There is a growing number of failed SAP public sector deployments, ranging in scope from the Los Angeles Unified School District (LAUSD) megadeal to the smaller Burnaby, B.C. project. Now the city of Portland, Oregon can be added to that list. A city analyst has revealed to the media that Portland’s SAP project, budgeted at $31 million in 2006 for a 2007 go-live date, is now estimated to be nearly $50 million and won’t be complete until 2009. Portland has fired its systems integrator, Ariston Technologies and Consulting, and is working directly with SAP services to get the system up and running.

It isn’t clear who’s to blame for the cost overrun and project delay, but Portland and Ariston will no doubt implicate each other in time. The soundness of the underlying SAP software itself has not been questioned by either party.

One of the interesting features of Portland’s SAP implementation is the claim, made in a budget document back in 2004, that:

“Users are aware of the many recent developments in ERP software that they feel would better serve their needs. Staff specifically cited on-line real time queries as a high priority as well as the ability to drill down or summarize data. Most said that the staff time spent compiling financial information from various sources in different formats outweighs the cost of a new system.”

While it’s impossible to argue over the merits of the business case without access to all the numbers, it seems highly unlikely that improved data reporting capabilities justify a $50 million expense (to say nothing of maintenance costs for years to come). Of course, there’s also the benefit of getting rid of Portland’s old legacy systems, but how expensive can these be? In the case of Washoe County, Nevada, another SAP ERP customer working with Ariston, 23 interfaces costing between $15,000 and $20,000 each were ditched after implementing SAP. Call it a half million in savings.

Granted, enterprise applications investments are not always about immediate hard cost savings. For many companies, the investment is strategic: for example, it enables them to remain competitive, keep pace with the data demands of their ecosystem, or achieve long-term efficiencies in front and/or back office processes. But the public sector is not the private sector. Portland isn’t in competition with other city governments, and its main job is to provide basic services that governments have successfully provided for thousands of years before the advent of software. It’s very easy to understand why blue-chip private companies such as Coca-Cola or Bank of America would go with SAP and related applications investments, because the investment allows them to do things they couldn’t even contemplate before (such as smart picking in Coca-Cola warehouses). It’s no so easy to understand why city governments are eagerly disbursing tens of millions of dollars for software for enterprise software.

There’s a reason it’s called enterprise software.

Demir Barlas, Site Editor

There’s a major shortage of SAP skills in the marketplace, thanks to the inevitable lag time between SAP’s aggressive debut of new products and IT workers’ ability to master the associated skills.

That’s the message from Foote Partners’ upcoming report on IT skills and compensation. The report is massive, encompassing hundreds of skills, cities, and vendors, but its relevance to the SAP world is focused on the following takeaways:

Hot SAP Skills: SAP MDM, SAP ERP, NetWeaver BI (formerly SAP BW) and SAP HCM are seeing double-digit growth in compensation over the past several months.

Fading SAP Skills: ABAP, Basis, Payroll, SAP SD.

This isn’t meant to service as an index of importance. In other words, the “fading” skills aren’t less vital or widespread; they’re just not seeing compensation growth at the same pace as the hot skills. Similarly, the hot skills are not necessarily the high-volume skills; if you’re an SAP HCM expert, you can command an increasing premium, but you might have fewer opportunities to apply those skills. There are many such factors involved in maximizing your marketability. However, based on Foote Partners’ insights, it’s a safe bet to say that techies with experience in any of the “hot” categories should be talking to recruiters immediately.

In terms of the “fading” categories, it’s worth wondering whether, in time, these could be yesterday’s skills.

Demir Barlas, Site Editor

There are no authorized SAP training partners.

That seems like an odd claim to make given the large number of companies claiming to provide authorized SAP training–Genovate, for example, and dozens of other companies based in South and East Asia. But the fact of the matter is that SAP itself does not officially recognize, let alone authorize, any of these companies as training partners. The partner category closest to this function is “education,” which SAP defines more as the ramping up of existing SAP end users than as the generic training of aspiring SAP developers. Becoming an authorized SAP education partner is difficult; only one company in the U.S., RWD Technologies, is qualified in this category. Naturally, SAP training is provided on an ad hoc, on demand basis by consultants and integrators, but this service is also much closer to SAP’s category of “education” than to the current marketplace understanding of “training,” which is most frequently used in the aspiring SAP developer context.

