The Hidden S/4HANA Failure at Nanshan Life Insurance

Executive Summary

  • Nanshan Life Insurance made significant investments in building customizations around S/4HANA.
  • This investment was a major failure for Nanshan, a story that is uncovered in the non-Taiwanese Media.

Introduction

IT industry’s standard excuse for failed ERP projects always has been something akin to the following:

The software is not the problem.

The mistake is not hiring qualified implementation consultants to lead the project, or the enterprise users themselves have problems.

This invariably assumes — without evidence, that the application or database is fully mature and ready to be implemented, and that all of nearly all of the application or database functions as advertised. This is, of course, a hypothesis normally put forward by those that make money from ERP sales or ERP implementations.

Let’s take Nanshan Life Insurance’s example to debunk this hypothesis:

Nanshan Life Insurance is a company based in Taiwan, and at one point, the US insurance giant AIG sold its 97.5% stake in Nanshan for $2.15 billion. Its chairman is Mr. Du. He is a former vice president of New York Goldman Sacks and an SAP proponent and flew several times to SAP headquarters in Germany to meet with SAP.

Mr. Du firmly insisted on buying HANA. Du’s boss told media that.

“SAP is the only qualified vendor having 9 modules that meet Nanshan’s requirements.”

Nanshan then signed with SAP the $157 million contract of the ERP project, which included some SAP applications, including CRM, Business Objects as well as S/4HANA.

This was announced by SAP, as we can see in the following article/PR release on the SAP website.

TAIPEI — SAP AG today announced that it has signed a multi-billion dollar contract (TWD) with Nan Shan Life Insurance Co., Ltd. to build the insurer’s next-generation IT infrastructure as part of its multi-year business transformation initiatives. The IT upgrade project, named “Envision,” enhances the efficiency of business processes and creates best practice solutions tailored for the insurance industry in Taiwan. Nan Shan has selected the SAP ERP application, SAP CRM application, SAP BusinessObjects business intelligence (BI) solutions, SAP Mobile Platform and the SAP HANA platform to revamp its existing systems in order to improve sales productivity and customer experience across multiple touchpoints.

This was announced on June 19th of 2014. We found another article from SAP Insider (one of the many subordinate media outlets to SAP) that said the same thing and was published on June 24th of 2014. Note that this was nine months before S/4HANA was introduced, which was in Feb of 2015. However, something similar happened with the Lidl S/4HANA failure, where the company eventually moved to and failed with S/4HANA for seven years and 500 million Euro.

However, since this announcement, we were unable to find anything else published about this project.

What Really Happened with S/4HANA at Nanshan

SAP spent five years designing life insurance applications on top of the HANA database for Nanshan. Why did SAP bother spending five years developing applications?

Well, SAP told Nanshan decision-makers before they won the contract that.

“They (SAP) already had 9 modules for Nanshan’s use(emphasis added)

After five years of effort, SAP finally rolled out its new life insurance applications and replaced the stable legacy application system that ran on an IBM MVS mainframe.

The stable legacy application system was ultimately suspended immediately on the same day S/4HANA was brought to live – a procedure coined by Mr. Du as “big bang” and “only courageous people can do it.”

However, the reality of the SAP implementation, which included S/4HANA, is the following:

“Boundary Achievement”, which has been invested by 10.1 billion yuan and was tailored to find the German business SAP (SAP). Unexpectedly, the system that took five years to develop has been “chaotic” since it was launched in September last year. A senior Nanshan salesperson said, “A variety of unreasonable things happen.”

Nanshan has more than 6 million customers and 37,000 salesmen. The chaos of the (Boundary Achievlment Project) has caused 150,000 cases to be suspended, and customers and salesmen have been deeply disturbed. In the first half of the year, the trade unions constantly reflected the chaos in the (Boundary Achievlment Project) and took the lead in public protests.

