How SAP’s Cloud Extensions Are Used to Fake Cloud Revenues

Executive Summary

  • SAP has created a sales program that will cause a number of customers to convert their on premises SAP environments to cloud — on paper that is.
  • We cover this program that SAP does not want to be known outside of just those customers they share this with.

Introduction

SAP has introduced a program for migrating SAP customers to the cloud…but migrating them only on paper. And while doing so they make the customer sign a termination agreement for the on premise portion of the licenses hence turning it all into a subscription contract out of the blue.

The Current Impact of the Program

Regionally that has created a pandemonium amongst SAP’s salespeople because that’s the easiest “sell” on the planet. They only need to justify a dollar transaction and they get compensated for the entire maintenance base that was once an on premise footprint.

This is true even if the conversion marginally touches those licenses. To understand how this program works, let us get into its details.

The Details of the Program

The following is from SAP’s document Extension External Rules Cloud Extension.

The customer may partially terminate existing on-premise licenses and associated maintenance payments (services including SAP® Enterprise Support, SAP Standard Support, or SAP Product Support for Large Enterprises) in conjunction with a purchase of a subscription to cloud solutions from SAP. Premium support engagements (SAP MaxAttention™, SAP ActiveEmbedded and SAP Safeguarding) cannot be terminated in conjunction with a subscription to cloud solutions from SAP. SAP Business One is not in scope.

This is simply a transfer of the on premises licenses (and the associated support liability) and converts the on premises version to cloud.

Clearly, a company cannot transfer to the cloud so quickly, therefore the primary objective is to change the license type at customers from on premises to the cloud.

The transaction requires an expanded investment with cloud solutions from SAP, given the substantial added value from this new hybrid scenario.

The contract term for a new cloud subscription is five years.

Notice how the term is five years, which is of course not at all cloud.

One of the definitions of cloud is that it has flexible cancellation terms. This is just another way that SAP diverges from cloud. But as these are on premises licenses, SAP will not accept convering a support contract to a terminable cloud subscription.

SAP is Auditing the Partial Termination?

In addition, SAP reserves the right to conduct additional license audits after the partial termination to confirm that software usage is terminated.

At first, this is confusing. If SAP intends to simply paper transfer on premises licenses to the cloud, then why would this clause exist? Analysis and discussion with a few people helped conclude that this is merely the “right,” it does not mean SAP will do it. Obviously, if they did audit the account, they would find the on premises version of the software is still being used, so SAP won’t audit the account, at least for a while.

But this actually creates a liability for the client. They are not supposed to be running those on-premises versions, per the stipulations in the conversion, even though it is a “wink wink, nod nod” understanding that they will.

The Effective Date of Partial Termination

The effective date for a partial termination of existing on-premise licenses and associated maintenance is January 1 of the following calendar year or the date of the initiation of cloud subscription payments, whichever is later.

No Refunds

There shall be no refunds of any fees paid, including software license fees or pre-paid maintenance fees, as a result of this termination.

Gartner’s Analysis and The Implications for S/4HANA

Gartner has the following to say regarding the extension policy.

Who Should Consider the Extension Policies?
Any existing SAP customer with unused, perpetual licenses that are shelfware (see Note 1) who is moving to SAP Cloud or any licensed solution offering should make use of the Extension policy. Reallocate support fees where possible as part of the S/4HANA migration.

The issue is that few customers are actually moving to the SAP Cloud. And few companies are moving to S/4HANA, and even fewer to S/4HANA Cloud.

The contract conversion allows a one-time reallocation of a customer’s entire existing SAP license estate to a new S/4HANA purchase. Unlike a product conversion, the Contract Conversion Program is not product-specific and provides credit on an entire license investment to date. Using this option, SAP and the customer terminate all existing contracts, appendices and order forms, and execute an entirely new contract based on the S/4HANA license structure.

There are at least two problems with this.

  1. S/4HANA’s Maturity: As we have covered in great detail in articles like Why Did SAP Fake S/4HANA Maturity so Aggressively?, and Why Do SAP S/4HANA Customers Have to Sign NDA?, S/4HANA is still not ready to be implemented and has probably the highest failure rate of any of the major ERP applications, with literally a new failure coming to light every few weeks. Again, none of the product understanding is worked into this analysis, which makes Gartner look like they are simply repeating SAP’s marketing talking points.
  2. Contract Degradation: New SAP contracts are worse for customers than older contracts. For example, newer SAP contracts have more clauses around indirect access. Therefore, each new contract that is signed imposes new liabilities on the customers versus the older contracts. This is one reason why SAP is so interested in getting customers on “new paper.” Gartner, of course, does nothing to warn its clients about this issue. This is the problem with getting advice around SAP from an entity that receives around $150 million from SAP as we cover in the article How to View Gartner’s Financial Bias in Favor of Large Vendors, and How Gartner Distributes HANA Press Releases, and The Problem with Gartner’s Business Model.

One another piece of Gartner materials it states

For perpetual licensing: Obtain detailed price list information and use it to quantify license needs and determine the level of discounting required to make a deal within ERP budget constraints. Existing customers should fully leverage conversion and extension policies when transitioning to preserve the value of existing SAP ERP investments.

That is typical Gartner doublespeak. It is amazing that Gartner charged someone for that analysis. However, it shows the compliance of Gartner to SAP and just another in a continual stream of evidence that Gartner is an unreliable source on SAP. Gartner is essentially providing false coverage of SAP’s issues.

How is the Credit Recognized?

SAP will not register this conversation as sales though but as quota reductions.

SAP partners did not know that salespeople where getting compted on the entire maintenance base, not just the delta as one would assume. As SAP salespeople can go directly to the partner customer base, this has begun to happen. They “leaked” this into the partner community early Q4 just to make sure they can later say that they (SAP) gave everyone a fair notice.

The rate at which SAP recognizes customer credit is either 1.4x, 1.75x, or 2.33x depending on the term commitment, same goes for SAP salespeople, but not just for the delta (the pure cloud sell) but the entire base.

What About How SAP Credits Customers for Products They Have Already Licensed on Premises?

There is no information regarding how SAP credits customers for products that they have licensed on premise.

Let us look at the following scenario.

  • Let us say HANA on premise that has no street discount vs any other license that could in some cases have upwards of 99% discount.
  • If a customer chooses to downsize their maintenance base, can they choose to do so on whichever products they wish?
  • Therefore to keep the highly discounted products with them, and reduce their HANA maintenance base what would happen? Is this a making it a retroactive discount? Is there any parity between the as-is customer license scenario and the to-be or is it a purely financial transaction where SAP chooses how, and when products are deemed “maintenance reduceable”

This is important again because of HANA primarily being normally considered non-discountable, this could, in fact, make strange numbers in the long run, as so to SAP say their adoption is higher than it actually is by enticing customers to retro discount that purchase.

A Program Based on False Assumptions

From the document Sales Play: Business Technology Platform – Modern Analytics from November 2019, SAP makes the following assertion.

SAP has the largest BI install base of the industry, with thousands of active customers and most on-premise customers have successful deployments. SAC has an attractive vision: ONE SIMPLE CLOUD with smart features, integration with live SAP data and applications. Commercial incentives (Cloud Extension Policy) make it financially attractive to adopt SAC and stay with SAP rather than competitive tools. Customers can reduce their number of on-premise users, or exchange shelf ware and get started with SAP Analytics Cloud users. BI on-premise customers are slow moving and diverse, this is why we have a BI 4.3 release with Hybrid features to keep customers happy until they are ready or able to move their users to SAP Analytics Cloud. SAP Analytics Cloud Enterprise Readiness contributes to the modernization of analytics as part of the SAP Intelligent Enterprise realization.

SAP Analytics Cloud was just recently introduced and is not ready to be used for much. However, SAP will pretend to migrate customers to SAP Analytics Cloud with this program.

Customers can accelerate adoption of Cloud Analytics to support Modern Analytics while continuing with proven, robust on prem BI. They can benefit from the innovations and simplification of the cloud by leveraging hybrid combinations of the right fit for the right use case as they continue to modernize.

But they won’t be accelerating the adoption of Cloud Analytics. It will accelerate the illusion of adopting Cloud Analytics.

The Increase in Revenues from the Cloud Extension Policy

This shows the conversion of maintenance to cloud subscription. Notice the price goes up. And in the vast majority of cases, the cloud version won’t be used for years, but SAP will book enhanced revenues in the current period. This means that SAP is being paid for things that their customers are not using. However, as pointed out in the article How SAP is Now Strip Mining its Customers, SAP accounts already have a massive overhang of previous applications that were implemented but are little used. This program will further increase the percentage of unused applications on SAP accounts. Yes, the documentation by SAP frames this program as helping customers. 

This graphic shows an example of moving from Business Objects on premises to a combination of Enterprise Maintenance and SAP Analytics Cloud. This pushes SAP Analytics Cloud into the account, but it has nothing to do with whether SAP Analytics Cloud is a good fit for the account. Again, notice the price goes from 500,000 Euro to 600,000 Euro — and who knows when the SAP Analytics Cloud will actually be used. SAP Cloud Analytics is currently one of the weakest entries in the visualization space, but again this program has nothing to do with application usage.

SAP sales will present this program without any type of analysis of the application. The presumption will be that because the company has Business Objects (which is owned by SAP) and because SAP has an application called SAP Analytics Cloud, that has zero to do with Business Objects, that SAP customers will naturally move to this new application.

And in fact, the following slide explains this logic in more detail.

The Flawed Logic of Mindlessly Upgrading to Incomplete or Weak SAP Cloud Solutions

SAP argues in its video that only SAP can offer a visualization solution that essentially cuts into the maintenance cost — giving them an advantage versus Power BI and Tableau.

This presentation is first, an example of anti-competitive behavior. However, second, it again completely eliminates the capability differences between these applications.

Tableau is a leader in the visualization category, Power BI is close behind at a much lower price. SAP Analytics Cloud is still being developed and not a competitive solution. This means that SAP Analytics Cloud will be both worse to use than either of the other options, and the implementation cost will be far higher. This is particularly true for Power BI which is carving out a low cost and high impact part of the market — and was major factor in cooling off Tableau’s growth and making them an acquisition target by Salesforce.

More Specifics

Just some more details on the program.

The Increase Waste That Will be Caused at SAP Customers Because of this Program

SAP uses the term “right-sizing” for its program. Yes, the maintenance base is reduced, but the overall costs (as shown in the previous slide) is higher. The customer ends up with an application that they will not use in the short term and may not use in the long term. 

This program has nothing to do with “helping” customers but allowing SAP to rig its cloud sales to Wall Street.

Here the annual maintenance reduction is shown per the number of years the cloud contract is signed. But of course, support will still be used. So this is just transferring support to the cloud subscription column. 

This shows the salesperson how to follow through on the process. 

This shows the three different revenue models that SAP follows. The first is the most common one applied, the second is the SaaS subscription — however, notice that the term again is far longer than what is normally considered cloud. The final one is by transactions, but which only applies to just a few solutions, with Ariba being the most prominent.  

FAQs on the Program

These are to advise SAP salespeople about their typical questions regarding the program. Notice that one of the questions is whether the program is “approved” by revenue recognition. Why would this need to be stated? The reason is that the program does not actually sound “kosher.” So this is to assure salespeople that it has been reviewed by SAP’s accounting. 

Is This Legal?

The legality of this is dubious because on their yearly fillings they omit the fact that these “sales” are nothing but paper signatures, and obviously don’t mention the fact that enterprises across the world have on-a-click burned assets without knowing about it.

Conclusion

The intent is clear. SAP intends to push its customers to the cloud…on paper so that SAP can then report enormous cloud growth to Wall Street.

For this reason, Q4 of 2019 will show (we predict) some of the highest growth of cloud ever in SAP’s history. SAP will then present this as an entirely holistic cloud demand — and evidence that SAP’s cloud strategy is a stunning success.

The Problem with the Support Assumption

SAP charges 22% for maintenance which supposedly goes for R&D which benefits “loyal customers” as they say. That is instead of doing the work we all do in the real world, which is upsell or cross-sell based on merits. SAP actually pulls a trick out of Sun Tzu, which is, if the other party is not willing to negotiate because their current position is good enough, they attack that “good enough” by making it worse.

SAP might say something like the following:

Since Lumira has not gotten the funding for R&D as we promised, and Explorer and Dashboards are EOL, your money has been redirected to other products which you are not getting part of, so, if you don’t want to continue (mind you this is actually what they say, they have not been funding accordingly in the recent past, so this is a fact) to be ripped off by paying maintenance for products we don’t care about, sign this paper.

  • In the real (non SAP) world, customers would be offered a manufacturer’s newest best product, even if it was not part of the original deal, and upsell it to the current customer base.
  • Why go through all the paperwork of partially terminating things? That’s just another part of the bait in order to get customers’ attention and force them to “go cloud,” at least in their minds.

The customer that won’t go this route, and currently pay maintenance for their BOBJ licenses, shouldn’t they be offered something in return because SAP has in fact not used that money (maintenance for R&D) for their benefit but SAPs benefit? shouldn’t SAP reduce any BOBJ BI customer’s maintenance base because they have publicly accepted that the 22% will not be coming back to those customers?

The Problem With Incentivizing Sales to Push the Conversion

This is taken from page 143 of SAP’s annual report.

Typically, we either do not pay sales commissions for customer contract renewals (emphasis added) or such commissions are not commensurate with the commissions paid for new contracts.

Thus, the commissions paid for renewable new contracts also relate to expected renewals of these contracts. Consequently, we amortize sales commissions paid for new customer contracts on a straight-line basis over the expected contract life including probable contract renewals.

Judgment is required in estimating these contract lives. In exercising this judgment, we consider our respective renewal history adjusted for indications that the renewal history is not fully indicative of future renewals. The amortization periods range from 18 months to eight years depending on the type of offering. Amortization of the capitalized costs of obtaining customer contracts is classified as sales and marketing expense. – SAP Integrated Report

This means that salespeople, who are normally not paid for the support revenues — are now being incentivized by sales to “convert” the support contract (which they cannot be compensated for) to cloud subscriptions, that they can be compensated for. This means that salespeople are incentivized to do something that is bad for their customers — and this is simply to paint a misleading cloud picture for Wall Street — and get the stock price up, and then get bigger payouts to the leadership at SAP.

This program is stated as if it is beneficial for customers, but it is actually very poor for customers.

We recommend not engaging in this program, and also not listening to Gartner on any topic related to how to purchase from SAP.

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://support.sap.com/content/dam/support/en_us/library/ssp/offerings-and-programs/strategy/extension-external-rules-cloud-Extension-v8.pdf

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How Deloitte, McKinsey, the Guptas and SAP Ripped Off Eskom

Executive Summary

  • The South African energy utility, Eskom has been in long term decline.
  • As it has been mismanaged it has been systematically pilfered by a number of entities ranging from Deloitte, McKinsey, the Guptas and SAP among others.

Introduction

Eskom’s decline began around the change in government to the ANC. Eskom has been living off its infrastructure from a bygone era and is set up for major problems in the future. And the story of its decline is intertwined with a number of underhanded firms that are pushing the utility further to the brink through their parasitism.

This is an added blow the company’s professional integrity after Eskom announced on Monday evening that it is pursuing legal action against Deloitte and some former Eskom executives whom it says went to “extraordinary lengths” to ensure that the advisory firm benefitted from unlawfully and unconstitutionally awarded tenders.

Eskom’s assurance and forensic department has now added Deloitte to the list of companies that need to pay back the money. This comes after it uncovered “damning” documents, many of which were compiled by Deloitte, from the archived mail servers of Singh and Govender while conducting a “high level audit” on the awards a couple of weeks ago.

In the court papers, Eskom’s acting chief executive and chair Jabu Mabuza outlines how Deloitte came to pocket R207 million for a CFO Transition Laboratory and two tenders in 2016, which it says were awarded by “manipulating” the newly approved tender processes that Eskom had in place.

– MoneyWeb

Even the Parasites Are Stealing from Each Other?

Amazingly, not happy to just steal from Eskom, at least one parasite has accused the other parasite of stealing its IP.

In the same court bid where Eskom is accusing Deloitte of irregularly being awarded tender contracts worth R207 million, the power utility has also insinuated that Deloitte may have plagiarised some of the contents of its proposals from global consulting firm McKinsey.

The unfairness may also extend to Deloitte making use of work by McKinsey.

McKinsey was one of the tenderers but its bid was not evaluated, allegedly because it missed the deadline of September 15, 2016.

Outside of creating a process that seemed to have a predetermined outcome to not only ensure that Deloitte won the tenders but also “benefitted handsomely”, Mabuza states that proposals that were sent by McKinsey to Govender (emphasis added) appear to have been forwarded to Deloitte. – MoneyWeb

Amazing.

So Deloitte had an “inside man” at Eskom, which was Prish Govender. This not only gave Deloitte a distinct advantage in their tender but allowed them to plagiarize work from McKinsey. So when Deloitte submitted its adjusted tender, it would have been able to neutralize the impact of McKinsey’s tender.

Furthermore, Deloitte is an international partner with SAP and was recommending SAP solutions to Eskom that would have worsened Eskom’s situation, like HANA, that Brightwork Research & Analysis has extensively analyzed. Deloitte would not have informed Eskom of HANA’s indirect access liabilities, which we covered in the article HANA Police Indirect Access Charges. Internationally, Deloitte lies to companies about SAP, and inaccuracies about SAP to prospects, while pretending to be impartial advisors to firms like Eskom. We analyzed the accuracy of a representative of Bluefin Solutions named John Appleby in the following article A Study into John Appleby’s HANA Accuracy. The degree to which John Appleby knows he was lying about HANA is demonstrated in this online debate where he falls apart against an IBM representative named Chris Eaton as we cover in the article John Appleby Beaten by Chris Eaton, and is saved in the debate by none other than Hasso Plattner of SAP.

We cover how John Appleby and Bluefin Solutions significantly increased the false information they provided to the market in advance of the sale of their firm to Mindtree in the article Appleby’s False HANA Statements and the Mindtree Acquisition.

This scandal of the Guptas should be viewed as part of a larger context of corruption that goes far beyond South Africa.

Companies are now walking from McKinsey due to the Gupta scandal. Atul Gupta is the 7th wealthiest person in South Africa with a net worth of $773 million. The Guptas are involved with so many corrupt South African procurement it is difficult to follow. These include Eskom, Transnet, Oakbay Resources and Energy, Imperial Crown Trading, Duvha Power Station (where the Guptas were accused of a rigged tendering process by GE), Denel. The Guptas utilized the PR firm Bell Pottinger who caught altering Wikipedia and social media to be positive to the Guptas.  

McKinsey and Eskom and Trillion

Trillion was a shell company whose ostensible purpose was to develop local consulting skills in South Africa and under their “supplier development program,” but was in reality created to serve as a conduit and to launder money from McKinsey to the Guptas in return for contracts.

This is explained by the following quote from the former CEO of Trillion, Bianca Goodson.

Former Trillian Management Consulting CEO Bianca Goodson told Parliament that she joined Trillian to build it into a new black-owned and run management consultant firm, but that she was deceived by the Gupta-linked firm.

“I was lied to blatantly by Trillian, which I thought would be a proudly black consulting firm,” she said.

Former Trillian Management Consulting CEO Bianca Goodson told Parliament that she joined Trillian to build it into a new black-owned and run management consultant firm, but that she was deceived by the Gupta-linked firm.

“I was lied to blatantly by Trillian, which I thought would be a proudly black consulting firm,” she said.