Yet, somehow, companies such as Genovate continue to claim that they are authorized SAP training partners. Genovate isn’t even mentioned on SAP.com, but on the SAP Developer Network, SDN, the company is regularly described as being an “authorized” SAP training partner.

Either SAP countenances Genovate’s claims in some indirect way or SAP doesn’t bother to address the messaging issues raised by these de facto members of the ecosystem. Either way, it’s a disservice to the marketplace. Walldorf’s mighty legal machine should forbid companies from claiming to be authorized SAP training partners, because such claims do not accord to SAP’s own partner taxonomy or to SAP’s rigid standards for partner authorization. In fact, such claims exist largely to separate vast numbers of gullible Indian technology graduates from their hard-earned money by building the impression that SAP itself confers legitimacy on “training” companies.

The big news in the SAP world this week is the severe shortage of skills; along with Foote Partners, we’ll be exploring this subject in an upcoming podcast and articles. As far as SAP customers are concerned, the existence of shady training companies is contributing to the influx of inexperienced (and, in some cases, fraudulent) SAP techies into the marketplace. When SAP skills get diluted, projects fail.

So it’s really in everyone’s interest for SAP to hit hard at the so-called “authorized” training partners, particularly those in India. The point isn’t to stop these companies from operating, it’s to remove the impression that they have SAP’s mark of approval. At that point, let the marketplace decide their fate.

Demir Barlas, Site Editor

The show floor was electric this year at Sapphire 2008 in Orlando. With over 15,000 attendees, the vendors had their work cut out for them. I saw booths that featured magicians, Guitar Hero, and a 2008 Porsche. A handful took the sex appeal approach. With all these distractions, people were wandering around aimlessly everywhere. Upon noticing the clear behavioral differences I got the urge to ask these people what their original goal was en route to Sapphire.

Mike - UK based oil company
Mike said that he was doing board research on SAP for his “own personal learning experience.” He described his experience at Sapphire thus far as a net cast over everything SAP. His company is not currently using SAP as an ERP solution, but he seemed to think that they will in the future.

Deon - Australasian forest products company
Deon was focused on upgrading SAP, since his company had not upgraded in quite some time. He seemed almost angry in asking,”How does SAP justify the cost of an SAP upgrade?” and “Can it be quicker, with less disruption to the business?” Deon also said his company was very interested in Duet and that Outlook integration is very important.

Nancy - North American computer technology and consulting corporation
Nancy was at Sapphire to gather info about HCM and to “learn more about Cognos.”

Lynn - North American agricultural biotechnology corporation
A “secret agent” for her rapidly growing company — no time to spare! Lynn is researching new capabilities to be unlocked within SAP in order to leverage it properly. She was completely on task, admitting that she has “several meetings with SAP to understand, from a strategy and execution standpoint, where we can go from here.”

Does Sapphire help the average corporation? You tell me… what did you set out to accomplish at Sapphire this year? If you didn’t make it this year, what would you do in a sea of vendors and unlimited enthusiasm?

I’ll be going around next year, so be sure to look for me… I’m sure looking for you.

Eric Samuels
Assistant Editor

For most industry watchers, ‘SAP’ and ‘BPM’ go together in the context of ProcessWorld, SAP partner IDS Scheer’s annual Business Process Management (BPM) shindig. But at Sapphire 2008, SAP showed signs of wanting to address more BPM capabilities via NetWeaver BPM.

NetWeaver BPM, codenamed ‘Galaxy’ when it began in 2006, is not a full-fledged BPM system relevant to heterogeneous environments, but a way of adding human intelligence to SAP applications: What Wolfgang Hilpert, senior vice president of NetWeaver BPM, calls “intelligence in assigning and finding the right roles and rules.”

At a small panel at Sapphire 2008, Hilpert talked at length about NetWeaver BPM. He faced the same challenge faced by everyone who discusses BPM, which can simultaneously function as a technology, a business practice and a way of coordinating the activities of enterprise applications in a human-centric way. In the SAP context, NetWeaver BPM is best understood in the final context. Hilpert offered some helpful examples:

1. In a hiring situation, there are several steps (job postings, pipeline management, candidate evaluation, etc.) that can be orchestrated into a repeatable (but still tweakable) process so that participants need not worry about filling out forms and collecting administrative data related to the process.

