Part 1: About SAP

Chapter One

What is SAP?

Tuesday Morning, 13 July
It was still dark when Joe Masterson took the freeway exit that would lead him to the company, where he'd spent the better portion of the last fifteen years of his life. Starting as a stock clerk and finally working his way up to Director of Manufacturing Operations five years ago, he felt was little preparation for the changes that were beginning to take place at RTC.

 Still blurry-eyed from a fitful nights' sleep, Joe was grateful for the lack of traffic on the now two-lane windy road. That and the "Supersize" coffee whose styrofoam container had to be slightly squashed to fit into the car's cup holder, intended for soda-pop-size cans.

Given his current state of confusion over all there was to learn and manage, he recalled one of the original team meetings that had been set up to evaluate "System Solutions."

"Those were some hot meetings!" Joe laughed. Paul Bengrow, VP of Sales, even banged his fist against the table one day, declaring, "I say we forget change. What good will it do us? My salesmen are happy and the CSR's are finally well-trained on our current system." He stood back and folded his arms over his "TEAMrtc" golfers shirt neatly tucked in to the matching cotton Dockers. His smug look and stance challenged the rest of the group. Under many circumstances, Paul's stubborn methods might have an effect. But that day, RTC's CEO, Harlen Wilson was present.

"Thank you for your contribution, Paul," Harlen said calmly. "But I think that there is a clear consensus that our systems are functional in sales alone, perhaps unfairly.  Tom?"

 The Director of Finance had been shaking his head and adding columns of numbers, red-faced and hands shaking. "Huh?" He looked up at the group. "Oh, yes, yes, yes. Paul you just don't know how backlogged we get in every area of finance -- purchasing, accounts receivable, accounts payable."

Paul rolled his eyes, yawned and sat back down, utterly disinterested.

But Tom continued, "Sure, you can take orders as fast as you like. But by the time purchasing receives the reports, our inventory is already spent."

"I've been meaning to have a word with you about that," Paul interrupted.

 Tom ignored him. "It's a viscous cycle. Order Entry can't update the information any faster than they currently are doing. By the time we buy parts, the customer has already been billed but hasn't received product. We're always being blamed, but we're in the middle," his voice cracked with the strain. "We have to have order entry people to take the data from sales and enter it into purchasing and from purchasing to manufacturing and back from manufacturing to accounting. It just makes no sense. Customer service screams at us, sales complains, and Joe tells me we're responsible for the high turnover in inventory. It's just not fair." Tom ended his contribution and immediately dropped his head and returned to his calculations as intent as if he'd never spoken a word.

"I understand your position," Joe had said.

"Oh, you understand everyone!" Paul said, exasperated. "Isn't there an opening in Human Resources for him?" he winked at Harlen. But Paul got no laughs.

"We've reviewed all the enterprise systems," Joe had continued. "But I think we'll get nowhere by trying integrate one bad system with another. . .except for the exceptional sales system," he added before Paul could object.  "We've grown beyond the days of patches and bandaids. I think we need to just start over from the ground floor.  The integration of SAP makes sense to me. And now that we have suppliers in 11 countries, with the 'realtime' data, I think manufacturing is going to have an edge in production like we've never known before. And that means maybe when we'll beat our competitors in something other than golf!" he looked at Paul, but the "sportster" wouldn't acknowledge his comment.

Evolution of SAP

In this chapter, you'll learn some of the history of SAP -- how the product and the company first began, how it evolved and where it is today. Keeping in mind the "bandaid" solutions the RTC Company faced, hopefully you'll begin to get a sense of the appeal of SAP.

How SAP Began

In 1972, five IBM employees in Mannheim, Germany noticed similarities in the way various departments wanted their software upgraded. So they began work on a project to identify best business practices and create a single package that would systematically follow these practices in all areas of business.  IBM wasn't willing to fund the project, so these ex-IBM employees went off on their own and began to put the program together.

Although they actually turned a profit in their first year, SAP, as we know it, took a long time to develop. The Finance Module, or "FI," is all they had to offer their first customer. Next, they built in master data and more financial information. With each addition and each client, they were able to test what worked best and what didn't.

From the start, SAP built its product as the business process version of the "search for the Holy Grail." Through testing, they continued to identify best business practices and incorporate them into the software. Unlike the Holy Grail [em] which is, as legend has it, a single tangible item [em] business practices and technology change and influence each other. Although these original five visionaries started the search, it still has not ended.

Today, new business practices are still being added to SAP and old ones are modified and updated. The following graphic shows how SAP modules are currently divided to handle all aspects of business:

Figure 1-1
  The primary modules of SAP.