One of the days, she was asked to open Bank of Baroda (emphasis added as we will address again further in the article) accounts. “I didn’t see money go in, I didn’t see money go out,” she said. “On 18 March, I was informed to … sign papers to open a Bank of Baroda account.”

She was supposed to hand over signing rights for the account she was supposed to open. The signed a letter that disempowered her.

The consultant turned CEO had a vision to turn Trillian into a “leading black management consulting company” in South Africa, but needed companies like McKinsey to develop their staff as part of government-required supplier development partners.

However, she explained that Trillian only consisted of two people, one being her. She told Parliament that McKinsey did not take her vision seriously.

Allegations have surfaced that Trillian was a firm used by Gupta-linked Salim Essa to get contracts with Eskom via McKinsey.

“There was one leadership meeting with McKinsey, where one of the senior partners said to us to take the 30% and go. I presented this back in a note to Salim (Essa, main shareholder of Trillian).

“I compiled a statement for this,” she said. “I believe I was a spoke in a very big wheel. I did not know what the wheel was doing, but I knew what the spokes were doing.”

She has released a detailed statement and 65 annexures, charging that her former firm, Trillian Management Consulting, facilitated access to decision makers for consulting multinationals McKinsey and Oliver Wyman.

In return for this political capital, she states, Trillian was to get up to half the fees in lucrative consulting contracts with state entities. – Fin24

Trillian was central in money laundering as the following quote explains.

Trillian oversaw the network of consultancies and shell firms that helped the Guptas shift their gains. According to documents found on the company’s server, it was both the sender and the recipient of the key transactions, which include millions from Eskom and other sources. Trillian received $41 million from Eskom, the state electricity firm, in illegal contracts. This theft has been widely reported and is now the subject of a judgement by the High Court. Trillian received just over half a billion rand ($30 million) in loans from three firms controlled by Gupta associates: Centaur, Cutting Edge, and Albatime. In all three cases, the loans may not have been intended to be repaid, and may represent the laundering of funds initially sent to these firms by Trillian itself.

Trillian’s bank statement at ABSA shows 235 million rand ($17.4 million) arriving in the account from Eskom on Aug. 13, 2016. The account held just 8,900 rand ($659) on the previous day. – OCCRP.org (Organized Crime and Corruption Reporting Project)

See Trillian’s actual banking statement from OCCRP here.

Trillian was just one of the Gupta’s many shell companies.

Though these firms appeared to be independent of Trillian, they showed few signs of functioning businesses.

Three of them — Medjoul, Fortime, and Birsaa — listed the same registration address, shared the same director, and collectively deregistered in the same month: August 2017. In addition to receiving money from Eskom, they appear to have been used to receive other illicit payments from state companies: The Trillian data include invoices they filed to Transnet, Denel, SA Express and others.

Four other shells — Jacsha, Shacob, Matson and Pactrade — also shared common directors, and some shared the same addresses. Multiple invoices citing Eskom were filed by these companies in August 2016 (though Pactrade’s were not among the data). These were part of a vague “Commission Agreement” with Trillian allowing them to bill up to 50 percent for introductions to new clients and business opportunities. – OCCRP.org

As we will see further in the article, the cover story for these intermediaries is that they are “value add,” and not simply vehicles through which to transfer bribes.

However, the following quotation calls into question whether the timing of payments actually matches an entity that is “value add.”

The first step was for Eskom to send the money to Trillian. The first payment was made precisely one day after Eskom approved Trillian as a registered supplier, raising the question of how any work done could have been assessed within 24 hours.(emphasis added)

Trillian acknowledged in its own internal documents that the company lacked credentials and the necessary skills.

Explanatory notes such as “data analysis,” “cost saving initiatives,” and “technical services” — with no further contracts or any additional details — point to the fact that the work was, in fact, fictitious. In total, Cutting Edge and eGateway — which was described by Trillian as housing “some of the best skills in the world” — received almost 204 million rand (over $15 million) from the state utility.” – OCCRP.org

Clearly as there was no time to do these things, that is activities that would normally take months, these are just fake descriptions in order to cover for what was a payoff. Trillian’s bank accounts were drained in just one day.

Note this arrangement, because it will come up again as we cover other entities that sought to purchase contracts from SA businesses.

The investigation concerns dealings with Eskom involving Trillian, McKinsey’s local consulting partner affiliated at the time with the Gupta family.

The red flags should have been there: Two damning documents—the Budlender Report published in June 2017 and a Trillian whistleblower statement published in September 2017—collectively paint a dark picture of Trillian’s longstanding corrupt dealings acting as a gatekeeper for multinational companies to access state contracts, while extracting millions of dollars in rand for itself from Eskom in the process.

In 2016, Eskom paid McKinsey and Trillian roughly 1.6 billion rand ($120 million), of which Trillian received a substantial portion of the proceeds, without a contract. The question McKinsey will seek to defend before a High Court in South Africa is whether it turned a blind eye to the shady dealings so that it could secure a $78 million contract to advise Eskom. – Compliance Week

The estimate by Ted Blom, a mining and energy advisor is that Eskom has been fleeced by roughly 1/3 of the GDP of South Africa. This expert declares that Eskom is financially dead, and it simply kept alive by infusions from the South African government. 

This video describes McKinsey’s corruption. The corruption goes both ways with both Eskom and McKinsey. 

Eskom

Notice how much more power generation capacity South Africa has than other African countries that have larger populations? Nigeria has a population roughly 4 times as large as South Africa, yet look at its power generation capability. 

Eskom was free of this from 1923 until 1994.  Its brief was simple: to make sure that South Africa had enough electricity.  It was very lightly regulated, much less so than private electricity utilities in the United States of America (USA). It was an autonomous organisation run by technocrats.  Engineers were in charge and were appointed entirely on merit.  Even under apartheid, there was no attempt to Afrikanerise Eskom’s senior management.  Eskom’s greatest CEO was Ian McRae, an English-speaker.  Eskom was entirely self-financing.  There were no state subsidies for electricity.

In about 1969, after South Africa’s economic growth rate had topped 6% in various years in the 1960s, electricity demand threatened to outstrip supply.  In those years, growth in electricity demand was double economic growth.  Near panic set in.  Then Eskom made its best ever strategic decision: it decided to embark on a concerted programme of building huge coal stations of standardised design, each one having six identical units.  The result was that vendors and contractors from all over the world tripped over themselves to give Eskom the best prices and conditions.  The stations were built on time and on budget.  They were funded via cheap debt and all the debt was timeously repaid.  The taxpayer didn’t have to pay a cent.  By the end of the programme, Eskom had plentiful and very reliable electricity at probably the lowest prices in the world – lower than that from private utilities in other countries.

South Africa’s vast reserves of cheap, easily mined (although low quality) coal was partly responsible for this success. More important was the clear-sighted, well-planned, consistent programme of new building, which was based entirely on technical and commercial considerations. – PoliticsWeb

The Decline of South Africa’s Power System

SA’s power utility, Eskom, has gone into steep decline since the rise of the ANC. This was a utility that worked quite well when the country was run by whites. Let us review some of the many issues around Eskom.

In January 2008 Eskom controversially introduced “load shedding”, planned rolling blackouts based on a rotating schedule, in periods where short supply threatens the integrity of the grid. Demand-side management has focused on encouraging consumers to conserve power during peak periods in order to reduce the incidence of load shedding. Following the national power shortage in 2007 Eskom embarked on an aggressive electricity production expansion program during the administration of President Jacob Zuma. The Zuma administration decided to focus expansion efforts on building additional large scale six-pack coal-fired power plants.[11]

In 2017 Eskom was the focus of a major corruption scandal involving the Gupta family and the administration of then President Jacob Zuma.

The National Energy Regulator of South Africa denied an application by Eskom to increase electricity tariffs by a future 19.9% for the financial year 2018/19. The regulator instead granted a 5.2% increase and gave a list of reasons for the refusal to grant higher tariffs that the South African newspaper Business Day stated painted “a picture of inefficiency, inaccurate forecasting and cost overruns” at the power utility. Part of the refusal was the finding that Eskom had an additional 6,000 employees that were not needed, costing the company R3.8 billion annually.[14]

Corruption during the Zuma administration has been noted as a major factor in the cost overruns and long delays in completing Medupi and Kusile power plants that has had a knock on effect leading to the 2019 power shortages.[16] The power shortage and related troubles at Eskom was blamed as a significant contributing factor to a 3.2% decline in GDP growth in the first quarter of 2019,[17] prompting fears of a recession in 2019.[18]

In 2011 eight out of ten Eskom board members were controversially sacked by the Zuma administration.[11] From 2015 to 2017 the Zuma administration appointed Ben Ngubane as chairperson of the board. Ngubane’s tenure as chairperson was controversial for his involvement with the Gupta family and for attempting to blacklist newspapers perceived as unfriendly to Eskom.[69]

In July 2018 it was announced that Eskom had taken out a R33 billion loan from the Chinese government owned China Development Bank.[104] The loan conditions were controversially[105] not made public with accusations that it was an example of debt-trap diplomacy by China.[106][107] During the Zondo Commission of Inquiry into state corruption a senior Eskom executive stated that an additional R25 billion loan from the China-based company Huarong Energy Africa was improperly and controversially taken out by Eskom.[108] After the loan had been issued Eskom chairperson Jabu Mabuza stated to the Zondo Commission that Eskom would not be repaying the Huarong loan due to irregularities and corruption involved in the issuing of the loan.[109]

Eskom was forced to suspend its Chief Financial Officer Anoj Singh in July 2017 when the Development Bank of South Africa threatened to recall a R15 billion loan if no action was taken against Eskom officials (including Singh) who were involved in corruption allegations involving to the Gupta family.[76] In September 2017 Minister for Public Enterprises, Lynne Brown, instructed Eskom to take legal action against firms and individuals involved; ranging from Gupta family owned consultancy firm Trillian Capital Partners Ltd. and consultancy firm McKinsey to Anoj Singh and acting Chief Executive Matshela Koko.

An investigation done by the amaBhungane Centre for Investigative Journalism found that the Gupta family had received contracts worth R11.7 billion from Eskom to supply coal between 2014 and 2017. – Wikipedia

The Guptas are a major corrupting force in South Africa and were intertwined with Jacob Zuma.

The crisis is also described as follows:

 Our Eskom crisis has three major interlinked causes, the largest of which is the dysfunctional and tardy construction of two of the world’s biggest coal-fired generating plans; Medupi and Kusile. According to Wits Business School energy fundi, Professor Rod Crompton, they are probably the largest single disaster in South Africa’s economic history. The answer to the question why is the second contributor to our predicament; patronage networks or State Capture, and their attendant corruption and poor management leading to over-staffing and neglected maintenance, resulting in constant breakdowns. The third factor? Electricity theft and an enduring culture of non-payment. – BizNews

Furthermore, through political patronage, the ANC has been active in replacing white workers with black workers, and overstaffing Eskom, increasing its costs. Eskom now has fewer competent workers and has an overall culture of nepotism and corruption that has been installed by the ANC. This is covered in the following quotation.

There has been a “significant loss of critical skills”, with “poor quality of maintenance” and “poor workmanship” causing breakdowns, of which 40% is due to human error, according to Gordhan.

The company is suffering from “systemic corruption, malfeasance, fraud and state capture” that has “compromised the credibility of the organisation and eroded investor confidence”, Gordhan added. – Fin24

This is reinforced by the following quotation.

In 1994, when the ANC took power, there were unfortunate changes at Eskom: some of them predictable, some of them surprising.  Race-based affirmative action, political interference, and political appointments were predictable.  Highly skilled and experienced white engineers, managers, and technicians were given generous ‘packages’ to get out and make way for persons of the correct skin colour and political affiliation.

Instead, they were preoccupied with other goals, such as racial transformation and keeping the price of electricity artificially low for social purposes.  Accountants replaced engineers at senior levels, and those accountants lost sight of Eskom’s fundamental purpose, which is simply to provide electricity and cover its costs – not make a big profit or a high rate of return.

Eskom’s incompetence has added other problems to the generation shortage.  In January 2008, during a period of heavy rain, a large number of the big coal stations failed, plunging much of the country into blackouts and shutting down all the gold mines.  The economic losses were enormous.  The reason was a disastrous decision by Eskom to shift some of its coal supply away from its established contracts with big coal mines and instead start buying coal from a variety of small, black-owned mines.

This was done for reasons of racial procurement.  As a result, Eskom started receiving poor coal of varying quality.  This problem was compounded by an idiotic decision by Eskom accountants to reduce coal stockpiles at power stations so as to save on stock costs.  When persistent rain fell on low, messy stockpiles of bad coal, it turned them to sludge, which clogged up the mills, chutes and nozzles feeding pulverised coal to the boilers.  They shut down.

– PoliticsWeb

Is this decline of Eskom also to be blamed on the “legacy of apartied,” or will it be placed at the foot of the ANC, that has had total control of Eskom?

As the ANC has been using Eskom for their purposes, Eskom is becoming closer and closer to not being able to function.

“Eskom’s inability to supply electricity and the ever-increasing prices have provided an incentive for users to replace inefficient equipment” and shift to solar panels, Elena Ilkova, a credit analyst at Rand Merchant Bank, said by email. This “will leave Eskom to supply increasingly higher-priced electricity to consumers who can barely afford to pay and many more consumers who either can’t or will not pay,” she said. – BizNews

Selling Eskom S/4HANA

Here is the announcement of Eskom purchasing S/4HANA.

We follow S/4HANA consistently and have the most research on the application. S/4HANA has failed at most places it has been attempted to be implemented and has been sold into many accounts where it should never have been sold, such as Nanshan Life Insurance of Taiwan.  

SAP has a very poor fit with utilities and failed badly at National Grid where it and Wipro made enormous misrepresentations around their capabilities in utilities as we cover in the article How National Grid’s SAP Implementation Damaged a Company. This follows a pattern of SAP selling their ERP system into companies like banks and service companies that have no real use for the majority of functionality in their application.

All of this means that it is likely that first, Eskom has no idea what it is doing in selecting software, and that the implementation is very likely to be a significant write off for Eskom.

SAP states that Eskom is live with S/4HANA, which in our estimation is most likely just a sandbox. The quote states the following:

“It is a complex solution that we have,” says Antoniades. “We have 29 SAP solutions in production and 63 non-production environments.”

This means that S/4HANA may just be a test system.

This brings up a further question if S/4HANA went line in December of 2017, why did SAP announce the move to S/4HANA in June of 2019?

SAP’s Corruption in South Africa

SAP has been caught in the Gupta scandal not only with Eskom but with Transnet as well. Transnet is SA’s port, railroad, and pipeline company.

SAP had to do damage control after being embroiled with the Guptas. So they hired a firm, Baker McKenzie to perform a fake internal audit and help them control the narrative as a form of public relations. And they also coordinated the release of information to take control of the narrative.

A major benefit to SAP to release this is that they took the top spots in Google with their fake coverage of an “internal audit.” 

Something else interesting is that there is virtually no coverage of the SAP Gupta scandal in the US IT media. SAP would have told media entities like IDG and others that they did not want the story covered. In fact, most of the coverage is foreign, not by US media entities. The ever-reliable The Register (UK based) was the only major IT media entity to cover the story.

To date, the investigation has found no evidence of any payment to any government official or to any employee of an SOE, including any employee of Transnet or Eskom. However, the investigation has uncovered indications of misconduct in issues relating to the management of Gupta-related third parties. – SAP

Notice SAP has to frame corruption as only a direct cash payment, when in fact corruption is normally much more sophisticated than just a cash payment. However, as we will explain, SAP did pay directly to Gupta’s companies. SAP’s lie is boldfaced and right in its “internal audit.”

Beginning in or about mid-2014, representatives of the Guptas began to associate themselves with multiple small third parties that had experience in the IT industry. Some of these third parties had existing relationships with SAP.

There is no evidence of SAP direct contact with any member of the Gupta or Zuma families. The primary connection was with Gupta intermediary, Santosh Choubey, and the people who reported to him.  Choubey became the principal contact for Global Software Solutions (GSS) and CAD House.

Santosh Choubey is acting as an agent for the Guptas.

Secondly, GSS and CAD House are Gupta companies, as we will cover in just a few paragraphs. SAP knew at the time that GSS and CAD House were Gupta companies and later they were simply transferred to a purpose built shell company called Futureteq. This would be like saying that someone who dealt with me did not know that they were because they dealt with Brightwork Research & Analysis. This lie about GSS and CAD House proves without a doubt that SAP did not hire a real independent auditor and that their internal audit and its publication are nothing but PR theater.

GSS became eligible to act as a sales commission agent in September 2014 when it became a Value Added Reseller. CAD House was approved as a sales commission agent in August 2015. SAP terminated the ability of Value Added Resellers such as GSS to act as sales commission agents in 2016.

SAP South Africa concluded two contracts with Transnet and four with Eskom between December 2014 and June 2017, with GSS and CAD House acting as commissioned intermediaries. One contract involved a commission of 10%, while the other five contracts involved a commission rate of 14.9%, just below the 15% threshold that would have triggered an SAP Executive Board review of the deals. In connection with one Eskom contract, SAP retained a Gupta-related entity called Lejara Global Solutions to provide services to Eskom.

Why were the contracts set right below the commission rate of 14.9%?

Did that set off a red flag at SAP?

Furthermore, SAP is a thoroughly unethical company, why would they care if the deals were acquired improperly? SAP’s business model is to acquire deals improperly by corrupting the decision-makers within companies. SAP makes career promises to IT executives to get them to buy applications that are often a poor fit for the companies they sell to. This is well known in the SAP industry. Just recently an SAP salesperson told me

“SAP does not so much sell software as sells careers.”

Reporting from Fin24 also contradicts SAP’s assertion that it was unaware of what the Guptas were asking for.

By May 2016, it was obvious to SAP that at least three Gupta-controlled companies – Cad House, Global Softech Solutions (GSS) and Cutting Edge – were trying to extract exorbitant “commissions” from it for helping secure contracts with state-owned entities. “SAP’s local compliance team independently discovered that Cutting Edge was linked to the Gupta family. The local compliance team also determined on its own that GSS and CAD House were connected with Cutting Edge, and that all were Gupta-connected,” SAP confirmed in its brief written statement to us. “Local SAP compliance notified SAP global compliance, which promptly placed on hold [i.e. stopped] … any new compliance approvals relating to these [Gupta] parties.”

At this point the software giant could still try to claim that its dealings with the Guptas had been accidental – the result of a shoddy due diligence or duplicitous local sales staff – and not the inevitable consequence of its global practice of asking too few questions about the millions paid out in questionable commissions.

But this is not where the story ends.

Instead over the next year SAP executives at a local, regional and global level gave the green light for another R73m to be paid to Cad House to secure new deals at Transnet and Eskom. – Fin24

This again contradicts SAP’s “internal audit.” Furthermore, SAP needed plausible deniability in dealing with the Guptas, so it set forth the following conditions.

What we can piece together from leaked documents and various sources is that at some point after the Guptas were benched in April 2016, SAP and its attorneys Fluxmans told Cad House that it could only continue working with the company if the Guptas sold their shares.

Lo and behold in May 2016 a new IT company called Futureteq was registered. Four days later, it started buying the Guptas’ shares in Cad House, GSS and Cutting Edge. (emphasis added)

SAP told the Guptas what SAP needed them to do, to create “separation” and the Guptas went and did it. So now instead of SAP dealing with CAD House and GSS, they were dealing with Futureteq — which was in turn owned by the Guptas. SAP tried to present the story in their internal report PR that these companies had nothing to do with the Guptas. And that because they paid these companies, they did not pay the Guptas.

SAP receives a Golden Pinocchio Award for its claims that it did not know that CAD House and GSS were controlled by the Guptas. 