In the (Boundary Achievlment Project) of chaos, how bad is the disaster? Insurance Commissioner Shi Qionghua described the “disaster scene”: “At present, there are a total of 152,000 tickets for “no payment”, including no payment notice, advance payment, or no payment, etc. The company has contacted one by one. More than a thousand remaining policies have not been processed.” – Commerical Times

And…

For example, a policyholder who applied for a savings insurance policy to Nanshan found that the amount of the cancellation fee and the written contract calculated by Nanshan Life Insurance’s computer system did not match, and was reimbursed after being reflected to Nanshan Life Insurance.

Another citizen said that the new system was in a mess after the online launch, and the amount and date of the deduction were still wrong. There were also people who wanted to redeem the value of the fund unit in the account. The unit error displayed on the website could not be redeemed. All kinds of chaos have been questioned by the public. The new system has been launched without rigorous testing. The system has caused various problems and seriously affected the rights and interests of customers.  – IT Home (*Brightwork Research & Analysis had never heard of IT Home, but they are one of the top IT websites in Taiwan)

Since going live, S/4HANA produced numerous inaccurate outputs to Nanshan’s software users. According to media reports, many, if not all, incorrect outputs were discovered by Nanshan’s salespeople and customers.

  • S/4HANA erroneously terminated 150,000 policies or set them to “automatic premium loan” states.
  • Sixty thousand cases of credit card payment failed.
  • S/4HANA mistakenly tagged 1,381 alive insureds as “dead.” Nanshan stated that “this error already emerged six months ago, but they treated those cases as exceptions.”
  • S/4HANA tells you that you have not paid a premium even after you made the payment. Nanshan accordingly mobilized its employees to manually compare each policy, which amounts to 4 million, in S/4HANA against those in Nanshan’s legacy system.

What is incredible is that the system was only taken live on September 10th. The articles that we reference were published on or around early October. This means that the go-live has been so devastating to Nanshan’s operations that it has developed these negative comments from both salespeople and shareholders in this short amount of time. It took less than a month for Nanshan to feel the effects of something akin to a bomb going off in their IT department.

The following quotation is representative of the sentiment of many salespeople at Nanshan.

It is not our obligation to find out software bugs in lieu of the company!

No one in the world is aware of how many more errors are hidden in that software.

Get rid of the new software and go back to the old system!

The biggest problem is not that the system is difficult to use, but that there is no way to tell which figures are right or wrong!

How many more timed bombs are in the system?

And from a Nashan shareholder.

“What kind of bad system does the company buy for 10 billion yuan? It has been impossible to log in at the customer!” Nanshan Life’s minority shareholder broke the news to the reporter of ETtoday News Cloud. Since the new system of Nanshan Life Insurance’s (Boundary Achievlment Project) has been launched, many problems cannot be solved. Including data comparison, customer rights, and now even entering the password may not be able to log in. Resetting the password more than 10 times is impossible to use, causing the salesperson to be staggered by the customer. “This company has no integrity, profiteers and The vampire is in power.”

And further…

The most important thing is that the former chairman Du Yingzong has been obsessed with these problems, which seriously affects the image of the entire company. The customers do not trust the salesman and the shareholders’ rights are also damaged.

Curiously, Nanshan appears to have been entirely in the dark about the lack of capabilities of the system they were about to roll out. This points to a problem of oversight within the company. SAP will lie to customers to sell their software. But if a company is unaware of significant issues before they go live, then they are internally not effectively managing the project or the software vendor, as the following quotation indicates.

Another citizen said that the new system was in a mess after the online launch, and the amount and date of the deduction were still wrong. There were also people who wanted to redeem the value of the fund unit in the account. The unit error displayed on the website could not be redeemed. All kinds of chaos have been questioned by the public. The new system has been launched without rigorous testing. The system has caused various problems and seriously affected the rights and interests of customers. – IT Home

Of course, going back to the legacy system is not an option at this stage because it was marked for retirement more than a year ago, and its data is now dated. Is there any way to re-synchronize the old system’s data and then bring the legacy system back to live? Perhaps some consultants have secret killer recipes as Nanshan’s remedy, but at this point, it looks unlikely.

Various media outlets reported that:

“SAP Head Office serves as the exclusive consultant of that project.”

