How Accurate Was Forrester’s Study on the ROI of SuccessFactors?

Executive Summary

  • Forrester was paid by SAP to produce a report that showed SuccessFactors had a high ROI.
  • Numerous errors in the report demonstrate that the study was rigged to provide SAP’s intended outcome.

Introduction

Forrester published a study named The Total Economic Impact™ Of SAP SuccessFactors HCM Suite Cost Savings And Business Benefits Enabled By SAP SuccessFactors HCM Solutions, September 2018. In this article, we will review the study for accuracy, eventually assigning an accuracy score

Forrester’s Quantified Financial Benefits

Forrester declares the following financial benefits from a sample of customers provided to Forrester by SAP.

“The composite Organization experienced the risk-adjusted present value (PV) quantified benefits of the following services totaling $11,005,505 over a three-year period (see the Financial Analysis section for more details):

Employee Central and Payroll: $1,189,136.

Recruiting and Onboarding: $2,921,945.

Performance, Goals, and Compensation: $6,194,531.

Learning, Succession, and Development: $702,893.”

Costs

Forrester declares the following costs from a sample of customers provided to Forrester by SAP.

“The Organization experienced the following costs totaling $5,906,920 with a risk-adjusted present value of $5,186,681 (see the Financial Analysis section for more details):

Internal labor to plan and deploy SAP SuccessFactors: $60,000.

Incremental hardware, database and operating system license, and maintenance: $0.* The Organization incurred none of these costs with the SAP SuccessFactors cloud solution.

SAP SuccessFactors (or partner) fees for professional services implementation assistance: $265,000.

SAP SuccessFactors subscription fees: $3,751,600.

SAP Preferred Success fees: $750,320.”

How Many Customers Were Used for the Sample?

Forrester stated the following with respect to the sample that is used in the study:

“For this study, Forrester conducted interviews with six SAP SuccessFactors HCM customers. Interviewed customers are described as follows (each requesting anonymity)”

However, when one reviewed the list, there were not six entities listed, there were seven. A company each in the following industries:

  1. Manufacturing
  2. Retail
  3. Local Government
  4. Insurance
  5. Transportation
  6. Mining
  7. Outsourcing Provider.

There is no other interpretation than Forrester miscounted the companies that were in the study. While that seems like a major error, it is in fact only a 14% error, but it just seems worse than it is because it is so obvious. As we will see, that is a high point in terms of accuracy for the study.

Sample Selection Bias

The second thing we noticed was the very obvious selection bias of the sample used by Forrester.

One of the foundational quality checks in research is determining if the sample is reflective of the population. Anyone who has taken statistics would know that this subject alone makes up a large component of the course. Before any descriptive statistics are used on a sample, the first question must be answered as to representativeness. It is like a chain, the first links in the chain have to be unbroken for the pulling on the rest of the chain to work.

Getting 30 Samples?

The rule of thumb (called the Central Limit Theorem) is that one requires 30 samples or that are randomly selected from a population to be relatively confident that the sample is reflective. This is a rule of thumb memorable to most people that have studied statistics, and the following limitations apply.

  1. This is the minimum sample size, not the optimum sample size. As explained by Christopher Rout “It’s not that “30 in a sample group should be enough” for a study. It’s that you need at least 30 before you can reasonably expect an analysis based upon the normal distribution (i.e. z test) to be valid. That is it represents a threshold above which the sample size is no longer considered “small 
  2. Many researchers consider 30 the minimum number of samples to conduct a test. When we performed our research into S/4HANA Implementations we had more than 30 samples. However, in many cases, these many samples are not available. But in this case, as the SuccessFactors team had access to so many customers, one has to wonder why such a small number of samples was used. SuccessFactors is not like some SAP products where it is difficult to find pleased customers. But the budget available to perform the study cannot be underemphasized. Neither Forrester or SAP have any research orientation. SAP is trying to get marketing collateral at the lowest possible cost, and Forrester wants to make some money. This would have played a role in why so few customers were selected.
  3. The confidence interval is a statistical measurement for how likely it is that a sample is representative of the population from which it is drawn. The confidence interval is a measure of probability.

However, we are getting ahead of ourselves, because statistics can only be applied if the sample is random. If the sample is cherry-picked, then no statistics of any type can be applied. When cherry picked, the probability is 100% that the sample is not representative of the population.

This is sort of the amusing thing about statistics. One can take many courses in statistics, but for most of life and analysis, just the basic statistics are necessary to understand because in most cases people are not even applying basic statistical standards when evaluating information.

Now let us address why this sample is so biased.

What Customers Was SAP Likely to Provide to Forrester?

Right off the bat, as each of these companies was provided to Forrester from SAP to interview, a question of selection bias immediately comes to mind. The first question is “why these six companies?” versus what must be over a thousand customers that SuccessFactors has.

  • Most likely SAP would have provided the six most successful implementations that were convenient for SAP to find and with which they had an excellent relationship.

This is not a random sample; this is an exceptional sample of SAP Success Factors customers. This means that companies that attempted a Success Factors implementation and failed were excluded. Average Success Factor implementations were excluded.

