Enterprise resource planning (ERP) systems are a career-defining decision for many IT executives. And yet, says an expert who follows SAP and its base of corporate customers, many of those executives don't pay enough attention to the German software giant's strategy for updating these bet-your-business applications.
But here's the thing: They should be.
As AMR analyst Jim Shepherd describes in a report from earlier this year, "The Five SAP Strategies That You Need To Understand," few companies buy SAP for best-of-breed or one-off applications. More than likely, these companies (and the CEO, CFO and CIO who sign off on what is typically a multimillion-dollar contract with SAP) have "bought into the idea of deploying a broad, single vendor business suite," Shepherd writes.
"These companies have a huge investment in SAP," he says, "and they're most likely going to keep it for 20 to 25 years or longer." That likely commitment, combined with the fact that it takes a long time to realize value from an SAP implementation-and it's prohibitively expensive to replace it once it's in-mean that most IT executives are betting their careers, in a sense, that the rollout will work out, Shepherd says.
So with all that at stake, it behooves enterprises and their IT staffs to have a good understanding of exactly where SAP is headed-its upcoming product releases, areas of growth, evolving platform and partnership strategies, planned industry and vertical specialties, and new product suites on the horizon. Changes in any of those, Shepherd contends, could have significant implications for the business.
"These kinds of vendor strategies will have an impact on them at some point," Shepherd says. "And forewarned is forearmed."
Five SAP Strategies to Know
1. Product Release Strategy. SAP has traditionally released products and made major changes to underlying functionality on a five-year schedule, Shepherd notes. So twice a decade, SAP's customer base faced a tough decision.
"They could either ignore the product improvements that their maintenance fees had helped to fund, or they could invest a significant amount of time and money in an upgrade project that is often disruptive, expensive and deeply unpopular," Shepherd writes. "It became quite common for companies to delay or defer releases. However, that approach carries enough risk and cost that most organizations didn't dare go longer than eight to 10 years between upgrades."
In October 2005, SAP finally started to fix this release gap with the shipment of its ERP 6.0 product, Shepherd notes. "Instead of bundling five years of product enhancements and technology improvements into one massive upgrade, SAP has now moved to what it calls a continuous innovation strategy," he writes. "The major applications in SAP ERP and the SAP Business Suite will now be upgraded through enhancement packages issued every six to 12 months. These enhancement packages are shipped at no cost to customers on maintenance, and deployment is optional. Each enhancement package includes new and improved functionality across a variety of product areas and vertical industry applications."
Overall, what's important for SAP customers to realize is that "most SAP customers can upgrade their systems gradually without the kind of massively expensive and disruptive projects that have traditionally characterized SAP releases." (The new approach is available for SAP's ERP 6.0 product, Shepherd points out, which has shipped two enhancement packages already and is due to release its third in mid-2008.)
Shepherd says SAP executives have realized is that "companies with global deployments, multi-terabyte databases, and tens of thousands of users simply cannot afford to do monolithic upgrades anymore."