Before SAP won the order, SAP made claims that they had significant experience in the life insurance industry, which later became apparent was inaccurate.

Project “Boundary Achievement”

Five or so years after the start of the project “Boundary Achievement,” Dr. Du was removed from his post by Financial Supervisory Commission Taiwan as a result of the failure and the chaos brought by both SAP and its S/4HANA to Nanshan. Du reiterated to journalist several days before his removal as this:

I would do the same if this project had to be restarted all over again.

After Dr. Du’s removal, overwhelmed by Nanshan’s salespersons and policyholders’ complaints, this company’s highest-ranking individual confessed to journalists that his company had so far poured “only” $336 million on SAP and its S/4HANA ERP system.

One of the complaints from salespersons is that S/4HANA runs extremely slow. Nanshan decided to boost its hardware used by S/4HANA. Mr. Yen told a media that Nanshan had ordered another powerful server at high-cost to boost the S/4HANA, whose current response time stretches to hours according to its users. That server is planned to arrive in November 2019.

The Problematic Fit Between SAP and Nanshan’s Business

Something undiscussed in any of the media entities covering this story is the fit between SAP’s software and Nanshan. Nanshan is the fifth insurance company we have tracked in our S/4HANA implementation database. However, the fit between S/4HANA and insurance is incredibly weak. This is explained in the following quotation from someone with quite a lot of experience in the insurance industry.

Why did this insurance company buy SAP software for their core business? Insurance industry is not and never has been a core industry of SAP, and completely irrelevant at life insurance, one of the most complicated lines of the insurance business.

So why could anyone believe SAP has something to offer? – Rolf Paulsen

Nanshan is yet another company that is implementing an ERP system that does not need an ERP system. And that was just the beginning of the issue, before the problems of maturity of brought into account. Again, SAP stated to Nanshan that they had nine modules that met their needs. What modules are these, because we research SAP extensively and cannot imagine what modules SAP was describing.

SAP’s Problems Implementing Their Own Software

Usually when an SAP project goes south, SAP or SAP consultants will point to the implementing partner. However, in this case, that is not possible, because SAP was the implementing partner. However, after we initially published this article, the following quotation came in from Wolfgang Steinert, who is a long-time SAP consultant.

Another portion of the story is around the inability of SAP to implement their own software and screwing up most if not all projects they are directly involved in.

I recall that back in 2011 I was working on a reasonably large SAP upgrade as PM and I got a phone call from my headhunter looking to fill positions for a large project with Nanshan (appears to be the one you now write about). They wanted to replace their entire insurance IT with SAP products (of course there was no S/4HANA at this time). I was told that SAP could not find enough people to actually start the project in a timely fashion and with qualified enough people and Nanshan was already angry with SAP back in 2011. The rates SAP offered were abysmal and I decided to not accept them.

After a great deal of exposure, I believe that SAP is incapable of running projects successfully. I have yet to see one that SAP manages that is completed successfully. The Thailand project was also in shambles and it took quite an effort to pull the cart out of the mud.

This one was a greenfield implementation of almost all SAP software you could identify (also in excess of US $140,000,000.00). After the Thailand job I was again offered an opportunity at “a large Taiwanese Insurance” but having gone through the implementation experience with SAP as the implementor at PTT I declined the offer. PTT was so p****d off with SAP that they contemplated to take them to court and arbitration – the stint there with SAP did damage my reputation in Thailand somewhat.

What angers me most is their audacity to laud their achievements when it comes to projects they ran. See this article for details. It is always BIG BANG (same in Thailand) … and Accenture has taken a leaf out of SAP’s playbook.

Maybe we should have a closer look at how they run their projects in addition to investigating the (in)capabilities of their software.

There are multiple points of failure when a project fails. S/4HANA’s maturity is one. The unexpected custom development required to make S/4HANA fit the life insurance industry is another. SAP’s inability to implement its software is another. The low rates expected for experienced contractors in Taiwan is compelling because SAP charges such high prices to customers. However, SAP has enormous margin requirements when it hires a contractor. Therefore, if SAP had been more reasonable on its expected margin, it would have been able to find more experienced implementation resources.