Yet this is nowhere in the disclosure on the first page. Under disclosures, it does say the following:

“The study was commissioned by SAP SuccessFactors and delivered by Forrester Consulting. It is not meant to be used as a competitive analysis.”

There are no other applications included in the study, so it is difficult to see what this paragraph means.

Further, it states.

“Forrester makes no assumptions as to the potential ROI that other organizations will receive.”

Well if the ROI estimate in the study is not usable by those that read the study, what was the point of publishing the study? Moreover, the disclosure is right, because the sample has been intensively cherry picked, the ROI is not usable — and that is if the math were right, which will be explained later in the article, it isn’t. And finally, when SAP publicized the study, they contradict Forrester’s disclosure. They clearly gave readers the impression that the study is reflective of a..

“a typical organization”

Now let us review how Forrester calculated (or represented the calculations from customers) the financial benefits of the SuccessFactors implementation.

The Financial Benefits Estimates

The estimates of financial benefits are broken into the following categories.

  • Employee Central And Payroll Benefits: Calculation Table is based upon an internal staff cost of $90,000 fully loaded.
  • Recruiting And Onboarding Benefits: Calculation Table is based upon an hourly cost of internal recruiting staff of $40 per hour.
  • Recruiting And Onboarding Benefits: Calculation Table is based upon an hourly cost of internal recruiting staff of $40 per hour.
  • Performance, Goals, And Compensation Benefits: Calculation Table is based upon an hourly cost of internal recruiting staff of $40 per hour and the cost of managers at $55 per hour.
  • Learning, Succession, And Development Benefits: Calculation Table is based upon a fully loaded cost of internal labor of $90,000 per year.

The savings in the study came from the reduction in labor costs.

These aren’t estimates; they are what the companies said happened. If this is true, then each of these companies would have had to have eliminated HR positions. One commentary might be that the positions were not eliminated, but they were merely “reallocated to other parts of the company.” Companies sometimes write things like this as they don’t like it having it pointed out that cost savings often result in resources being fired. But what if all of the HR employees can’t be fired? Well, that would impact the ROI.

The Implementation Costs

The implementation average for the seven sample companies is stated as $265,000 for consulting and $60,000 for internal resources over a three year period.

The problem here is there is no way this is true.

Jarret Pazahanick, a SAP and SuccessFactors consultant who has done 50 SAP and SuccessFactors implementations estimated that both the internal cost and the consulting cost would have been “5-10-15X.” This is modified to be 5x for the internal resources, and between 12x to 15x for the consulting resources. Jarret’s estimate is far higher in credibility than any estimate from SAP because Jarret is not being paid by SAP and is not trying to sell SuccessFactors, but works as an independent consultant. I face the same issue. As a long time SAP consultant, my estimates are always longer and more expensive than those produced by people with a vested interest in selling software. When I made these estimates, salespeople who had never worked on an SAP project would tell me they were confident my estimates were too long, and that they would interfere with the sale.

Jarret went on to state the following in a LinkedIn comment.

“It is SO beyond the realm of what a real implementation of SuccessFactors really take it is mind boggling. The backchannels are already start to buzz of upset partners and customers wondering why their implementations and quotes are so much more that what SuccessFactors provided Forrester as what the cost would be to get that great ROI (Obviously all made up).”

If the middle figure is taken from Jarret’s estimate, we end up 5x for the internal resources and let us take a midpoint of between 12x and 15x for the consulting resources. This is 13.5x. 13x of 265,000 is $3,577,500 for consulting. 5x of 60,000 is 300,000.

If we redo the ROI using these estimates, we end up with the following.

The Overall ROI

Now we can contrast this with Forrester’s analysis of the ROI.

“Based on Forrester’s experience, the six-month payback period and 112% ROI numbers are strong when compared to other enterprise cloud implementations. In addition, the interviewed customers that migrated from SAP HCM on-premises software to the SAP SuccessFactors cloud solution had better benefit results.”

So we calculate 31.34% ROI. Even that would be a very high ROI for any IT implementation. However, the sample is cherry-picked so that ROI is meaningless. Furthermore, there are several problematic features of the benefits estimation.

  • There is no independent verification being performed by Forrester. Forrester asked the customers themselves to perform the estimates.
  • Customers have a bias to estimate their benefits higher and their costs lower as those that are queried were often part of the software selection. Therefore the responses they provide are a way of congratulating themselves on their decision-making skills.
  • Customers in my experience don’t typically know these things. This is because they are more focused on keeping fewer employees capable of performing any type of research or estimation. Now, there is nothing to stop companies from hiring these skills. However, they usually don’t as they don’t see them as pertinent for their objectives.

Therefore, even among the cherry-picked sample, the estimates are most likely extremely unreliable. As we just analyzed, the estimates of the internal and external costs are off by order of magnitude of somewhere around 10x, and the costs are the easiest areas to estimate! This is because you have receipts for what you paid for something. The problem is that Forrester received the consulting costs from SuccessFactors, and would not themselves know the cost of a SuccessFactors implementation.

