SAP ERP — Advantages and Disadvantages

An Independent SAP ERP Review

Having done many deep dive SAP ERP reviews, I’ve learned readers and ERP software buyers like to jump right to the Advantages and Disadvantages sections. So this time around I’m going to take a two step track. In this post I’ll share the most strategic advantages and disadvantages for SAP ERP, and in subsequent posts I’ll drill into more detail for each SAP ERP application, including SAP ERP, SAP Business All-in-One, SAP Business One and SAP Business ByDesign.

SAP ERP Review

SAP is a remarkable company in many ways. From its founding in 1972 by five former IBM employees, the company has evolved to become a global ERP software leader that counts over 232,000 customers in 188 countries. While SAP ERP manages many of the world’s largest companies, the company is also quick to remind that about 65% of SAP solutions are installed in enterprises with fewer than 1000 employees. In reality, most in these midmarket installs are using products other than SAP ERP (such as Business One and Business All-in-One), but there are also many midmarket companies that use SAP ERP as their primary enterprise software solution. And as we all know, there is no one-size-fits-all ERP solution and all ERP systems have their pros and cons. In no particular order, here's my list of SAP ERP's advantages and disadvantages.

SAP ERP Advantages

• Market share leadership—SAP is marquee brand that is arguably the ERP software market share leader. For reference, Oracle would take that argument and would point to different criterion to measure market share. Nonetheless, SAP is a very sophisticated marketer and able to retain most of its customer base, thereby suggesting it is likely to retain its leadership position.
• Corporate viability—With over 65,00 employees, 232,000 customers, €16,22 billion in revenues and an impressive four decade history, the company shows no signs of going away anytime soon.
• Software scope—The application breadth of SAP ERP, and even wider scope when considered within the SAP Business Suite, provides a central and enterprise-wide system for the largest of companies while delivering some consistent benefits, such as streamlined business processes, more accessible information and a reduction of interfaces among disparate applications.
• A global solution—SAP supports global functionality with 45 standard country versions and eight add-on country editions. The application is also scalable to support thousands of concurrent users across multiple locations.
• Expandability—SAP business applications can be procured modularly for individual functions such as CRM or SCM, or customers can acquire the SAP Business Suite to integrate all or most of their business processes. Similarly, the financial applications can be operated stand-alone or as a part of a broader suite.
• Industry expertise—Deep industry and vertical market solutions within its six industry sectors of discrete industries, process industries, consumer industries, service industries, financial services and public sector bring focus, domain knowledge and supporting ecosystems of ISV software products and services to these markets.
• Business Intelligence—With its Business Objects acquisition, SAP has excelled in bringing tightly integrated Business Intelligence (BI) to ERP systems. The SAP BI stack spans report writing, dashboards, data warehousing and some data mining and is most recognized for its front end tools which include Crystal Reports, BusinessObjects Web Intelligence, BusinessObjects Xcelsius Enterprise and BusinessObjects Explorer. Challenges remain in embedding BI into role based workflow routines, so that users are delivered BI in context of their normal processes and responsibilities, and not required to navigate to separate BI destinations, but SAP is clearly ahead of most in this area.
• More analytics—HANA is a highly touted in-memory columnar database that uses low cost main memory (RAM), scalable multi-core processors and fast data access from solid-state drives (instead of to traditional hard drives) for accelerated data processing and improved business intelligence delivery. HANA is also steadily advancing to become an underlying application core database (and thereby make OLTP databases such as Oracle unnecessary), although achieving this objective is still unproven. Personally, I like HANA for its BI performance benefits, but at the same time I find that SAP over-dramatizes this product and its importance. On the plus, who wouldn’t want their BI queries to run faster? On the not-so-plus side, I’ve never heard a business or technology leader say, “gee, if I only had in-memory computing some of my biggest business problems would be solved.” SAPs desire to use HANA to replace Oracle and other relational databases is for obvious competitive reasons. And while every CIO would like to save more money, it’s far from clear if and when HANA could pull this off whether customers would actually benefit financially. I think the bigger opportunity for HANA is to advance its Big Data capabilities, as the product can naturally progress in this direction, and nearly every business and technology leader is seeking innovative solutions and Big Data tools for access, sync, search, visualization, analytics and mining that collectively lead to better business decisions.
• Mobility—The 2010 acquisition of Sybase reinvigorated SAP’s vision, technology and commitment to enterprise mobility. The acquisition promoted the SAPPHIRE NOW 2010 slogan of “On premise, on demand, on device” and the company firmly believes mobile is becoming the new desktop. Co-CEO Bill McDermott has repeated many times over that SAP will be number 1 in enterprise mobility, and the company is well on its way to that lofty objective.
• Enterprise Tools—Enterprise grade tools such as SAP PLM (Product Lifecycle Management, an information center for developers with document and code management and collaborative engineering) with supporting technologies such as NetWeaver empower IT shops with the needed tools to aid manageability of complex business systems.
• NetWeaver—NetWeaver itself may be a pro or a con depending upon your perspective. This tool is based on Internet standards such as http, xml and web services and designed to simplify data transfer between SAP and non-SAP systems among other tasks. The tool offers capabilities such as so-called business intelligence functions, some level of master data management (at least in the context of integration), synchronization with mobile clients and other apps, and related functions. According to Gartner, “Component by component, NetWeaver often is not as strong as the market technology leader.” More so, many CIOs are reluctant to incur the investment to learn yet another proprietary tool. From my discussions with SAP customers, it seems common that companies with big SAP investments invest in NetWeaver, while companies that use SAP in a more limited role or where SAP is only a portion of the enterprise software portfolio instead elect other middleware and integration tools. NetWeaver is not required to run SAP ERP.
• Community—Despite a lack of transparency with regard to ERP software pricing, the company has developed a very collaborative customer and partner portal called the SAP Community Network. The engineering-oriented portal leverages social tools such as a Wiki, gamification concepts such as granting points for contributions and generally supports candid comments and conversations.
• User groups—SAP User Groups are extremely sophisticated and offer an outstanding opportunity for customers to collaborate and get more value from their software investment. The User Groups are independent, not-for-profit organizations that provide education among members as well as influence SAP company and product direction. Some users complain that the groups get hijacked by SAP partners with not so subtle goals of selling their services, but the groups are open to partners who often assume leadership positions and pay the bills.