Sales pushed through to override any internal controls that SAP had with Futureteq as the following quotation explains.

Internally at SAP South Africa, there were those who voiced concerns that Futureteq was exactly what it looked like: a paper-thin cut out for the Guptas. But according to one source, the local sales team used their authority to bulldoze over any concerns.

“SAP sales management is requesting resolution to this matter as these partners have urgent opportunities in the pipeline with which we need to proceed,” Higginson wrote.

“We found evidence that Sahara Systems (Gupta owned) acquired majority shareholding of the aforementioned SAP partners… Subsequently, Sahara Systems have sold their shareholding to Futureteq (no Gupta ownership)…

“The new owner of Futureteq is the brother of the Sahara Systems owner [but the] forensic report confirms he manages his own affairs independently of his brother.” – Fin24

This internal email from SAP shows that SAP knew exactly what Futureteq was, a Gupta shell, and did not care.

SAP then continues to provide more false information in their published “internal audit.”

The investigation did not find any evidence that the integrity and value of the software and services provided by SAP to Eskom and Transnet in these contracts were undermined in any way by the inclusion of these intermediaries. – SAP

Really?

Well leaked documents show that SAP is lying here. As this quote from Fin24 illustrates.

But Pillay emphasised: “At the time we did the due diligence there was no linkage to any of the Guptas. I look at the company, I think we probably did a due diligence on them around 2015. At that time it was all clear, there were no issues. It was an external reputable company that did the due diligence. There were no red flags.”

Now the new leaked documents show us just how contrived that statement was.

“Legitimate, value add services unlikely”

SAP was well aware of the risks of “business development” contracts.

For instance, in January 2016, global compliance head Melissa Lea sent out a memo reminding staff about the high risk of corruption when dealing with “business development partners”.

“Commissions are the highest risk method of engaging with partners largely because the partner’s role in the deal is usually not transparent.

“It is possible the customer may not even know the partner was involved, which would make the likelihood that the partner performed legitimate, value add services unlikely.”

Due diligence, it seems, was a box-ticking exercise, a fig leaf to cover what the company should have recognised as kickbacks for influence pedlars.

Hmmmmm…SAP’s own internal documents indicate that the value add services were unlikely.

SAP receives another Golden Pinocchio Award for stating that the companies it used to acquire contracts with both Eskom Transnet were value add when their internal documents show they knew they were just Gupta payment portals. 

In addition to the above-described finalized contracts, the investigation found that SAP, with the assistance of Gupta-related entities, unsuccessfully sought other contracts with Transnet and Eskom.

The investigation found no evidence of any payment to any government official or to any employee of an SOE, including any employee of Transnet or Eskom. However, the investigation has uncovered indications of misconduct in issues relating to the management of Gupta-related third parties. – SAP

The Guptas have been found guilty for virtually every type of corruption that we have a category for, with bribery being just the tip of the iceberg as the Guptas also engaged in tax evasion and illegal use of the South African work visa program. And SAP’s proposal they would like others to believe is they had no idea that they were dealing with these kings of corruption, and that they did not seek to work through them to obtain business.

Notice this quote on the Guptas and Transnet.

Transnet bought seven of the world’s most expensive port cranes because its Chinese state-owned supplier inflated the price to pay off the Guptas, a kickback contract shows.

Shanghai Zhenhua Heavy Industries (ZPMC) delivered the cranes to Durban container terminal in 2012 and 2013.

When Transnet awarded the contract in September 2011, the cranes were worth no more than $81-million (R570-million then), but ZPMC inflated the price to $92-million (R650-million then) to make room for “commissions and fees”.

This is according to an “agent agreement” between ZPMC and a Dubai company called JJ Trading (JJT).

JJT stood to take most of the crane price increase, plus an extra cut, altogether totalling $12-million (R84-million). In return, JJT would make sure ZPMC got its contract.

However, financial records in the #GuptaLeaks show that JJT was largely a cut-out for the Guptas, who got most of the JJT money.

Ultimately, it is not clear if Transnet’s decision to buy expensive cranes from ZPMC made technical and economic sense, but if it did not make sense, as alleged, that is probably because ZPMC was paying off the Guptas. We recently reported that JJT and related shell companies received about R1.5-billion in Transnet kickbacks.

CSR paid most of this. The first Gupta kickback contract we published showed that the payments were in return for the “agents” making sure Transnet gave CSR a locomotive contract. Most of this was paid on to Gupta-controlled companies in the United Arab Emirates. – GuptaLeaks

It is very obvious that everyone in the contracting business in SA at this time knew what the Guptas did and that they were corrupt.

SAP receives another Golden Pinocchio Award for stating that it did not know about the Guptas or what they did when public information was already available in a report about public capture by the Guptas as far back as 2016, and information was generally available about the corrupt nature of the Guptas far before this. 

The findings of the investigation have led SAP’s Executive Board to institute significant changes to its global compliance processes. These include:

Eliminating, effective immediately, all sales commissions on all public sector deals in countries with a Corruption Perceptions Index (according to Transparency International) below 50, which includes South Africa since it has a rating of 45; – SAP

What does that mean? Salespeople will not receive any commission for these countries? That sounds a bit fishy. They most likely mean not paying commissions through a partner, but who will follow this up?

Initiating on a global basis extensive additional controls and due diligence into relationships with sales agents and value-added resellers, including additional audit functions; – SAP

That is impossible. SAP has an enormous ecosystem of consulting firms that are also corrupt. SAP works with them precisely because they are corrupt and they will recommend SAP no matter the fit to requirements.

Allocating to the SAP South Africa market unit additional legal compliance staff who are based in South Africa; and

Strengthening SAP’s Compliance Committee in the SAP Africa region. – SAP

How can this make any difference?

SAP’s business model is based on corruption. This is a band-aid and is designed to appeal to people who have no experience with how SAP functions.

The Degree of Graft

SAP’s contract with Eskom is jaw-dropping as the following quote explains.

The R495-million contract (about $34 million) with Eskom has been described by one source as the software equivalent of an all-you-can-eat buffet.

Yet we have seen no evidence that SAP asked the simple question: what expertise did Cad House have that allowed it to close a deal SAP’s top sales executives could not? And what allowed Cad House to seamlessly transfer its “expertise” from Transnet to Eskom?

Instead of probing, SAP signed another 14.9% commission deal with Cad House to help it land the Eskom contract. – Fin24

CAD House clearly added no value outside of getting the contracts. CAD House had no implementation capabilities and no SAP experience.

This is CAD House’s website. It has close to no website volume.

It is some small CAD company in South Africa with nothing about SAP mentioned on the site. Why was SAP paying this company to obtain contracts from Eskom? Did SAP actually go to the website to see that they only specialized in CAD?

These are some of the CAD drawings that are produced by CAD House. Did this look like an SAP implementation company to SAP when they visited the site in 2016? Did SAP certify them — because they don’t do SAP work. How competent is SAP’s compliance department on not engaging in corrupt foreign practices?  

Furthermore, not only were we able to figure this out in about 5 minutes, so was Fin24, as they explain in the following quotation.

CAD House is a small company, which specialises in selling 3D printers and which allegedly had no previous relationships with SAP or expertise in this field. That is why the DA claims that it has reason to believe that SAP SA procured the services of CAD House “purely because they wanted access to its owners – Duduzane Zuma and the Guptas’ – connections within Transnet with a view to securing a lucrative contract”. – Fin24

CAD House was just a way to funnel money to the Guptas. And how the money was moved after CAD House was paid by SAP illustrates this quite clearly.

Immediately after receiving payments from SAP, Cad House disbursed nearly all the money to the Guptas’ Sahara Systems, to their two Indian banks, and to an obscure letterbox company called Birsaa Projects.

For its multi-million rand “services”, Cad House got to keep almost nothing. – Fin24

SAP could have easily seen these things by simply checking on CAD House, but they knew what CAD House was already. CAD House is so barefaced corrupt that SAP assumes that those that would investigate the story to be complete idiots to think that it is not entirely clear what SAP was doing. This is obvious to South African authorities as well.

The DA intends to proceed to lay charges of corruption and money laundering against the directors and employees of SAP South Africa and of members and employees of CAD House as well as “any other person who had material interests in the deal”.

Furthermore, the DA says it is not the first time SAP “has been caught with its hands in the cookie jar” internationally. – Fin24

SAP receives another Golden Pinocchio Award for pretending to have compliance department and then for doing no research into CAD House to easily conclude that there is no way CAD House had any background in SAP or any ability to “add value” to the sale to Eskom or Transnet. 

Eskom’s Corruption Rears Its Ugly Head

So far, the story has been one of corruption around the Guptas and other firms. However, now the ANC controlled Eskom shows up with its own corrupt demand.

It is understood that the memo was requested by SAP’s legal head in London after Eskom demanded that at least 25% of the SAP deal be allocated to “supplier development”, in other words, small, black-owned companies.

Such a request is not abnormal, except that in this case, Eskom was buying software licenses so there was little opportunity to subcontract work to a local company.

Kemp told amaBhungane this kind of demand places international software firms in an invidious bind if the set-asides are not realistic.

Eskom, however, told us the request was not unreasonable because the contract would include additional services including maintenance and training which could be subcontracted to black-owned companies.

Throughout this story these “supplier development” firms have proven to be nothing more than shells that were used to launder payments to the Guptas in return for contracts. How are black-owned companies in SA going to perform maintenance and training if they don’t know SAP software? It appears that Eskom was to point SAP to specific entities that would be selected by Eskom directors, which were naturally somehow related to Eskom directors.

And now at this point, SAP seeks to circumvent this demand on the part of Eskom.

The solution to Eskom’s 25% demand, described in SAP’s internal records, was to keep Cad House’s sales commission at 14.9% but to pay another 10.1% to Lejara, which would provide Eskom with consulting services to this value.

Take one guess who owned Lejara?

Yes, you guessed right — the Guptas once again. If this had gone through it would have seen the Guptas receive 25% of the deal’s gross value.

Curiously, in the case of the Guptas and Transnet, they did not use a supplier development shell but were instead paid a $321 million “advisory fee” to Salim Essa, a Gupta frontman. (according to OCCRP) But shells were used with the corrupt Transnet deal (for locomotives) as well.

The bank data shows that, whenever Regiments Asia received a credit to its account, it was always from China South Rail — suggesting that the firm had been established precisely for this deal. Tequesta records show a similar pattern, with 90 percent of its money coming from China South Rail. But the money didn’t stay with the two shell firms for long. The millions then went through more than three dozen shell companies around the world, mostly using HSBC accounts in Hong Kong and other locations, but also employing other banks in London, Johannesburg, Dubai, and the US. In all, OCCRP data shows that more than 20 banks sent or received money from Regiments Asia, Tequesta, or the shell companies. Led by HSBC, these banks also included National Westminster in the United Kingdom, Wells Fargo in the US, India’s state-owned Bank of Baroda, Habib Bank, Standard Chartered Bank, and a dozen Chinese banks like Bank of China and China Citibank.

Big banks like the Bank of Baroda and HSBC allowed the payments to carry on from 2014 until 2017. Mercantile, however, noticed suspicious activity within four working days of the account being opened. Its bankers reported this to the South African Reserve Bank, which requested that Mercantile block the account, which it did  – OCCRP

Conclusion

Deloitte, McKinsey, SAP, and the Guptas and others robbed what appears to be a defenseless utility filled with politically appointed “friends of the ANC” blind.

Deloitte cultivated internal people at Eskom to turn over the tender of their competitor. SAP worked the Gupta angle to get into Eskom and Transcom.

What is curious is that while Jacob Zuma’s son was implicated in the corruption, nearly all of the people bought off by SAP and by others were not white or African. They were almost universally Indian.

However, observe that Indians only represent less than 2.4% of the population of South Africa. How is it that such as small minority of South Africans are involved in such a high percentage of the corruption in these scandals?

In fact, even the entry of the Guptas into South African political power occurred because of an Indian, as explained in the following quotation.

But others — exiled South Africans and fortune-seekers — were flocking in. True to his father’s teaching, Atul settled in Johannesburg and sold shoes downtown. Then he started a company — Sahara, named after the family hometown — importing computer parts and assembling them for sale.

And by chance, he made a personal connection to the A.N.C. that would prove far more consequential.

During a trip home to India, Atul met a South African of Indian origin in New Delhi: Essop Pahad, the right-hand man of Thabo Mbeki, who was then Mr. Mandela’s deputy. – New York Times

On October 10th of 2019, the US placed sanctions on the Guptas. 

The Guptas allegedly stole “hundreds of millions of dollars through illegal deals with the South African government, obfuscated by a shadowy network of shell companies and associates linked to the family”, the US Treasury said on Thursday.

Atul, Ajay and Rajesh “Tony” Gupta, a trio of Indian-born brothers, have been added to the US sanctions list as “members of a significant corruption network in South Africa” accused of looting state coffers. The Treasury’s move will forbid US entities from doing business with the family or handling their assets.

The sanctions were imposed under the Global Magnitsky Act, a law passed in 2017 that allows the US government to sanction individuals involved in significant state corruption around the world. – Financial Times

And further than the FBI is now probing the Gupta family.

More companies are likely to be shoved into the harsh spotlight, however, now that the U.S. Federal Bureau of Investigation is probing other individuals, bank accounts, and U.S. companies with ties to the Gupta family, people familiar with the matter told the Financial Times. The FBI’s investigation focuses on suspicious cash flows from the Guptas in South Africa to Dubai and the United States.

Outside the United States, the U.K.’s Financial Conduct Authority, the Serious Fraud Office, and the National Crime agency have been informed that British financial institutions—among them, HSBC and Standard Chartered—may have handled illicit funds connected to the Guptas. On Oct. 19, during the House of Lords meeting, Lord Peter Hain said, “In my letter of 25 September to [Chancellor Philip Hammond], I supplied for investigation 27 names and personal identification numbers, including President Jacob Zuma, 11 members of his family, 11 members of his close friends, the Gupta family, and their five associates, together with 14 entities linked to the Guptas and suspected to have been set up for the purposes of transnationally laundering an estimated £400 million, or 7 billion rand, of their illicit proceeds.” – ComplianceWeek

Due to the sanctions in the US, the question was asked regarding whether similar sanctions would be applied in India and the Guptas are active in India. However, a look at the corruption map of the countries in South East Asia, which includes India in dark red, showing the prevalence of bribes, as reported by Transparency International indicates that it will be easy for the Guptas to bribe their way out of any repercussions in India. (In dark red, 69% of Indians surveyed reported paying a bribe to access public services in the past year – which is the highest percentage in the region). In Australia (in yellow at the bottom) the number is only 4%.tr

See the full report here.

The Enablement of the Guptas by the Indian Bank — the Bank of Baroda’s South African Branch

Furthermore, it is not only the Gupta family and Indians in South Africa that highly concentrated in the corruption but an the second largest bank in India that would have had to have known what the Guptas were doing.

The Guptas had their accounts shut down in South Africa, but not in India, as the following quote explains.

India’s state-owned Bank of Baroda — one of the country’s largest — played a crucial role in the financial machinations of South Africa’s politically influential Gupta family, allowing them to move hundreds of millions of dollars originating in alleged dirty deals into offshore accounts, an investigation by the Organized Crime and Corruption Project (OCCRP) and The Hindu has found.

The documents show that the bank’s South African branch issued unapproved loan guarantees, quashed internal compliance efforts, and prevented regulators from learning about suspicious transactions in a way that benefited the Guptas’ network.

Close to 4.5 billion rand (about US$ 532 million, based on an average exchange rate over 10 years) was transferred among just a handful of the companies between 2007 and 2017. As a whole, the amount of cash flowing through the Gupta accounts was so large that it dominated the transactions of the entire Bank of Baroda branch in Johannesburg.

Many of the transactions lacked adequate documentation about the purpose of the transfers, as is required in South African banking regulations. Other times, information was included, but didn’t make sense. – OCCRP

OCCRP’s investigation calls into question as to whether the Bank of Baroda was following any banking rules of any kind.

on Jan. 18, 2017, transactional paperwork shows that Trillian Management Consulting, at the time majority-owned by Gupta associate Salim Essa, loaned 160 million rand ($11.8 million) from its Baroda account to another Gupta company, Centaur Mining. The actual loaned funds passed through another similarly titled company, Trillian Financial Advisory. However, while the transactions describe a loan, no loan documentation could be found and there was no explanation for why the funds for the loan were provided by another company. Internal documents also show that some of the funds originated with two state-owned companies: Eskom, an electricity utility, and Transnet, a railroad company.

By June 2017, Eskom alone paid 466 million rand ($36.3 million) to Trillian for “management and financial services” at a time that the company had few employees and could not have performed the work. Internal Baroda documents noted that bank employees filed alerts about several irregularities about the payments, including the fact that some were made on the same day as invoices were received (giving Eskom no time to assess the quality of the work) and the fact that, for some reason, some of the payments were made to accounts held by other companies.

Despite all of the suspicious transactions, Baroda kept doing business with the two dozen shell companies controlled by the Gupta inner circle.

On some days, they filed as many as half a dozen SARs related to the Guptas’ transactions. However, Bank of Baroda managers often stepped in and voided the reports, marking the transactions as “genuine.” As a result, most of the SARs never reached the South African Financial Intelligence Centre, the state body in charge of reviewing and acting on them. – OCCRP

If you recall earlier in the article, the Bank of Baroda is where Goodson was asked to open accounts for Trillian. She was told to open the accounts to “facilitate work with eGateway” (a Gupta company). She was told to open the accounts, sign for the accounts, but then hand over the management of the accounts to another person, leading her to resign as CEO (CEO of a two-person company that is) of Trillian the next day. It later was revealed (according to the Daily Maverick) that Trillian was using an electronic copy of Goodson’s signature on invoices and formal letters without her consent.

Bribes Paid to Bank of Baroda Officers?

This further raises our suspicions that managers at Bank of Baroda were bribed by the Gupta family. This is because the managers who contradicted the SARs would have known they were putting themselves at risk for prosecution for not following South African banking regulations. Therefore, what incentives did they have to contradict the SARs and keep the information private from the South African Financial Intelligence Center. Even when the Guptas were engulfed in scandal in 2016, the Bank of Baroda continued to service the Gupta family. It was revealed that the chief executive of the Bank of Baroda, Sanjiv Gupta (apparently no relation to the Guptas) asked for an internship from the Guptas for his son (as reported in the Hindustan Times), however, that hardly seems to be sufficient compensation.

The numerous SARs they had themselves squelched combined with the public information that was literally front-page news in South Africa would have been impossible for the managers at the Bank of Baroda to miss. A second complicit bank was NedBank, which is the Bank of Baroda’s local sponsor bank in South Africa. There is no other conclusion that both the Bank of Baroda and NedBank were knowingly enabling illegal activity and allowing the Guptas to move their illegal funds outside of South Africa to banks in the Middle East, Hong Kong and other locations.

Furthermore, beyond turning a blind eye to the Gupta transfers, the Bank of Baroda is even more actively involved in illegality by loaning money in 2010 to then President Zuma’s wife. This is observed in the following quote.

It was unusual for BoB (Bank of Baroda) to offer this home loan in South Africa, as the bank did not offer retail banking services and its primary products in the country were fixed deposits, trade credit and overdraft facilities. Stranger still was that the loan was granted to Sinqumo Trust, whose primary trustee was Bongekile Gloria Ngema Zuma, the fourth wife of Jacob Zuma, the President of South Africa. – Hindustan Times

This loan was then repaid not by Gloria Zuma, but by the Guptas through their shell company called Mabengela Investments.

