Is SAP’s ERP System Innovative?

Executive Summary

• SAP’s ERP systems are often presented as a useful application, even innovative, but we question this assertion.
• To understand SAP ERP, it becomes necessary to know how ERP was originally sold.

Introduction to Whether SAP’s ERP Was Innovative

SAP claims to be an innovative application. The following quotation presents this.

Our References for This Article

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“To be fair to SAP, they have great products and they have not so good products 🙂
SAP Business Suite is a great ERP when implemented properly and deployed on a scalable/reliable platform (ahem, e.g. Oracle). You have correctly pointed out all those inaccurate claims on their other not so good products. However, this shouldn’t diminish those positive impacts of their very trusty and reliable Business Suite applications since 1992. Rational product development decisions should prevail over old feud though. Moreover, the rational thing to do is to continue the ECC product line way past 2030 with updates in technology and Business processes so that true innovations without disruption is what all customers can depend on.”

Is ECC a Good Product? Is it an Innovative Product?

There is a consensus that ECC is a good product. SAP’s entire existence is due to ECC.

However, is ECC innovative? To consider this question, let us consider the actual definition of innovation.

“Innovation can be defined simply as a “new idea, device or method”. However, innovation is often also viewed[by whom?] as the application of better solutions that meet new requirements, unarticulated needs, or existing market needs. Such innovation takes place through the provision of more-effective products, processes, services, technologies, or business models that are made available to markets, governments and society. The term “innovation” can be defined[by whom?] as something original and more effective and, as a consequence, new, that “breaks into” the market or society.” – Wikipedia

Therefore, innovative means the company came up with something that no one else came up with. It must be new. Now let us consider ECC.

ECC was just a better and broader implementation of something all the ERP vendors were doing back in the 1980s. At that time, software vendors were acquiring MRP vendors and incorporating MRP systems into financial systems to make “ERP.” The benefit was integration, but less discussed was that much was lost in this process. For example, it worsened the MRP systems, which I covered in this article Why are Companies Still Running MRP from ERP?

The idea was that with one system, costs would decrease. However, can anyone look at the costs of ERP implementations and say these reduced costs?

Another problem is that ECC is so weak in so many areas that without Excel, it would die.

The number one way to report and do analysis in ECC? Yes, that would be Excel. ECC has been fantastic for creating external spreadsheets. It seems that Microsoft does not get enough credit for ECC being able to function.

ECC is Good Outside of Finance?

ECC is challenging to use in supply chain management (the area of functionality I have been consulting in for decades in SAP), and it received far less development effort than SAP’s FI/CO module. I consult with ECC customers that generally have great difficulty in managing the supply chain process with ECC. The supply chain functionality was hastily created by what looks to be force feeding supply chain books to developers. The forecasting functionality is virtually impossible to work with. I could go on and on. But this is why I recommend to companies that they do not perform MRP or forecasting or any supply or production planning in ECC.

On the other hand, Deloitte and Accenture desiring to bill the most SAP hours as possible, never recommend reducing the reliance on SAP, no matter how bad the functionality. The entire SAP consulting ecosystem exists not to help customers but to bill as many hours in SAP as possible. Any approach that reduces this primary objective will never be recommended. SAP gives awards to consulting companies, no matter how much they mistreat clients. Even WiPro won an award!

However, SAP proposes ECC is excellent for all of the things mentioned above. The result is that now companies perform these functions in ECC with great difficulty. This issue extends to analytics (all ECC systems have separate analytics systems) to sales order management (CRM has taken much of ECC’s sales order origination function) (why SAP loves indirect access claims against Salesforce).

ECC, a System Propped Up By Customization, Other Systems and Excel

As time has progressed from the initial “sales job” for ECC as the Swiss Army knife of applications, ECC has given up increasing functionality to other better applications. No one seems to remember that this is not what SAP or their coalition of the billing said would happen. Originally CIOs wanted to get rid of their multiple systems, but decades later, ECC also has….you guessed it, many systems connected to it. And SAP is more challenging to integrate with other systems than any other vendor.

Without these systems, and without extensive customizations (something else that SAP lied to customers about), and without exporting to Excel, ECC’s frustration would have no release valve, ECC would be removed from companies at a far high rate. People who consider ECC’s popularity neglect to mention that ECC is propped up from so many dimensions. ECC can be regarded as like an older man. If four other people drive him around and give him his medication, he can have an active lifestyle. But without that external help, he is not going anywhere.

