way of doing things and often make the mind impervious to contradictory information. There is research indicating that math is performed with less accuracy when the conclusion is in conflict with one’s beliefs. One question to ask is:

“Can the person who disagrees with the contentions in this article actually afford to agree with them?”

The Test of Financial Bias

Most importantly, do they have a financial bias? As for myself, I can reasonably propose that I am financially unbiased with respect to ERP, unlike the few other authors who have written on the topic of ERP. I do not make my income from ERP, but I do derive work based on the sale or implementation of ERP. I connect the systems I work with to ERP, and if ERP were to go away tomorrow, I would simply connect a different system to the planning systems in which I specialize. For the longest time it has been proposed that ERP serves as a backbone and helps the implementation of other systems. However, from my experience I have found that ERP tends to interfere with implementing other systems (although, I should say that all of my implementation experience is with “Big ERP,” and in performing research for this book and other research initiatives at Brightwork Research & Analysis, I’ve found some ERP systems that do not impose as much interference). I have been impressed with several smaller “ERP” applications; while they have similarities in terms of their footprint; they have nothing in common with Tier 1 or Tier 1 ERP software vendors in terms of costs, account control, business model, and a variety of other factors.

The Lack of Questioning with ERP

Quite simply, ERP has been ubiquitous and an unquestioned necessity. Certainly, I don’t recall people saying they liked any of the ERP systems that had been on these projects, but that did not really matter; ERP was just the reality. After this conversation with my colleague, I began researching the topic of ERP’s usefulness and value-add to companies. I expected to find a large number of books—and quantities of research and articles—that demonstrated the benefits of ERP. Instead, I found quite the opposite. Here is a synopsis of what I found:

1. There are few research studies on the benefits of ERP. The research that does exist shows that ERP has low financial payback.
2. Research into multiple aspects of ERP by serious researchers (not some survey by a consulting company or IT analyst firm) clearly shows that ERP significantly changes companies, but that the benefits from these changes are of a dubious nature. That is, there can be a mixture of positive and negative outcomes from ERP implementations.
3. The actual research is at complete odds with most articles on ERP, which almost universally promote ERP as a virtue.
4. Most of the information on ERP is unsubstantiated hyperbole written by people who benefit financially from ERP implementations directly, or by those who have “sampled the Kool-Aid” and simply don’t question any of the assumptions about ERP.
5. There are no books that question the benefits of ERP.
6. There is no book on the history of ERP.

What the Research into ERP Revealed

What I discovered through my research was that my colleague’s single observation was only the tip of the iceberg, only one example of what turned out to be multiple false assumptions about ERP put forward by multiple entities over many years. I actually held several false assumptions regarding the benefits of ERP myself; I had never analyzed the issue closely and had been fed a steady stream of misinformation about ERP by biased parties and those who simply repeated the message they had heard from others. However, after I read the academic research on ERP, I was appalled to find unsubstantiated statements about ERP made repeatedly and routinely by individuals who presented themselves in their articles as knowing something about the ERP market. Of all the technologies I have researched, the coverage of ERP that I found was probably the worst journalism I have ever encountered. In fact, based on my research, I concluded that the vast majority of articles on ERP are misleading and not useful to people who are attempting to truly understand ERP.

Of course, the articles are extremely useful to companies that wish to sell ERP software or services. Interestingly, ERP is a topic that has not been analyzed critically outside of academic literature. For those who believe that—at any time, at any place—the best determining factor of what is true is what most people think, this will not be a good book for you. Examples of when the prevailing opinion is incorrect are simply too easy to point out for anyone to be able to propose that generally agreed-upon opinions are correct. For instance, at one time, various gods explained all physical phenomena.

Conclusion

Since I began working with ERP in 1997, I have found that ERP systems have interfered with the value that can be obtained from business intelligence systems, bill of material systems, web storefronts, etc., in addition to the planning systems I have implemented (in fact, pretty much any system that must be connected to the ERP system). In the past I simply accepted this as the way it was: I thought IT implementation had to be difficult and frustrating. My exposure to many systems that are far easier to implement and have better functionality than Big ERP has led me to question my assumptions. More companies should be asking themselves this question; unfortunately these types of questions are not asked because a groupthink has settled over the topic of ERP.

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References

Thanks to Ahmed Azmi for his contribution to this article.

Executive Summary

• ERP systems are frequently defended.
• Who defends them (and who doesn’t) tells you a lot about who the ERP systems actually benefit.

Introduction

What you discussed about ERP projects is exactly what the academic literature shows, and which no implementer or vendor is interested in acknowledging. That is over decades of studies, ERP has no ROI as we cover in the book The Real Story Behind ERP: Separating Fiction from Reality. But remember, everyone has to have an ERP system. They are mandatory and to question this orthodoxy is to be dismissed as a wearer of a tin foil hat. Everyone knows that you need one. Except they have a negative ROI. But of course, everyone needs one!

