How To Best Understand SAP as Legacy for SAP Customers

What This Article  Covers

  • How SAP Will Deal With its Customers that do Not Comply
  • Inappropriate Constructs in IT Decision Making for Companies Using SAP
  • How Much do You Know About SAP’s Practices?

Introduction

In a previous article, I laid out why I think that SAP has reached an inflection point in its history and show now be treated by companies as selling legacy systems. For decades now SAP has been seen as a software vendor with a broad suite of applications which are competitive, and that SAP would bring out improvements in functionality that was important to its customers.

This way of viewing SAP, which became increasingly out of sync with the reality of SAP drove everything from SAP software purchases to companies paying what is now 23% in support. Yet, under the construct of SAP as legacy, the question becomes how other software vendors can take advantage of the new phase that SAP is now in.

How SAP Will Deal With its Customers that do Not Comply

If you do not show interest in buying SAP, you will be most likely subject to an audit.

This is described by Ray Wang.

  1. “Open up dormant accounts. After pleasant introductions, new sales reps will use this technique to further deals.  Former sales reps agree this is a shake-down for cash technique.
  2. Drive sales through fear of audits. Audits are used to start the discussion.  Unsuspecting customers who no longer have context about the original contract may fear breach of contract.
  3. Scare customers into making additional purchases. Threats are used to set expectations.  The vendors often waives the issue if the customer buys additional licenses as a “compromise”
  4. Force compliance into new licensing policies. Vendors use this as a way to drive conformity to new license models.  The move from concurrent usage to named users was one example.
  5. Meet territory sales goals. Unscrupulous sales managers suggest this technique to meet their numbers.  Sales reps are told they are defending the vendors license rights.” – Ray Wang, Constellation Research

Inappropriate Constructs in IT Decision Making for Companies Using SAP

Every SAP shop in the world is now following a faulty construct. It is a construct somewhat based upon the past, but which was always exaggerated, and it goes something like this.

SAP is a leading software vendor. We rely upon SAP’s new products to improve our IT capability. SAP’s applications are not always the best, but they connect back to the “mothership,” the ERP system. Therefore, whenever possible we will buy SAP.

This construct has been leading to bad IT software decisions at companies using SAP for over twenty years. The downsides of relying upon this construct are about to get worse. Here is why: 

  1. Post-ERP Applications: SAP’s non-ERP applications have not been value added to companies that implemented them. And we have several decades of data points on this fact.
  2. S/4HANA and HANA: SAPs new ERP system S4 is not compelling and its new database, HANA is not differentiated from the competition.
  3. SAP Support Decline: SAP support has dramatically declined in the past ten years and is now mostly outsourced to the lowest cost countries, pushing the maintenance burden to SAP customers. SAP now expects a 90% margin on the 23% basic support that it charges customers.
  4. Indirect Access and Other Trickery: Lacking the ability to meet Wall Street growth demands, existing SAP investments are increasingly a liability. This is because SAP intends to use its power, size and legal muscle to use indirect access to either receive monies for ERP licenses or arm twist purchases of uncompetitive applications.

This construct that is reinforced by companies using SAP by both the IT department within the company. And the consulting company without. In fact, as the best decision becomes to migrate or diversify away from SAP, the IT department and the IT consulting companies push in the opposite direction from this.

Many IT departments place SAP above the interests of the business of the company they work for. This observation has come from many years of interacting with IT departments at companies using SAP. I have presented to numerous IT organizations over the years the problems with various SAP applications that they purchased, and I am invariably told that.

“The thing is Shaun, we are an SAP shop.”

Therefore, SAP customers should be on notice that your IT department will in most cases lack sufficient independence from SAP to represent the interest of the company they work for, and by the way, that pays their salary. How this was accomplished, at least the full story, is still a mystery to me.

  • The IT Department: The IT department and IT consulting companies had somewhat of a role, will now increasingly serve as a barrier as the reduction in investment from SAP begins.
  • Large IT Consultancies: As for the large IT consulting companies. They have hundreds of thousands of SAP consultants and investments in SAP and revenues from SAP. For a large IT consulting company the only advice they provide is to invest more in SAP implementation. The large IT consultancies have a business model to protect, and it will be protected. These companies are a major liability. Given this environment, what is the value of that advice exactly?

How Much do You Know About SAP’s Practices?

SAP History Quiz

This quiz will test your knowledge of SAP's history as a software vendor.

Our Work With the New SAP Construct

We are one of the few entities that focus on SAP but also tells the truth about SAP. If you want to be provided biased information on SAP there are many choices in the market. We can recommend Deloitte, Accenture, KPMG, E&Y, Infosys, IBM and Gartner among others. However, for unbiased information on SAP, the options narrow considerably.

If you are interested in our advice on how to deal with SAP, and how to manage to diversify away from SAP, reach out to us. We offer a wide variety of advisement all focused around getting a better value from your SAP investment.

References

https://www.constellationr.com/blog-news/insights/sap-wins-major-court-victory-over-indirect-access-customers-should-pay-attention

https://www.computerweekly.com/news/450413224/High-Court-rules-for-SAP-against-Diageo-in-indirect-licensing-case

 

Software Selection Book

SELECTION

Enterprise Software Selection: How to Pinpoint the Perfect Software Solution Using Multiple Information Sources

Mastering Software Selection

Software selection is a form of forecasting, just as any another purchase decision is a forecast of how successfully the purchased item will meet expectations. Forecasting is necessary because it is not feasible to implement each application under consideration before it is purchased to see how it works in the business.

The Importance of Software Selection

Software selection is the most important part of any software implementation because it is the best opportunity to match the software with the business requirements, which is the most important factor in determining the success of the project. This book explains how to get the right information from the right sources to perform software selection correctly.

What You Can Expect from the Book

Essential reading for success in your next software selection and implementation. Software selection is the most important tasks in a software implementation project, as it is your best (if not only) opportunity to make sure that the right software the software that matches the business requirements is being implemented. Choosing the software that is the best fit clears the way for a successful implementation, yet software selection is often fraught with issues, and many companies do not end up with the best software for their needs. However, the process can be greatly simplified by addressing the information sources that influence software selection.

This book is a how-to guide for improving the software selection process and is formulated around the idea that much like purchasing decisions for consumer products the end user and those with the domain expertise must be included. In addition to providing hints for refining the software selection process, this book delves into the often-overlooked topic of how consulting and IT analyst firms influence the purchasing decision and gives the reader an insider’s understanding of the enterprise software market. By reading this book you will:

  • Learn how to apply a scientific approach to the software selection process.
  • Interpret vendor-supplied information to your best advantage.
  • Understand what motivates a software vendor.
  • Learn how the institutional structure and biases of consulting firms affect the advice they give you, and understand how to interpret information from consulting companies correctly.
  • Make vendor demos work to your benefit.
  • Know the right questions to ask on topics such as integration with existing software, cloud versus on-premise vendors, and client references.
  • Differentiate what is important to know about software for improved “implement-ability” versus what the vendor thinks is important for improved “sell-ability.”
  • Better manage your software selection projects to ensure smoother implementations.

Chapters

  • Chapter 1: Introduction to Software Selection
  • Chapter 2: Understanding the Enterprise Software Market
  • Chapter 3: Software Sell-ability versus Implement-ability
  • Chapter 4: How to Use Consulting Advice on Software Selection
  • Chapter 5: How to Use the Reports of Analyst Firms Like Gartner
  • Chapter 6: How to Use Information Provided by Vendors
  • Chapter 7: How to Manage the Software Selection Process
  • Chapter 8: Conclusion
  • Appendix a: How to Use Independent Consultants for Software Selection

How To Best Understand SAP as Legacy for Software Companies

Executive Summary

  • It is increasingly obvious that SAP has a very high maintenance overhead, and that the new products from SAP are worse than SAP’s ERP system.
  • The new concept for getting value from SAP is to use non-SAP applications with non-SAP infrastructures like AWS and Google Cloud.

Introduction to SAP as Legacy

In a previous article titled SAP is Now Strip Mining its Customers, I laid out why I think that SAP has reached an inflection point in its history and should now be treated by companies as selling legacy systems. In short form, the most accurate way of thinking is that SAP is legacy. There is a lot of background that is necessary to cover to understand why I have come to this conclusion, so I won’t retrace the evidence in this article, but please go back to the original article link above if you have not read it.