This means that the Bank of Baroda was not merely “looking the other way” but was essentially an agent for the Guptas.

“A loan to a President’s wife, in a foreign country, serviced by a private company, is an immediate red flag,” said Hemindra Hazari, an independent banking analyst, “As an Indian, government-owned bank, Bank of Baroda should not have touched this loan.” – Hindustan Times

And it was the Bank of Baroda that was used to fund the Gupta’s purchase of the Optimum Coal Holdings coal mine, even though the Bank of Baroda had only 16 staff in South Africa, while the loan amount was 2.15 billion SA Rand, (roughly $150 M US). Shockingly $585 million SA Rand (or over 1/4th of the total) came from a payment by Eskom to the Guptas! This, according to the book License to Loot, was a forward payment for coal deliveries — and a rather massive forward payment. This was payment for coal that had not yet been purchased.

With its reputation ruined, the Bank of Baroda is planned to shut down South Africa in March of 2019. The question will be why the Bank of Baroda’s officers are not prosecuted by South African authorities.

Dubai Banks and the Dubai and Indian Government

The Guptas have fled to Dubai. Both the Guptas and much of their money are in Dubai. Dubai could both kick the Guptas out of the country and freeze their assets, some of which are in banks in Dubai, but nothing on this front has been published. This means that Dubai authorities and banks are complicit in allowing the Guptas to keep their illegally obtained funds.

Image from Fin24

This is the mansion purchased for Jacob Zuma in Dubai, which is right next to the mansion residence of the recently deceased kleptocrat Robert Mugabe of Zimbabwe.

Image from Fin24.

Dubai accepts all kleptocrats and international criminals and kleptocrats, as do their banks, with open arms. 

However, it looks like Brightwork Research & Analysis should never visit Dubai after this article is published because as explained in the book License to Loot.

Dubai is open for business to everyone, but if you step out of line, especially if you threaten the business interests of the sheikh and his family, there will be consequences ranging from deportation to beatings, torture and disappearance. Especially as journalists, you must be very careful, The Dubai government does not like bad publicity. It is bad for business. If you plan to write anything you must make sure you leave the country before you publish your story.

You will see the secret police outside of the Burj Khalifa, the journalist says. There are a lot of Russians there: arms dealers, oil barons, oligarchs. They like to spend their money there. The Dubai government makes sure there is no trouble.

The Guptas has also been seen traveling freely in between Dubai and India — again bringing up the question of India’s interest in helping get the Guptas back to South Africa to answer for their crimes. Recently their houses in India have been raided.

The Involvement of KPMG with the Guptas

KPMG were the auditors of the Guptas. However, KPMG gave the Guptas a clean audit. The lack of auditing firms ever notifying the authorities in cases of fraud or illegal activity brings into question what the audit firms actually do. This same issue arose in the Bernie Madoff scandal, where not a single auditing firm noticed any irregularities in an investment company that had not actually made a trade-in three decades.

This brings up the question of why KPMG has not been sanctioned by South Africa? How can the regulatory board of South Africa (IRBA) have any credibility as a real entity, if KPMG is not reprimanded for their failure with the Guptas? KPMG did not report any irregularities to IRBA then they are culpable. So far the IRBA has done nothing against KPMG. 

The feelings of many South Africans as to the lack of legal action by South African authorities is illustrated by the following cartoon.

KPMG’s corrupt practices in South Africa have extended far beyond their false Gupta audits.

The South African Revenue Service, the country’s tax collection agency, was once a showcase of good governance, and the country’s increasing tax revenue was a barometer of support for the young South African democracy. It has since been gutted by former president Jacob Zuma in an effort to avoid paying his own taxes, with the help of auditing firm KPMG. As public trust erodes, so do tax revenues, and the A.N.C.’s remedy is expected to hit poor South Africans hardest. – New York Times

The Coverage in IT Media of SAP and the Gupta Family

The lack of coverage in IT media is another part of the story.

No IT media entities covered this story — except one — The Register in the UK.  However, the coverage was tiny. I measured the one article at 380 words.

This is a massive scandal, which is nearly completely absent from IT media. The reason to me is simple — SAP preferred that did not — and SAP is a major source of income for IT media.

Employment in Gupta Companies

What has consumed little of the media coverage of the Gupta scandal is how those that worked for Gupta companies were treated. However, this is covered in the following video.

In addition to overall horrendous treatment, quotes from Atul Gupta towards black South African employees include..

“You monkey, you stupid f****** monkey.”

These types of working conditions are a problem at the Indian companies in the US as well, as Indian IT firms are considered the worst places to work in the IT industry. This is especially problematic as Indian firms employ so many H1-B visa workers, and the H1-B visa program puts the employer in control of the worker’s citizenship pathway. The Indian IT firms like Infosys and Cognizant are the most aggressive lobbyists for more H1-B visas, for more of those visas to be assigned to Indians (as we cover in the article Why Are 47 Entities Lobbying in Favor of the H.R.1044 IT Immigration Bill?)

Furthermore, Indian companies are responsible for bringing back bonded labor to the US, something which until recently and with migrant farm labor had been eradicated from the country, as we cover in the article How Indian IT is Bringing Bonded Labor to the US.

The Implications for the Broader South African Economy

South Africa has been on a long term decline since the rise of the ANC, and this decline has been little covered in the Western media because the ANC largely came to power due to sanctions against South African by the US and Europe. However, the Guptas and other corruption and declining capabilities have ballooned SA’s debt, as is explained in the following quotation.

South Africa’s state-owned airline is cancelling almost all of its flights over the next two days as it battles with unions over planned job cuts that are part of a government effort to slash its spiralling debt. The response to the cuts is the first major test of the South African government’s attempts to decrease costs at its hugely indebted state-owned enterprises – including its electricity monopoly, which has imposed frequent power blackouts on the country as it struggles with finances. The airline, one of the biggest in Africa with close to seven million passengers annually, announced a restructuring plan this week that could require the layoff of nearly one-fifth of its 5,150 workers. Despite a US$360-million bailout by the government this year, the airline still has massive debts and is technically insolvent. Analysts have predicted that the planned strike at SAA could be the final nail in the airline’s coffin. The airline says a strike would cost it more than US$3-million a day, at a time when the government is increasingly reluctant to provide further bailouts for the airline, which says it needs more than US$13-million in working capital this month if it hopes to keep operating. – The Globe and Mail

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References

https://www.reuters.com/article/us-safrica-eskom/south-africas-eskom-could-sell-coal-fired-power-plants-finance-ministry-study-idUSKCN1VH1VO

https://www.news24.com/SouthAfrica/News/gupta-fight-goes-to-dubai-20180331

https://news.sap.com/2018/03/key-findings-sap-south-africa-investigation/

https://www.transparency.org/news/feature/corruption_in_asia_pacific_what_20000_people_told_us

*https://www.nytimes.com/2018/12/22/world/africa/gupta-zuma-south-africa-corruption.html

*https://www.amazon.com/Licence-Loot-plunder-parastatals-almost-ebook/dp/B07GZR5RS6

https://www.fin24.com/Economy/Eskom/live-statecapture-trillian-whistleblower-goodson-gives-testimony-20171103

https://www.complianceweek.com/south-africa-gupta-saga-a-long-list-of-compliance-failures/2471.article

*https://www.biznews.com/global-citizen/2018/10/01/uae-treaty-gupta-brothers-dubai

https://www.ft.com/content/4eb3fe64-eb69-11e9-a240-3b065ef5fc55

#GuptaLeaks: A third Gupta-Transnet ‘kickback’ contract unearthed

https://www.transnet.net/Pages/Home.aspx

https://www.timeslive.co.za/politics/2017-08-23-guptas-lifestyle-at-odds-with-tax-declarations/

https://www.cde.org.za/wp-content/uploads/2018/09/Viewpoints-State-Market-and-Competition-Can-Eskom-be-rescued-CDE.pdf

https://mg.co.za/article/2019-08-06-the-drug-thats-killing-eskom

https://www.fin24.com/Economy/da-wants-sap-guptaleaks-probed-at-much-higher-level-20170717

https://www.bloomberg.com/news/articles/2019-04-17/south-africa-s-decline-worst-of-nations-not-at-war-model-shows

https://www.news24.com/SouthAfrica/News/us-blacklists-gupta-family-over-widespread-corruption-20191010

https://www.occrp.org/en/investigations/down-the-guptas-financial-rabbit-hole

https://www.fin24.com/Companies/Financial-Services/sap-names-those-tackling-guptaleaks-allegations-20170714

https://www.occrp.org/en/other-articles/7697-the-data-behind-the-story-the-guptas-and-the-bank-of-baroda

https://www.thehindu.com/news/national/bank-of-baroda-the-guptas-jacob-zuma/article22860935.ece

*https://www.biznews.com/global-citizen/2018/02/27/bank-baroda-sa-gupta-money-laundering

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

https://www.zapiro.com/7

https://www.hindustantimes.com/business-news/how-a-series-of-mistakes-by-bank-of-baroda-dragged-it-into-south-africa-s-political-crisis-ht-investigation/story-KZ8JRozaG0ToWrxbO0tbKN.html

https://www.huffingtonpost.co.uk/john-davenport/why-is-dubai-not-worried-about-the-damage-the-guptas-are-doing-to-its-brand_a_23465395/

*https://www.biznews.com/energy/2018/12/06/death-spiral-eskom-risk-disappearing

https://www.fin24.com/Economy/1922-2019-the-rise-and-fall-of-eskom-20190213

#GuptaLeaks: Another software giant implicated in ‘kickback’ payments

*https://www.dailymaverick.co.za/opinionista/2015-12-17-south-africa-is-under-the-management-of-guptas/

https://www.fin24.com/Companies/ICT/what-sap-really-knew-when-it-paid-the-guptas-a-r100m-commission-20180625-3

https://www.theregister.co.uk/2018/09/13/sap_south_africa_probe_corruption_water_ministry/

https://news.sap.com/africa/2019/06/eskom-and-the-move-to-s-4-hana/

*https://www.biznews.com/undictated/2016/05/09/guptas-buy-dubais-top-priced-house-how-did-they-get-the-r448m-out-of-sa

Typology Home

https://www.fin24.com/Opinion/opinion-how-failing-power-utility-is-fuelling-south-africas-economic-crisis-20191101

https://www.thenation.com/article/africas-whistleblowers-all-i-did-was-tell-the-truth/

https://www.occrp.org/en/investigations/7696-india-s-bank-of-baroda-played-a-key-role-in-south-africa-s-gupta-scandal

*https://www.dailymaverick.co.za/article/2017-09-27-amabhungane-how-gupta-linked-firm-scored-big-by-connecting-officials-and-consultants-whistle-blower/#.WdNgWmiCzIU

https://www.moneyweb.co.za/news/south-africa/eskom-accuses-deloitte-of-corruption-and-maybe-plagiarism/

https://www.reuters.com/article/us-safrica-eskom/south-africas-treasury-completes-probe-of-alleged-corruption-involving-state-firms-eskom-transnet-idUSKBN1KJ0KG

https://www.moneyweb.co.za/news/south-africa/eskom-accuses-deloitte-of-corruption-and-maybe-plagiarism/

https://www.occrp.org/en/investigations/7257-guptas-big-banks-linked-to-south-african-chinese-locomotive-deal

https://mg.co.za/article/2019-10-25-00-sas-electricity-issues-are-fixable-but-we-need-political-will

*https://www.biznews.com/thought-leaders/2019/02/12/eskom-calamity-explained-energy-economist

https://news.sap.com/2018/03/sap-finalizes-investigation-into-contracts-with-south-africas-eskom-transnet/

https://www.theglobeandmail.com/business/international-business/article-south-africas-state-airline-grounds-itself-as-debt-crisis-worsens/

https://ieefa.org/south-africas-state-utility-company-self-styled-extinction/

https://m.news24.com/SouthAfrica/News/why-sa-has-a-shortage-of-doctors-and-nurses-20191014

How Non Programming Integration Solutions Undermine SAP Projects

Executive Summary

  • SAP is continually fighting against the perception that its applications are difficult to integrate.
  • At the heart of the problem is that SAP’s current integration products use non-programming approaches that are outdated. For organizations, this translates to poor integration performance with scaling limitations, restrictions on pipeline optimization, and the inability to reuse data.
  • Is the solution to increase performance is to use a custom-made solution with a 100% programming approach? The article ends with a demo of a REST API to an SAP system to show how a fully-coded solution can enhance integration performance.

Introduction

This article is co-authored by Shaun Snapp and Denis Myagkov.

In this article, we will begin by covering the history of SAP integration, the reliance on non-programming integration applications, and then we will discuss a new SAP integration approach.

History of SAP’s Integration Solutions

SAP has historically been the most challenging vendor with which to integrate but has a long history of marketing its integration prowess. I (Shaun Snapp) can recall being shocked when I had to integrate to SAP through a hierarchical document (that went back to mainframes) called an IDOC. For decades, a main strategy of both SAP and SAP consulting companies has been to instill fear into customers regarding how difficult it is to perform integration, while at the same time underemphasizing the costs with creating customizations in SAP. The reason for both of these positions has been to direct customers away from purchasing non-SAP applications and to move customizations from existing “legacy” systems and to migrate them to SAP.

Particularly recently SAP has once again tried to recast/reboot its integration image. Moreover, this has lead SAP to make many proposals about the App Center (an Apple App Store type center giving the illusion that SAP is an open ecosystem) and the SAP Cloud Platform. The following video covers some of these claims regarding the SAP Cloud Platform.


SAP has a lengthy history of making SAP integration seem much more comfortable than it is. This leads typically to customers receiving costs and time surprises from the application integration effort that is much more difficult to perform to SAP than initially presented. In fact, two of the primary reasons why SAP projects are over budget is unexpected customizations and integrations.

What follows is an abbreviated list of the history of SAP integration offerings.

SAP’s Integration Offerings

  • Before 2003: SAP performs integration via RFC using C/C++ library equivalent to modern libsapjco3.so for Unix or sapjco3.dll for Windows. Today this libraries delivered as a part of SAP JCo (Java Connector) functionality.
  • After 2003: SAP releases its Exchange Infrastructure – SAP XI as a tool to build integration solution to SAP ERP system without explicit coding. This product was released together with SAP NetWeaver 2004 as killer-feature. Technically SAP XI was Java wrapper on top of what became modern SAP JCo.
  • 2005: SAP renamed XI to PI (Process Integration) due to modification of licensing policy, so that clients paid for traffic, but not per instance. Also, SAP extended the number of use cases in the marketing materials. In the same year, SAP acquired LightHammer. LightHammer had and their integration solution aimed at the manufacturing domain. Later this solution was renamed to SAP MII, that was delivered with SAP PCo (Plant Connectivity). An additional service aimed at industrial support interfaces of data exchange like OPC. SAP MII was also built as a wrapper on top of C/C++ libraries.
  • 2011: SAP PI was renamed to SAP PO (Process Orchestration). However, it was more marketing rebranding than a technology update. This rename did not change SAP PO’s prospects in the market with PO declining in popularity further since 2011.
  • 2016: SAP presents its Cloud Platform Integration & Hybris Data Hub. The SAP Cloud Platform (renamed from SAP HCP) is designed to perform integration with remote SAP System. The Hybris Data Hub is aimed at integration the integration of SAP’s Hybris e-commerce application with a short number of functions in SAP ERP like material master data, stock value and prices.

The Reality of SAP’s Integration Products

Let us consider what this list of SAP integration products tells us.

If we follow the evolution of SAP’s integration solutions, SAP has attempted to move from programming paradigm to non-programming, when writing of explicit code was replaced with some transactions for customization.

However, all of the technologies listed in the previous section are based on C/C++ library that wrapped with Java library that wrapped with one of listed integration tool (much like an onion).

The Price Paid by Customers SAP’s Non-Programming Integration Approach

SAP has historically benefited from a large pool of specialized workers that are able to configure systems without knowing how to code. This is the standard SAP “functional consultant” as opposed to a “technical consultant.” Meanwhile, vendors ranging from Oracle to Axapta to Baan frequently struggle with a shortage of well qualified IT resources to build their ecosystems. SAP easily attracted non-technical resources and converted them to consultants. Doing this they were able to develop an army of semi-IT literate resources who were ready to set up all business logic in SPRO without writing a single line of code with most of these resources working in SAP consulting partners or as independent consultants rather than working for SAP itself. This reduced the learning curve for configuring SAP and opened the area to more resources.

How SAP Does The Same Thing in Integration

With integration solutions, the picture is quite similar.

SAP provides people who are unable to distinguish between TCP and UDP protocols the ability to build integration solutions without writing an even single line of code. They can do this without even understanding of protocols.

In the mid-2000s, this can be said to be a reasonable trade-off. At this point, there was just the dawn of modern WEB technology, and there was little to integrate to most of SAP systems. However, by the end of the 2000s, we already had a massive offering of different technologies and concepts that is still exponentially growing. In recent years, we see the growth of solutions aimed at integration with SAP ERP to extend its planning, reporting or any other abilities. We also have the massively increased popularity of mobile and web-based solutions that also aimed to be integrated to SAP.

All of these tools have its requirements for integration, security, user management, performance…

Getting to the Heart of the Problem with XI/PI/PO

The biggest problem of current integration products from SAP is that it provides an inappropriate model of integration. Features that made SAP XI/PI/PO accessible to SAP consultants are now doing them a disservice. SAP XI simply was not designed to work with most of the contemporary technologies and protocols.

SAP as a vendor also unable to extend and update its solution to fit modern requirements.

Understanding the Server, The Weakest Link of Chain

Every server can handle only a limited number of external connections simultaneously.

Given the restriction is due to things like the following:

  • Network bandwidth
  • Parameters of Unix core and constraints of specific software server.

For instance, the default number of parallel connections to Apache Tomcat is 100. The default number to MySQL is 151. The default number to HANA is….well nobody knows for sure, but it is not more significant than it is to MySQL.

If we consider the server, no matter what type, it can be viewed as operating as a big supermarket. Imagine a supermarket with 100 checkout stations and all incoming requests is like its customers. There is something called Little’s Law that could help us to estimate what time we will spend until server will serve us.

Let us get into the math of server requests.

  • Number of Business Users: Let assume that we have 2000 business users using WEB applications connected to some server
  • Average Number of Requests per Server per Second: Each application makes an average of 10 requests to the server per second, which could be handled by the server in parallel.
  • Server Requests: Let also assume that the server will process every request in 5 seconds.
  • Wait Times: Here we will get the situation when half of our users will wait at least two times longer than it could be with a lower number of users.

Contention at the Server with SAP Fiori

Same issue we are facing with the Fiori when the extension of connection dramatically reduce overall application performance. Here we have to understand that everything we get to the screen sent by Fiori Frontend Server as a response to our multiple requests (JS code, layout structure, dashboard data, user permissions, some transactional data, pictures and so on).

Any system will work only as fast as its slowest or bottleneck resource, or even slower than that.

Can One Address the Issue by Simply Adding More Servers?

Thereby, in practice we have is a situation when a solution that works worse in than in the 2000’s due to the growing number of connections in modern applications.

However, wait one second. What about Google, Facebook, Netflix, PayPal? They could handle thousands of requests per second and work as fast as they servers staying in a next room.

Why can’t SAP do the same for its clients?

To improve our integration performance we have to be able to do the following:

  • Scale the Landscape Horizontally: That is to reduce the number of requests to a single server by adding new servers.
  • Optimization of the Pipeline: Improve the number of requests that could be handled by a single server by optimization of code and memory usage.
  • Reuse of Data: Add client-side and server-side cash to not serve requests that were served one minute ago.