SAP ERP Disadvantages

• Complex pricing—SAP pricing is unnecessarily complex and lacks transparency which facilitates sales gamesmanship. Further, new SAP software maintenance models have been very controversial with the customer base. Even after getting past the hurdle of understanding the software acquisition costs, customers are required to then track multiple licensing metrics, such as role-based and named user categories, licensing use based on operating metrics and hardware utilization metrics for certain products. Other pricing challenges occur in the forms of periodically changing licensing programs and product bundles, unfavorable policies for shelfware and difficult to interpret policies for third party “indirect use” integration clauses.
• Very high TCO—It’s no secret that SAP comes with a very high Total Cost of Ownership (TCO), consisting of high acquisition costs, very high deployment costs, reasonably priced but recurring maintenance costs and very high internal support costs. It’s incumbent upon ERP buyers to identify, calculate, analyze and optimize their investment in each of these categories prior to making a purchase decision. Without a firm handle of the costs in each of these categories, it’s very unlikely an ERP buyer would achieve their budget or software investment ROI objectives.
• Deployment risk—Continuing one of the prior points a step further, ERP buyers must recognize SAP ERP software is broad, deep and complex, thereby rendering the conditions for a perfect storm and a very challenging and costly deployment. Run-away ERP projects are legendary and on-time/on-budget ERP implementations are exceedingly rare.
• Recurring upgrades—Also adding to TCO and budget considerations are the recurring nature of new version releases. As is typical of complex on-premise ERP systems, new version releases are regarded as Fork Lift upgrades with deployment costs that often exceed the purchase price of the original ERP software. ERP upgrade costs can rise exponentially based on software customization, and to a lesser extent business process designs and system integration. The upgrade projects are so complex and costly that it has become common for customers to simply avoid them—a practice that defers short term pain but ultimately catches up with these customers.
• Rigid—SAP ERP software has earned a reputation of being very rigid. While configuration is pervasive throughout the application, configuration options are limited and seldom extend beyond the original design intent and software architecture constructs. Although most customers believe ERP software should be flexible enough to accommodate their business processes (which many companies believe represent their uniqueness and competitive advantages), SAP customers are often forced to adjust their business processes to accommodate SAP software. This can be a very strong barrier for companies whose business models are in motion (i.e. M&A, divestitures, geo expansions, new products, etc.) or who are increasingly adaptive to fluid market conditions or pursuing more agile business strategies.
• Technology implications—SAP has a reputation among many of being antiquated technology. Putting the technology purists aside, this may or may not be a fair accusation. It is true that SAP ERP technology traces back to the 1992 R/3 release, and has been progressively updated through continuous iterations as opposed to a complete rewrite in a more modern technology. The technology foundation becomes more important for companies that are complimenting significant software customization or system integration. Particularly in these scenarios, ERP buyers must do their due diligence in order to truly understand the cost and operational impact as a result of the SAP ERP technology.
• MDM—SAP’s Master Data Management (MDM) strategy still lacks clarity, and SAP customers are left to procure and implement up to three MDM tools to achieve their objectives, including SAP NetWeaver MDM (for mixed application environments), SAP Master Data Governance (normally for all SAP environments) and SAP Information Steward. MDM is a work in progress for SAP, and could benefit from a more common and simplified platform.
• Lack of innovation—Many would argue that the last market winning innovation delivered by SAP was with the release of SAP R/3, the company’s first client/server technology solution, in 1992. The company has launched other technology releases such as NetWeaver in 2003, but nothing that’s achieved a leadership position. Today when discussing innovation all conversations lead to HANA, which is an impressive technology, but based more on opportunistic capability than client demand, and has yet to assume a leadership position.