Benefits are far more tricky to estimate. This is why at Brightwork Research & Analysis, we have online TCO calculators. Unlike Forrester, no one paid for these calculators to be produced, so they show a far higher TCO than any of the vendors would like to see published.

However, we did not attempt to estimate the ROI of the 53 different applications we estimated. By way of example, review our analysis of the problems faced with calculating lost sales and forecast error costs to gain an appreciation for the difficulty of estimating benefits from software implementations.

Curious Questions

Secondly, how did all seven companies end up measuring the benefits in the exact same way (that is with labor savings)? The answer is that there is no way they did. This means that the companies reported back on a survey to Forrester. That is Forrester setup the construct of the cost savings, and the cherry-picked customers responded to the survey. This increases the “fishiness” of the study because it means that even less thought was put into the estimates. For example, did every one of the customers agree with the benefit calculation approach? That would be odd if that were the case.

Conclusion

The study is interesting in that it illuminates Forrester’s process. However, the output of the study is not useful for anything for those seeking to evaluate if SuccessFactors is a good investment. SAP paid Forrester to produce a study showing that SF has a very high ROI. And Forrester produced the study that said what SAP wanted it to say. Observe how SAP marketing explained the study.

“SAP SE (NYSE: SAP) today announced the results of Forrester Consulting’s “Total Economic Impact™ of SAP SuccessFactors HCM Suite” study,* which found that a typical organization** that invests in the SAP SuccessFactors HCM Suite could realize potentially $11 million in total quantified benefits over a three-year period.”

Is that what the study found? No.

Also, are seven companies selected by SAP reflective of a typical SF implementation? That is as close as one can come to saying that the study was reflective of what a typical company should expect, which is the opposite of what the disclaimer on the Forrester study states. SAP has a history of misrepresenting the findings of a study they pay to have performed. SAP has no consideration for the reputation of the entities they buy research from. Their perspective is the same as the one they apply to customers, which is to extract the most from every possible transaction.

Also, notice the endorsement from the President of SuccessFactors.

“In our view, Forrester’s holistic study shows that SAP SuccessFactors solutions can drive not only better employee experiences but also significant cost savings,” said SAP SuccessFactors President Greg Tomb. “We are proud to be helping businesses better understand and serve their employees while simultaneously streamlining business processes and reaping significant cost benefits.”

Greg, from his history at Accenture and at SuccessFactors, would have known immediately upon reading the study that it was erroneous, but he says nothing but positive things.

Something else sort of incredible is that Forrester declares in the disclosure that they retained “full editorial control.” This seems to imply that SAP had no control over the content produced. Let us say for the sake of argument that the study was performed and the result was that SuccessFactors had a negative ROI. Would that study have been published? If a study can only find a positive outcome, then it is not a study. It is a marketing document. SAP could have produced the same “study” themselves, but they knew no one would buy the conclusions. So they hired Forrester to rig a study for them.

There is no way out of this, a report like that can’t get released in error. There are a bunch of different people working on it. And they can’t say “it got messed up when sent to the printer.” If you need “quality assurance” what is going on over there. I perform that type of research. And while I have typos, you don’t end up with a crazy number like that, because you would see it and correct it.

But what is funny is that while they manufactured the numbers to get the high ROI, the consequence is the implementation cost was ridiculous. So now partners are like

“Hey we are charging way way more than that, and our clients are going to come back on us!”

That is what happens when you are dishonest and backward engineer numbers. SAP is probably not happy either. SAP wants a rigged analysis, but they want one that looks credible. Forrester did this with their HANA analysis years ago which we covered in the article How Accurate Was Forrester on HANA TCO?. But it went under the radar.

Accuracy Rating

The study receives a 1 out of 10 for accuracy. This is not research; it is a backward engineering study to support a conclusion that was agreed to by Forrester and SAP.

Our observation is that it is impossible to take money from vendors and produce a good outcome. Vendors sometimes reach out to Brightwork Research & Analysis do some type of report. I have yet to meet a vendor who cared about research. What the want is a report that shows them as “The Best!” That is why Brightwork Research & Analysis does not take income from vendors to produce content. It always ends up with the same thing, which is an inaccurate outcome and marketing masquerading as research.

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 SAP Content

SAP Contact Form

  • Interested in Our SAP Research?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch.

References

*https://news.sap.com/2018/10/organizations-save-millions-sap-successfactors-solutions/

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

https://www.researchgate.net/post/What_is_the_rationale_behind_the_magic_number_30_in_statistics

https://sphweb.bumc.bu.edu/otlt/MPH-Modules/BS/BS704_Probability/BS704_Probability12.html

Enterprise Software Risk Book

Software RiskRethinking Enterprise Software Risk: Controlling the Main Risk Factors on IT Projects

Rethinking Enterprise Software Risk: Controlling the Main Risk Factors on IT Projects

Better Managing Software Risk

The software implementation is risky business and success is not a certainty. But you can reduce risk with the strategies in this book. Undertaking software selection and implementation without approximating the project’s risk is a poor way to make decisions about either projects or software. But that’s the way many companies do business, even though 50 percent of IT implementations are deemed failures.