How SAP Has Evolved

The evolution of SAP is a history with some astonishing financial gains compared to those of
  most entrepreneurial start-up companies. Here are some highlights:
  * SAP starts up in 1972 with five employees
  * In 1977, the company boasts 25 employees and revenues close to DM 4 million. The
  company officially takes the name SAP and incorporates with privately held stock.
  * In 1978, the use of the mainframe makes SAP a viable enterprise system. Version R/2 is
  released and implemented for the first time outside of Germany. Revenues top off the year at
  DM 10 million.
  * By the end of 1980, SAP is Germany's most used enterprise system and continues
  expanding into international markets.
  * In 1985, Swiss development teams begin producing manufacturing modules to add to the
  software. Revenues top DM 100 million.
   *In 1987 with 850 companies using SAP and revenues at DM 245 million, work begins on a
  new design to change the paradigm of enterprise software.
  * In 1988, SAP becomes a publicly traded company with Dow Chemical as its one
  thousandth customer.
* In 1992, with the release of R/3 -- SAP re-deployed with a client-server architecture [em] the
  speed with which business processes are able to integrate on a corporate-wide basis
  increases remarkably. With the database of the SAP system residing on one server, the
  applications that process the data on another, and the user interaction at yet another
  separate level, data and processes flow at a speed that has the potential to give a company a
  significant edge over their competition. The rest is truly history.
  In 1999, SAP-AG employed a workforce of over 13,000 and with offices in 50 countries
  worldwide. Bear in mind that this work force is not directed at SAP implementations. As you'll
  see in later chapters, SAP uses a partnership structure for the majority of the actual SAP
  implementation workforce. In fact, if you look at company revenues, you might be surprised to
  learn that the majority of revenue is a result of software sales, with mere 21 percent from
  consulting and ten percent from project team training(see Figure 1-2).

Note: SAP's growth and success is obvious to this point, but the software is still a
  secondary system within corporations. It is not the focal point of the companies' information
  processing, being limited by mainframe technology. SAP still struggled for something bigger
  and better.

Figure 1-2
  From SAP's 1998 Annual Report showing the company distribution of
  revenues.

Where SAP is Today?

Figure 1-3
  SAP's growth shown in annual profit increase since the release of version R/3.

SAP-AG is a publicly held corporation with shares traded on the German and Swiss stock
  exchanges. In 1995, the company was added to the DAX, the index of German blue-chip
  companies and in 1998 began trading on the New York stock exchange. In the US, SAP's
  unrestricted American Depository Receipts (ADR) trade over the counter under the symbol
  SAPHY. Since the introduction of version R/3, SAP is the only European company to have
  reached this level of success so quickly. Revenue and profit have soared (see Figure 1-3).
  Currently SAP stands as the fourth largest software company (measured in revenues) in the
  world, behind Microsoft, Oracle, and Computer Software Services. Compared to the three
  companies that top SAP's revenue, it is the only company organized around just one
  product, and with very little emphasis even on services, this makes it a true giant in the
  software industry.

Crossing "The Pond": Entering the U.S. Market

When SAP version R/3 was introduced in the United States, the company began to realize
  an unexpected and overwhelming growth rate. Staying true to the commitment to adapt the
  software to the best business practices, the American market offered a multitude of new
  solutions as well as new challenges. Since business process practices are the result of both
  the nature of the business and the nature of the people conducting business, defining "the
  best" can become sticky business.
  Factors for European Success
  When SAP R/2 was introduced in Europe, the sales success of the product was
  phenomenal. The ability to instantly access information changed the way corporations
  thought about doing business. This new paradigm, along with the relative ease of mainframe
  implementation, caused a surge of interest in enterprise software solutions. But the initial
  acceptance and growth rate also had some cultural roots.
  Europeans expected implementation to be slow and methodical. Once implemented and
  tested, companies were willing to commit to SAP in entirety. Therefore, very few legacy
  systems were maintained.
  Since SAP was new, Europeans expected that skilled configuration consultants would be
  difficult to find. When SAP announced the Big Six as its primary implementation partners,
  people were grateful for the help, no matter what the cost.
  The public education system in Europe, especially Germany is based on the principle of
  learning to learn. Value is placed on continuously asking why, and providing interpretation of
  information. Students are encouraged not end their search for answers until they have placed
  all aspects of a question in a reasonable and logical context. Therefore, Germans do not
  need to be taught specific job tasks. In fact, the most highly rewarded employees are those
  who derive the most understanding from minimal detail. Germans and many Europeans can
  be trained by providing high-level corporate busi-ness processes, which they immediately
  incorporate into their daily jobs.