Advice on Enjoying the S/4HANA Quiz

To see the full screen just select the lower right-hand corner and expand. Trust us, expanding makes the experience a whole lot more fun.

 

Conclusion

When the Lidl project failed at the cost of 500 million Euro over seven years, it made significant waves. However, when Nanshan fails with their S/4HANA implementation, which is already up to $336 million over five years, up until now, it did not make it out of the Taiwanese media. This is Brightwork Research and Analysis’ first exposure to Taiwanese media — and it is far less censored than the IT media in the US. The articles, as published in the Taiwanese media, would never have been allowed to be published in IDG publications like ComputerWorld or TechTarget or similar UW media outlets. Instead, the US publication would have asked SAP who they should speak to. And SAP would have pointed them to one of their “approved independent analysts” who is financially connected to SAP and who would have stated that the issue was not the software and not the implementation, but the customer. The readers would not have been informed that ComputerWorld/TechTarget/etc.. counted SAP as a customer (for advertizement and paid placements). And that the “approved independent analyst” (say Josh Greenbaum for example as we cover Why Josh Greenbaum Continually Carries Water for SAP), was financially connected to SAP. Readers would never be told that ComputerWorld/TechTarget/etc.. had sided with SAP because their editorial interpretation had been already purchased by SAP many years ago.

Furthermore, Nanshan has much more costs; it will incur on this system.

  • Just the implementation of the new servers brings up more costs.
  • The dislocation to the business is many more millions.
  • Nanshan will lose customers from this and will lose the lifetime value of many of those customers who will not come back. Imagine you were a Nanshan customer who experienced the items listed in this earlier article.
  • The Taiwanese Insurance Commission fined Nanshan $1.18 million already due to the outcomes of this project.

The quotes describe an appalling situation at Nanshan, and many within Nanshan are no doubt holding back their critiques. The environment within Nanshan is one of chaos and has been since September 10th, with people using numerous workarounds of S/4HANA to try to get their jobs done.

The system that caused all of this dislocation for Nanshan has been hidden in the media reports. Repeatedly S/4HANA is simply referred to as “the system.” We could only find one source (IT Home) that identified SAP as the software vendor that caused these issues, and also identified the project which was “Boundary Achievement,” as originating in 2014 – which of course matches up with SAP’s announcement of its major sale to Nanshan.

This is the promise that was made by SAP to Nanshan.

The person in charge even said, “I understand that the (Boundary Achievlment Project) attempted to integrate all the sales from the front desk salesman, the policy to the back office, and the claims settlement. Once it is successfully launched, it will lead the existing Taiwan life insurance system for five years.” – Commerical Times

When will companies learn that SAP will say anything to sell their software?

This case study is similar to the Revlon case study as covered in the article What Was the Real Story with the Revlon S/4HANA Failure?, in that, at the time S/4HANA was acquired the application was so immature that it had no possibility of being taken live — for years. Brightwork Research & Analysis repeatedly covered the issue of S/4HANA’s immaturity Why Did SAP Fake S/4HANA Maturity so Aggressively? This was routinely critiqued by SAP consultants who did not want S/4HANA analyzed from any realistic perspective that might negatively affect their ability to sell or work on S/4HANA projects.

And now, over five years after the acquisition and massively exceeding the timeline and budget, Nanshan received a significant blow to its business by trying to take S/4HANA live.

Financial Disclosure

Financial Bias Disclosure

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

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References

*https://insidesap.com.au/nan-shan-life-signs-multi-year-contract-with-sap/

https://news.sap.com/2014/06/sap-nan-shan-life-build-best-practice-solutions-insurance-industry-taiwan/

https://www.reuters.com/article/us-nanshan-confirmation/aig-sells-taiwan-insurance-unit-for-2-15-billion-idUSTRE59C0B120091013

https://ctee.com.tw/news/insurance/155053.html

https://www.chinatimes.com/realtimenews/20190917003371-260410?chdtv

https://www.ithome.com.tw/news/126374

https://www.ettoday.net/news/20191014/1556747.htm