Finding What Works and What Doesn’t

In this book, you will review the strategies commonly used by most companies for mitigating software project risk–and learn why these plans don’t work–and then acquire practical and realistic strategies that will help you to maximize success on your software implementation.

Chapters

Chapter 1: Introduction
Chapter 2: Enterprise Software Risk Management
Chapter 3: The Basics of Enterprise Software Risk Management
Chapter 4: Understanding the Enterprise Software Market
Chapter 5: Software Sell-ability versus Implementability
Chapter 6: Selecting the Right IT Consultant
Chapter 7: How to Use the Reports of Analysts Like Gartner
Chapter 8: How to Interpret Vendor-Provided Information to Reduce Project Risk
Chapter 9: Evaluating Implementation Preparedness
Chapter 10: Using TCO for Decision Making
Chapter 11: The Software Decisions’ Risk Component Model

How to Understand the Scope of SAP’s Sprawl

Executive Summary

  • SAP was initially sold on reducing sprawl, however, SAP now has enormous sprawl in every dimension.
  • This topic is rarely discussed among SAP resources.
  • The impact of this sprawl is a very high cost and lack of sustainability.

Introduction to SAP’s Sprawl

SAP began as a company that offered an ERP system, but its financial success led it to sprawl into an unmanagable company. In this article, we will cover the issues with SAP’s sprawl.

SAP to Replace Sprawl

One of the arguments used to sell SAP ERP was that it would eliminate the sprawl of mostly homegrown systems within companies. SAP sales reps often told customers that if they purchased SAP, it would be the only system they would ever need. This type of thinking is illuminated in the following quote from the book SAP Nation 2.0.

“SAP’s runaway success in the 90s came about because its R/3 product dramatically reduced enterprise sprawl. As Paul Melchiorre one of its most successful salespeople had noted in SAP Nation: “It was a truly transformation time for the technology industry. We replaced thousands of departmental and mainframe systems. We put MSA, M&D, and others out of business. We didn’t really have much competition. In deals it would be SAP v. SAP v. SAP — that is, SAP/Accenture, v. SAP/KPMG v. SAP/PwC.””

This quote came from a salesperson (so should be viewed with skepticism), but looking at SAP’s product list what does one see but sprawl? Seen this way it is apparent that SAP had no interest in reducing sprawl, but wanted to replace their customer’s “legacy” sprawl with SAP product sprawl.

But did SAP, in fact, reduce sprawl?

“According to Panaya, a tool vendor,”More than 50% of SAP shops have 40+ satellite applications. Of these less than 10 are SAP applications.“”

It certainly does not appear so.

SAP’s Current Sprawl

This sprawl is further explained by the following quotation also from SAP Nation 2.0.

“Broadly, Rogow is pointing out that we do not have many independent thinkers in IT, especially considering how complex IT has become. The challenge is particularly acute in the SAP Universe with its fragmentation and sprawl. Many consulting and customer staff have spent their entire careers on SAP projects — in particular on older SAP products. They to the same SAP events year after year and repeat what SAP shows them.”

“At SAPPHIRE NOW, in May 2015, SAP Digital announced a new set of products including a CRM solution at $29 per user per month. SAP Claims to now have 17 million Jam users and 2,000 HANA start ups. The executives responsible for such SAP initiatives proudly brag about them, even though they contribute merely 1 to 2 percent of SAP revenues and they keep adding to the sprawl.”

Conclusion

The only people who say that SAP reduced sprawl are those that either work in sales or SAP project management. Right after SAP sold their ERP system on the basis of reducing sprawl, it was found that SAP’s claims regarding sprawl reduction were false, and SAP began aggressively increasingly sprawl, as it desired to sell ever more products into companies. This undermined the entire argument of the initial ERP sale, that the ERP system was the only system that any customer would ever need.

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 SAP Content

SAP Contact Form

  • Interested in Our SAP Research?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch.

References

*https://www.amazon.com/SAP-Nation-2-0-empire-disarray-ebook/dp/B013F5BKJQ

The Real Story on ERP

ERPThe Real Story Behind ERP: Separating Fiction From Reality

How This Book is Structured

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

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

Break the Bank for ERP?

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

By reading this book you will:

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

Chapters

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

SAP Nation 2.0 on the Overall SAP Ecosystem Annual Spend

Executive Summary

  • In the book SAP Nation 2.0 Vinnie Mirchandani estimated the total annual spend in the overall SAP ecosystem.
  • Who supported Vinnie in his quest to perform this estimation?

Introduction

In our TCO calculators which are available for free online, SAP routinely ranks as the highest TCO software. SAP also has the largest consulting partner network with roughly 12,500 consulting firms that focus on SAP. The reason? Because SAP consulting is the most lucrative type of consulting. None of these consulting firms select to focus on SAP for any other reason than it provides the highest profitability. This profitability is good for SAP consulting firms, but bad for customers. However, what is the overall global picture of spending on SAP?

In this article, we will review the global estimate of the SAP spend by SAP customers.

