As SAP shows 'clear path forward,' some users look to stay behind

While SAP was showing how to take advantage of its forthcoming releases, some users were looking to get as much as they can out of what they've already bought.

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CAMBRIDGE, Mass. -- While SAP was demonstrating a "Clear Path Forward" at its annual Influencer's Event in Boston this week, revealing product roadmaps and market strategy to press and analysts, a group of customers and competitors gathered across the river to focus on staying right where they are with their SAP implementation.

Many of the addresses at the Sapience event were prefaced by speakers assuring an audience of about 100 that this was not an anti-SAP event but rather a way to get the most out of the existing investments made in SAP. Yet there was plenty of criticism of the applications giant to go around.

"If you add the cost of the license, maintenance, implementation, upgrade, testing every time you did the upgrade and training individuals for new modules [in an SAP project], I would wager it would be cheaper to have done it with custom development," said Ray Wang, partner with the Altimeter Group, in his address at the event. "That is pretty scary. We're now in a sunk-cost theory proposition. What do we want from SAP? To deliver on the product roadmap you promised the first time. Let us take the savings to go develop something more innovative."

"The other architectural shift is we are outgrowing proprietarily integrated software suites. Please don't ask me to make an acronym out of this term."
Helmuth Gümbel
founder and managing partner
Strategy Partners International

Vinnie Mirchandani, founder of the Deal Architect, likened SAP to Star Wars' Han Solo -- frozen in carbonite and despite investments of an estimated $2 trillion in the SAP ecosystem over the past 25 years, showing little innovation. SAP touts the SAP Developer Network (SDN), Mirchandani said, with SAP professionals and consultants blogging, sharing best practices and, in some cases, answering questions for one another that otherwise would have gone to SAP support. But if the SAP community is now handling first-tier support questions, why haven't the savings been passed on to customers. In fact, he said, SAP is more interested in reducing maintenance costs for Oracle customers than its own, acquiring a company that provided third-party maintenance for PeopleSoft, JD Edwards and Siebel applications.

"They bought TomorrowNow," he said. "They understand third-party maintenance. They made a conscious effort to offer Oracle customers a choice -- but not for their customers."

Much of the backlash at SAP came as a result of the company's decision to roll out Enterprise Support, a new maintenance and support program that will eliminate its lower-cost option that charged 17% of maintenance fees and will ultimately bring it to 22%. That was roughly six months before the global recession hit.

"Our announcement was at an unfortunate time," said Janet Wood, head of SAP's support division, in an interview at the Influencer's Summit. "Even though there are companies that have costs higher than [ours], we continue to get publicity around it."

Indeed, Mike Masters, director of global IT application solutions for Goss International, a Bolingbook, Ill.-based manufacturer of printing presses, was attending the Sapience event because his company is considering moving from SAP maintenance to Rimini Street, a third-party maintenance provider, once it upgrades from R/3 4.7 to SAP 6.0.

"Everybody's looking to save," Masters said. "SAP raised their [maintenance] prices to 22%, and six months later the recession hit. There are other areas within our organization that could use the influx of more cash instead of 22% of my license fees."

While at the Influencer Summit, SAP executives mentioned multiple times that SAP does not need, nor want, to own the entire technology stack the way rival Oracle is positioning to do, combining its applications and database with hardware from potential acquisition Sun. The world is moving away from single software suites, said Helmuth Gümbel, founder and managing partner of Strategy Partners International, the host of Sapience.

"[One] architectural shift is we are outgrowing proprietarily integrated software suites," Gümbel said. "Please don't ask me to make an acronym out of this term."

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Given the recession and the heightened awareness around the costs of SAP, there are several ways customers can adapt, Gümbel said.

One of the first places to look is to the cloud. Both for infrastructure and SaaS-based applications, the cloud can offer a way to get projects up and running quickly, and with SaaS, it can be done with little involvement from IT -- though they need to be consulted with integration concerns, Wang said.

SAP itself has made a renewed commitment to on-demand or cloud-based software. It's releasing version 2.5 of its on-demand ERP product, Business ByDesign, and hoping to ramp up adoption. John Wookey, brought over from Oracle, where he headed up the Fusion Applications project, plans to release on-demand products for supply chain management application, sales automation, travel and expense and services management. Yet that is only a beginning, Wang warned.

"It's cloudy for a cloud strategy," he said. "I can't tell what's going on over there. There is a commitment they know they need to get there, but at this point, it's a work in progress."

Some SAP customers aren't waiting for the vendor to sort it out. NetSuite CEO Zach Nelson, speaking at the Sapience conference, said that two existing SAP customers, MovieCube and Honeywell Consumer Products, have moved from SAP R/3 to NetSuite.

Switching vendors or maintenance providers isn't the only option either. Others, particularly large customers, are managing to renegotiate with SAP, Gümbel said.

He also advises reconsidering older SAP projects.

"Look at all projects that have origins more than 12 months back," he said. "They were created in an environment that has very little to do with the recession. Break projects into smaller increments, six- to 12-month units."

Customers should also conduct a software lifecycle analysis.

"Software doesn't wear, but it becomes outdated," Gümbel said. "At some point, there will be a chasm between your software and what it can do for you. Update it once a year."

You will find out how you are aligned with business plans and how you will work with business places."

Customers should be very careful with shelfware as well, he warned. Software bought three or four years ago may already be obsolete, or at least there will be better options out there even for companies that already own licenses.

"I've seen this in particular with CRM," he said. "Some people have the guts [to drop] CRM licenses. In many cases it was for Salesforce.com."

Organizations can also use what has traditionally been a capital expenditure as an operational expenditure by evaluating SaaS, which offers the potential not only to scale up but to scale down.

And ultimately avoid lock-in.

"Avoid one-stop shopping," Gümbel said. "It is really a voluntary engagement with someone who is a monopolist. If you buy from only one source, it doesn't matter who else is on the market. The fact that ERP software has a very long lifecycle means you are engaging on this for 10 to 15 years."

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