Second, we have to acknowledge that all of those companies (Google, Facebook, etc.) are using their own fully tailored solutions that from the beginning was designed and adapted to handle the targeted number of requests.

How Does SAP Address This Issue?

What did SAP make in an opposite fashion to other modern IT-Giants?

Quite a few things it turns out. Let us review each of them.

  • Scaling Limitations: SAP integration solutions horizontally. Even one decides to add more PI/PO servers behind some reverse proxy, it will not help because the number of request to SAP ERP backend still will be the same. The next problem is how to maintain similar logic on several PI/PO instances. This has no real solution.
  • Pipeline Optimization: There is no way to optimize the pipeline. The ability to use the non-programming paradigm was obtained, but only in exchange for a loss of performance. Each time, when a connection is made to SAP PI/PO, the server creates a request to the database to obtain non-programming integration rules. Then the server transforms them to programming, compiles them, then allocates them to memory, then executes. All of those steps between getting request and its execution is the overhead of non-programming paradigm. It is possible to write a custom component to PI/PO in Java. Then we will get minor improvements of performance with no test or debug tools. The majority of PI/PO consultants are unable, unfortunately, to write production-ready code.
  • Reuse of Data: With PI/PO they are unable to reuse data (at least on server-side). If 2000 users decide to open Fiori apps, the SAP PI behind it will make 2000 times the requests to the database to obtain non-programming integration rules versus the requests for programming integration rules. Hence, our non-programming overhead became 2000 times more palpable and time in queue for every request became much longer.

How SAP Became Trapped in the Non-Programming Paradigm

Today SAP is trapped in its non-programming paradigm. SAP has no possible mechanism to improve integration performance while insisting on the supremacy of non-programming paradigm. Generically solving specific business cases is impossible. Let us review a particular example.

How Google, Facebook and Netflix Compare

Companies like Google, Facebook, Netflix also struggling with the performance of their infrastructure, but let us review how they are solving this issue of integration.

  • Google: When a video becomes viral on YouTube, Google copies this video to hundreds or thousands of servers across the globe to make this data available to users as fast as possible.
  • Netflix: When Netflix starts a new season of the Game of Thrones its run thousands of new servers to broadcast content. Running 10-12 additional application servers to improve overall performance during a December run-up is not feasible in the SAP ecosystem.
  • Visa: For Visa, it is entirely reasonable to handle 4000 transactions per second. This is much higher than any single server could handle. When you are paying for your coffee at Starbucks, Visa is somehow able to check your account balance, verify your pin-code and send a confirmation to the terminal. How could that possibly work with SAP FI + SAP PI?

None of those achievements was the result of magic or supernatural abilities. All of those companies invest enormous efforts and money to design and build their own solutions that have no SPRO/configuration client to simplify things for consultants and furthermore they are specially made for one client.

Big Data itself was only a by-product of Google, and it reshaped the IT industry after they published this article in 2003. Google solved the problem of how to handle significant amounts of heterogeneous data by a large number of cheap commodity servers.

After 15 years everything SAP was able to propose to the Market as they Big Data solution was SAP Vora that works on top of Hadoop, that works on HDFS – file system similar to described by Google. It is SAP trying to insert itself into Hadoop, Hadoop and other related technologies do not need SAP.

Getting Back to Basics for Integration

Does this all mean that to get the high performance we need to get back to programming?

Yes, but with a caveat.

We have to acknowledge that programming 15 years ago versus today has evolved. However, those changes are for the good. For example, 15 years ago it was necessary to spend several days to write and deploy a simple enterprise-ready server. Today any recent computer science graduate can do that in 1-2 hours maximum and use such server to a cloud.

In my practice (Denis Myagkov), I am using my custom-made solution that I named Integration Framework. As with the SAP integration solutions the Integration Framework also works on top of SAP JCo and C/C++ library. However, I choose 100% programming approach where all of the integration logic compiled to bytecode and produce zero overhead. Moreover, I can work with any data cache, scale my servers horizontally or do whatever I want to do.

Below is code that provides REST API to real life SAP system from Amazon AWS t2.micro instance.

This is everything needed to write to open single API to SAP BAPI. It requires only a couple of hours or days through the Integration Framework to build integration part that easily outperforms any SAP PI/PO implementations in 100-150 times while working on 7$ Amazon AWS server.

Seeing is Believing

Those who do require more evidence can experience this demo first hand. It will be available for 1-2 months by the link:

  • login: 1ntruder
  • password: l0ckp1ck
  • matnr range: 753-800 (change it in URL)

The demo is only Bread & Butter of high-performance integration. I will try to find some time in the future to create something more comprehensive.

References

https://research.google.com/archive/gfs-sosp2003.pdf

Why SAP Customers Followed SAP’s Advice on Coding

Executive Summary

  • SAP provided biased and self-serving advice when it recommended customers use its inefficient coding language.
  • We evaluate why SAP customers accepted this advice.

Introduction

In this article, we will review a mostly unpublished area in the history of SAP. And the fact that it is unpublished brings up interesting questions about who benefited from what is the present state of SAP development at SAP customers.

Setting the Stage

When one talks to SAP customers and the subject turns to custom development, the discussion around ABAP, which is SAP’s proprietary coding language ensues. ABAP as the following attributes:

  1. It is the “standard” development language in SAP.
  2. It is nearly always used for SAP customers.

But the question that is not discussed is…..

Why Was Customer Development Programmed in SAP’s ABAP?

Any programing language and any set of programming tools or development environment can be used as long as that environment/PaaS can be connected to SAP. Ten years ago these easy connections to SAP were less common, but today they are becoming more and more available. This means that custom development can be performed without ABAP. Yet it is still rare for this to be the case.

Why?

Some insights as to why this is the case can be found in the SAP sales process. The standard sales process and implementation process at SAP is the following:

  1. Overselling Applications: The application begins by being significantly oversold. While most of my career has been as an SAP implementation consultant, I also worked as a pre-sales resource and therefore I participated in a number of SAP sales pursuits. I can say with confidence the information presented by SAP account executives (salespeople) is quite high. Other vendors also exaggerate the scope of coverage offered by their applications, but SAP’s exaggeration happens to be higher than most.
  2. All Requirements Can be Met: A big part of SAP’s oversell is stating that standard SAP functionality covers all requirements or almost all the requirements at the prospect. The first reflex of SAP sales to whatever question the customer has regarding a requirement is to say that “We can do that.” And executives don’t have enough understanding of the details of business requirements to validate whether what is shown in demos can actually meet their requirements.
  3. Implementation: The “Surprise” Phase: After the requirements have been gathered, it becomes obvious that SAP mislead to the prospect during the sales process, and the executives did not bring a sufficient understanding of the requirements to the sales process. At this point, the implementation consultants begin to receive pressure to pressure the customer that their requirements are wrong and that they need to use standard functionality. There are actually several standard methods used to try to convince customers that they don’t need to use their requirements (one being best practices the other being reengineering) show links.
  4. “Ztables and ZPrograms”: Once customer development must be written, SAP has a rather bizarre and misleading terminology used by SAP consultants to hide this fact. They use the terms “ZTable” and “ZProgram.” A strange sentence will be constructed that goes like this. “We can meet that requirement, but it will be a ZProgram.” This is simply coded communication for the fact that a custom object must be created in SAP. SAP and SAP consulting companies are very careful to not present the development of code outside of SAP as an option to customers. According to SAP, all customer development must be written in SAP.

This brings up an interesting question….

Why Use ABAP at SAP Customers in the First Place?

Let us review some foundational assumptions.

  1. Scenario 1: Bringing Something to the Table: If a vendor is offering a packaged solution, then it makes sense that the vendor dictates that the customer of their application follow certain rules as to how the application works. That is they are bringing “something” to the table.
  2. Scenario 2: Bringing Nothing to the Table: However, if the vendor is not bringing anything to the table as part of a packaged solution — that is they are offering a development coding language, various tools, why it necessary to use what the vendor “prefers” or “highly recommends” the customer to use?

What if the customer already has development tools that it is comfortable with? What if the vendor is not offering a competitive coding environment?

Let us review the backdrop once again.

  1. What Was Actually Purchased: The customer purchased SAP to gain access to their packaged software.
  2. Coming Along for the Ride: The ABAP and various coding tools and methods came “along for the ride, ” but they were not really what the company was buying or what attracted them to SAP. The evidence? No company that does not have SAP codes anything in ABAP or uses any of SAP coding tools. That is SAP coding tools have no following outside of SAP accounts. Hmmmmm…..that is strange. it is almost like the SAP development language and tools are not competitive.

Estimating ABAP’s Productivity

Developers I speak with that have experience with multiple computer languages often refer to ABAP as the worst computer language, along with the worst tools that they have ever worked with. It is widely considered a massively inefficient language in which to work. That is unless you bill hours as an ABAP developer, quite peculiarly as it happens, then those people seem to think its quite good.

Should SAP Even Be Using ABAP for Coding its Own Applications?

SAP has had major problems in developing new applications, and one of the reasons for this lack of productivity is the overhead that is imposed by ABAP.

  • Comparing SAP Development Versus Other Vendors: I know plenty of software vendors that have very high levels of development productivity. I observe how they are able to develop functionality versus how SAP is able to develop functionality and there is really no comparison. When I ask them they tell me that one of their advantages is choosing the development platform that they think is best.
  • Being an SAP Developer: SAP developers cannot do that. They must use ABAP or find another company to work for.
  • R&D Efficiency: SAP brags about how much it places into R&D, but input does not equal output. Whatever SAP’s development organization is doing, it is not leading to productive development outcomes. ABAP seems like one of the likely reasons for this (there are actually quite a few reasons which I could get into, but that is an entirely different topic).

Therefore, not only is it bad for SAP customers to use ABAP, there is really no reason for SAP to use it — except for the fact that it is a legacy for SAP as all of their internally developed applications are developed in it.

One example of this is S/4HANA. S/4HANA is SAP’s considerably delayed new version of its long-running ERP system. S/4HANA appears to be taking forever to finish, and it is often stated that there are 300,000 lines of code that have to be rewritten from ECC. As any experienced programmer will tell you, the less efficient the coding language, the more lines of code it requires to complete a program. Yet, many people in the SAP community throw around the 300,000 lines of code quotation as if it is a badge of honor. It is also used as an excuse as to why S/4HANA is taking longer than expected. I am often told by SAP supporters that

“rewriting 300,000 lines of code does not happen overnight.”

My response is that

“SAP should have thought about that before they the announced the product years too early.”

Switching to the topic of code quality, SAP has very significant quality problems in the products it has internally developed.

It is now very common for documented functionality to not work. This means that SAP contains a lot of broken functionality, functionality that consultants like me have to stumble upon, go back and forth with SAP support, and generally consume time to troubleshoot. SAP support has developed a way of running you around in circles and being careful to not admit that the functionality is broken, but that there must be other factors at play. I have worked with many applications, and I have never witnessed anything like the number of problems in SAP from any other software vendor, and the functionality problems will persist for years. Companies have hired me to try to get functionality working that is also broken at several other accounts I have worked on. They are hoping for that one “platinum” consultant who can come in and fix it for them. In the SAP customer space, hope springs eternal, and every next version of the software will fix their current application problems.

Years of Broken SAP Functionality

As an example, I found one issue related to SAP’s optimizer — which had a field that supposedly switched the processing to be parallel processing. I activated this field for several years thinking I was performing parallel processing. After testing the difference, I found that the field did not actually connect to anything (those that are interested can read the details in this article). After reviewing the history of the development, it turned out that it had never worked and that the field was never removed.

And that this had been the case for nine years!

There are some obvious productivity problems with ABAP. One major and rather an obvious item is that ABAP is proprietary and the final objects created in ABAP are less shareable than if created in any nonproprietary language.

Does this sound like a development language that companies need to be adopting? Does SAP’s internal development effectiveness argue for the use of ABAP in SAP customers?

The Faulty Logic of Accepting SAP’s Proposal on ABAP

SAP is about locking customers in and this has always been true. You can’t understand SAP without understanding that they are fundamentally about account control. Quite obviously, enlarge their control over the account stipulated that development should be performed in SAP.

But why do SAP customers so passively accept SAP’s proposal?

Why not simply connect to SAP but develop in a competitive development environment such as an Outsystems? (I just came from Outsystems NextStep conference, so I have Outsystems on the mind)

You are looking at SAP function modules and SAP APIs within Outsystems. Outsystem can connect directly to SAP through their SAP connector where the SAP function modules are available.

SAP structures are created within Outsystems after the API is imported.

An application can be created quickly in Outsystems that has the full ability to update data in SAP. Now it can be easily connected with other data from other systems. It can be published so that it can be consumed by any number of applications.

Why would I want to maintain multiple coding PaaS systems, each one recommended by a different packaged software vendor? What is the expertise that packaged software vendors bring in PaaS selection?

The Rise of PaaS Environments

Platform as a service or PaaS is greatly enhancing developer productivity, but these increases in productivity are not available to SAP customers as they must use SAP’s PaaS — called HANA Cloud Platform. (one of the primary reasons SAP introduced the HANA Cloud Platform was to seem more cloud-oriented — as you can read about in the article Was the HANA Cloud Platform Designed for Cloud Washing?) Once again, you don’t use HANA Cloud Platform (now called SAP Cloud) unless you are an SAP customer.

But why have SAP choose your PaaS for you if all you wanted from them in the first place was their packaged solution?

Outsystems among some other PaaS environments reduce the amount of coding necessary. That is some of the “code” is actually adjustments made within the Outsystems development environment. Development environments can now be found that combine all these benefits for developers that save directly to low-level code.

The SAP Consulting Companies and Jumping on the ABAP Money Train

Now is the right time to move to the discussion of SAP consulting companies. Let us begin by asking this obvious question.

Did the SAP consulting companies ever contradict SAP on their proposals on using ABAP and in getting deeper and deeper under SAP’s control?

Surprise surprise, no, they did not.

Quite the contrary.

The SAP consulting companies liked this approach because it allowed them also to sell SAP development resources. And because ABAP and SAP’s coding tools are so inefficient, it meant maximal of billing hours.

  1. Attaining the Quota: SAP consulting companies have a twofold issue with looking out for their customer’s interests. First, their business model places enormous pressure on the partner level to sell services. This means they have a disincentive to do things more productivity as it cuts billing hours. If you spend time with senior members of SAP consulting partners without the customer present, the discussion is normally not about the effectiveness of the solution. It is about how many resources could work the project, how long they could stay on the project, the perceptions of the customer, the customer’s budget, etc. That is senior members within the SAP consulting partners, and in particular, the larger consulting partners are pressured into putting the commercial aspects ahead of the solution.
  2. Being Part of the SAP Partner System: Secondly, they are part of the SAP partnership ecosystem, and this means following SAP’s directives. As part of this, SAP demands that you repeat everything they say to the customer. No deviation is tolerated.

This brings up the question once again of the purpose of these SAP consulting companies. They cannot question anything SAP says, and they simply continually lead to the poor decisions, decisions that lock customers into the least efficient ways of doing things. If the SAP consulting companies had a catch-phrase, it would be…

“But it’s not standard SAP; it must be standard SAP.”

SAP’s Unending List of Development Items They Want Customers to Adopt

oData, Dynpro, Fiori, HANA Studio, Visual Composer, HANA Cloud Platform, the list goes on and on. By is constantly introducing new languages (WebDynpro, Floorplan Manager, Fiori, Lumira, BRF, etc) almost yearly, programmers are in constant fear of being left behind and dedicate evenings to learning these new languages, leaving them no time to learn non-SAP stuff (like OutSystems). This has turned into a major downside of being part of SAP development.

Most are introduced with great fanfare. In most cases, a pollyannish book is printed by the ever willing and compliant SAP Press to help communicate to the market that whatever they have it is “a thing.” There are books that exist for SAP items with barely any following. There is a book on oData, which most likely has a very limited future. I am embarrassed to say that I purchased this book myself to see what the hubub was about.

And then the development item introduced by SAP eventually declines in the marketplace.

I spoke to a UI vendor that had a list of 15 failed UI initiatives introduced by SAP in the past 17 years. After the presentation, they refused to give me the list for publication because they feared retribution by SAP.

This is a common situation for SAP software partners. SAP has a habit of calling up software partners and threatening them with the loss of their partnership. Information that is released by software partners that is out of spec will often get you called a “bad partner.”

Closing Off Customer Options

One of the biggest issues is that SAP wants to make all of its offerings closed. So they make their offerings as incompatible as they can. Everything points back to SAP. But the problem is that the efficiency of code is to some degree dependent upon how open it is. SAP realizes that it must restrict this openness to make its offerings SAP-centric so that the monopolistic pricing approach that SAP has ridden to great heights can continue. SAP adores co-opting new IT concepts. For example, they have tried to get into Hadoop’s space. But once again, while they talk “open systems” their offering is something called Vora, which is a “propreitized” version of Spark — which is a data connector between Hadoop and HANA. They have been since looking for low information executives to buy it and get “into the sandtrap.”

Once a company purchases Vora and connects its Hadoop instance to HANA, the overall ROI of their Big Data project will promptly nosedive. As soon as Accenture or Deloitte show up to bring SAP skills as part of a coalition of the billing, problems begin. Do Accenture and Deloitte push Vora because it makes sense technologically? No, it is related to their personal profit maximization. 

It was introduced with great fanfare but in our analysis adds no value to Hadoop. SAP would like to invade the Big Data space with proprietary solutions — to parasitize a space built on open standards and then built a castle around a portion it can charge monopoly rents.

This is how SAP works, and how it has always worked.

Yet, when SAP consultants talk to you, they often talk about a “golden age of SAP,” but that new developments have had SAP lose its way (pick the topic, treatment of partners, of customers, development productivity, etc..). Well, this was the way SAP has worked even back to this supposed golden age.

SAP is continually promoting new development tools. However, they are, outside of SAP consultants who happen to be billing hours in the tool, not adopted outside of SAP, and not considered of good quality.

Conclusion

SAP and their surrogates bamboozled customers for decades into adopting one of the most inefficient development platforms. And while it never made any sense, it was so easy to do. You don’t have to actually be a developer or have a development background to figure this out. But you do have to spend some time investigating this and comprehend that many of the things SAP says are simply self-serving for SAP. And of course actually sitting and speaking with your developers — rather than spending most of your time talking to other executives is also helpful.

  • Keeping in the SAP “Family”: SAP thrives on having its customers using things that are 100% SAP to keep the customer continually investing in SAP as much as possible and to allow for SAP to maximally control the account. SAP and their surrogates want to keep telling companies how to do development, even though SAP has probably the most expensive development cost in the market.
  • PaaS: Particularly with the low-level coding PaaS environments on the market, it is high time to begin questioning SAP’s wasteful approach that does little but serves SAP.

Future Research

This article is introducing this topic, but the issues of development productivity per environment can be demonstrated through research and comparison. It would be of interest to benchmark the development speed in Outsystems versus ABAP and other SAP development tools.

This could be a future research area for Brightwork. In fact, one of the future areas of research we are considering is a comparison of ABAP’s productivity versus Outsystem’s productivity.

References

https://whydoesitsuck.com/top-five-most-annoying-programming-languages/

SAP is Accused of Witness Tampering in Teradata Lawsuit

Executive Summary

  • In a filing, SAP has been accused of shocking behavior by Thomas Waldbaum, their formal internal auditor.
  • We analyze the claims made in this filing.

Introduction

The Teradata vs. SAP lawsuit has been proceeding through the Northern District of California. A Statement of Corrective Evidence was filed on August 6th of 2019.