Unexpected Differences in the U.S. Market

Unaware that acceptance of their software or methods possessed any form of cultural bias,
  the first German SAP consultants were surprised by the very different attitudes in the United
  States as compared to their European colleagues.
  American corporations insisted on customization. They were not content to mold their
  current business processes into the pre-set structure of SAP. Consequently,
  implementations were flooded by requests for special ABAP/4 (the programming language of
  SAP) programs and legacy system interfaces.
  Expecting loyalty at any cost, both SAP consultants and U.S. corporations faced serious
  setbacks as their best employees in each department were trained in the highly marketable
  skill of SAP implementation and then left the company to become well-paid configuration
  consultants.
  The educational system in the United States is primarily based on rote memorization.
  Students are not carefully observed and targeted to be educated in specific fields. Rather,
  individuals must prove themselves of their own motivation and ambition. The educational
  system caters to the middle-of-the-road learner. Standardization is based upon ability to
  repeat information, and excellence, though rewarded, is not expected. Therefore, for the most
  part, SAP end-users in the U.S. were unable to learn from the business process training
  concept that was taught in Europe. Furthermore, American workers in large corporations are
  rewarded for doing a specific task very well. Whether workers understand the business
  context of the task they are performing is not as significant. Unaccustomed to taking
  ownership of the overall process, workers would participate in the process-oriented SAP
  classes, but had no idea of how to do their new jobs when SAP went live.

How SAP Adjusted to Market Differences

After the initial shock was over, SAP responded to client requests, true to their commitment
  to constantly adapt to what was best and what was needed (see Figure 1-4).

Figure 1-4
  SAP adapts to the requirements of the American market.

From 1992 to 1998, SAP made the following improvements:
  * Developed SAP workbench to combat complex installation, configuration, and
  customization.
  * Established a licensing agreement (Certified Business Solutions (CBS) in the U.S, and
  Value Added Resellers (VAR), worldwide) for smaller consulting orga-nizations that could
  keep implementation costs to two and a half times the cost, or less, of the SAP software.
  * Developed the ASAP (Accelerated SAP) methodology, providing templates and guidelines
  to help companies define business processes, dramatically reducing implementation time.
  * Incorporated a content reference database for manufacturing companies, optimizing
  supply-chain relationships.
  * Developed the OSS (On-line Support System) for 24-hour access to experienced SAP
  employees over the Internet.
  * Developed BAPI (Business Application Programming Inter-faces) to be more inclusive of
  legacy systems.
  * Worked with IBM to deliver AS/400 versions of R/3.
  * Announced industry-specific versions of SAP for sectors such as IS, oil, chemical,
  automotive, and retail.
  * Delivered R/3, version 3.1 with Internet capability.
  * Delivered R/3, version 4.0, which better accommodated mid-size companies.
  * Improved and incorporated lean manufacturing techniques.
  * Significantly improved the human resource functionality of SAP in the areas of payroll and
  workplace practices as well as international payroll tax functionality for many currencies.
  * Sponsored 40 new stand-alone SAP add-on products.
  * Perfected the Year 2000 solution.
  * Created the Information Database, a training tool for project teams that addressed multiple
  learning styles.
  * And, continued to spend between 20 to 25 percent of annual profits on research and
  development.
  With over 11,000 installations under their belt, the new millennium brings new demands. At
  the top of the list is what has become known as Knowledge Management.
  The unhealthy habit of not sharing information, ignoring the effect of change on people,
  paying high rates for low quality knowledge is taking a toll. Later chapters delve deeper into
  the maze, showing what it's like to be sitting on the edge technological, social, and cultural
  complexity.

Today's Global SAP Market

There has got to be some competition, you might be thinking.  There is competition, but SAP
  simply got a head start on this enterprise idea. Industry analysts speculate that it would take
  at least four years for the competition to catch up (see Figure 1-5).

Figure 1-5
  SAP's competition in the enterprise software market.

  * 36 percent of all Global companies (revenues over $1 billion)use SAP.
  * 18 percent of all Mid-size companies (revenues from $200 million to $1 billion) use SAP.
  * 11 percent of all Growth Market companies (revenues from $50 million to $200 million) use
  SAP.
  * SAP's nearest competitor, Oracle, services eight percent of the Global market.
  * Of the 11,000 SAP installations, 2,500 are not yet complete.
  * If SAP stopped upgrading and selling software today, it would still take four to six years to
  complete existing orders.
  * 69 percent of organizations have already deployed or have plans to deploy an Enterprise
  Resource Planning (ERP) software suite.
  * All competitors are at least four years from creating a comparable product.
  * SAP uses 25 percent of their annual revenue for research and development.
  * SAP sells approximately 200 software licenses per month, whereas most ERP software
  suppliers do not sell half this many licenses in a year.
  Who are these companies that are using SAP? Revealing a few of the big fish in the SAP
  sea, you'll find:
  * Microsoft
  * IBM
  * General Motors
  * Ciba Geigy
  * Colgate Palmolive
  * Motorola
  * Samsung
  * Texas Instruments
  The list continues, covering over 7,000 companies. Well over a million people use SAP
  everyday.
  When you look at SAP's market in terms of types of industries, Figure 1-6 shows how
  widespread SAP has become.

Figure 1-6
  Percentage of the types of industries, worldwide, currently using SAP software.

  The three market distinctions mentioned earlier (global, mid-size, and growth) govern much of
  the relationships between SAP clients and SAP partners. Since the release of R/3, SAP has
  focused on the Global market.  However, with 260 of the top 500 companies in the world
  currently using SAP, their attention has turned to the smaller markets.

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