ECC is stable, comprehensive (a relative term I know), standardized, and probably a few more accolades…..but innovative? Companies that implemented ECC are better off than before they purchased ECC? Not the companies I see, and that is not what the academic research indicates.

And as we will discuss, life is about to get even more difficult for ECC customers.

When and How ERP Became the Largest Software Category

ERP became the largest enterprise software category purchased during the 1980s, and it held onto this title until just recently until giving it up to CRM. But it did so without any evidence that ERP improved the condition of companies that purchased it and used it.

It is important to recall that SAP and consulting companies told customers that ECC was the only system companies would never need and lower their spending. Over decades a tremendous number of companies have lied about the impact of ERP on customers. Because all of the money is on the side of the ERP “industrial complex,” they are never called out on their inaccuracy. These are the usual suspects. And they have something fundamental in common. None of them care about what is true.

The Sordid History of ERP

Looking back at the ERP history, it is easy to see that ERP was purchased because it became a trendy item. Deloitte, Gartner, Accenture, and a whole industry — all with a pro-ERP financial bias — all told companies they had to have an ERP system. My academic literature analysis is that ERP systems have a negative ROI (as covered in The Real Story Behind ERP).  And because of the high cost of SAP ECC implementations and ongoing maintenance and the fact that ERP systems don’t particularly enable companies to do things better than before.

SAP ECC has a strongly negative ROI. SAP ECC implementations are the most expensive implementations that we track. We offer two online TCO calculators for ECC, one for large customers and a second for extra-large customers. Lidl just canceled a 7-year project that cost 500 million Euros. Many billion-dollar and up R/3/ECC failures are all through SAP’s history. Imagine what happens to the ROI of ERP when the failures are taken into account?

Both software vendors and consulting companies have been cautious to let their customers know the TCO of ERP. It would be ruinous to ERP sales, and therefore would not allow the most critical driver in all of the ERP industry, namely quota attainment.

Trapped by SAP ECC and Lead to the Slaughter with S/4HANA?

Executives brought no standard of evidence to ERP’s decision-making process, never asking what proof vendors or consulting companies could point to. Executives within customers that purchased ECC were not so much “thinking” as following the adverse risk strategy of just “looking at what your neighbor is doing.”

These companies are stuck with ECC systems that offer little flexibility, are extravagant to maintain, and with the introduction of S/4HANA has a highly unappealing upgrade path. S/4HANA cannot be upgraded from ECC but is a full reimplementation, pounding customers’ budgets once again. This is truly outrageous, but the consulting companies are silent on this, presenting S/4HANA as a positive development. (the customer’s expensive TCO is money in consulting firm’s pockets)

Deloitte and Accenture’s perspective on software TCO can be understood by Matthew McConaughey’s speech in the Wolf of Wall Street. “You take your customer’s money and put it in your pocket.” This is how SAP consulting companies think about their customers. 

With the introduction of S/4HANA, a system that over three years after the introduction is still not ready to be implemented, SAP has made the entire value proposition of their ERP system from bad to horrendous. And this is before we get into the other questions of the even lower ROI products that customers often buy from SAP to connect to ECC and the indirect access liabilities of HANA, which SAP stipulates as the database S/4HANA.

Conclusion

We conclude that while SAP R/3/ECC has been great for Deloitte, Infosys (and, of course, Oracle, who loves those database revenues driven by ECC with 70% of all ECC instances using the Oracle DB) ECC has not been beneficial for customers that implemented it. That is, these SAP customers would have been better off custom coding their solutions (or keeping their existing solutions). Moreover, now companies have SAP, they have SAP account reps trolling their hallways. These sales reps are insistent that their customers double down on their negative ROI SAP ERP investments with even more negative ROI investments into more SAP products that are a step down from ECC. And that with indirect access, customers may have to pay for connecting any non-SAP applications to the negative ROI SAP ERP application. The entire SAP scenario has completely lost the plot. And money rather than product drives every decision.

If only customers repurchasing SAP ERP in the 1980s and 1990s had any idea, this would be the eventual outcome of their trendy SAP ERP purchase.