The Flaw in the Current Interpretation of SAP

For decades now SAP has been seen as a software vendor with a broad suite of applications which are at least somewhat competitive. The concept was that SAP would bring out improvements in functionality that was important to its customers.

This way of viewing SAP, which has become increasingly out of sync with the reality of SAP, drove everything from SAP software purchases to companies paying what is now a minimum 23% in support. Yet, under the construct of SAP as legacy, the question other software vendors have asked me is how they can take advantage of SAP’s new phase. This article is for them.

How Other Software Companies React

For other vendors, you now face a crack in the facade or an opening. Brightwork Research & Analysis is early in this analysis. My article on SAP is Now is Strip Mining its Customers is the first article that presented SAP as legacy, or even associates SAP with being a legacy system or a set of legacy systems.

Almost all the media entities that cover SAP take money from SAP, Therefore, they cannot bring up this point even if they wanted to.

Software Vendors Effectively Following the Wedge

If you are a software vendor reading this, this reality of SAP as legacy does present considerable opportunities.

Yet does your company have the knowledge of SAP to widen that crack?

Let us review two areas to see how software companies that compete with SAP can follow the wedge.

  1. The Software Company’s Understanding of SAP
  2. The SAP Partner Program

The Software Company’s Understanding of SAP

I have spoken to many vendors that compete in my time, and in my view, only a small minority understand how to compete against SAP. Most software vendors are very good at focusing on and presenting their value proposition. But they do so often without any consideration to how the chessboard has already been set by SAP before you get to make your case. SAP sets the chessboard that the other software vendors work on in the following ways:

  • Through Conferences
  • Through SAP Partners
  • Through SAP Marketing Literature
  • Through the Incentives of the IT departments

All of these things are present before these vendors even begin to present their value proposition.

It should be noted that much of the information presented through the mechanisms listed above are false. Yet, they are still effective in shaping the views of the buyers. I can come up with example after example of how SAP stopped competitors by pitting immature products against established and effective applications through promising future growth in what the application could do.

One example of this is in the service parts planning space.

The MCA Solutions Story

Back in 2006 a vendor called MCA Solutions had one of the highest rated applications I had ever tested called SPO. SPO focused on the most difficult problem in supply planning called service parts planning. SPO performed services parts planning using two sets of advanced mathematics called inventory optimization and multi-echelon planning.

  • *I have an article here which provides an overview of this category of software.
  • *See my book on this topic if you have the interest.

SAP developed a partnership with MCA Solutions, and developed an xApp that worked with MCA Solutions. But they eventually dropped MCA as a partner. SAP took a significant amount of knowledge about service parts from MCA and launching their SPP product which was a stand alone application. (For more detail on the xApp program, see the note at the end of this article.)

For years SAP customers were lulled into going with SPP over MCA SPO because it had the SAP name, would integrate better, etc..

So where are we close to 10 years later?

  • MCA Solutions was eventually purchased by Servigistics, which subordinated SPO to their own services parts planning application, and they were in turn, themselves acquired by PTC. I believe SPO has been all but erased from the marketplace.
  • SPP has bombed at every account it has been implemented, wasting enormous amounts of resources. I published on SPP’s implementation problems back in 2010 as you can see in this article. I paid to attend both the one week SPP classes at the SAP in 2008. Yet, when I tested SPP back in 2008 I found numerous areas of the application that simply did not work. The application had a weak design and even if its functionality had worked, it still would not have been a competitive application with MCA SPO. Millions and millions of dollars spent and virtually no improvement to the planning of service parts. More money has been spent to keep SPP applications on life support so that the company can cover up the fact that the application does not work and to protect themselves from the political consequences of being seen as responsible for the error.
  • I currently categorize SPP as one of SAP’s dead applications. At a recent client, SPP was introduced as a potential solution by a member of the client’s IT department with extremely low standards of evidence. He showed me a PPT with around 10 customer “references.” I was able to recognize at least 5 of the 10 references that had already failed with SPP. I was able to find out the real story on 2 of the others on the list, and it turned out they had implemented SPP, but few people were using it. I was not able to verify the other three.

The MCA Application

The end result is that one of the best applications I have ever tested in MCA lost market share to one of the worst I have ever tested in SPP. And here is an important point for vendors that compete with SAP to consider.

SAP never demonstrated any competence with SPP.

They future sold gullible clients who decided to not do the basic research into the application that I did do.

For competing vendors, you cannot rely upon prospects to do their research on SAP’s products or on the overall usage of the SAP products in the marketplace.

SAP’s Problematic or Dead Applications

I have already listed SAP’s dead or problematic applications in the strip mining article. But as a software vendor, you have to raise the issue of the overall success (or lack of success) of the SAP application. This is because most SAP customers tend to assume that other customers are having success with the application, and they just did not have success because of an implementation failing, poorly trained users, etc.. I am amazed how often I go to clients and they tell me they would like me to fix an issue that is actually a well-known software bug, but which SAP support has hidden from them. There are SAP customers that are repeatedly attempting to bring functionality online that I have already tested and have determined should not be activated and it is not useful.

  • Dynamic Safety Stock (called Enhanced Safety Stock by SAP): SAP’s dynamic safety stock is one example of this.
  • Deployment Optimizer: Companies are still trying to use SAP’s deployment optimizer in SNP (it is a procedure that moves inventory through the supply network) and paying SAP above the standard 23% support to try to get benefit out of it. I have already tested and published on being unable to produce logical and useful output under any circumstances.
  • Best Fit Procedure in SAP DP: The best fit procedure, where a forecast system selects the appropriate statistical forecasting model is not reliable enough in SAP DP to use in a production environment. Yet consulting companies continue to bill clients for using and tuning problematic functionality that can be accessed far more robustly outside of SAP, with the results ported back to SAP DP.

This is how bad the information sharing is on issues is in the SAP space.

The Problem with SAP’s Flexibility

SAP systems greatly reduce the flexibility of their customers. With indirect access, SAP can control which applications are connected to SAP applications. This dawning awareness of SAP’s inflexibility is highlighted in the following quote from the book SAP Nation 2.0.

“When ERP was in its heyday, CEOs and business executives wanted reliable and integrated solutions, so they seized upon ERP as the way to provide….Business stakeholders still want these same qualities, but now they assume that these qualities will be present in any software solution, and their requirements have switched to the twin concerns of lowering IT costs and seeking increased flexibility. A system that is not sufficiently flexible to meet changing business demands is an anchor, not a sail, holding the business back, not driving it forward.”

How the SAP Partner Program Censors Partners and Reduced Competition

A major part of SAP’s success, probably the most important part, in fact, is its partner network. There are over 10,000 SAP partners. SAP will partner with just about anyone.

Software vendors that are part of the SAP partner program are themselves guilty of promoting partnerships with SAP as being far more significant than it is in terms of how it benefits customers. Here are the most important characteristics of the SAP partnership program.

  • The SAP partner program is a primary way that SAP reduces the competition that it faces in the marketplace. The SAP partnership program is never mentioned in the same sentence as competition limiting, but the way that SAP uses it, it certainly qualifies. There are too many dimensions to discuss to fit in this article, as SAP’s partnership program is really its own detailed subject. But a lot of underhanded things happen in the SAP partnership program. The partnership program also changes for small market countries, and it differs based upon the size of the software vendor, and along many other dimensions.
  • The SAP partner program is how SAP controls the marketing output of companies that compete against it. Software vendors start off thinking that they will benefit from the agreement, and before they know it, they are being played like a piano by SAP.

SAP’s Leverage Over SAP Partners

SAP has considerable leverage over SAP partners, as the partners often need or believe they need their certification or partnership credentials to sell into SAP accounts.

  • In most cases, the actual certifications are falsified. It is common for a single field to be sent across to SAP and for that to essentially certify the software company.
  • SAP puts extremely little effort into testing the technical validity of a certification, say of an adapter.
  • Simply put, SAP certification is much more about marketing hoopla than engineering.

There are a variety of SAP certification logos that companies that have “become certified” can place on their websites.

This certification can be found on the websites of many software vendors. The SAP Partner program for software vendors is more of a marketing construct. Every software vendor likes to state that they are a certified partner. 

The following are important characteristics of the partner program.