The Estimate from SAP Nation 2.0

In the book SAP Nation 2.0, Vinnie Mirchandani created the only estimate I am aware of as to the total yearly spend on SAP. I have reformatted the table from SAP Nation 2.0 with changes in formatting to make it more readable and added a percentage per cost category. The cost categories are the following.

The total comes to over $309 billion, and the book was published in 2016, which means as of this article’s publication (in 2018) the spend is of course higher. 

How High is this Global Spend?

Numbers this high are difficult to interpret without some frame of reference. In SAP Nation 2.0, Vinnie compares this GDP to that of Ireland. And we include several other countries in the following graphic with similar GDPs.

Ireland’s GDP supports around 5 million people. Norway’s 370 billion USD support around 5 million people.

SAP’s Small Percentage of the Overall Spend

What is illuminating is that SAP’s revenues are only roughly 8% of the total SAP spend. This is quite low, but it also highlights the fact that the cost of purchasing software licenses and support from the vendor is always a small fraction of the overall spend or TCO of any application. SAP’s overall spend it particularly exaggerated because SAP projects are nearly always implemented by SAP partners, and SAP projects are the most expensive in the industry.

Who Supported Vinnie in His Quest?

For his book, Vinnie reached out to the top analyst firms to get their views on the size of the spend. Curiously, these analysts did not seem very interested in supporting Vinnie’s efforts in estimation.

“Firms like Forrester, Gartner and IDC often 10-40 analysts who cover different aspects of a large technology vendor like SAP, but they do not often employ integrative models. I had to reach out to several analysts to help validate small segments of my model of the SAP economy. Other market analysts were more defensive. One question why I was even modeling the SAP economy when I am “not a full time analyst.” Another declined saying it is a “sensitive topic.” Customers should expect analysts to take more of the customer perspective as they cover SAP and the ERP marketplace and to better weaver the research their silos.”

All of these analyst firms receive large amounts of money from SAP. Therefore, as SAP is their client, any analysis which investigates the spend of their client, which may open up the ecosystem to criticism is declared a “sensitive topic.” That is sensitive to their bottom line! This is in line with what we covered in depth in the book Gartner and the Magic Quadrant, that Gartner is not a true research entity but rather a faux research entity that sells faux research to companies that don’t know what research is.

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 SAP Content

SAP Contact Form

  • Interested in Our SAP Research?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch.

References

*https://www.amazon.com/SAP-Nation-2-0-empire-disarray-ebook/dp/B013F5BKJQ

TCO Book

TCO3

Enterprise Software TCO: Calculating and Using Total Cost of Ownership for Decision Making

Getting to the Detail of TCO

One aspect of making a software purchasing decision is to compare the Total Cost of Ownership, or TCO, of the applications under consideration: what will the software cost you over its lifespan? But most companies don’t understand what dollar amounts to include in the TCO analysis or where to source these figures, or, if using TCO studies produced by consulting and IT analyst firms, how the TCO amounts were calculated and how to compare TCO across applications.

The Mechanics of TCO

Not only will this book help you appreciate the mechanics of TCO, but you will also gain insight as to the importance of TCO and understand how to strip away the biases and outside influences to make a real TCO comparison between applications.
By reading this book you will:
  • Understand why you need to look at TCO and not just ROI when making your purchasing decision.
  • Discover how an application, which at first glance may seem inexpensive when compared to its competition, could end up being more costly in the long run.
  • Gain an in-depth understanding of the cost, categories to include in an accurate and complete TCO analysis.
  • Learn why ERP systems are not a significant investment, based on their TCO.
  • Find out how to recognize and avoid superficial, incomplete or incorrect TCO analyses that could negatively impact your software purchase decision.
  • Appreciate the importance and cost-effectiveness of a TCO audit.
  • Learn how SCM Focus can provide you with unbiased and well-researched TCO analyses to assist you in your software selection.
Chapters
  • Chapter 1:  Introduction
  • Chapter 2:  The Basics of TCO
  • Chapter 3:  The State of Enterprise TCO
  • Chapter 4:  ERP: The Multi-Billion Dollar TCO Analysis Failure
  • Chapter 5:  The TCO Method Used by Software Decisions
  • Chapter 6:  Using TCO for Better Decision Making

How to Best Understand SAP TCO Claims

Executive Summary

  • SAP makes exaggerated TCO claims without providing evidence.
  •  We cover how SAP presents its TCO story.

Introduction

TCO or total cost of ownership is the total cost of owning and operating an application.

TCO means making a model that accounts for the different cost categories. I have written the only book on enterprise software TCO. Many software vendors propose TCO, but when you review their models, they leave many costs out. In my view, software vendors cannot help customers come to a TCO because they have a conflict of interest on this topic.

I have written the only book on enterprise software TCO and performed thorough research on the topic. My conclusion is that most of the entities that talk about TCO, like software vendors and consulting companies don’t want their customers to know the TCO. In fact, while many software vendors propose TCO, when you review their models they leave many costs out.