And furthermore, no combination of systems can be used (i.e., connecting a financial system to a supply chain planning system to other systems). Also, you can’t start with a few systems and add customization. No matter what the industry or how poor the fit with the ERP system, you must use an ERP system. All of the financially interested parties have spoken on this topic.

A Typical SAP ERP Implementation

Let us take a look at a typical Deloitte implementation with SAP. After years and hundreds of millions spent, how does the implementation get a positive ROI? Obviously, the cost is the denominator in the calculation, so the bigger it gets the bigger the payoff needs to be.

I covered in this article how consulting companies parasitized by vendors and consulting firms as I covered in the article How Vendors and Consulting Firms Parasitized the ROI of IT.

Open Source With Customization and Integrated Applications Never an Option?

SAP consultants laugh when I present open source ERP options like ERPNext.

However, with open source ERP, you can now add customization and better individual applications, and you have plenty of budget to do it. The sort of amazing thing about this is there are no SAP customers I have ever seen that feel particularly advantaged by “having an ERP” system. It’s more considered a boat anchor. Now, who might jump on this article to defend SAP? Most likely it won’t be a customer saying

“How dare you; I love my SAP ERP!”

Instead, it will be an SAP consultant or SAP sales rep who makes money from SAP. Invariably the biggest supports of ERP are not users.

How Executives Give Their Users Systems They Don’t Want

Who supports ERP systems in ERP customers? Executives. Executives who make the purchase decision, who get wined and dined by the vendor-consulting firms. Moreover, the exact people who never log in to the ERP system. If you want an endorsement from an executive in technology, ask them what they use for email and calendar scheduling. In that they are experts.

Users of ERP are non-plussed. Go into the cubicle area, and people are trying to get their work done, with SAP often getting in the way. But who thinks ERP is great? It is the people who ride the ERP money train. But we already know that the consultants love ERP. Sales reps love cashing ERP commission checks.

No kidding. We all know people like getting paid.

The question is what is the ROI for the customer, not for the vendor or consulting firm.

The Implications of ERP Systems

Contrary to popular belief, not all companies have implemented ERP. Is there is any reason for those companies that do not use ERP to start? Furthermore, many companies that have ERP systems have implemented only certain modules, and within these modules only certain functionality. Perhaps by communicating the true payoff of ERP, it will have a positive effect by making even small adjustments in the behavior and decision-making of ERP vendors and buying companies. ERP vendors and consulting companies that specialize in ERP have not given their clients an accurate story. That is a problem because every year, companies must essentially decide anew how much to reinvest in their ERP system. This reinvestment can take many forms.

1. Support Fees and Upgrades: Means paying the yearly support fee, and upgrading the software—which also means investing resources in understanding the release notes, testing the new version—making sure the new version is compatible with other applications and with already written customizations.
2. Deepening the use of ERP: Often means choosing to activate more ERP modules and more functionality within the modules as well as adding more customization to the system to meet various business requirements.
3. Adding More Non-ERP Applications from the ERP Vendor: Can mean purchasing additional non-ERP applications from their ERP vendor that will not necessarily give the business what they need but will meet the needs of the IT department and will be “integrated” to their ERP system. This can extend to infrastructure, content management, and business intelligence software. Some of the large ERP vendors, in particular, develop sales plans to take over most of the software purchase for any enterprise software that their current ERP customers buy.
4. Deepening the Interaction with the Vendor: Software vendors like their customers to attend conferences, talk about their success stories, be part of user groups, etc.

The most common decision over the past several decades has been for companies with ERP systems to increase their involvement and purchases with their ERP vendor in any of the ways mentioned above, but is that the right decision? Purchasing companies get a steady stream of information from the software vendor and consulting companies that other customers who follow the advice that the ERP vendor recommends continue to see gains in their business and efficiency—but is this true? So much of this information is financially biased because it comes from a desire to sell more ERP software and services, but where can companies turn to find out the “real story,” and one that is not biased
by promotion.

Conclusion

ERP promises, over a 5 year period, an increase in business productivity. When we compare the before and after figures, we see no increase in revenue per employee or units of output or profit per person-hour. In fact, we often see an increase in IT staff to employee ratios (for obvious reasons and to maintain the ERP system). In this case, the ongoing cost of the IT investment keeps escalating until it consumes most of the IT budget leaving no room for innovation.

To answer the question, “Who defends ERP systems.” The answer is those that benefit the most from their implementation — vendors and consultants.

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References

Thanks to Ahmed Azmi for his contribution to this article.