  • Who Are Partners?: Most vendors that complete with SAP are partners with SAP.
  • SAP Censorship: They are limited in what they can say by their partner agreements.
  • No Referrals: SAP only very rarely refers business to their partners.
  • Second Banana: Most SAP software partners feel they are mistreated by SAP. SAP regularly stabs their partners in the back to push sales over to their own applications, even when the fit between the requirement of their customers and the SAP application is either terrible or if the SAP application is not even ready to be implemented.
  • Lowering Competition: SAP has partnered with any software vendors (almost) that competed with them, and then uses controls gained from the partnership agreement to reduce that vendor’s ability to compete with them. The software vendor becomes normalized to presenting their solution as complementary to SAP rather than competitive with SAP so as not to ruffle any SAP feathers.

There is in fact, no real partnership. It is a false construct. It is a marketing construct that exists primarily in the minds of buyers. The SAP partnership, with its effect on competition, is an interesting curiosity because it is not willingly entered into by software vendors. It is enthusiastically entered into by these software vendors.

I can’t tell you how many software vendors became partners in part because they thought SAP would bring them deals.

The Importance of Software Vendors Knowing The Limits of Their Knowledge

If you are in senior management at a software vendor, who believed this, you then you did not have enough exposure to or information about SAP to compete against them. And its good to know this, so that you can address the issue because addressing the issue has good potential to lead to higher sales.

SAP is a complex beast and cannot be understood with light or occasional exposure. It often surprises me that SAP marketing works not only on customers but works almost as well on competing software vendors. They will often come to assume that many of the fanciful items presented by SAP marketing are in fact true.

Conclusion

SAP has passed into a new phase of its existence. SAP’s marketing machine is intense. The term reality distortion field seems appropriate.

The fact remains that outside of SAP ERP, the returns from SAP’s other applications have been extremely weak (something I have covered in my previous articles). Of all software companies, SAP has the most implementations of applications that add little value to their customers. This makes sense as for decades SAP has had all of the major SIs mindlessly shilling for them. Therefore the SAP “garden” is overgrown with “weeds” and various applications with serious problems. The IT departments in these customers often try to defend these bad applications by pointing out the stupidity of the users, or denying the problems.

This information comes from two decades of evaluating SAP installations at many accounts. However, you don’t hear this information because the people that now have a financial incentive not to publish this. This is the real story, not the paid off story offered by SAP consulting companies. These SAP applications are vulnerable, particularly after it can be explained that each of them has little in the way of a future. You can only promise the future for so long until it eventually arrives. Well, the future is now here.

Brightwork Research & Analysis published the first article to call out SAP applications as legacy. Although if you read SAP Nation by Vinnie Mirchandani he says essentially the same thing, without using the terminology of “SAP as legacy.” Realistically, there is no likelihood of SAP bringing out future products that do anything special. SAP still has its ERP system. But outside of that, there is not much to be concerned about, in real, rather than perceptual terms.

But now the question turns to what software vendors can do to take advantage of this opportunity.

Note on the SAP xApps Program

Back in 2010, I called for the SAP xApp program to be terminated as it was resulting in a large amount of intellectual property being extracted from software vendors and transferred to SAP. And that companies that were engaging in the xApp partnership were naive to how SAP operated. In my article, I stated it is a program that should have been reviewed by the US Federal Trade Commission. Larger software companies are not supposed to have a program where they promise improved sales that largely never materialize in order to Hoover up their IP.

I also covered how SAP used a partnership with i2 Technologies to extract intellectual property from them in the 1990s to use as the basis of SAP APO, and covered this story in the early drafts of my book on Discover SAP SCM. This material was censored from the book by the publisher SAP Press, and so it never appeared in the published version. My experience with SAP Press promoted me to not publish books through traditional publishers.

There are no publishers in the SAP space who will publish 100% truthful information on SAP. But unfortunately for me, that is the only information I was or am interested in writing or publishing. SCM Focus Press is my publishing company, where all the books are uncensored.

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References

https://www.constellationr.com/blog-news/insights/sap-wins-major-court-victory-over-indirect-access-customers-should-pay-attention

https://www.computerweekly.com/news/450413224/High-Court-rules-for-SAP-against-Diageo-in-indirect-licensing-case

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

 

Software Selection Book

SELECTION

Enterprise Software Selection: How to Pinpoint the Perfect Software Solution Using Multiple Information Sources

Mastering Software Selection

Software selection is a form of forecasting, just as any another purchase decision is a forecast of how successfully the purchased item will meet expectations. Forecasting is necessary because it is not feasible to implement each application under consideration before it is purchased to see how it works in the business.

The Importance of Software Selection

Software selection is the most important part of any software implementation because it is the best opportunity to match the software with the business requirements, which is the most important factor in determining the success of the project. This book explains how to get the right information from the right sources to perform software selection correctly.

What You Can Expect from the Book

Essential reading for success in your next software selection and implementation. Software selection is the most important tasks in a software implementation project, as it is your best (if not only) opportunity to make sure that the right software the software that matches the business requirements is being implemented. Choosing the software that is the best fit clears the way for a successful implementation, yet software selection is often fraught with issues, and many companies do not end up with the best software for their needs. However, the process can be greatly simplified by addressing the information sources that influence software selection.

This book is a how-to guide for improving the software selection process and is formulated around the idea that much like purchasing decisions for consumer products the end user and those with the domain expertise must be included. In addition to providing hints for refining the software selection process, this book delves into the often-overlooked topic of how consulting and IT analyst firms influence the purchasing decision and gives the reader an insider’s understanding of the enterprise software market. By reading this book you will:

  • Learn how to apply a scientific approach to the software selection process.
  • Interpret vendor-supplied information to your best advantage.
  • Understand what motivates a software vendor.
  • Learn how the institutional structure and biases of consulting firms affect the advice they give you, and understand how to interpret information from consulting companies correctly.
  • Make vendor demos work to your benefit.
  • Know the right questions to ask on topics such as integration with existing software, cloud versus on-premise vendors, and client references.
  • Differentiate what is important to know about software for improved “implement-ability” versus what the vendor thinks is important for improved “sell-ability.”
  • Better manage your software selection projects to ensure smoother implementations.

Chapters

  • Chapter 1: Introduction to Software Selection
  • Chapter 2: Understanding the Enterprise Software Market
  • Chapter 3: Software Sell-ability versus Implement-ability
  • Chapter 4: How to Use Consulting Advice on Software Selection
  • Chapter 5: How to Use the Reports of Analyst Firms Like Gartner
  • Chapter 6: How to Use Information Provided by Vendors
  • Chapter 7: How to Manage the Software Selection Process
  • Chapter 8: Conclusion
  • Appendix a: How to Use Independent Consultants for Software Selection

How SAP is Now Strip Mining its Customers

Executive Summary

  • There are facts of the Diageo vs. SAP case that bring up important questions regarding SAP’s logic and what a poor job Diageo did in this case.
  • To understand indirect access as enforced by SAP, it is necessary to connect the topic to CRM and SAP’s concern with Salesforce.
  • The judgment in the UK does not necessarily apply to the US, and the UK judge appeared out of her depth in judging and evaluating the cases.
  • Why SAP needs indirect access to extract income from customers as SAP’s applications created after R/3 have been of such low quality and fail so frequently when implemented.

Introduction

  • In this article, I will cover a change I observed that I think needs to occur on how to properly interpret SAP.
  • This change will not be accepted by many, particularly those with a financial bias towards SAP. An analysis of multiple data points, observed over a number of years support this conclusion presented in this article. I have included quite a bit of evidence, as well as links that provide more support into specific details.

Let us being with the recent Diageo vs. SAP case.

The Facts of The Diageo vs. SAP Case

In the case that was tried in a UK court, SAP just recently won its case against its longtime customer, Diageo. The following quotation provides a nice synopsis.

“Diageo also licenses SAP Process Integration, which it has used to connect Gen2 and Connect with its core SAP system. Although the applications’ end users don’t directly interact with SAP, the company contended that it was also entitled to named user licenses for those end customers—all 5,800 of them.”Constellation Research

This is a highly controversial case as it deals with indirect access. I covered indirect access as it pertains to HANA in my last article, however right after that article was written, the judgment was announced in this case in the UK. The case has left a lot of people scratching their heads. I followed the judge’s logic, and she tried to get to an equitable judgment, but I believe the judge made an error regarding the basic interpretation of the legitimacy of indirect access.