In my book Enterprise Software TCO, I break the costs of enterprise software into:

  • Acquisition Costs
  • Implementation Costs
  • Hardware Costs
  • Maintenance Costs

SAP’s Presentation on TCO

SAP’s presentation on SAP TCO is very straightforward. According to SAP pretty much any new product they introduce reduces SAP TCO over the previous product that it replaces. SAP never presents any evidence for lowered SAP TCO, but of all the vendors in enterprise software, they talk about it the most. Which is interesting, because SAP is not known for having a low TCO. In fact, a primary reason why Deloitte, Accenture, IBM and others recommend SAP, even when the particular application in question does not meet the requirements of their customer very well is that they can make more money on SAP implementations than any other software. Now they always have some excuse for doing this (it is important to stick with SAP, integration costs will be lower, SAP’s functionality is weak now but it is growing), but regardless of the reason they give, they big consulting companies always prefer implementing SAP over all other alternatives. But if you won’t implement SAP they also have an Oracle practice. But if you don’t want to implement SAP or Oracle, you will generally hear that your purchase is not to their taste.

SAP applications are complicated and high in maintenance overhead, and this maximizes billing hours for the consulting companies. Consulting companies have a conflict of interest when it comes to TCO. They want their customers to buy applications that have the highest amount of implementation costs because those costs are revenues for the consulting companies.

I have spent a lot of time developing TCO calculators. However, whenever I do something in SAP, it is always far more difficult to do that “thing” than in any other application. As implementation and maintenance are by far the highest costs of enterprise software, it is hard to see how this does not directly translate to a higher TCO.

The Illusion of Lower SAP TCO

SAP receives benefits from continually talking about lowering TCO but never actually doing so. In fact, the TCO of SAP applications has been steadily rising as SAP moved into software categories where it brought uncompetitive products. This includes business intelligence, advanced planning, MDM, CRM, etc. The TCO of a failed application, that is an application that either barely goes

The TCO of a failed application, that is an application that either barely goes live (and is little used) or is never brought live is the highest of all. SAP could have lowered the TCO of its customers by not releasing any of these applications, but they preferred the extra revenues. SAP could have made its existing applications easier to integrate to, thus lowering their customer’s TCO, but SAP preferred to use the difficulty in integration to push their customers to buy more “pre-integrated” SAP products. Time and again, when SAP has had the option of lowering their customers TCO or maximizing their revenues,

  • Now, SAP could have lowered the TCO of its customers by not releasing any of these applications and focusing on their core product, but they preferred the extra revenues of diversifying into things that they weren’t any good at, and then using the integration back to the SAP ERP system to push out vendors that had superior applications.
  • SAP could have made its existing applications easier to integrate to, thus lowering their customer’s TCO, but SAP preferred to use the difficulty in integration to push their customers to buy more “pre-integrated” SAP products. Time and again, when SAP has had the option of lowering their customers TCO or maximizing their revenues, SAP has chosen the latter.

It is difficult to imagine any software vendor that has as many either failed implementations or implementations that are live but barely used than SAP. This is because SAP has the most difficult to implement applications in the enterprise software space. I say this as a SAP consultant who has worked on projects since 1997. Software companies do not publish their failures, so there is no way of knowing the actual failure rate of the different software vendors. So for those asking for data, it needs to be acknowledged that it is not available. But I write this based

This is because SAP has the most difficult to implement applications in the enterprise software space. I say this as a SAP consultant who has worked on projects since 1997. Software companies do not publish their failures, so there is no way of knowing the actual failure rate of the different software vendors. So for those asking for data, it needs to be acknowledged that it is not available. But I write this based upon seeing many SAP accounts over many years.

Conclusion

SAP customers should view claims by SAP regarding SAP TCO with great skepticism. The only report I am aware of that SAP has that is related to TCO was where SAP funded Forrester to provide a forecast of the SAP TCO of HANA. This report is so filled with errors and rosy projections and is not based on any actual projects that it qualifies as nothing more than marketing material.

To reasonably discuss SAP TCO, one must set up an agreed upon method on SAP TCO and the entity that performs the TCO calculation must be unbiased. SAP, or any other software vendor, or a consulting company that makes its money by implementing that particular software does not qualify.

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 SAP Content

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  • Interested in Our SAP Research?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch.

References

TCO Book

TCO3

Enterprise Software TCO: Calculating and Using Total Cost of Ownership for Decision Making

Getting to the Detail of TCO

One aspect of making a software purchasing decision is to compare the Total Cost of Ownership, or TCO, of the applications under consideration: what will the software cost you over its lifespan? But most companies don’t understand what dollar amounts to include in the TCO analysis or where to source these figures, or, if using TCO studies produced by consulting and IT analyst firms, how the TCO amounts were calculated and how to compare TCO across applications.