• No viable Cloud strategy—Despite massive investments, SAP has been unsuccessful in keeping up with the industry in delivering disruptive technologies such as cloud ERP solutions, and minimally successful in responding to increased demands for technology that supports business strategies such as social CRM and Customer Experience (CX). The company did release Business ByDesign as a cloud solution, but this product has incurred severe go to market mistakes and poor market adoption. With the release of SAP CRM 7.0 a few years back and its Business Insight integration with Twitter, the company began its foray into social CRM and social media, however, has since failed to keep up, significantly lags competitors and is woefully short in enabling the social enterprise. I continue to hear overtures from SAP regarding social, but like the cloud, the company’s software delivery doesn’t match its words.
• User Experience—The application is intuitive and usability is straight-forward, but the User Experience (UX) lacks when compared to more modern user interfaces which take advantage of rich presentations, social paradigms and consumer technologies. The SAP user interface is based on several presentation technologies and tools, some of which are on the way out (Flash, Silverlight) and several of which are seemingly becoming more harmonized, but not more consumer-like or rewarding for the user. SAP’s Project Gateway is an integration layer that exposes SAP objects to various presentation layers or user interfaces. It’s an interesting tool for custom apps development, but no SAP customer wants to rewrite the core ERP system in order to appease users or deliver a superior user experience.
• Workflow design—Business Process Automation is an increasing demand by organizations seeking to reduce labor, shorten cycle times and deliver more process consistency. The Business Process Management Suite (BPMS) tools and NetWeaver BPM (Business Process Management), which compliments the Business Process Modeling Notation (BPMN) process flow models, delivers the basics for simple workflow design, and achieves reasonable integration with the NetWeaver Integrated Composition Environment, Business Rules Management and SAPs Enterprise Service Repository. NetWeaver BPM is now a part of the NetWeaver Composition Environment and continues to show slow but steady progress. However, BPM needs much stronger collaboration and Business Activity Monitoring (BAM) capabilities, and therefore doesn’t compare well with competitor solutions, and doesn’t get a lot of adoption among the customer base.
• High exit barriers—There are very high barriers to switching ERP solutions. SaaS and cloud ERP solutions are dramatically reducing exit barriers for ERP software customers. Unfortunately, as SAP ERP software is not available in a SaaS delivery model, the prospect to change your ERP solution is extremely limited.

SAP ERP Challenges

SAP is challenged in the two primary areas of innovation and net new customer acquisitions. For example, as highlighted, the company has been unable to respond to the market demand for cloud solutions which has resulted in not just lost opportunity, but the erosion of their own install base by more innovative competitors. Companies such as Salesforce.com have displaced SAP’s CRM software within SAP’s own customer base. Gartner projects Salesforce.com will overtake SAP’s leadership position in the CRM market this year. Companies such as Microsoft and NetSuite are winning Tier 2 ERP deals within the SAP install base. For a decade, SAP has argued that its enterprise install base isn’t looking for cloud solutions, which is partially true, however, is clearly changing with each passing day.

Similarly, SAPs slow growth of net new customer acquisitions is limiting its upside potential. SAP holds a near dominating ERP software market position among the Global 2000, which is great, except for the fact that there are only 2000 of these customers and once they become saturated business growth becomes limited. For SAP and the ERP software market at large to grow, enterprise ERP software publishers must consider new market opportunities such as the cloud ERP market and the midmarket; two overlapping sectors but not necessarily the same. SAP does effectively compete in the midmarket ERP space with its Business All-in-One and Business One solutions, however, these solutions are not market share leaders and are in need of technology refresh and overall innovation infusion. If the company were to improve midmarket vision and clarity, and grow their investment in the Business All-in-One and Business One solutions, it’s quite probable they would compete more favorably with the market share leaders (Microsoft Dynamics and Sage), however, at this point these solutions don’t seem to be high on the priority list.