The liability for Diageo is substantial. If the judgment stands, they will owe SAP roughly $70 million.

The Connection of ERP to a CRM System

I do not know exactly how Salesforce (the CRM system) was connected to the SAP ERP system at Diageo. However, I have spent a significant amount of time in application integration, and in the vast majority of cases, a CRM system integrates with the SAP ERP system in two primary areas of data. One is the customer data, and the other is the sales history. The CRM system does not need to access any application logic in the ERP system. Application logic was applied to sales order process in SAP ERP to create the data that sits in the SAP ERP system database.

All of this is a normal integration between systems. Something that, up until a few years ago, did not require the purchase of extra ERP licenses from SAP.

SAP proposed in its lawsuit that this was “indirect access” to its SAP ERP system software. Diageo proposed that it wasn’t, and the judge sided with SAP, although in a strange outcome, the judge was not able to find the appropriate SAP license that applied to the usage.

The quote below from Computer Weekly:

“In my judgment, there is no applicable named user category for the Connect customers… They do not have access to source or object code. They do not have access to the functionality provided by SAP ERP in support of the wider operation of Diageo’s business. They access business process functions and information from the database for the purpose of ordering products and managing their own personal accounts only.”

This is quite confusing. How can Diageo be responsible for paying a SAP license that even after litigation it is unclear as to which SAP user license applies?

Interestingly, SAP wanted, even more, money from Diageo than was granted.

“..she (the judge) resisted SAP’s full demands, declaring that such usage did not need to be licensed at professional user level – £9,400 per user including VAT, as demanded by SAP – but rather as other types of users that could not be identified and were not listed in SAP’s price lists.”

Again, SAP has a large number of SAP user / SAP license types on its price list.

The following questions naturally arise.

  • How can the way that Diageo users used Salesforce not fall into one of these categories? What occurs to me is that the SAP users definitions were created before indirect access was initiated as a concept.
  • How can any SAP customer figure out the appropriate SAP license if a litigated court case cannot make that determination?

My View on the Diageo Case

The only type of indirect access definition that I find reasonable is when an entity essentially duplicates the functionality or a part of the functionality of a software vendor and then uses that functionality to circumvent the intent of the application which it purchased from that software vendor. The Diageo case is not even close to meeting that definition because SAP ERP does not have CRM functionality. SAP has its CRM software which is purchased as a separate product from the SAP ERP system. Salesforce CRM relies on data in the SAP ERP system, but there is no duplication of functionality and no circumvention of functionality that is possible by using Salesforce CRM when connected to the SAP ERP system.

For people that don’t work in IT for a living, there is, in fact, a very simple way of testing whether SAP should have had a valid case of indirect access against Diageo. And it is this.

If Diageo had purchased SAP CRM instead of Salesforce CRM, would SAP still have demanded that Diageo pay them for the same number of SAP ERP licenses?

If the answer is “no,” then this is anti-competitive protection. If the answer is “yes,” then the Diageo case was correctly determined in the UK.

However, the answer is in fact “no.” There is in my view, no way that SAP would have made a claim against Diageo if Diageo had purchased SAP CRM instead of Salesforce CRM.

Now many people know the terms offered to SAP customers that will read this article. If anyone disagrees with my statement, then comment on this article. I am very interested in learning how what I proposed is not the case, or under what conditions it would not be the case.

SAP as Legacy

This case, along with a buildup of performing many years of research on SAP, ranging from SAP technology to SAP business practices, has lead me to conclude something I think is quite significant.

SAP is now legacy.

Back in the 80s SAP marketed against legacy systems. SAP, along with Gartner and all of the major and most the minor IT consulting companies told potential customers the following: 

  • ERP systems would eliminate all homegrown legacy systems with a single system.
  • ERP systems would be the only systems that these companies would ever need.

As this period predates my career, I learned of this in what I can only describe as hidden history from my research for the book The Real Story Behind ERP. All of these entities (SAP, Gartner, the consulting companies) were amazing inaccurate in their predictions on ERP. And, each of these entities communicated these unproven messaging without worrying about compiling a shred of evidence.

  • In fact, my review of all the research into the productivity of ERP systems revealed that there was never any evidence for ERP having any return on investment.
  • While fabulously wrong, the biggest proponents of ERP, were also its major beneficiaries.

SAP has used its ERP system to push customers to buy more systems from SAP. However, after customers purchased the ERP system, they faced a diminishing marginal utility from each additional SAP purchase. There is a strong trend at play here, and it has been largely ignored. But the more the company invests in SAP, the less they incrementally get out. That has been the reality for the past few decades. And now, there are now increasing liabilities to maintaining or growing one’s SAP footprint. Costs continually rise, and any company is now potentially subject to an audit, and to indirect access fees that in most cases would never have been actionable at the time, the SAP software was purchased.

SAP’s Problematic Sustainability

As with the companies from the 1980s who had become overwhelmed with the maintenance of so many home-grown legacy systems, SAP’s unsustainability is now ever more apparent. 

Let us talk about just a few of the reasons why. “Why” could probably be the subject of a lengthy paper, but we can review a few of the most important factors in a less comprehensive form. 

  • The Casual Strip Mining of Customers Using Constructs like Indirect Access
  • The Decline of Post ERP products
  • The Failure on SAP’s Big Bets like S/4HANA and HANA

I have covered the use of indirect access to extract from a customer. Something which is missed by just about every analyst that covers SAP is that most of its post ERP applications have not been successful.

With its top-selling ERP system, SAP embarked on diversification into other application categories in the 1990s. Let us now discuss those applications.

Post SAP ERP System Applications

If we review these applications, while they have certainly generated sales, none of them can be considered successful technically.

Here is a brief overview of post ERP applications that SAP released.

  • SAP BW – Business Warehouse: A lagging BI application with famously high operating and maintenance costs.
  • SAP CRM: Very close to a dead application.
  • SAP PLM – Product Life Cycle Management: Never actually existed.
  • SAP Netweaver: Never actually existed (a container or marketing construct for a hodgepodge of mostly infrastructure tools)
  • SAP SRM – Supplier Relationship Management: A dead application (supposedly replaced with Ariba)
  • SAP APO – Advanced Planner and Optimizer: A lagging set of supply chain planning applications.
  • SAP MDM – Master Data Management: A dead application.
  • SAP Solution Manager: A dead application.

These were all home grown applications. SAP customers invested enormously in these applications, and what was the payoff? Each of the applications above either does not work or is limping along in companies. Each of the applications has declined in prominence since released. Imagine how many resources were wasted in buying, implemented and maintaining these applications?

SAP APO

One of the more successful product suites was APO (my area of expertise, and a suite of applications for which I have authored five books). While consulting with them has paid the bills, I can’t say that companies see much business value from APO. The maintenance overhead on APO is quite large, and customers tend not to like using the APO modules. So again, the waste involved with here is overwhelming when we consider all implementations of these products globally. Now Deloitte or Accenture see this list, and a big smile comes over their faces, but it is hard to look at this list as an implementing company and have many good feelings. Mostly these applications are just a bunch of bad memories for those that bought them.

I should also bring up; I am one of the only SAP consultants who will write this. It is the case that SAP consultants will come up with any excuse they can to support the reasonableness of using the list of products listed above. It is accepted that as an SAP consultant you both only say and write positive things about SAP, and most SAP consultants I have met have no knowledge of applications outside of SAP.

I chalk this up to financial bias, it is impossible for me to believe that the inherent limitations of the list above are not self-evident to many SAP consultants. However, it should be remembered that most SAP consultants work for a SAP consulting company, and writing what I have written, or any real criticism would be an excellent way to get fired from a consulting company. SAP consultancies are about profit maximization, not truth-telling or following an evidence-based approach to coming to conclusions.

Other Problematic SAP Applications

And of course there were more applications, but none of them stand out much differently than what I listed above. SAP also has acquired some applications, from Business Objects to SuccessFactors to many others.

However, none of the acquired applications are even as prominent now as when they were purchased. In fact, most are considerably less prominent, and as development lags, they follow a trajectory very similar to IBM’s software acquisitions where they become out of date and less relevant as time passes. SAP has quite a lot in common with IBM. IBM is doing reasonably well financially, but IBM has lost its ability to innovate or even to provide much value. They now rely upon acquisition, labor exploitation, lawyers, and contracts. IBM is no longer even a desirable employer.