2. In a transactional situation, there could be what Hilpert calls “complex conditional expressions” that govern behavior in composite scenarios. Imagine, for example, that some of your customers or suppliers get preferential treatment in certain circumstances, triggering other actions on your part. This could impact how your accounting or shipping systems treat these stakeholders. Using NetWeaver BPM, you could write as many special rules as you wanted in order to deal with preferential situations, and the BPM tool would orchestrate the underlying SAP applications, notify the proper employees in case of exception, and take other steps accordingly. This is one of the true strengths of BPM, as it takes what would ordinarily be a fire drill and turns it into an orderly process.

BPM scales in value as it touches an increasing number of enterprise applications, systems, and employees. The examples Hilpert gave are compelling, but not outside the SAP context. In other words, don’t expect NetWeaver BPM to function as a BPM system that can touch non-SAP objects.

Hilbert concluding by saying that, “Long-term, BPM will be the only process designer in SAP.” That should be of interest to those looking to develop hot SAP skills.

Demir Barlas, Site Editor

The city of Burnaby, British Columbia (B.C.) is a small Canadian town that could furnish the next big SAP cost overrun story. In 2005, Burnaby committed $10 million (in Canadian currency, which is currently close to even with the U.S. dollar) to an SAP financials system. Now, in 2008, an article (SAP costs buried?) in BurnabyNow reveals that the cost estimate is up to $26 million, and that it isn’t clear when the system will go live. New costs keep springing up, including $1.4 million for servers, heating and cooling units, and single sign-on software at least partially necessitated by the SAP project. Apparently, Burnaby had retained Telus for SAP integration, but Telus dropped out of the project in 2006, so the history of problems predates the current dispute over costs.

The Burnaby case doesn’t necessarily say as much about SAP as it does about the customer. As in the Waste Management case, there are clearly customers who are wrong for SAP–companies going through a major executive suite shuffle, for example, or, as in Burnaby’s case, customers who buy the Mercedes when all they need is the Toyota. Consider that the politicians in charge of selecting SAP at Burnaby believe that the small city’s alleged accounting complexity requires the installation of a $10 million accounting system, which costs three times as much as the politicians are willing to spend on improving local neighborhoods. It will be interesting to see whether Burnaby’s citizen stakeholders are at peace with this kind of allocation of their tax money.

Demir Barlas, Site Editor

ORLANDO—One of the general anxieties at this or any other SAPPHIRE is about SAP’s strategic direction. The perennial question for customers old and new, as well as for prospects, is: “Where is SAP going, and how will it impact me?”

A new report from AMR Research’s Jim Shepherd offers specific insight into where SAP is going until at least 2013, and offers educated predictions about what’s going to happen after 2013. Here are some of the big takeaways from Shepherd’s brief:

Product Release Strategy: “SAP will spend much of 2008 aligning the release schedule of the major products within the SAP Business Suite: ERP, CRM, PLM, SCM, and SRM. Beginning in 2009, it will begin shipping enhancement packages for the Business Suite. Because of the synchronization effort, SAP ERP 6.0, NetWeaver 7.0 and all the core applications in the Business Suite will be covered by mainstream maintenance until March 2013, with extended maintenance through 2016.”

SAP Growth Strategy: One of SAP’s growth plans is to increase account penetration. Since this is such a high priority for SAP, existing customers can expect to be subject to increasing sales attention. The disadvantage is that the SAP sales organization will push some customers to buy products they may not need. The advantage is that customers who really want new products can hold out for better terms from SAP, knowing that SAP is very eager to make these kinds of sales.

SAP Platform Strategy: “The reality is that SAP customers have to use NetWeaver because their applications won’t run without it…” Since you’ll have to buy NetWeaver anyway, get acquainted with the optional functionality, including business intelligence, integration capabilities and the portal. There’s a generic parallel here with risk management. Lots of enterprises bought risk management functionality specifically for SOX, but took advantage of additional features to build out a fuller risk management capability. Similarly, customers who buy NetWeaver to run SAP applications can use the platform for a whole lot more.