We analyze some of the claims that we found most interesting that were made in this filing. This is the first time that we can recall a software vendor being accused of witness tampering and intimidation.

The Introduction of the Corrective Statement

This is a corrective statement submitted by third-party witness Thomas Waldbaum (a former SAP senior intellectual property auditor) in the case Teradata v. SAP SE, USDC Case No. 3:18-CV-03670-WHO (the “Litigation”) to correct and protect the record from intentionally false and misleading statements submitted by defendants SAP to unfairly attack Mr. Waldbaum’s credibility and character, and to retaliate against him for protected whistleblower activity. SAP’s assertions distort, misrepresent and omit facts concerning Mr. Waldbaum’s conduct and findings as a senior intellectual property auditor for SAP. SAP’s assertions concern not only Teradata, but also “other companies,” as referenced in SAP’s motion.

In the Litigation, Mr. Waldbaum has been identified in pleadings and related papers as a principal material witness because of the work Mr. Waldbaum did for SAP between May 2011 and February 2014 as a senior intellectual property auditor involving information concerning Teradata and other SAP competitors.

Threats to Mr. Waldbaum and Witness Tampering

Mr. Waldbaum is a crucial, material witness. His safety, and availability to testify are essential to the proper administration of justice and to the success or failure of each party’s claims. It is extremely urgent that law and order be reestablished concerning Mr. Waldbaum’s physical safety, and the safety of his rights. With the filing of this motion, SAP has undeniably confirmed in writing its motives and intention to wrongfully damage Mr. Waldbaum’s reputation, and viciously cause him irreparable harm.

Mr. Waldbaum will not allow himself to be harassed, victimized or wrongfully criminalized once again because SAP has no better defense than to harass and tamper with the witness, and illegitimately seek to discredit and ruin him.

Our Analysis

Its bears being pointed out that witness tampering and obstruction of justice are criminal offenses. It leads witnesses to be placed in witness protection. Witness tampering is what Arthur Andersen was found guilty of and which was instrumental in ending Arther Andersen along with assistance in supporting the Enron fraud.

Part of a Pattern of Employee Intimidation

SAP falsely asserts in its motion at least 5 times that Mr. Waldbaum stole information. Mr. Waldbaum stole nothing. To the contrary, Mr. Waldbaum preserved and protected the laptop computer evidence as required for the OSHA SOX case and as allowed by the German State Prosecutor, which preservation now also directly serves the interests of justice in this case. On the other hand, SAP is attempting to suppress information. The harassment of this motion and its accusations, and SAP’s attempts at suppression, are tampering with the witness and obstructing justice. Moreover, Mr. Waldbaum is not the only SAP employee to complain of extreme duress at the company to cover up issues. At least one instance involving another SAP employee is reflected in one of Mr. Waldbaum’s audits.

The German State Prosecutor’s office itself confirmed that Mr. Waldbaum’s status as a Whistleblower and his possession of the evidence as a natural course of his Waldbaum duly returned the laptop to SAP as soon as legal and forensic protocols could be put in place to preserve the evidence and forbid its destruction notwithstanding long intentional protraction by SAP for its own purposes.

Our Analysis

It is very difficult to see what SAP’s claim is regarding Mr. Waldbaum stealing information. The information that Mr. Waldbaum possessed was part of his audit. This information was provided to SAP in 2016 in their settlement as is covered further on in the article.

SAP Has Accused Mr. Waldbaum of Blackmail

In December 2012, shortly after compiling notes of privileged and confidential interviews, Waldbaum called in sick, never to return to work at SAP. Then, in January 2013 Waldbaum began contacting SAP management and executives, directly and through a lawyer (his father), demanding that SAP pay him millions of Euros or he would make public dramatic allegations of alleged misconduct related to Teradata (as well as other companies). The allegations underlying Waldbaum’s threats were not shared with SAP before going on leave. And, unbeknownst to SAP at the time, after going on leave, Waldbaum had apparently altered his privileged audit interview notes with embellishments to add “evidence” supporting his dramatic but false allegations of SAP misconduct.”

Teradata’s claims of wrongdoing are based entirely on the self-serving writings of Waldbaum who, as found by the German Labor Court, pursued personal goals in a selfish way by threatening to disclose his findings unless SAP paid 25 million Euros.

Our Analysis

Furthermore, SAP asserts that Mr. Waldbaum’s father and his attorney were also part of this extortion attempt.

We hope that SAP has the evidence for this and that SAP has alerted German authorities that they were the victim of this blackmail. If the blackmail attempt was made, it would have most likely been made orally, and therefore, the specific SAP employee or SAP employees need to be deposed who is accusing Mr. Waldbaum and therefore be under threat of perjury.

Mr. Waldbaum’s Response to SAP’s Allegations

SAP’s representations above, and throughout its motion, are false and misleading, and are sanctionable. SAP is fabricating a scandal by attempting to divert attention from SAP’s conduct, acts and omissions Mr. Waldbaum observed during his audit work to Mr. Waldbaum himself, and to make him a scapegoat for SAP’s actions.

SAP began retaliating against Mr. Waldbaum in late 2012 for his audit reporting, attempted in 2014 to have him falsely prosecuted under its unsubstantiated accusations which were rejected as such by the German state prosecutor, and has now repeated those same false and defamatory accusations in this Court in 2019.

SAP. Now, in this Litigation, Mr. Waldbaum will not allow himself to be falsely accused, victimized or wrongfully criminalized once again by SAP. SAP’s motion is craftily worded to mislead and deceive, and to distract and divert attention from the merits of the case. This case is fundamentally about SAP’s conduct, not about Mr. Waldbaum’s conduct.

If SAP truly wishes to prove that Mr. Waldbaum’s audit findings were “unsupported” and that SAP’s conduct was correct in all respects, then SAP should support full disclosure of all materials from the audits. If SAP is confident in its positions taken in the Litigation, SAP should immediately produce Mr. Waldbaum’s laptop computer for full disclosure in discovery and immediately allow for his full and safe testimony on the documents therein to set the record straight.

Since SAP is arguing that the audit findings and audit reports were self-serving or unsubstantiated, then it must produce Mr. Waldbaum’s laptop computer into evidence for full disclosure to get to the bottom of the truth in this matter.

Our Analysis

Mr. Waldbaum has an excellent point. SAP is accusing Mr. Waldbaum of acting improperly and in bringing false claims against SAP, but at the same time claiming attorney-client privilege on the information contained in Mr. Waldbaum’s laptop which is the overall audit documents. If SAP’s accusations against Mr. Waldbaum are true, then they should have no issue allowing this information compiled by Mr. Waldbaum into the public domain.

Its almost as if SAP is trying to hide something. SAP has stated that the claims made by Teradata are also without merit. What better way to speed this process along than by releasing the contents of their internal audit.

On SAP’s Previous Relationship with Mr. Waldbaum

In November 2012, Mr. Waldbaum’s supervisors took issue with his HANA audit findings, and would not accept them as expressed. One day in early December 2012, when Mr. Waldbaum was using his work phone, files stored on the phone were completely erased by someone, apparently using a wiping program that could remotely access and manipulate his phone. At about the same time, Mr. Waldbaum concluded that if he tried to use his laptop computer to access SAP servers, wiping software could be used to eliminate or corrupt the information Mr. Waldbaum had collected on the computer. For his own protection and for the protection of others, Mr. Waldbaum took necessary steps to preserve the files in the computer (i.e., Mr. Waldbaum did not connect the computer to the internet).

Mr. Waldbaum Has His Residence Raided at the Behest of SAP

A forceful and unjustified dawn raid with the presence of at least 8 members of law enforcement and 5 vehicles was conducted on Mr. Waldbaum’s family’s home in France by German police with the collaboration of French police in November 2014.

Intimidation Beginning in 2013

Beginning in 2013 and continuing to the present, Mr. Waldbaum and his family have been subjected to electronic cyber-intrusions, electronic and physical stalking, and physical intimidation and attacks, as described in Mr. Waldbaum’s submission to the Court on July 24, 2019 concerning such matters and protections against witness tampering.

Digital Stalking and Physical Violence in 2014

In September 2014, attacks on his family and him were visibly expanded from digital stalking and attacks to physical stalking and physical violence, including assault and battery. On September 25, 2014, Mr. Waldbaum’s wife was driving to their home after a parent-teacher meeting at their son’s school. She was forced to pull her car over by a van that pulled in front of her car on a dark road leading to the small town in which they lived at the time. She told Mr. Waldbaum and the police that the driver of the van quickly and angrily got out of the van, and then approached her with a large ax handle wielded in a menacing manner and that he put it to her head and angrily threatened “people like you should die.” Mr. Waldbaum and his wife had taken separate vehicles to the school meeting.

Starting in September 2014, Mr. Waldbaum noticed men in cars and on foot following him. They usually maintained separation from him, and almost always followed him until he reached his destination. At this time, Mr. Waldbaum also began to notice individuals sitting for long periods in cars who were not residents of his neighborhood and who did not belong in the neighborhood. These people parked in front of and adjacent to his home on a daily basis. These events became more frequent as the days went on, and Mr. Waldbaum concluded these people were stalking him. These individuals generally drove brand-new expensive German cars often having German plates, which were not numerous in his neighborhood and town. (Mr. Waldbaum lived in France when these events occured).

Our Analysis

If these things are untrue, it means that not only Mr. Waldbaum but his wife and his father were all part of a conspiracy to defame SAP.

A Settlement is Reached in 2016

In June 2016, all matters, known or unknown, civil or criminal, in Europe or the United States, between SAP and Mr. Waldbaum were dispositively settled and released under a formal confidential agreement…at which time Waldbaum returned the SAP laptop and SAP relied on Waldbaum’s representations that he was returning all SAP confidential or privileged information in his possession and had only shared such information with his counsel.

Our Analysis

Let us recall that Teradata had yet to file its lawsuit in 2016.

Intimidation in 2019 by SAP

Mr. Waldbaum was sent an unsolicited contact by Stefan Schulz, who is the long-time personal assistant of SAP’s Chairman Hasso Plattner and SAP’s “Government Security Programs Leader” (and thus the SAP executive with primary access to law enforcement at the highest levels internationally). The contact is attached as Exhibit 3. March 30, 2019, Mr. Waldbaum was intentionally exposed to a harmful substance for the first in a certain sequence of events directly targeting his physical health and safety.

Our Analysis

This is quite unspecific. We would like more details on what Mr. Waldbaum was exposed to, who exposed him to this substance.

The Involvement of Vishal Sikka

Mr. Waldbaum reported his findings in the different audits to Vishal Sikka, Chris Faye and Pascal Gibert in Palo Alto, California, and Melissa Lea, John Mullen and Robert Dillon in Newtown Square, Pennsylvania and many others including Alexandra Cordes in Walldorf, Germany. Eventually, in early 2014, SAP’s Executive Board, which included CTO Vishal Sikka, also received the findings. Mr. Waldbaum anticipates that these people are identified in any evidence or privilege logs served or filed in the Litigation.

Vishal Sikka was SAP’s Chief Technology Officer during the time period Mr. Waldbaum was conducting his audit work. Mr. Sikka oversaw SAP’s software development at SAP’s laboratory in Palo Alto, California. Mr. Sikka’s employment also was terminated in 2014 under curious circumstances.

Our Analysis

Vishal Sikka has strenuously objected in public to being named in this lawsuit and states he did nothing wrong. But it would be interesting to have a public statement from Vishal Sikka on what was contained in the report and what was his reaction to the report. He never mentioned publicly that he viewed this report.

Secondly, why did Vishal Sikka leave SAP in a departure that was a surprise to everyone, only 3 months after Mr. Waldbaum was terminated?

Mr. Waldbaum Stays on Medical Leave Until 2014

Mr. Waldbaum reported a summary of his audit findings to the SAP Executive Board and to the SAP Supervisory Board (Board of Directors) in January 2014. None of their members contacted him. Mr. Waldbaum first learned of the termination activity concerning him on February 13, 2014, when two very aggressive German men delivered a letter of termination dated February 12, 2014. Commencing on February 13, 2014, and in response to his reports, while still on medical leave, Mr. Waldbaum received ambiguous written notices that his employment was being terminated, then reinstated for a limited time, and then terminated.

Out Analysis

It is curious that Mr. Waldbaum stayed on medical leave for over a year. This is explained by the following quote from the filing.

Mr. Waldbaum’s sick leave was not contested by SAP and it never asked him to return to work, apparently satisfied that he would no longer be in a position to discover and report on SAP’s handling of intellectual property.

Is Mr. Waldbaum’s Audit Work Covered by Attorney-Client Privilege?

Mr. Waldbaum is himself an attorney and SAP contends that the audit results were attorney client privileged.

Mr. Waldbaum’s Response

As explained above, Mr. Waldbaum’s audit work began in or about August 2011, not in 2012. Mr. Waldbaum performed his work as an auditor, not as an attorney. He was instructed to put “attorney-client privileged” on certain documents he created, but such words do not appear on almost all of the documents and files he reviewed and noted as part of his audit work, most of which were created by business people in the course of software development work. Mr. Waldbaum understood he served an audit function, not a legal function, and such audit documents were provided to business people, as well as attorneys. As explained above, he understood his audit work was to be performed pursuant to international audit standards and to SAP policies and procedures, including those requiring respect for the intellectual property of others. He safeguarded information and did not disclose information to any third parties, is preserved in his laptop computer and in another manner of which SAP is aware. The audit work exists in stark contrast to the versions of events submitted by SAP declarants, including Alexandra Cordes and Markus Falk. The laptop and its contents are now in the custody of SAP and preserved in another manner of which SAP is aware, and should be available to the Court and the parties, in camera or otherwise, and to substantiate Mr. Waldbaum’s corrective facts relating to his relationship with SAP.

Our Analysis

SAP appears to be concocting the claim of attorney-client privilege to keep these audit documents from being admitted as evidence. If SAP is confident, they could simply contradict each point, but instead, they want the documents sealed. Two entities are claiming IP theft, one is Teradata, which SAP claims is only bringing their lawsuit because they can’t compete, and Mr. Waldbaum, who they claim blackmailed them. And according to SAP it is of the utmost importance than none of the audit material from Mr. Waldbaum be admitted into evidence.

Conclusion

This story sounds remarkably similar to the 1999 movie starring Russel Crowe and Al Pacino which was based on the true story of Dr. Jeffrey Wigand and Brown and Williamson Tobacco that did not want information getting out that was true.

This segment shown below was blocked from being shown on 60 Minutes for fear of a lawsuit from Brown and Williamson Tobacco.

In each case of whistleblowing that we have analyzed the company engages in a program to defame the whistleblower. And in each case, the whistleblower ends up being wrong. There is simply no incentive to whistleblow on the basis of false information. 

The most likely explanation of the problems between SAP and Mr.Waldbaum are as follows.

  1. SAP hired Mr. Waldbaum, someone who was highly qualified to perform the work to evaluate their liability in a lawsuit for IP theft.
  2. When SAP did not like the results that Mr. Waldbaum developed, SAP realized they had created a liability. This is because it now meant that they knew and could not say that they had not known as the Mr. Waldbaum’s work product was available to executives.
  3. In the event of exposure of this information, the favorite excuse (used by VW) is that they had no idea what was happening. Therefore, the decision was taken to shut Mr. Waldbaum down.

SAP’s claims are preposterous.

First, they claim that Teradata’s lawsuit should be dismissed on the basis of the fact that Teradata could not compete because they did not “develop an ERP system.” (which we covered in the article How True is SAP’s Motion to Dismiss the Teradata Suit) Then they say that their own internal auditor, who appears to have information that corroborates Teradata’s claims blackmailed them. This is further lacks credibility because as we published back in 2010, SAP is known to lift IP from vendors with which they partner. In fact, if the xApp contracts are entered into evidence, this clause is apparent. This contract resides at any vendor that was part of SAP’s xApp program, which is hundreds and vendors.

This is why precisely we called for this program, called the xApp program, to be terminated as we covered in the article Its Time for the xApp Program to End.

Since that time we repeatedly advised companies not to partner with SAP, but they ignored our advice, seeing dreams of lollipops and candy sticks dance in their head about all of the business SAP would send them. If it has not been entered into evidence yet, the now-defunct xApp program should be.

Giving Credit

Caroline Olsen covered this and predicted this back in her article in June of 2018.

SAP has been offering its Oracle-killer database, HANA…

“Oracle-killer”? Not so sure. Snabe and Sikka left SAP for one very specific reason. A common secret: fraud. Same for Apotheker, Heitmann, Fisher and many others.

Outside of this, it is curious that there are no articles that showcase Mr. Waldbaum that I could find. One can be sure that the major IT media entities, all paid by SAP, will only cover the story in the most cursory way.

Who Else Reported on the Filing?

One of the criticisms of Brightwork is that we act as if we are the only ones willing, to tell the truth on SAP. Well in addition to having large numbers of articles that no other information providing entity will touch, and that both the SAP consulting firms and IT media outlets ceaselessly repeat what SAP SAP says, let us look at this filing as an example.

This filing is at the time that we published is around 1.5 months old.

We performed a search in Google using the search term “witness tampering SAP” without using the quotation marks in the actual search so that it would be open-ended.

What we found was curious.

Viewing the results below this shows the same thing. The topic has, in the six weeks since this filing has not been covered. 

Readers can perform this search for themselves. Although in the future, media entities may be forced to cover this story, even though it is apparent they don’t want to.

What was that argument about Brightwork having an attitude that it reports on things in enterprise software that others won’t? I wonder why we have this attitude.

Personal Concern from Mr. Waldbaum’s Filing

This is the first time we have read about SAP engaging in physical threats, threats to one’s health, and cyber attacks. Brightwork Research & Analysis is the foremost critic of SAP, primarily because we follow a research approach, and the evidence leads to this conclusion. Unlike Gartner or TechTarget and nearly all other IT media entities, we don’t have out hand out for money from SAP or any other vendor.

These credible claims from Mr. Waldbaum make us wonder if SAP will use these mafia tactics against us at some point. E3Zine, another independent entity that critiques SAP should have the same concern.

SAP should be assured that if we see any of this Goodfellas horse****, our readers will read about it, and it will be reported to legal authorities along with Mr. Waldbaum’s claims against SAP that are part of the public record.

The obvious question is why would Mr. Waldbaum lie about these things? Second, if these claims are true, then Mr. Waldbaum and his family should be placed in witness protection, which is Mr. Waldbaum’s request. People do not simply request to be placed in witness protection. Witness protection greatly reduces your freedoms, relocates your entire family, severs communication to friends and family. It is one of the most disruptive things that can happen in a person’s life.

Secondly, it appears that Mr. Waldbaum does not at all trust French law enforcement, and brings up the question of how much longer (if he is even still there) Mr. Waldbaum and his family will live in France.

Imagine that is something that Mr. Waldbaum is requesting. He does not state this specifically in the filing, but when a witness makes the request for protection, this is the result that occurs in the US system. 

Finally, if one believes Mr. Waldbaum, and we do, it means that Mr. Waldbaum has highly damaging information about SAP that would lead to a large settlement for Teradata.

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References

https://www.docketbird.com/court-documents/Teradata-Corporation-et-al-v-Sap-Se-et-al/MOTION-for-Protective-Order-Notice-of-Motion-and-Motion-for-Protective-Order-by-Third-Party-Witness-Thomas-Walbaum-Memorandum-of-Points-and-Authorities-filed-by-Thomas-Waldbaum-Motion-Hearing-set-for-9-25-2019-02-00-PM-in-San-Francisco-Courtroom-02-1/cand-3:2018-cv-03670-00146

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

https://www.justice.gov/jm/criminal-resource-manual-701-procedures-securing-witness-protection

https://en.wikipedia.org/wiki/The_Insider_(film)

*https://studiometamorphoses.com/2015/01/sap-confidential/

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.