The Failure on the Big Bets like S/4HANA and HANA

The next topic is that the big bets SAP has placed on HANA, and S/4HANA have not worked out anywhere near expectations. HANA is a moderately selling super premium priced database. S/4HANA has very little traction in the marketplace.

For those that know my writing, I have extensively covered both HANA and S/4HANA, and there is far less actual fire than smoke on these products. See my other articles on these products on my LinkedIn article page. The sales for both do not contribute very much to SAP’s revenues.

And now we get to why SAP has to employ something like indirect access. It is broadly known that SAP cannot meet growth goals. If we look at the applications released after ERP, the growth story is not there. The growth is not there with the big bets. HANA, S4, etc.

Indirect access is simply strip-mining their customers. Under that analysis, it is a marker or leading indicator of the decline of SAP. SAP is using indirect access, so it does not have actually to compete. This is textbook monopoly behavior. Textbook as in going way back. Going to back to Standard Oil in the US.

SAP CRM

SAP’s CRM application is simply not competitive. How can SAP compete in the CRM space with Salesforce or BaseCRM with what SAP CRM has to offer?

It can’t.

  • My research entity reviewed SAP CRM which you can see at this link.
  • Notice SAP CRM earned a 65% chance of project failure, higher than any other CRM system reviewed. (The risk estimate is an average, and not customized for any one SAP customer)

And after reviewing all of these different data points is when I realized, that SAP is the legacy system!

What is a legacy system? Well, it is a system you have relied upon historically, but which you are trying to minimize the investment into as you migrate to something more to “your liking.” No company can replace everything at once. Legacy is the portion of your systems that you rely upon, but which may be replaced at some later date.

The question now is not whether to grow your SAP investment but how to shrink it.

Who Figured This Out First?

Who had the best bead on this? I nominate Vinnie Mirchandani. He laid out in his book SAP Nation and SAP Nation 2.0 how unsustainable the whole SAP industry was. And there are very few candidates for this title, as very few people were willing to write accurately about SAP.

The degree of groupthink on SAP has been awe-inspiring. 

Future Articles on SAP as Legacy

In my upcoming articles, I will cover what SAP as legacy means for customers, SAP partners and software companies that compete with SAP.

SAP Licensing Contact Form

  • Questions About This Area?

    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, tell us your question below.

References

https://www.constellationr.com/blog-news/insights/sap-wins-major-court-victory-over-indirect-access-customers-should-pay-attention

https://www.computerweekly.com/news/450413224/High-Court-rules-for-SAP-against-Diageo-in-indirect-licensing-case

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

Software Selection Book

SELECTION

Enterprise Software Selection: How to Pinpoint the Perfect Software Solution Using Multiple Information Sources

Mastering Software Selection

Software selection is a form of forecasting, just as any another purchase decision is a forecast of how successfully the purchased item will meet expectations. Forecasting is necessary because it is not feasible to implement each application under consideration before it is purchased to see how it works in the business.

The Importance of Software Selection

Software selection is the most important part of any software implementation because it is the best opportunity to match the software with the business requirements, which is the most important factor in determining the success of the project. This book explains how to get the right information from the right sources to perform software selection correctly.

What You Can Expect from the Book

Essential reading for success in your next software selection and implementation. Software selection is the most important tasks in a software implementation project, as it is your best (if not only) opportunity to make sure that the right software the software that matches the business requirements is being implemented. Choosing the software that is the best fit clears the way for a successful implementation, yet software selection is often fraught with issues, and many companies do not end up with the best software for their needs. However, the process can be greatly simplified by addressing the information sources that influence software selection.

This book is a how-to guide for improving the software selection process and is formulated around the idea that much like purchasing decisions for consumer products the end user and those with the domain expertise must be included. In addition to providing hints for refining the software selection process, this book delves into the often-overlooked topic of how consulting and IT analyst firms influence the purchasing decision and gives the reader an insider’s understanding of the enterprise software market. By reading this book you will:

  • Learn how to apply a scientific approach to the software selection process.
  • Interpret vendor-supplied information to your best advantage.
  • Understand what motivates a software vendor.
  • Learn how the institutional structure and biases of consulting firms affect the advice they give you, and understand how to interpret information from consulting companies correctly.
  • Make vendor demos work to your benefit.
  • Know the right questions to ask on topics such as integration with existing software, cloud versus on-premise vendors, and client references.
  • Differentiate what is important to know about software for improved “implement-ability” versus what the vendor thinks is important for improved “sell-ability.”
  • Better manage your software selection projects to ensure smoother implementations.

Chapters

  • Chapter 1: Introduction to Software Selection
  • Chapter 2: Understanding the Enterprise Software Market
  • Chapter 3: Software Sell-ability versus Implement-ability
  • Chapter 4: How to Use Consulting Advice on Software Selection
  • Chapter 5: How to Use the Reports of Analyst Firms Like Gartner
  • Chapter 6: How to Use Information Provided by Vendors
  • Chapter 7: How to Manage the Software Selection Process
  • Chapter 8: Conclusion
  • Appendix a: How to Use Independent Consultants for Software Selection

The Lack of Objective Information on SAP

What This Article Covers

  • The State of Objective Information on SAP
  • What is SAP Certification?
  • The SAP Gold Partner
  • How the SAP Partner System Serves to Censor Partners
  • Limitations on the Available Information on SAP

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Introduction

SAP has some of the tightest control over the information that is published on them of any software vendor. In fact, I would argue that SAP’s censorship of information is higher than any other software vendor in the world. Part of the control is exercised through providing sources of income to those that publish. Other forms of control are through the SAP partnership agreements.

This article will explain a disturbing feature of the SAP partnership system, and its impact on the objectivity of information that is available generally on SAP. That is information both in a published form and communicated orally.

What is SAP Certification?

SAP certification is a process that software vendors go through to declare that their solutions are “certified by SAP.” The software vendor then displays a badge on their website and uses the badge in PowerPoint presentations and so on. An example of one of these certification badges is listed below.

While valued by customers, and in fact, many customers will not buy without it. In fact, SAP puts very little effort into the certification process. The requirements are very watered down, typically only a very small amount of data is transferred between systems, and only a very limited grouping of fields. A SAP certified solution does not mean that the company has a working adapter. Not at all.

However, what the SAP certification does mean is that the vendor will follow SAP’s rules regarding the information it provides. The SAP certification is a bit of a bait and a switch. The software vendor often thinks they are getting access to a new market, but they soon learn this is an incorrect assumption. But they are left with the legacy of no longer being able to control their marketing message.

The SAP Gold Partner

SAP certification is for companies that have a software or hardware product. However, many consulting companies are SAP partners, although they don’t have to go through a certification as they have no “product.” But SAP consulting partners face the same limitations to their marketing and advisory messages regarding SAP as soon as they become SAP partners. SAP has different levels of partners. For instance, a SAP Gold Partner is very high in the hierarchy. Being a SAP Gold Partner supposedly means meeting a higher standard, having more people within the company having passed certification tests, etc.. However, I have worked with SAP Gold Partners that never have to pass any certifications because they are connected through personal relationships at high levels to SAP. Furthermore, in small market countries, there are SAP Gold Partners that are utterly unqualified, but SAP has some other reason for wanting that company to have the designation. In some small market companies there just are not very many choices.

However, I have worked with SAP Gold Partners that never have to pass any certifications because they are connected through personal relationships at high levels to SAP. Furthermore, in small market countries, there are SAP Gold Partners that are utterly unqualified, but SAP has some other reason for wanting that company to have the designation. In some small market companies there just are not very many choices.

The SAP Partner System Serves to Censor Partners

Companies that are partners with SAP lose control over the information that they provide to customers. They must not provide information that contradicts the SAP information. This includes companies that are the largest advisors in the space (your Deloittes, Accenture, etc..) to the smallest.

How do I know all of this?

Many a SAP partner has contacted me and tell me stories of how SAP threatens to take their partnership away if they don’t follow the SAP partner rules. And they explain exactly how the control by SAP works.

Although to be fair, many if not most of the SAP consulting partners don’t seek to provide accurate information to their customers anyway. In this way, they have been very easy to buy off. The large consulting companies make advising decisions based upon their profits and are not concerned with the benefits their customers receive from software.