Final Thoughts

From my experience in managing SAP deployments I’ve found that by the time of the go-live event, customers are so exhausted they have a tendency to call well enough alone, and forego additional business value that can be empowered with their application software. My recommendation is always to learn from the deployment, let some time pass while you work out the kinks and measure your ROI, and then consider how to further leverage the software investment for continued objectives. But too often, SAP customers fail to even measure their ERP investment let alone unlock their ERP potential in a journey of continuous process improvements. Gartner revealed that "63% of companies do not measure the business value from their huge investments in ERP at all,” which makes it all the more difficult to unlock future value when you haven’t demonstrated current value.

Finally, in what may be an indication of changes to come, SAP is showing signs of an evolving culture, essentially gravitating from an engineering culture to more of a sales-driven culture. Whether the change is by design, being pushed upon the company by market conditions, or simply part of the next generation of managers and leaders assuming the reigns, the implications are certain to affect the company’s solutions, market outreach and customer support. Because of the extreme barriers to switching vendors for SAP customers, ERP software buyers are wise to investigate how the SAP culture aligns to their own, and may impact their long term enterprise software partnership and software investment.

Comments (7)	— Comments for this page are closed —

	Anonymous
	Your claim that SAP is behind or without solutions for Customer Experience and Social Media is incorrect. SAP is a leader in these areas as well.

		Chuck Schaeffer
		Let me expand on each of these points. I’ve been following SAPs discussions on CX ever since three SAP employees released a book called The Customer Experience Edge in 2011. I actually did CX interviews with one of the authors multiple times to understand how CX relates to SAP solutions. The book is quite good, and could have been a contributing piece to a CX thought leadership position for SAP. However, SAP never followed up on their CX evangelism with supporting technology and further tried to redefine CX within the context of 20 year old software for their own parochial interests. SAP makes a point that customers need fully-integrated enterprise systems to capture and distribute content and knowledge to the many customer touch points which impact the CX. It’s a valid point, but falls woefully short in achieving a CX business strategy, and of course is the same argument the company made in 1992 in suggesting the overarching value of enterprise-wide ERP systems. It was a strong argument in 1992. IMHO, it’s a completely lame argument for achieving a CX strategy in the current era. With regard to integrating social media with supporting application technology in order facilitate business strategies such as social CRM or building a social enterprise, I think SAP has dabbled and released some very limited point solutions, but is markedly behind direct competitors such as Salesforce.com and Oracle. As I’ve written in the past, I like what SAP has done with Sales OnDemand, and with the acquisition of SuccessFactors there are some good social talent management / HR capabilities, but these are very limited solutions and the company has not continued to grow these first steps with any significant application expansion. IMHO, the company would do well to help its customers achieve their social strategies with tools that deliver accurate social monitoring (with sentiment analysis), enable social marketing, promote better engagement over social channels, allow their customers to tap into crowd sourcing or peer to peer customer support, and the near limitless other ways enterprises are using social media to engage and collaborate with prospects, customers, employees, supply chain partners and stakeholders.

	Steve Shifley
	The comment above makes me want to know how SAP views your reviews.

		Chuck Schaeffer
		I get that question a fair amount. My simple answer is that SAP like all companies is made up of people, and different people have different views. I’m also clear that my software reviews have two objectives, first to inform software buyers of salient points so they can make a more informed purchase decision, and second, to provide enterprise software publishers a perspective that they may want to consider in their business and product planning. With all software publishers, I find those that are secure in their positions and open to collaboration enjoy my reviews. And as my wife will tell you, I'm not perfect, so I'm pleased to be challenged on my reviews and more than willing to correct any misstatement.

		Len Warren
		SAP is not known for their gracious acceptance of constructive criticism. I worked for an SAP partner and find your review incredibly telling and accurate. I suspect many at SAP are the insecure personalities you reference, and don’t feel the same.

	Denise Johnson
	I like your deep dive reviews, but I’m glad you cut to the chase on this one.

	Jenna Ritchie
	I’ve been an SAP customer for 8 years and you nailed the points.

Share This Article

SAP holds a near dominating ERP software market position among the Global 2000, which is great, except for the fact that there are only 2000 of these customers and once they become saturated continued business growth becomes limited.

Related Articles