The Reasons Given for McDermott’s Departure from SAP

Executive Summary

  • The reasons offered for Bill McDermott to step down are highly questionable.
  • We evaluate the official story and project the most likely real reason.

Introduction

On October 10, Bill McDermott announced he was stepping down as CEO of SAP. The announcement caught virtually everyone that follows SAP by surprise, and the explanations for his sudden departure naturally caused suspicion as to the real reason for the change. In this article, we review the evidence to identify the most likely catalyst. 

The “Explanation”?

If you watch the video of McDermott’s departure explanation, it immediately seems odd. The only thing he said is that he had been at SAP for a long time, 17 years and that he decided not to renew his contract. Which begs the questions why, did he not renew.

This is like me saying I decided to not buy a ticket to a movie I had planned on seeing, and focusing on the fact that I was without a ticket. 

He also gave a ridiculous response to his interactions with Elliott Management that he enjoyed his interactions with Elliott Management. Elliott Management is a firm that targets a company if they think the management is doing a poor job squeezing the most money out of the company (note, not making the company better, squeezing out share price increases). It would be like saying you enjoyed being put into a big bag with a python. 

McDermott then quickly pivoted to a discussion about how great his two successors were.

The problem with this is that McDermott is a life long sociopath and could not care less about his successors, so this was theater.

Overall, McDermott provided non-explanation that is only prominent for how much it pivoted away from the question. He was anxious to get off of the question of “why” and move on to other topics such as how strong the company is and what a good job he did and how great the transition team is. 

I found the following quote from McDermott curious, a quote not in the video, but in an article in TechCrunch. 

“Very rarely do CEOs get the joy of handing over a company at maximum strength. And today is a great day for SAP. It’s a great day for me personally and Hasso Plattner, the chairman and [co-]founder of SAP. And also — and most importantly — a great day for Jennifer Morgan and Christian Klein.” – TechCrunch

Yes, that is because it is not done, unless the CEO is ill. CEOs leave jobs when the company declines, or when a better job, say a CEO job at a larger company opens up (this is also very rare), or retires because of age (McDermott is only 58).

But in the case of SAP, the job of CEO is already a top CEO job — there is no CEO job one can step up to. 

My ears have perked up at the fact that SAP did not craft some type of legitimate sounding cover story for the departure. Even the highly compliant interviewer (it was on CNBC, which licks the ankles of any executive who comes on the show) seemed perplexed by what McDermott was saying.

The Replacements 

This video is where Bill McDermott’s replacements repeat McDermott’s talking points and then respond to questions.

This video introduces Bill’s replacements. Neither of these people is qualified to be CEO of SAP, although Jennifer Morgan is far closer. If this were an NFL draft, Christian Klein would be considered a “reach” draft pick.

I had to rub my eyes when reading the profile of these two because it is difficult to believe either of these people was selected for this job.

Christian’s background is financial controlling. So he specializes in preparing financial statements. He is really a behind the scenes operator and a strange pick to lead in the most forward-facing role. Jennifer Morgan is an ex-business development schmoozer. Neither Jennifer Morgan nor Christian Klein have any real product experience. Jennifer ran SAP public services, which is where SAP rips off government entities that are normally considered the easiest targets in the SAP space. Although I have never met Jennifer, I have worked with a lot of people like Jennifer. She is very PC. She will repeat back to you whatever the cue cards say. 

This is a sales/accounting team. It is not a product-focused team. Secondly, Hasso hand picked Juergen Mueller as CTO, who is very young and quite passive and will be easily controlled by Hasso. Now both the German-based CTO and German-based CEO are under 40 years of age — Hasso Plattner seems like a God to these two men. Jennifer will now slip into the PR function role of McDermott. When Leo Apotheker was replaced as CEO in 2010, he was told by Hasso that SAP needed a “happy face,” which was McDermott. Jennifer Morgan is that new happy face. 

  • If you want to be schmoozed, you talk to Jennifer. 
  • If you want to know how to adjust the quarterly report, then contact Christian.

Here is Jennifer lying on the Q2 2019 analyst call. 

Don’t forget also HANA as a service will be hitting hyperscalers clouds near you and it’s a whole new vector of growth along with analytics and on the SAP Cloud Platform, there will be a tremendous opportunity with the SAP Cloud Platform between that and the up-selling opportunity of experienced management, yes. Any dilutive effect to moving the infrastructure as a service and the Embrace program will be compensated for. – Yahoo

This is quite false.

SAP Cloud has never seen much adoption, and framing it in this way is on way SAP has been cloud washing its revenues as we cover in the article Is the SAP HANA Cloud Platform Designed for Cloud Washing? 

Unless the point is to have extremely controllable individuals that Hasso can puppeteer. This is the only way the selection of these two individuals makes sense. Both of these people are just overjoyed to have this job and will likely do anything they are told. 

Christian Klein’s LinkedIn Article

Christian introduced himself with this LinkedIn article.

“Today we are humbled to succeed Hasso Plattner, Dietmar Hopp, Henning Kagermann, Leo Apotheker, Jim Hagemann Snabe and Bill McDermott as CEOs of SAP. When we were first notified of our new appointment, our first reaction to the news – beyond a sense of immense pride and gratitude – was this means that Bill would no longer be CEO of SAP. It’s tough for us to imagine SAP without Bill.

Naturally, we asked Bill – “what’s the story?” He was very candid with us. He talked openly about how much he loves this company and that he really wanted to do the right thing by handing the reins to a new generation while the company is in such strong position.

Like Bill, we deeply believe in SAP, its people and its products. The three most meaningful letters on our business cards won’t be CEO – they are and will remain SAP.

And then he has to, of course, praise Hasso Plattner and Bill McDermott. This is mandatory. 

 You’ve heard the phrase “standing on the shoulders of giants.” In Chairman Hasso Plattner and Bill McDermott, we have two such giants. That they both believe in our potential as Co-CEOs means so much to us. To Bill, there is more to say than we can accomplish in this post. His leadership has inspired SAP to do what few ever thought we could achieve. He challenged us, motivated us and called on us to embrace his optimistic view of the world. We look forward to celebrating and thanking him in the days and weeks ahead. 

Most importantly, the best is yet to come for SAP. Together with our full leadership team, we intend to empower everyone here to achieve even greater ambitions. Whether it’s forging the ethical boundaries of artificial intelligence, helping our customers reduce carbon emissions, or building a new middle class, SAP belongs in the center of a better world.

And we will do it together – with our global colleagues, customers, partners and other stakeholders.

It’s a profound honor to be the next CEOs of SAP. We look forward to continuing our mission of helping the world run better and improving people’s lives.”

After Christian wrote this short and rather content-free article, the SAP sycophants lined up to pay “tribute” to their new leaders

Hmmm..beginning to notice something similar between the various comments? 

You have to really wonder about the comments “well deserved.” Are these SAP resources actually familiar with Christian’s work? Are they qualified to analyze Christian’s financial statements to know how good these statements are? Christian has been a controller and COO — these resources are familiar enough with him to know if this was well deserved? Isabel Brenner calls this a “grand team.” 

Virtually all of the emails look the same. This demonstrates both the sociopathy that is so alive and well in the SAP community and why my accuracy in predicting SAP (see the list of our predictions versus SAP in the article A Study into SAP’s Accuracy) is in part based upon ignoring most SAP resources. 

McDermott Leaving an Extension of Firings In March of 2019?

We covered in the article the SAP Layoffs and a Brightwork Warning on HANA (and article which was extremely unpopular with SAP resources and consultants) that the layoffs were in specific areas where we had said for years that SAP was underperforming, including HANA. This article caused several SAP consultants to lose their minds, including Barbel Winkler who accused Brightwork of distributing fake news Is Bärbel Winkler Correct the Brightwork SAP Layoff Article Was Fake News?

They were particularly offended that I explained that Hasso Plattner has been passing off an honorary Ph.D. as a real Ph.D., Does SAP’s Hasso Plattner Have a PhD?

Many SAP devotees viewed this as incredibly disrespectful to point out, and several defended the practice as I covered in the article It’s Official If You Work for SAP Its Ok to Lie About Having a Ph.D. Hasso was unbowed and later referred to 200 peer-reviewed studies to support his contentions, which I later researched and found did not exist How Accurate Was Hasso Plattner About SAP HANA Publications? 

You see Barbel Winkler and other SAP consultants are very happy to listen to any number of false claims by SAP, but an independent entity calling out SAP on lying is just too much for her. And she provided an aggressive and evidence-free response. So it is official, Hasso can never be contradicted according to SAP resources, even when he is completely wrong, he is still right because calling him out on falsehoods can be critiqued as not properly respectful. One SAP consultant claimed he was..

“So angry about the personal nature of the article, and I can’t focus on contradicting the claim.”

I am thinking of coming up with some type of body pillow that SAP consultants and sales reps can hug when their circuits are overloaded. They can then hug their “binky.” 

A large number of executives left SAP at that time, including Rob Enslin, Bernd Leukert, Barry Padgett, Rich Heilman, and Thomas Jung as pointed out by ZDNet. The response from SAP resources was that this should not be written about as it was inhumane (and potentially a violation of the UN’s Declaration on Human Rights?) as we cover in the article Is It Inhumane to Discuss HANA’s Lies on Post About Job Losses?

The Problem with the Qualtrics Acquisition

We reviewed the Qualtrics acquisition in the article Does SAP’s Acquisition of Qualtrics Make Any Sense? and also in the article SAP and Qualtrics CEOs Making Repeatedly False Statements, and our conclusion was, along with many others, was that there is no fit between Qualtrics and SAP, and the acquisition was made worse the enormously inflated price SAP paid for Qualtrics. Close to a year after this acquisition, and after SAP has relentlessly pushed “X and O Data,” Qualtrics looks ready to just recede into the background. And the owners of Qualtics will walk out of SAP with $3 billion in personal wealth. 

SAP reallllly wanted people to think there was something to X and O data. However, there is no insight here. Qualtrics just survey software, and it could have been used by any SAP customer with or without the acquisition. Secondly, there is no overlap with SAP’s core and Qualtrics sells in a completely different category than SAP. Qualtrics would classify as one of the most wasteful acquisitions SAP has ever made. 

This acquisition falls on McDermott, and it likely caused him to lose credibility with Elliot Management and the board. McDermott has been trying to justify Qualtrics since the acquisitions were preformed and he tried again in his departure tour. 

“We had unbelievable deals again in Q3 where we actually combined our latest innovations — where we combined Qualtrics with SuccessFactors with S/4 [Hana] to drive unbelievable business value for our customers. – TechCrunch

This was just a sale McDermott is referring to. As Qualtrics has no overlap with S/4HANA. And the customer McDermott is referring to will end up being disappointed. I review sales BOMs that make no sense all of the time, one example being the stuffed sales BOM that is covered in the article The Hidden S/4HANA Home24 and KPS Failure

However, it is not only Qualtrics.

Under McDermott SAP has acquired a number of companies like Callidus, and Concur and many others, which are destined to decline and do not fit with SAP’s offering. These acquisitions — meant to signal to Wall Street how much SAP is morphing into a cloud company, are impossible to get any ROI from due to their purchase prices. SuccessFactors, which was McDermott’s previous favorite acquisition before Qualtrics has seen quite limited sales into SAP accounts and the previous CEO was essentially run out of SAP for disagreeing with Hasso Plattner. 

The Impact of Elliot Management

I have no visibility into the changes Elliott Management asked for.  

But they show up, and then all of these changes happen and they happen rapidly. That is what Elliott Management does. They force out executives, and they target companies whose strategies they disagree with. They press for changes. How they do it with only a 1% stake I don’t know, but they have a history of doing it. That is, the leverage provided by such a stake does not support how they do this, but their history shows they are successful in doing this. 

How Will SAP Increase Margins?

One reason for Elliott’s targeting of SAP has been that margins are seen as lagging. The article I read compared SAP’s margin to Microsoft’s which was at one point 40%. However, Microsoft had a monopoly on the office suite and OS and had a virtually zero marginal cost over this massive market and if our antitrust laws were followed would have been broken up. After losing their case against the DOJ, Microsoft paid no practical costs for violating the tying arrangement clause of anti-trust law, but the lead attorney for the government, David Boise used that case to springboard himself into private practice where he engaged in a multi-decade career doing all the wrong things and general exorbitantly paid legal thuggery, eventually culminating in him defending Elizabeth Holmes and Theranos! His thuggish behavior chronicled in the book Bad Blood, which covered the Theranos affair. It appears the DOJ/Microsoft trial which was supposed to be about anti-trust, was really just a dog and pony show designed to burnish some resumes and get some people some great careers in private practice. 

This is why the desire/expectation for Elliott Management to get SAP to get a higher margin is not logical. SAP already is gouging its customers, overcharging them, selling them things they don’t need. I will refer back to the Home24 case study for the ridiculous sales BOM sold by both SAP and KPS to Home24. SAP is already charging customers for fictional items through indirect accessThis comparison against Microsoft is where we are where one monopoly is compared against another monopoly for a reasonable margin expectation. In the Private Equity business, companies are targeted that can gouge their customers, and these are the companies that Private Equity takes a position. A firm known for this is Bain Capital. They perform “price optimization,” which is a euphemism for price gouging. So if you have a pharmaceutical that has already had all the research performed and is selling in the market, Bain Capital will target the company, and then massively increase the price of the pharmaceutical. The Private Equity firm does nothing, do not improve the item, they only identify opportunities to price gouge. This is filed under “innovation” by the Private Equity firms and is their “value add” to the economy.  

However, most of SAP’s margins are in support as we cover in the article The Giant Margins for SAP and Oracle Support. and the article The Amazing Support Percentage of Revenues for SAP & Oracle. These margins are based upon paying very little to resources located in India and dropping the support level to where you barely want to use it. Or as private equity firms call “optimization.” 

SAP has been promising margins it cannot deliver for several years now. And McDermott reiterated this falsehood in the following quotation.

“The capital markets have been waiting for the margin expansion story,” he said, adding the “inflection now for margin expansion is in full flight.” – Bizjournals.com

SAP’s margins in the cloud really are tied to marking up the cloud services of other service providers, which we cover in the article How to Understand SAP’s Upcharge as a Service Cloud. SAP has close to no internal cloud service business, their only ability to improve cloud margins is to markup the cloud services of other providers. This is why SAP is pushing customers away from the public cloud options — even while they tell Wall Street they are doing the opposite. 

This matrix comparison was provided to a client of mine by a consulting company. Notice it is entirely false. It is rigged to push the buyer away from the public cloud where prices are published and can be easily compared. In reality, private cloud providers cannot compete with the public and are far higher priced. 

SAP’s Cloud Business

Several financial analysts and media analysts have reached out to me on the topic of SAP cloud, and seem to be buying the false story SAP are selling. They appear to have a difficult time processing the fact that SAP has very little cloud business that it runs on their own servers. In fact, the only substantial cloud business is from SAP’s acquisitions with Ariba easily being the largest.

SAP Cloud is more like a showroom and distractions. Something E3Zine has referred to as an SAP strategy as a Potemkin Village. (credit E3Zine for coming up with a great and accurate analogy). E3Zine goes on to state..

His program Embrace lets Bill McDermott companionably hug hyperscalers AWS, Google and Microsoft.(emphasis added) The program is designed to make customers believe that SAP software is cost-efficiently available anywhere they choose. S/4 aims to convince customers they are preparing for a new ERP era. Hana is supposed to be the key to real-time data analysis.

Behind Embrace, S/4 and Hana hide real products, but their façades send the wrong message. SAP’s merciless licensing models also apply in the AWS, Google or Microsoft cloud.(emphasis added)

SAP’s Potemkin villages are not easy to spot at first glance – making it an imperative that customers take a closer look and do not take everything that Bill McDermott says at face value.

In the movie The Interview, James Franco’s character discovers that a well lit and fully stocked grocery store in North Korea he was shown earlier is just a front or a Potemkin Villiage. This is essentially SAP’s cloud story.

SAP pays off nearly all of IT media, Gartner, and has compliant SAP consulting firms who function as parrots, so people contact me can’t believe that so many of SAP’s product stories are fake. The same financial speculative entities that contact me to decry the lack of accurate information in the marketplace, are also the first to say that all information providers should sell out to the highest bidder. It is curious, they want accurate information, but then promote an economic system where all media sources are “profit maximized.”

The SAP Cloud is little used, and with the prices that SAP quotes, and how poor it is in quality, one would be crazy to use it. 

However, in order to do this, SAP must direct customers to inefficient private cloud providers that are part of the HEC ecosystem. This is because if SAP directs customers to AWS or GCP, the pricing is public and can be compared. 

The short version of the story is that SAP does not have a very good way of increasing revenues. This means that SAP will have to cut costs to achieve the margins desired by investors. SAP has a massive underperforming set of applications as we cover in the article How Many Products Does SAP Have?

SAP could save money by cutting out these underperforming applications, but this will mean fierce internal battles. Or they can reduce the costs of their workers. As we cover in the article Age Discrimination As Yet Another Way to Reduce IT Labor Costs, SAP has undertaken efforts to push out more experienced workers.

This follows Oracle’s pattern of reducing the cost and quality of workers. And it has also lead to reports of Oracle’s resources being pushed into roles for which they are entirely unqualified. 

Conclusion

The evidence indicates that Bill McDermott was pushed out of SAP on short notice. Bill McDermott just recently stated he was..

“just getting started as CEO of SAP,”

which indicates he had no plans to leave SAP (in addition to being a strange thing to say for a person who has been in their job for nine years).  

Elliott Management appears to be the prime catalyst for McDermott’s departure.

Three things point me to this conclusion. 

  1. The abruptness of Bill McDermott’s departure.
  2. The fact Elliott Management has been “working” on SAP for over a year, and that Elliot Management has a long term history of pushing management out of their jobs for companies in which they take a position. 
  3. The fact that so many other SAP executives were pushed out roughly six months ago, which also coincides with months of pressure on the part of Elliott Management. 

The normal approach is for the leader of an organization who is under pressure to sacrifice people lower than them, and then eventually for them to resign or be fired later. 

The problem that SAP faces is that they don’t have a simple way to increase their margin outside of cost reduction. There is a general dissatisfaction on the part of the board with progress on things like HANA and S/4HANA uptake. 

The cloud acquisitions that SAP paid so dearly for are all less prominent as each quarter passes. However, there is no simple way out of the issues.

Elliott Management has no other interest in SAP than getting a short term bump from their investment. In fact, these firms are happy to push their targets into a death spiral, as long as they get their bump. As observed by The Washington Post, Elliott Management may demand a big share buyback, which SAP may do, just to make Elliott go away. Elliott Management’s big idea for EMC was to sell it to Dell, and clearly Dell has no idea what to do with EMC, but Elliott Management got their bump.

This move signifies that Elliott Management has significant control over the strategy of SAP and that Elliott Management did not see how McDermott fits into those plans. However, Elliott intends to jump up the stock price most likely to get out within the next year — if their previous pattern holds — and this means they want a substantial change that will provide that short term bump. But overall, Private Equity/Hedge Funds hold up artists like Elliott Management have while they can drive stock prices up, their involvement in companies is a longer-term negative for SAP. 