The Mechanics of TCO

Not only will this book help you appreciate the mechanics of TCO, but you will also gain insight as to the importance of TCO and understand how to strip away the biases and outside influences to make a real TCO comparison between applications.
By reading this book you will:
  • Understand why you need to look at TCO and not just ROI when making your purchasing decision.
  • Discover how an application, which at first glance may seem inexpensive when compared to its competition, could end up being more costly in the long run.
  • Gain an in-depth understanding of the cost, categories to include in an accurate and complete TCO analysis.
  • Learn why ERP systems are not a significant investment, based on their TCO.
  • Find out how to recognize and avoid superficial, incomplete or incorrect TCO analyses that could negatively impact your software purchase decision.
  • Appreciate the importance and cost-effectiveness of a TCO audit.
  • Learn how SCM Focus can provide you with unbiased and well-researched TCO analyses to assist you in your software selection.
Chapters
  • Chapter 1:  Introduction
  • Chapter 2:  The Basics of TCO
  • Chapter 3:  The State of Enterprise TCO
  • Chapter 4:  ERP: The Multi-Billion Dollar TCO Analysis Failure
  • Chapter 5:  The TCO Method Used by Software Decisions
  • Chapter 6:  Using TCO for Better Decision Making

How to Best Understand SAP Licensing Costs and Contract Complexity

Executive Summary

  • The pricing of SAP or price of SAP is kept secret.
  • SAP provides complex discounts which make it impossible to specifically know the price of SAP software.

Introduction

SAP pricing is a mysterious topic that is hidden from public view, making purchasing from SAP a convoluted process. You will learn important details of how SAP manages pricing that you can use in negotiations with SAP.

Facts About the SAP Price List

SAP follows the on-premises model of keeping its pricing secret. In fact, when reviewing SAP’s price list, it states that the price list is public and cannot be published.

Right on the first tab of the SAP price list, it states the following:

“All rights reserved. The contents of this work are confidential and proprietary information of SAP AG. Improper and/or unauthorized reproduction in whole or in part of the information contained in this work is a violation of SAP’s proprietary rights and could cause irreparable damage. No part of this work may be reproduced or copied in whole or in part in any form or by any means (including without limitation graphic, electronic, or mechanical, including photocopying, recording, taping or information storage and retrieval systems) without the prior written permission of the publisher.”

That is false. SAP is selling a public product. Therefore the price and the pricing list cannot be protected in that manner.

The SAP Software Cost

The cost of SAP should never be confused with the price of SAP software.

The cost of SAP gets into the topic of TCO or total cost of ownership. When people say the cost of SAP, they don’t necessarily mean the TCO, but they may. TCO means making a model that accounts for the different cost categories. I have written the only book on enterprise software TCO. Many software vendors propose TCO, but when you review their models, they demure.

TCO means making a model that accounts for the different cost categories. I have written the only book on enterprise software TCO. Many software vendors propose TCO, but when you review their models, they leave many costs out. In my view, software vendors cannot help customers come to a TCO because they have a conflict of interest on this topic.

I have written the only book on enterprise software TCO and performed thorough research on the topic. My conclusion is that most of the entities that talk about TCO, like software vendors and consulting companies don’t want their customers to know the TCO. In fact, while many software vendors propose TCO, when you review their models they leave many costs out.

In my book Enterprise Software TCO, I break the costs of enterprise software into:

  • Acquisition Costs
  • Implementation Costs
  • Hardware Costs
  • Maintenance Costs

The Price of SAP and Pricing SAP

SAP is priced in some different ways, and the price of course changes depending upon the specific application, and the number of different ways that SAP can be priced is surprising to most customers.

The different ways the price of SAP or pricing SAP can be arrived at include the following:

  • By User
  • By Revenue and Expenses
  • By Revenues
  • By Flat Fee
  • By Weights: (For things like commodity and agricultural products)
  • By Orders: (For things like sales orders)
  • By Contracts: (For things like CRM Marketing)
  • By Cores: (For things like SAP Hybris)
  • By Transactions: (Also SAP Hybris)
  • By Employees: (For SAP HR solutions)
  • By Cost of Goods Sold: (For SAP Collaboration SNC)
  • By Freight Spend: (For SAP TM)
  • By Plant: (For SAP Manufacturing Integration)
  • By Resources: (For SAP Manufacturing Scheduling)
  • By Rental Unit: (For SAP Real Estate Management)
  • By Spend Value: (For SAP Supplier Management & Ariba)
  • By Product: (SAP Vehicle Management for Auto)
  • By Outpatient Days: (SAP Patient Management for HC)
  • By Business Partners: (SAP Tax, Benefits and Payment Processing for Public Sector)
  • By Points of Delivery: (SAP Energy Data Management for Energy Utilities)
  • By Learners (SAP Enterprise Learning Environment)
  • By Concurrent Sessions (SAP BusObjects Knowl Acc Bundle f BI Suite (CS))
  • By Virtual Users: (SAP LoadRunner by HP, 100 VU bundle)
  • By Connected Systems: (ProductivityPak adapter for SAP Solution Manager)
  • By GB of Memory (SAP IT Operations Analytics or SAP Predictive Analytics Suite for Full Use HANA)
  • By HSVA: (SAP HANA, Runtime edition for Applications & SAP BW – Install Base)
  • By Recipients: (SAP NetWeaver BeXBroadcaster)
  • By LVM Instances (SAP NetWeaver Landscape Virtualization Mgmt enterprise)
  • By Annual Subscriptions (United States National Directory (1 server))

And that is not the comprehensive list. However, it should also be recognized that many of SAP’s applications are not widely sold. Therefore the pricing SAP the way that is shown above is often rarely applied.