Limitations on the Available Information on SAP

SAP controls or at least influences information released through non-SAP partners. These are media entities like CIO Magazine, Gartner, Forrester, etc.. SAP is contributors to all of the major IT media outlets. And what SAP receives in return is uncritical thought out articles and coverage. SAP can rely upon these outlets to serve as repeating mechanisms for their marketing materials.

Conclusion

Therefore, companies are boxed out of accessing accurate information on this topic. Brightwork Research and Analysis is one of the few entities which will publish or provide consulting on this topic. Unsurprisingly, we have no partnership with SAP, and unlike someone like Gartner or Forrester, we take no money from SAP.

References

How to Best Understand the Business Software Alliance

What This Article Covers

  • Business Software Alliance and their Motivations
  • Business Software Alliance as a Bully Organization
  • No Declaration of Funders
  • Publishing Fake Research

Introduction

The Business Software Alliance is a legal and lobby group which is ostensibly designed around enforcing copyright rules.

The Business Software Alliance performs audits for the software vendors that fund them, but there is some interesting debate as to who the Business Software Alliance serves. In this article, we will get into the topic of this entity’s motivations.

Business Software Alliance and Their Motivations

The Business Software Alliance was founded by Microsoft. They now have many other software vendors as members including Intel, SAP, Symantec and Adobe among others. However, research from previous cases where the Business Software Alliance has brought actions against companies that it found to be out of compliance, it turns out that the primary way to get the Business Software Alliance to go away is to purchase Microsoft products. This is true even at the expense of other software vendors that are in the alliance. Therefore, the Business Software Alliance has an official reason for being (to stop copyright infringement of the software of their members), but it has a practical reason for being, which is to move as much of the software purchases to Microsoft.

In fact, many of the attorneys for the Business Software Analysis also do work for Microsoft on other matters. This is in addition to the fact that Microsoft provides the most money to the Business Software Alliance. This means that it is very difficult for the Business Software Alliance to claim that they represent the interests of all their funders.

Business Software Alliance as a Bully Organization

The Business Software Alliance has a remarkably negative reputation. Their MO is to audit smaller companies, under the guise of being an “independent” audit. They then share any information that they have gathered with Microsoft. In fact, in some countries, a senior account manager (salesperson) for Microsoft is also the Business Software Alliance representative. Therefore, the lack of independence of the Business Software Alliance is not something that Microsoft even attempts to provide.

  • The BSA actively encourages ex-employees to rat on their previous employers offering large awards. And there is also a problem in that in many cases those that turned in their employers themselves had installed the software before they left that causes the violation of copyright.
  • There is also the problem that in some cases the employee, often working in IT and therefore familiar with the rules of the BSA, takes the receipts for software with them before they go, and they report the company as out of compliance with the BSA.
  • Finally, the evidence that the BSA requires appeared excessive and designed to maximize the finding of out of compliance licenses.
  • The BSA pays rewards to people that turn their companies in, but then state that the rewards are irrelevant in determining a motive. They state the only important thing is “the story they have to tell.” That is an interesting position to take, as motive is used to determine the credibility of witnesses during actual trials. The BSA has no way of knowing if those that turn in their employers are doing so for the money or because the company violated the copyrights of their funders.

The BSA has a way of making up its rules. Almost no BSA brought audits and actions are ever taken to court, so the attorneys that work for the BSA use their training primarily to intimidate the customer to settle. And settlement means purchasing (in most cases) more Microsoft product.

The BSA’s behaviors are quite horrid, but they serve to distract attention from the funders of the BSA. That is, the BSA can develop a terrible reputation for misusing power, but the vendors themselves are insulated from the PR damage.

No Declaration of Funders

The only way to find the funders of the Business Software Alliance is to look at non-BSA sources or to look for who is on the board of directors. Not declaring funders, for a group that purports to be dedicated to a high-minded ideal, and which purports to perform research, is a violation of the basic rules of transparency. Here are the list companies the people on the BSA’s board of directors work for.

  • Oracle
  • Symantec
  • Apple
  • IBM
  • Adobe
  • ANSYS
  • AutoDesk
  • Bently Systems Inc
  • CA Technologies
  • DataStax
  • Microsoft Corporation
  • SalesForce.com
  • SAS
  • Siemens Product Life Cycle Management Software
  • Splunk
  • Tend Micro
  • Workday

Virtually every member of this board is the General Counsel or Cheif Legal Office for the company the work for.

That is quite a large board, and it is no doubt necessary to placate all of the funders that they have a place at the table. We can be reasonably certain that these are the major donors behind the BSA. However, several of these vendors have voiced the concern that the BSA primarily looks out for Microsoft first.

Publishing Fake Research

Like most industry-funded groups, such as the American Petroleum Institute, research without any evidence is published which is beneficial to the funders. BSA follows no methods, never has its research peer reviewed, and routinely has its research lampooned in the IT press. The do not explain that the research is funded by software vendors, which have a strong financial incentive to overstated the losses due to piracy and other related copyright infringement, and present themselves as impartial, just looking out for apple pie, truth, and all that good.

Conclusion

The BSA is a front group that operates on pure intimidation. Their game is to shock a company and intimidate them into buying most often Microsoft products, but sometimes other vendor’s products as well. They are a beehive of conflicts of interest and follow none of the transparency rules that an entity that was playing fairly would normally follow. They set incredibly high standards of what constitutes evidence of purchased software to maximize the fines that they request, and the purchases made to their chief sponsor. In that way, they are an extra-legal entity, shaking down companies, not based upon actual copyright law, but based upon the cost of actually taking a case against the BSA, with their very deep pockets to court.

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  • Questions About This Area?

    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, tell us your question below.

How to Best Understand SAP TCO Claims

What This Article Covers

  • SAP TCO
  • SAP’s Position on TCO
  • The Illusion of Lower SAP TCO

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 overheard, 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.

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 Deal with SAP Audits

What This Article Covers

  • SAP Audits
  • SAP Audit Management
  • Audit Software Vendors that are Also SAP Partners?

Introduction

SAP audits are when the SAP comes to a customer and determines if the customer is out of compliance on SAP licensing. In the recent years,

In the recent years, SAP has increasingly come to rely upon software audits to drive revenue. Secondly, SAP’s licensing rules are some of the most complex in software (along with Oracle, another company that is known to heavily audit its customers). Generally, the largest software vendors (which includes SAP, Oracle, IBM and Microsoft) tend to perform the most software audits, and tend to have the most stiff penalties for being out of compliance.

What this means is that software purchased from the largest vendors tends to have the greatest liability associated with them.

SAP Audit Management

SAP audit management is actually the name of a SAP product that speeds the non-software internal audit process (according to SAP). This product runs on SAP HANA, which is a fast database. There is actually free trial of SAP Audit Management available. SAP Audit Management is an app offered by SAP. But it has nothing at all to do with software audits.

The term “SAP audit management” generally refers to the activities necessary to prepare for and manage a SAP audit.

One of the approaches to a software audit is for the customer to purchase audit software and perform the audit themselves.

  • Making Changes: Doing so can mean adjusting behavior which moves away from violating SAP licensing, as well as changing the roles within SAP so that the company is not out of compliance.
  • Simulation: It allows what if scenarios to be tested in terms of changing the usage of SAP. Some of the software vendors propose being able to determine the scenarios both the SAP licensing and support costs, however, that is not entirely knowable because of things like the discounts that are offered by SAP.
  • Purchase Proactively: It also allows the customer to approach SAP to purchase licenses before the fact. For example, users may have SAP user licenses assigned to them that they no longer use because of a job change or some other reason.

Another major liability that can be caught during an SAP audit is indirect access. Indirect access is covered in this article. But indirect access is a complicated topic which SAP is increasingly the enforcement of, and which increased the complexity of dealing with an SAP audit.

Audit Software Vendors that are Also SAP Partners?

Unfortunately, in order for a software company to build audit software for SAP, it must be an SAP partner. This means that it has restrictions by SAP on what it can say and what it can publish. I am in constant contact with many software vendors, and the complaints about SAP interference in what they can say and what the can do are unremitting. In fact, I am surprised that SAP would allow software vendors to offer an audit product as it states clearly, for instance in the promotional video from one of the software vendors that their product.

It ensures that you know more about your SAP system than anyone else, giving you the upper hand in any negotiation or audit.

Why would SAP want that? SAP wants the upper hand clearly. Snow software states that they can

..save 20 to 30% savings on their SAP costs typically within weeks alone.