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://www.linkedin.com/pulse/thank-you-bill-christian-klein/?trackingId=dp36QRUWRuS4JrG62azamw%3D%3D

https://www.washingtonpost.com/business/sap-may-need-a-massive-buyback-to-sing-elliotts-tune/2019/04/24/accb1ade-6692-11e9-a698-2a8f808c9cfb_story.html

https://www.un.org/en/universal-declaration-human-rights/

https://www.zdnet.com/article/bill-mcdermotts-departure-can-help-sap-refocus-on-customer-priorities-also-brings-risk/

https://e3zine.com/saps-potemkin-villages/

*https://www.amazon.com/dp/B078VW3VM7/

https://e3zine.com/former-ceo-bill-mcdermott-leaves-sap/

https://www.abc.net.au/news/2017-06-05/what-does-elliott-management-want-from-bhp/8584824

https://www.bizjournals.com/philadelphia/news/2019/10/11/sap-ceo-bill-mcdermott-departure-is-unrelated-to.html

https://digitizingpolaris.com/bill-mcdermott-steps-down-as-sap-ceo-14a3626a72f

https://www.reuters.com/article/us-sap-results/sap-welcomes-elliotts-1-3-billion-investment-shares-hit-high-idUSKCN1S00EN

https://www.archdaily.com/889722/what-if-its-all-a-front-zacharie-gaudrillot-roy-reimagines-buildings-as-isolated-facades/

https://finance.yahoo.com/news/edited-transcript-sap-earnings-conference-234805469.html

https://techcrunch.com/2019/10/10/saps-bill-mcdermott-on-stepping-down-as-ceo/

https://siliconangle.com/2019/10/10/sap-ceo-bill-mcdermott-stepping-9-years-job/

How SAP Sponsored Studies Are Repeated in the SAP Ecosystem

Executive Summary

  • SAP sponsors studies from firms like IDC and Forrester that produce false information.
  • This false information is then repeated by biased individuals.

Introduction

This article is an illustration of how inaccurate information is replicated from its original source — which is an SAP funded study, into the general SAP ecosystem.

The Quote

This quotation was taken from LinkedIn by a partner at PWC who has a long history of providing inaccurate information around S/4HANA.

I thought I saw some stat that said circa 75% of ECC customers planned to move to S4 by 2025. If they are planning there must be some understanding. One big gap I see is how to get there as there are marketing views for conversions and all of the great tooling out there, as well as for greenfield and the different set of tooling out there. – Mark Chalfen

What is the Source of This Quotation?

The quotation of 75% of customers planning to move to S/4HANA by 2025 is most likely from an SAP sponsored study published by IDC.

The number quoted by IDC is 73%, which is the only poll I can find that is even close to the 75% quoted above. Others polls show a much lower percentage of companies planning to move to S/4HANA by 2025.

We analyzed in the IDC article in IDC Takes Money to Publish SAP Provided Sample on S/4HANA.

The IDC study follows the example of previous SAP sponsored studies in that the sample is provided by SAP. Such as when SAP provided Forrester with exactly three S/4HANA customers for their S/4HANA TCO study.

Faking an Ignorance of Statistical Sampling

These types of studies pretend that they do not understand sampling and that therefore any sample is representative of the population. Curiously, while we promote math and science competency, we have major publishing entities that will publish any poll in return for money. And using any sample provided by the entity providing the funding. SAP Marketing then exaggerates the already false poll on their website.

Conclusion

The point of such falsified polls is to push inaccurate information into the SAP ecosystem where it will be repeated by other financially biased parties with no analysis performed as to the validity of the study.

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.

References

The Sales Reason for the High Failure Rate of SAP Projects

Executive Summary

  • SAP projects have large numbers of failed implementations.
  • This coverage of SAP’s sales process by E3Zine helps explain why.

Introduction

In the article How SAP is Now Strip Mining its Customers, we covered how SAP has so many failures, an abnormal number of failures. There are several reasons for this, one being the immaturity of so many of SAP’s products. However, the SAP sales process also explains this. And the article The End of SAP Relationship Management by N. N. Nomen Nescio (that is an anonymous contributor) in the E3Zine publication explains why.

The E3Zine Article Quotations

The Motivations of Sales

SAP CEO Bill McDermott transformed the company into a sales-driven organization. There’s two ways in which SAP salespeople try to reach McDermott’s high revenue goals. One, through dubious interpretations of licensing fees and contracts (Indirect Access); and two, through selling unnecessary and often unfinished products that nobody needs to fulfill the sales quota.

Licensing fees seem to be the primary revenue generator at the moment. Many salespeople probably only reached their sales quota through Indirect Access. The possibilities to interpret it are endless. Many customers save themselves from Indirect Access by signing a cloud contract, which seems to pacify SAP salespeople. – E3Zine

This is a problem in that salespeople cannot meet quotas without indirect access. There are several reasons for this.

  1. SAP has made a number of acquisitions, but there is very little cross over between the internally developed SAP product customers and the acquisitions. Essentially, the acquisitions make no business or sales sense and seem primarily driven by the need to deliver a story to Wall Street.
  2. SAP has not successfully migrated many customers to S/4HANA which we covered in the article The S/4HANA Implementation Buyer Intelligence Highlights.
  3. Customers that have been pushed to HANA have had very mixed results from what SAP told customers was a groundbreaking database.
  4. Most of the internally developed non-ERP products like PO/PI, PLM, BW, APO, CRM, and many others have played themselves out. They are now known to be of low quality, they are difficult to implement, difficult to use, and damage the companies that purchase them.

SAP’s Enormous and Complex Product List

SAP has thousands of products, changes its metrics frequently, and makes and retracts announcement even more often. This explosive formula only leads to chaos for customers. However, it also opens up the perfect opportunity for SAP salespeople to get the customer to buy a new license. This means that while companies have to deal with SAP’s arbitrary definition of Indirect Access, new SAP salespeople from Ariba, Hybris, Concur and SuccessFactors are eagerly knocking at their door to sell them new products and even more licenses – resulting in chaos for the customers. – E3Zine

When we counted the SAP product list we came up with over 300 as we covered in the article How Many Products Does SAP Have?

However, if you include the variants of each product, you can come up with more, and we assume this is how E3Zine performed their count. And E3Zine is correct, this leads to chaos. The complexity of the SAP product database is far beyond the capacity of SAP sales reps to keep up with it. This is why we have proposed that SAP has grown so large that it has essentially become unmanageable. It also means that SAP is increasingly a liability to its own customers because its sales reps, as well as consultants, often do not know the actual reality of the products.

Losing Touch With Reality

The new SAP salespeople from acquired companies don’t know anything about ECC 6.0, ERP’s history or traditional licensing contracts. As mentioned before, it’s not about relationship management anymore – it’s about reaching a sales quota. – E3Zine

This is exactly correct. The entire sales process has moved increasingly to transactional behavior, which is a fit with McDermott’s short term orientation.

Conclusion

This article from E3Zine receives a 10 out of 10 for accuracy in their article.

The things that E3Zine points out are exactly what we find in our research and contacts with ongoing SAP projects and sales initiatives. E3Zine should also be commended for being willing, to tell the truth on this topic.

Secondly, the damaged nature of the SAP sales process is one reason why SAP projects have such a high failure rate. SAP products are being sold with little concern for how the application will be implemented or whether the application fits with the actual requirements at the account. Salespeople, under this extreme quota, cannot afford to take these considerations into account and expect to keep their job.

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://e3zine.com/2019/07/25/sap-relationship-management/

How SAP Resources Make False Statements About Brightwork Research

Executive Summary

  • SAP resources sometimes make false statements about what our research conclusions actually are.
  • In this article, we cover one example of this.

Introduction

SAP resources often do not like our research conclusions. They will often try to defend the SAP marketing statements no matter how false. In this article, we cover how one SAP resource named Paul Hardy entirely misstated what Brightwork’s statements have been.

Paul Hardy’s Quotation from the SAP blog

Paul Hardy on Not Everything on the Internet Being True

If the articles that Shaun writes were true then everyone who works with SAP should be very worried. However, not everything on the internet is true, as we know. – Paul Hardy

This beginning statement is meaningless. Furthermore, it is true as Paul says, that not everything written on the Internet is true, but first, Paul Hardy wrote this on the Internet. This is a way of critiquing the research without providing evidence. Not only is not everything published on the Internet not true, but many spoken things also are not true, as are items written on paper. Its good that we have that established.

Paul Hardy on Brightwork Reading Like a Conspiracy Theory

As it is, the articles read rather like a conspiracy theory i.e. “I am the only one in the world telling the truth, every single other person on the planet are conspiring together to hide the truth”.

He has been predicting things for many years that keep not happening e.g. SAP ditching HANA, which is rather like the people who keep predicting the end of the world and when it doesn’t happen on the target day, they set a new date.

Some of the accusations are contradictory – for example he both accuses Hasso Plattrner of designing a rubbish database and at the same time claims Hasso did not design it all, but acquired it from a mysterious un-named company.

As per the criticism that my writing is like a conspiracy theory and that I am the “only person telling the truth and every other person on the planet is conspiring together.”

SAP Has and Ecosystem or a Conspiracy?

SAP has an ecosystem, and that system does conspire together. It is called a series of partnerships. And SAP does pay media entities like Forbes and TechTarget to publish SAP friendly articles. We covered SAP’s funding and control over media entities in the article How to Best Understand Control of the SAP on IT Media. We covered the control over vendors and consulting firms by SAP partnership agreements and describe the exact clauses in these partnership agreements in the article How to Best Understand the Pitfalls of Vendor Partnership with SAP. When SAP came up with one of the most asinine marketing campaigns — call Run Simple, every single consulting firm at SAPPHIRE had some variation of “Run Simple” marketing at their booth. Was this a conspiracy, or just the ordinary coordination between SAP and their partner community? Is it a conspiracy to state that SAP is in contact with their consulting firms and that they coordinate sales together? Does this qualify as requiring the wearing of a tinfoil hat, or is it a well-known reality?

The Limits of What Paul Hardy is Willing to Discuss

If Paul Hardy would like to provide evidence that this is not true, he should do so. However, we bet that Paul will not delve into this topic in much depth. He won’t describe how Deloitte and IBM and others lie along with SAP or how SAP consultants function as parrots What is the Difference Between an SAP Consulting Company and a Parrot on HANA? This is because Paul is himself part of this ecosystem. He will present no evidence that any of this is true, and instead uses the term “conspiracy theory” to keep from having to present evidence.

Secondly, look at this article Paul wrote, which can be seen at this link Reason Not to Move to S/4HANA.

Paul had to include humor because Paul fears what would happen if he wrote an entirely honest piece without it to make the “pill go down easier.” On repeated points, Paul comes close to calling out SAP as lying but then declines to do so. This is the person who should be calling out other people who do provide the full story for pointing out that they do provide the full story. Readers won’t find the type of tap dancing around criticism of SAP that Paul Hardy will perform.

Now let us get into the meat of Paul’s claims.

Paul Hardy on Brightwork’s Analysis of HANA Being Contradictory

Some of the accusations are contradictory – for example he both accuses Hasso Plattner of designing a rubbish database and at the same time claims Hasso did not design it all, but acquired it from a mysterious un-named company.

HANA is a rubbish database, but Paul cannot find anywhere where I claimed Hasso Plattner did not set its early design parameters. And he certainly did use not only TREK and P*time, but when I wrote that it was prior to the Teradata lawsuit, and Teradata has since accused them of stealing their IP. I have since come around to thinking they in part did do this. And SAP has also been further backward engineering Oracle as I covered in the article Did SAP Just Reinvent the Wheel with HANA?

However, all of these things are not contradictory. Apparently, Paul in an ABAP-er, which means the idea that multiple inputs go into something should not be lost on Paul. This is a contradiction made up in Paul’s mind, and it is entirely an inaccurate depiction of my research conclusion. If Paul did not spend a sufficient amount of time reading my material, I can see how Paul might make this error — but his later accusations are more inaccurate.

As for Paul’s claim that I stated a HANA database runs just the same speed or slower than a traditional disk-based one — we can guarantee that Paul can’t find anywhere that I wrote this.

The performance issue has to do with the column design of HANA being lower in performance for things like TP and batch jobs like MRP — which is covered in this article why HANA is a Mismatch for S/4HANA and ERP.

Paul Hardy on Brightwork Stating that Code Pushdown or Stored Procedures Don’t Speed Performance

In addition some of the “facts” can be checked against reality e.g. the claim that an in-memory HANA database runs just the same speed or slower than a traditional disk based one. There are many organisations out there that have moved to a HANA database and they have all seen improvements, albeit not the over-stated claims made by SAP marketing, but improvements nonetheless. In regard to pushing code down to the database, once again, it is possible to verify this by doing an experiment where you write two versions of a query, one with code pushdown, and one without, and see which runs faster. Then it becomes a straight yes/no rather than a matter of guesswork and speculation.

The statements that some companies have seen improvements by moving to HANA entirely leaves out the effect of the larger hardware. Again, as a person who is technical, it should not be lost on Paul that if the hardware is far larger, the same two things are not being compared. I covered this in the article How Much of Performance is HANA? And Paul understates how much the performance has lagged the over the top marketing.

Furthermore, some companies have installed HANA and seen either no improvement or a performance decline — if the application is not 100% analytics. And in every single case, the price of the instance (from pre to post HANA) increases.

On the topic pushing code down to the database running faster, and the idea that I oppose this conclusion — again, I never said this and would never say this. It is well known that stored procedures increase performance. But this has negatives, which includes both vendor lock-in and technical debt. Paul is asserting that I don’t know something I do know and what I am saying things I never said.

On Brightwork Being Inaccurate in SAP Predictions

As for your assertion that I have been predicting things for years that keep not happening, I never stated that SAP would ditch HANA. I stated that SAP’s will reduce their emphasis on HANA as I covered in the article HANA’s Time in the Sun Has Finally Come to an End, and that SAP will have to reverse course for S/4HANA on HANA as I covered in the article Why SAP Will Have to Backtrack on S/4HANA on HANA.

That says nothing about “ditching” HANA.

SAP has reduced their emphasis on SAP, first it switched to Leonardo, and now the emphasis is Experience Management. They have not yet reversed course on S/4HANA locked to HANA. However, overall, my predictions on HANA have been quite accurate. More accurate than Gartner, Deloitte, Forrester, etc. I include John Appleby’s accuracy on HANA by comparison in the article How John Appleby Was So Wrong About His HANA Predictions.

Paul Hardy seems to like making up his own reality. We tried to project what Paul probably thinks our workplace looks like, and we came up with this.

Paul thinks we work out of a giant mushroom. This estimate is about as accurate as anything else Paul has said about Brightwork Research & Analysis or my work.

Conclusion

From Paul Hardy’s descriptions, I don’t recognize my research. And it seems like Paul lacks familiarity with the material produced by Brightwork. Paul has created his own alternate universe where he states things that Brightwork never published — apparently so these imaginary items can be more effectively critiqued.

Paul Hardy’s statements are so inaccurate that he is either lying or has problems with reading comprehension.

Paul Hardy receives a 0 out of 10 for accuracy in his comments about Brightwork’s positions and conclusions.

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.

Search Our Other Critiques of Brightwork

References

SAP and Qualtrics CEOs Making Repeatedly False Statements

Executive Summary

  • SAP produced the following video where both the CEO of SAP and Qualtrics make numerous false statements.
  • We analyze this video for accuracy.

Introduction

The inaccuracies come fast and furious in this video. Let us review each statement made for accuracy.

The Video

SAP Marketing Fact Check

Bill McDermott’s First Quote

This is an honor to team up with Ryan Smith, a great CEO, and an inspirational leader.

Qualtrics has been a hyper-aggressive sales organization that is strongly based upon a culture of fear, which is why Qualtrics normally oversells its product. I am not able to find references to Ryan Smith being inspirational.

Ryan Smith’s First Quote

This is a once in a generation opportunity. We will change the whole face of enterprise technology with this combination.

This seems to reflect the opportunity to combined Qualtrics and SAP. But there was no need to have SAP acquire Qualtrics to accomplish this. Qualtrics surveys are taken from the web — they don’t have anything to do with SAP. You can create a survey that will be on any topic.

Bill McDermott’s Second Quote

SAP is the fastest growing cloud company in the large scale business software industry. Qualtrics is the fastest growing business software company in the experience management space. If you combine those two forces you have a juggernaut of cloud growth.

SAP is not only not the fastest growing cloud company in the large scale business software industry, it has very little cloud growth — unless you cloud acquisitions, which tend to shrink after acquired by SAP. McDermott is clearly including acquisitions, but even still — it would be difficult to come anywhere near either AWS or Azure’s growth.

As for the second part of the quote — it is unclear why buying Qualtrics through SAP is better than just using Qualtrics, or in fact, using some other survey software totally unrelated to Qualtrics.

Ryan Smith’s Second Quote

There are two types of data. There is operational data, which is telling you what is going on and what just happened. These are your analytics, these are you CRM product, this is your HCM product. Then you have experience data which allows us to get human sentiment in the moment. To understand the why. How someone feels. SAP owns the operation systems from end to end. We own the experience systems from end to end. The ability to combine those and have one single view will transform the way we even think about CRM as we know it.

This is apparently the talking point of the overall video, however, it is unclear why this is true.

  1. There is not some well-known segmentation between survey data and “operational” data.
  2. Analytics are not simply performed on “operational data.” Qualtrics itself has an analytics dashboard on its surveys. Experience data (that is just survey data) is not any different than CRM or HCM data. It is simply the data recorded by that system. The “whys” are asked all the time in all of the different systems. Survey data does not have a monopoly on the question of why.
  3. SAP does not own operation systems end to end. SAP works along with legacy systems and third-party systems. There is no customer I have ever seen that only uses SAP. This is a complete myth that is a received opinion by Ryan Smith who has been spending too much time listening to SAP resources.
  4. Survey data and “operational” data does not need to be combined. It is, for instance, difficult to combine inventory records with a survey on what a customer thought about the item. This is one of several falsehoods all contained in a very small number of sentences.

Bill McDermott’s Third Quote

We want to be the jet fuel that propels them to 193 countries with the biggest business software sales go to market force in the world. In 25 industries, small, medium and large alike. Every customer should know that X data and O data is together now.

Yes, Bill McDermott would like to sell Qualtrics, as they just purchased Qualtrics. SAP has a large sales force, but it is not the biggest. Oracle’s is certainly bigger. And there might be others like Microsoft that are bigger still.

The second statement is pure nonsense. “Operational” data and survey data is not any more “together” than before the acquisition.

Ryan Smith’s Third Quote

We are fired up. Today is a new beginning and with all of the resources from SAP we are super excited for that.

Ryan Smith and his family pulled $3 billion out of the acquisition, so with such amazing wealth, they are no doubt incredibly excited. Anyone who had equity is super excited. But many Qualtrics employees that did not have equity and now have to deal with SAP management and increased bureaucracy probably would have preferred to stay independent.

Bill McDermott’s Fourth Quote

And the loyalty effect is what the experience management of Qualtrics and the operational data of SAP drive. So X data, experience, O data, what is going on in the operations. Put that together and you can inspire everyone in the company to take care of everyone outside of the company.

This seems to be a repeat of what Ryan Smith said previously. We are entirely unconvinced that this X data and O data dichotomy is anything at all.

Ryan Smith’s Fourth Quote

I could not be more excited to work with Bill McDermott and all of the SAP family. The Qualtrics family is exceptional and we are going to do something legendary.

We can guarantee that it won’t be legendary. None of SAP’s acquisitions are much more than disappointing. But it is unclear if Ryan Smith will even stick around. Billionaires tend to like to work for themselves. Again, there is really nothing going on with this acquisition. There is no strategic overlap between these two vendors, and Qualtrics is a small company that will have a negligible on the SAP monster.

Conclusion

This video receives a 0 out of 10 for accuracy.

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