SAP Industry Strategy: SAP wants to expand into new industries. This is good for customers who fall outside of SAP’s normal comfort zone, as SAP is highly motivated to work with them on product strategy and development. The losers may be SAP’s existing customers in areas like manufacturing, which SAP has already nailed down and will not be paying as much attention to, going forward.

SAP Product Strategy: SAP is moving to accommodate the Software as a Service (SaaS) paradigm with Business ByDesign, which is now delayed because of compatibility issues with NetWeaver 7.1. However, the market can expect SAP to keep going after SMB accounts with SAP ERP 6.0 and SAP Business All-in-One (for upper midsize companies), SAP Business ByDesign for the lower midsize segment, and SAP Business One for small businesses.

Demir Barlas, Site Editor

SAPPHIRE is not only a place to hear about the latest SAP developments but also an important source of business strategy news. For example, today IBM released its Global CFO Study 2008 at SAPPHIRE today, with the CEO study to appear tomorrow. IBM’s CFO Study, executed in cooperation with The Wharton School and Economist Intelligence Unit, is full of data points that indicate where the finance organization—and, by association, the rest of the enterprise—is going.

• Nearly 20 percent of enterprises have no formal risk management documentation capabilities and 13 percent lack a formalized risk framework. This is despite the fact that 52 percent of all survey respondents encountered a risk episode that “substantially affected” their operations and/or results.
• Finance is increasingly tasked with risk management, as 60 percent of enterprises report that the CFO owns this activity.
• In relative terms, outsourcing isn’t a popular way for companies to reduce the complexity of their finance organizations. Less than 10 percent of respondents use outsourcing enterprise-wide.
• Eight percent of enterprises would need a week or more to discover their spend on global travel last month; 3 percent couldn’t even get a snapshot.
• Almost all financial organizations understand the value integration (“integrating processes, data and technology leading to achieve greater transparency”) but over 90 percent of enterprises consider it difficult. Twenty-five percent consider it a “considerable benefit” but still too onerous to execute.
• The finance workload is shifting. Today, 66 percent of finance work is transactional; in three years, less than 40 percent will be. The time spent on decision support and performance management will nearly double in three years. Time spent on control and risk will grow slightly.

There’s a lot of food for thought here, but the bottom line is that finance is becoming more strategic than tactical, more risk-sensitive, and more integrated. These are emerging best practices that warrant careful consideration from the CFO and CEO.

Demir Barlas, Site Editor

SAP’s Q1 results just came in at the lower range of SAP’s guidance. The Americas software and services business was down 13 percent from Q1 2007, indicating that the U.S. recession is registering a meaningful impact on software spending across the board (since Oracle’s and Microsoft’s numbers were similarly hit). The bad news in the U.S. market may be just beginning. In December of last year, the Institute for Supply Management reported that “Purchasing and supply executives predict that capital expenditures will increase by a meager 0.7 percent in 2008, compared to a 18.2 percent increase reported for 2007.” There’s little new money in the U.S. for capital expenditures on such things as software, and the average lead time for capital expenditures in manufacturing is now up to 118 days, meaning that manufacturers are delaying whatever projects they have on hand.

The ISM surveys touch tens of thousands of respondents who are, in many cases, closer to the enterprise’s day-to-day budgeting decisions than the CIO function, so the data should be taken more seriously than CIO surveys that purport to give a picture of true IT spending realities and intentions.

The interesting thing about SAP’s software and services results is that they were much stronger in other geographies, such as EMEA (up 23 percent) and Asia-Pacific (up 47 percent). APAC is probably the safest long-term geography for SAP, given the vast numbers of East Asian manufacturers and other companies who are only semi-automated. Europe is strong for now, but Germany and France are feeling the pinch in macroeconomic terms, as consumer confidence and purchasing power are dipping there, causing a drag that will be felt across the EU. The New York Times recently reported on a middle-class French family who could no longer afford store-bought baguettes; that’s the new Europe for you. Meanwhile, wealth is increasingly flowing to China and India. If the trends evinced in SAP ’s Q1 results hold up, this will shortly be the promised land for SAP.

Demir Barlas, Site Editor