But again, this is money coming out of SAP’s pockets, and they have the right to decertify Snow or any other software vendor at anytime. So if the audit vendors statements are true, how are they still certified partners of SAP. What this means is that SAP has a say as to how the software vendor’s software actually works. SAP can and will threaten the software vendor with a removal of their SAP Certification, which would impact that software vendor’s ability to exist.

If I compare how the SAP partnership agreement is used with other vendors, SAP will use it to neuter the marketing of the vendor so that everything the third party vendor releases is consistent with the needs of SAP.

Conclusion

There is something fishing going on with the market for SAP audit software.

One cannot both be an SAP certified partner and have free reign to provide whatever information you want to, to your customer. And unfortunately, audit software companies have to be SAP certified partners to have their software connect properly to SAP. This brings up questions regarding how much any audit software company can actually work for customer’s interests, which means working against SAP’s interests, without compromising their SAP certified partnership arrangement with SAP.

If you have questions or comments about our coverage of SAP audits and SAP audit software, reach out to us.

References

The HANA Police and SAP Indirect Access Charges

Should You Trade In Unused Licenses for S/4HANA and HANA?

Executive Summary

  • Snow Software explained how to trade in unused SAP licenses for S/4 HANA.
  • However, Snow’s article makes a lot of unfounded assumptions regarding the readiness of S/4HANA while approaching the question from the perspective of only the licensing implications.

Introduction

In this article, we will evaluate a strategy that is proposed by Snow Software on their website. Snow Software makes software that is used for auditing SAP software. The article by Snow Software is quite interesting and is very specific in what it proposes, and it provides specific recommendations.

I want to set the table properly before we get into Snow Software’s article. I don’t have anything against Snow Software. I happen to like a lot of the articles on their website, and several weeks ago I read every one of their articles related to SAP and quite a few others not related to SAP. Snow Software has a blog that brings in some authors with different license domain expertise.

I don’t happen to agree with the recommendations in this article, and I invite a representative from Snow Software to comment on this article and to have a collegial discussion. These are involved topics, and even people who are knowledgeable in the area can disagree, and that is quite reasonable.

Understanding Snow Software’s Logic for S/4HANA

The logic for Snow Software’s proposal is laid out in their article Use S/4HANA to Get Rid of your SAP Shelfware?

In that article they layout the following logic for purchasing S/4HANA. Let us get into their quotations.

“SAP Business Suite 4 SAP HANA. S/4HANA, for short, is SAP’s latest technology. But it’s also much more than that. S/4HANA represents a fundamental shift in how the mega vendor will generate long-term revenue streams. What is often less-discussed is what S/4HANA means for you, the customer. Not only in terms of technology; but in terms of an opportunity to reshape your relationship with SAP. Without over-dramatizing things, it’s a once-in-a-lifetime opportunity. Why? Because SAP needs S/4HANA to be a success. It needs to demonstrate to investors that it has a business model that is not stuck in the era of on-premise perpetual software licensing. And because it needs to sell S/4HANA licenses, it is offering excellent deals to existing SAP customers to move fast.”

So, what can be seen as left out is that S/4HANA has not been a success and it has had plenty of time to become one. It has a massive installed base (with ECC/Business All in One).

Now, while it is true that SAP has a strong desire to show that its business model is not suck in an on-premises state, SAP really has Wall Street fooled already on this topic. SAP has successfully adopted cloud speak, and is constantly cloud washing their products. The more you cloud wash, the more Wall Street rewards you. So we have yet another example of an industry that is driven by the opinions of people who don’t have any expertise in the area.

S/4HANA to be Delivered as SaaS?

Secondly, (and don’t tell Wall Street or they will be very very sad) S/4HANA is unlikely to be delivered by SaaS. In research that I am currently performing into S/4HANA to determine what has occurred on S/4HANA implementations, it turns out that very few of the implementations have been in the cloud. And in the few that I can find that are stated to be in the cloud or SaaS, they are not cloud or SaaS at all. Instead, they are non-multi-tenant or simply hosted solutions. Customers can expect none of the traditional benefits of SaaS from S/4HANA when delivered this way.

Finally, S/4HANA has nothing to do with the cloud or SaaS.

The quoted paragraph from Snow Software continues:

“And therein lies a huge opportunity for those existing SAP customers, who have typically seen their investments in SAP license increase year-on-year over quite significant periods of time. This is an opportunity to reverse that trend and focus in driving deals with hungry SAP account managers on the licenses and technologies you really need, not the ones you’ve been force-fed over recent years. To understand the scale and opportunity of this shift, we must first look to the past.”

Customers Need S/4HANA?

It is very difficult to argue that anyone “needs” S/4HANA at this point. S4HANA comes with all types of implementation costs and maintenance costs. These costs are far higher than any potential license cost benefit from moving to S/4HANA. In fact, the majority of costs associated with SAP come in maintaining SAP systems, not purchasing SAP systems. I cover this topic in detail in my book on TCO, Enterprise Software TCO: Calculating and Using Total Cost of Ownership for Decision Making.

The quoted paragraph from Snow Software continues:

“The fundamental change is that the open architecture of R/3, with the ability to employ third-party databases within the system, is giving way to a more specific database that you’ll require as part of the platform – SAP’s HANA. This is all being done with the promise of improved performance and scalability through in-memory databases.”

Well, the promise of the performance improvement is not analyzed by Snow Software’s article. But as HANA is an analytics database primarily, there is no evidence that an ERP system will run much faster on HANA due to software. Here it is important to draw a distinction between the software side and the hardware side of HANA.

Hardware Improvement?

HANA combines a changed database with SSD memory (instead of a spinning disk) so the performance will automatically increase because of the hardware change (SSD), but not necessarily due to the software.

The quoted paragraph from Snow Software continues:

“The faster it migrates everyone, the quicker it can stop focusing its investment in resourcing and maintaining R/3. So, in a perfect world, SAP would spend nothing on R/2 today and, 10 years from now, it won’t spend any money on R/3.

Moreover, S/4HANA revenue is heavily scrutinized by investors in SAP. The faster they see adoption of this new platform, the quicker that is reflected in the share price for SAP. SAP as a stock needs a growth leg to the story despite its strong position and cash flow.

The transition to S/4HANA requires the replacement of third-party database systems with HANA and there is a monetary uplift from doing this.”

Ok, so this is a strange way of saying that the cost will be higher. The cost of HANA is quite high, and the expensive software is just the beginning. The following quotation will focus on support costs, but the support costs are based upon the license cost. Let us continue with the quotation to see how this is a problem.

Lower Cost for HANA?

The quoted paragraph from Snow Software continues:

“SAP Enterprise support customers currently pay (by default) 22% of license costs in annual maintenance for the use of third-party databases within the architecture of their systems. SAP has steadily over the past few years increased this amount from the 15% level in advance of its migration mandate. In lieu of paying an annual 22% of license costs for your database (typically Oracle), you will pay 15% of license costs for HANA*. Additionally, as an incentive to move to S/4HANA, SAP’s extension policies may enable you to apply unused SAP licenses against a credit for the new purchase. A reduction in the software application value means reduction in overall maintenance to be paid on HANA. *Note that individual circumstances may vary.”

The problem is that Snow Software is making a case for the lower cost of the annual license cost for HANA. However, HANA is the most expensive database on the market. So if you decline from 22% to 15% maintenance, the maintenance is lower, but the base is much higher than the database that HANA replaces.

Secondly, HANA comes with other liabilities, such as indirect access liability, that impact the costs of other software, which are a whole other can of worms and which I have covered in part in other articles.

Conclusion

I find the strategy presented by Snow Software to be problematic. Here is a synopsis.

  1. Total Cost of Ownership: It is far too focused on the simple license math. It leaves out the all-important aspect of implement ability of S/4HANA. And these issues are far more cost impactful. These costs are far higher than any potential license cost benefit from moving to S/4. In fact, the majority of costs associated with SAP come in maintaining SAP systems, and Snow Software’s article is not observant of this point. This true even if the unused software is traded in for HANA or S/4 HANA and if the maintenance on HANA is reduced to 15%.
  2. S/4HANA Maturity Issues: It is difficult to see how any company could have taken S/4HANA live at this point. That will not be true at some point in the future, but it is true now. I will elaborate on this point in my research which is due out in around five weeks from now. But most of the S/4HANA implementations that have “gone live” at this point are not what we would typically consider real implementations. And below that statement resides quite a lot of very interesting detail.