Pricing SAP can be determined (before discount) by estimating the number of “things” that the pricing is based upon. And that by itself can be challenging.

SAP Licensing Cost

SAP licensing cost and refer to the price of the SAP license, which is the right to use SAP software. The SAP licensing cost is simply the more technical terms for the price of SAP. The SAP licensing cost is stated in the software contract, and it is defined by the end user licensing agreement.

The SAP Price List and the SAP Software Cost

The SAP price list is not so much a list — as in an SAP price list printed out as a Word document as it is a spreadsheet which provides the SAP software cost under different conditions. The actual SAP price list (spreadsheet) is quite limited, and the people at SAP did a rather poor job of automating it. SAP also offers an interactive price to determine the SAP software cost, but it also has limitations.

The SAP price list is restricted to SAP account executives and salespeople at SAP partners. However, it is a good idea to verify the SAP software cost provided by SAP or an SAP partner with a third party.

Negotiation on SAP Software Cost

The final piece of the sap price puzzle is the discount. The discount applies to all SAP products, except for a few. The discount applied to a price is its subject area, and also differs by region and many other factors.

How to Understand The Rising Complexity of SAP Contracts

SAP talks a lot about simplification, but SAP’s contracts are becoming more complex and more limiting regarding what customers can do with SAP’s software. In this article, we will get into this little topic for which there is so little published information.

Example of the Cloud Connector

SAP has the following to say about its Cloud Connector.

An analysis by a commenter stated the following:

It is supported to run S/4 HANA on AWS as IaaS provider, the same for SCP (fka HCP). But it really seems not wanted to use more from AWS than the virtual OS. You even have to solve basics like connectivity yourself when you leave the SAP world. “Must not” – a license restriction?

Publicly Supporting Open Connections, While In Reality Offering Control?

Once again, SAP restricts the usage of its products to other SAP products. This is done even after SAP proposing that it is in favor of open standards. It should be remembered that middleware companies never limit the usage of their adapters. However, SAP does.

This type of language is littered all through SAP’s contract documentation. It is an orientation to control things, so they maximally benefit SAP. So that SAP controls how the software is used. This is a growing problem and liability with using SAP. Actually, by upgrading to newer versions of SAP, the customer ends up with more restrictions than in older versions, so the restrictions are being ratcheted up.

Control and the Cloud

SAP talks a good game about partnering with Azure, but the control they want to be combined with public IaaS like Azure or AWS means things get super weird. You are making me think about another article Rolf! That is the second time in a week!

Recently I spent time trying to figure out what a contract restriction means or S/4HANA with the person at an SAP customer.

The SAP account executive has no idea what the clause means. It actually took them three weeks to come back with a clarification that did not seem to clarify anything.

Conclusion

SAP pricing is quite complex. Brightwork Research & Analysis, we perform SAP pricing for quite reasonable rates. We have access to all SAP pricing information as well as access to discount information.

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 SAP Content

SAP Contact Form

  • Interested in Our SAP Research?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch.

References

TCO Book

TCO3

Enterprise Software TCO: Calculating and Using Total Cost of Ownership for Decision Making

Getting to the Detail of TCO

One aspect of making a software purchasing decision is to compare the Total Cost of Ownership, or TCO, of the applications under consideration: what will the software cost you over its lifespan? But most companies don’t understand what dollar amounts to include in the TCO analysis or where to source these figures, or, if using TCO studies produced by consulting and IT analyst firms, how the TCO amounts were calculated and how to compare TCO across applications.

The Mechanics of TCO

Not only will this book help you appreciate the mechanics of TCO, but you will also gain insight as to the importance of TCO and understand how to strip away the biases and outside influences to make a real TCO comparison between applications.
By reading this book you will:
  • Understand why you need to look at TCO and not just ROI when making your purchasing decision.
  • Discover how an application, which at first glance may seem inexpensive when compared to its competition, could end up being more costly in the long run.
  • Gain an in-depth understanding of the cost, categories to include in an accurate and complete TCO analysis.
  • Learn why ERP systems are not a significant investment, based on their TCO.
  • Find out how to recognize and avoid superficial, incomplete or incorrect TCO analyses that could negatively impact your software purchase decision.
  • Appreciate the importance and cost-effectiveness of a TCO audit.
  • Learn how SCM Focus can provide you with unbiased and well-researched TCO analyses to assist you in your software selection.
Chapters
  • Chapter 1:  Introduction
  • Chapter 2:  The Basics of TCO
  • Chapter 3:  The State of Enterprise TCO
  • Chapter 4:  ERP: The Multi-Billion Dollar TCO Analysis Failure
  • Chapter 5:  The TCO Method Used by Software Decisions
  • Chapter 6:  Using TCO for Better Decision Making

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