Therefore, applying the strategy above will simply result in having the license for S/4HANA that cannot be taken live for some time. Snow Software is not taking into account that S/4 HANA will most likely sit unused or in a partial demo state for this time. This would not be a problem as S/4HANA will normally be purchased at a discounted rate. Not HANA, which is required to run S/4HANA will not be purchased at a discount.

Therefore every year maintenance will be required to be paid on a very expensive database, albeit it at a reduced rate. And that is just one of the limitations of the strategy.

SAP Licensing Contact Form

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References

[Use S/4HANA to get rid of your SAP shelf ware | Snow Software](https://www.snowsoftware.com/int/blog/2016/09/20/use-s4hana-get-rid-sap-shelfware-pt-1#.WBzBfY_XJ-Y)

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.
  • They provide complex discounts which make it impossible to specifically know the price of SAP software.
  • SAP contracts have become increasingly complex. This is consistent with increased overhead for buying and using SAP.
  • We cover the need for clause clarification in SAP contracts.

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

This article and no other article on the Brightwork website is paid for by a software vendor, including Oracle and SAP. Brightwork does offer competitive intelligence work to vendors as part of its business, but no published research or articles are written with any financial consideration. As part of Brightwork’s commitment to publishing independent, unbiased research, the company’s business model is driven by consulting services; no paid media placements are accepted.

SAP Contact Form

  • Questions About This Area?

    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, tell us your question below.

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

https://help.sap.com/viewer/cca91383641e40ffbe03bdc78f00f681/Cloud/en-US/e6c7616abb5710148cfcf3e75d96d596.html

How SAP Controls Perceptions with Customer Numbers

Executive Summary

  • SAP has created press releases and related media coverage of customer SAP usage numbers.
  • How customers, prospects, media outlets and Wall Street tend to interpret SAP usage numbers.
  • How faulty SAP usage numbers contradict reality

Introduction

  • Many announcements on the part of SAP include the release of the number of customers that a particular SAP application has acquired in the most recent quarter.
  • If you use these numbers from SAP, you will come to inaccurate conclusions about what is happening with SAP.
  • This is an important topic to address because many people then quote SAP usage numbers under the assumption that these numbers are accurate.

Press Releases and Related Media Coverage of Customer SAP Usage Numbers

SAP likes to make splashes with big press releases. They go something like this..

  1. Frequently the claim will use a statistic regarding the successfulness of an application. SAP will often have the word number of customers that it has. SAP has done this with HANA and S/4. They announced around 500 new “customers” every quarter for S/4. They often follow the statement about the customer numbers with something rather non-sensical about how the software is completely transforming the way their customers are doing XYZ.
  2. SAP then swiftly move to propose that this is evidence that the marketplace is very enthusiastic about whatever they are offering.
  3. Provide statements that are unsubstantiated as to what the usage numbers mean.

The SAP Customer Numbers for S/4HANA

There are many examples of SAP doing this. But I will bring up an excellent recent example of this was when SAP placed S/4HANA (the ERP system not the database) on a promotion and placed it into contracts when it sold other applications one quarter. This lead to a significant uptick in SAP customers that now had S/4. But almost none of those customers had any foreseeable plans to implement S/4HANA. What few people who read the S/4HANA press release knew was that S/4 was not and is still not a completed product. It is a partially completed set of modules that only parts of which can be used.

This makes it impossible for anything close to the number of customers listed by SAP to have implemented and be using S/4HANA.

When an Uptick Equals Enormous Growth

Nevertheless, Hasso Plattner then stated that the uptick in S/4HANA customers demonstrated enormous growth in the acceptance of S/4HANA. I was hired to estimate the actual number of S/4HANA implementations by a company, and using a variety of sources I came up with a very low number of S/4HANA implementations.

You can see this estimate at this link.

The estimate is far off of the number of customers determined by SAP. And really, no one what SAP knows the actual number of clients that are live with some part of S/4HANA. And SAP won’t provide an honest accounting of this because they would see their stock price decline. SAP’s S/4HANA has been very lightly implemented. This is illuminated in the following quotation from the book SAP Nation 2.0.

“Rob Enslin…would later confirm “Yes, all of the [more than 900 S/4] deals are all on-premise. Our cloud piece for S/4, we’re talking it step-by-step for now“”

“Many of the early adopters like Shell are trying out multiple projects — so the “137 running projects” Enslin mentions are at a small fraction of the 900 plus customers who are supposed to have bought S/4.”

The translation of the first part of the was that they did not have any S/4HANA cloud customers. The second part of the quote shows how SAP exaggerates the number of projects by counting multiple projects, again to exaggerate the number.

How SAP Customers Interpret SAP Usage Numbers

If we look at SAP customers, they receive some exposure to what other companies are doing as they may talk to people they know in other SAP clients and attend SAP events like ASUG. But it does not give them the comprehensive view to know how far SAP’s number is off.

The audience for the fake customer number quoted by SAP is usually not in a position to check the claim.

How Wall Street Interprets SAP Usage Numbers

If we think of Wall Street analysts, they don’t work in software implementation, and they don’t visit SAP customers.

How Media Outlets Interpret SAP Usage Numbers

If we consider media sources, they most often only repeat whatever SAP says. Most the media sources take some money from SAP in the form of advertising or other funding and therefore don’t have any incentive to check SAP’s numbers. Plus repeating what SAP’s press release states are accessible. On the other hand, researching what the right numbers are would take a little work, and publishing anything to the contrary will lead to a confrontation with ad sales. Bad for your career. As long as the journalist has a credible source, and SAP is a reliable source, then the writer is considered to have done his job. And if we think of the journalist’s work week, he or she may be able to be considered to be working for the entire week by just adding 500 words to a story where SAP provided almost all of the content. Combine that with no static with the ad sales team, and that is a pretty good week of work.

How Faulty SAP Usage Numbers Undermine Reality

They form the basis of faulty arguments. I recently had a commenter on one of my LinkedIn articles states that the acceptance of an SAP application was good, and he then quotes SAP’s numbers from their press release. I responded with my detailed research into the values and proposed that there is no way the numbers could be correct. In fact, they are, after a lot of research, just a small fraction of the officially stated SAP numbers.

In response, he changed the subject.

However, what if you don’t research SAP for a living? Many SAP supporters have some false arguments. They will present any number of them that will work on the majority of listeners. If they find someone who knows what they say is untrue, they simply move on to talk to someone who they can trick. They are looking for people with buying power to use these false constructs against, much like a computer hacker looking for websites with weak security to penetrate.

This is how SAP’s numbers are continuously recycled — from Hasso Plattner and Bill McDermott, all the way down to discussions on websites and repeated by SAP account managers. It is a cascading series of false claims.

What is “a Customer”?

Whenever SAP quotes some customers that are using its applications, those numbers are nearly always exaggerated. This cannot be considered wholly false. This is because the definition of a customer is

This cannot be considered entirely false. This is because the definition of a customer is so poorly defined. A customer only means that a license is owned by a company.

A customer only means that a license is owned by a company. In this way, software companies can, if they choose, exaggerate this number in the way that a company that produces a physical product cannot. Companies have always employed techniques to seem more successful than they are. End of quarter pushes, which provide promotions and incentives are quite common. However, for companies that make physical products, these companies incur a cost. If General Motors were to attempt to inflate its customer numbers this way, it would have to ship more cars to customers for free — incurring a large loss for every car is “sold” this way.

But software companies don’t work that way. Software companies can transfer a license to a client at close to no cost to itself.

Conclusion

  • Everyone at SAP who is part of these announcements knows the numbers customers that come exclusively from sales with no input from consulting or implementation are false the moment they utter them.
  • They do this to create the impression that the market acceptance of whatever SAP is pushing is working.
  • These numbers are used to do everything from influence other companies to “get on board” and perhaps purchase the software themselves, to influence Wall Street into more highly valuing the stock of SAP.
  • If you are at the top of SAP, you only have to maintain your position for a few years, creating the rosiest impression possible, and given your options, you and your entire family will never have to work again after that. It is quite an enticement to say whatever you need to say. This is just one in a long list of ways that the stock market system promotes people to provide false information to the market.

SAP Contact Form

  • Questions About This Area?

    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, tell us your question below.

References

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

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