Necessity is the mother of all inventions, profitable or not, that is debatable. But innovation on the other hand requires a vision, with profitability of the enterprise in its heart. Back in the 1970s different companies, big and small, used IBM machines for their business needs, and built management programs on them. Five system analysts at IBM observed that everyone was basically building the same management software for themselves, programming on similar lines by investing lots of money on in-house programming. They thought that if they could provide a solution to answer these needs of different enterprises, it would be more profitable and the set up time for these companies could be drastically reduced. Hence, these five IBMers, Dietmar Hopp, Klaus Tschira, Hans-Werner Hector, Hasso Plattner and Claus Wellenreuther devoted their nights and weekends in developing market standard enterprise software meant for real time data processing for integrating all the business processes. As a result of their efforts, SAP was born.
SAP, today has subsidiaries in more than 50 countries around the globe and is one of the largest software companies (third largest revenue independent software provider) in the world employing more than 27,000 people and serving over 17,500 customers which include more than half of the 500 top companies. It has more than 44,000 installations in more than 120 countries and more than 10 million people benefiting from SAP ECC. It mainly focuses on 6 major industries: Consumer, Process, Financial, Discrete Industries, Public Services and Service Industry. It has Industry partners in strong companies like Adobe, CA Technologies, HP, IDS Scheer, Open Text, Smart Ops etc. and is backed by a strong SAP Develop Network (SDN) community, sharing knowledge via blogs, forums, training materials and libraries. SAP claims to grow by providing quality solutions unlike many of its prominent competitors like Oracle which spend huge sums of money in acquiring competitors.
When Xerox decided to move out of the computer industry, it wanted to retain IBM technology in its business systems. As a part of the migration costs, IBM acquired software named SDS/SAPE which was later given to the founding members of SAP for about 8% founding stock of the company. The company established its headquarters in Weinheim and office in Manheim, Germany on April 1, 1972, registered as a private partnership under the German civil code as ‘Systemanalyse und Pogrammentwicklung’ (Systems Analysis and Program Development) though most of the time of the founding members was spent in the offices of their first customers, the local branch of Imperial Chemical Industries (ICI). By the end of its first year of operation, SAP employed 9 people and had generated DM 620,000 as revenue.
1973 saw the completion of the first accounting system by SAP, named RF, which proved to be a strong foundation in the development of subsequent software modules by SAP which were named SAP R/1. In addition, the company grew from regional to a much wider level developing customers in other parts of Germany like the tobacco company Rothandle and pharmaceutical firm Knoll. Within two years, SAP garnered support from 40 reference customers and the trademark began to emerge. In 1976, a limited-liability company ‘SAP GmbH, Anwendungen und Produkte in der Datenverarbeitung’ was founded and after five years, the private partnership was dissolved with its rights being passed on to SAP GmbH. By the end of 1976, SAP’s 25 employees had generated DM 3.81 million as revenue. SAPs history is sprinkled with success stories of growth from a regional private partnership to a multinational software firm.
The next major leap in the company’s profile came in 1978 when the R/2 System was released. R/2 ran on mainframe computers and was the first integrated, enterprise package. It was extremely popular with large European MNCs requiring soft-real-time business applications with multi-currency and multilingual support. As the sales headed towards the DM 10 million mark, SAP brought all its teams under one roof in its new Computer Centre in Walldorf which now is the company’s headquarter. By that time, 50 of the 100 largest industries of Germany were being served by SAP. Working in close co-ordination with its customers, SAP added various modules to its R/2 before it went international. The side by side evolution of computers improved the price/performance ratios and hence acting in favour of the company. By 1982, sales were up by 48% and more than 236 companies in Switzerland, Germany and Austria were working on SAP programs.
SAP AG was founded in Switzerland, focusing on the increase of sales of the R/2 System internationally. The development teams started to work on newer modules like Personnel Management, Plant Maintenance, Production Planning and Control Systems. By 1985, SAP had become a well-known name in all European countries. The company continued to grow with the opening up of new subsidiaries in new places. A major part of improvements in the SAP Solutions is attributed to their partnership with educational institutes like California State University. In 1988 amidst all high growths in international segments, SAP GmbH converted into a stock corporation SAP AG and floated its stocks. In 1989, SAP won the ‘Company of the Year’ award for the first time (twice after that) by Success Manager Magazine.
By the end of the 1980’s era, the world had started to migrate towards client-server architecture. Keeping up with its past record of ample flexibility, SAP released its R/3 Systems to cater to these Client-Server configurations. ‘R’ stands for real and ‘3’ for a 3 tier system in R/3. The three tiers are: Presentation Server (GUI), Application Server and Database Server. Launched in 1992, it was an instant hit, especially in North America where the market share of SAP shot up from virtually zero to a whopping 44% of SAPs worldwide sales, bagging the confidence of many fortune 500 companies. The list is very impressive with 8 of the top 10 semiconductor companies, 7 of 10 pharmaceutical companies and giants like Microsoft appearing in it. This release was mainly aimed at the mid-sized market segment. It was arranged into distinct interlinked modules which covered different explicit functions in an organization, the most popular being Financial and Controlling (FICO), Material Management (MM), Sales and Distribution (SD), Human Resources (HR) and Production Planning (PP). SAP has focussed on best practice methodologies in its software processes. In order to cater to particular industries, it has developed Industry Specific (IS) modules. By 1997, SAP had partnerships with more than 25 educational institutes including MIT which greatly contributed to its improvement.
Application Server interprets ‘Advanced Business Application Programming / 4th Generation’ (ABAP/4) programs through a collection of executable files and manage Input/Output. All executables start at the same time and stop at the same time. An inventory of these processes is maintained in the AS in a file called Single Configuration File. The serve may be a single standalone, or distributed over different servers with distributed functions like messaging servers. AS formats and forwards database requests to a database server. Database Server caters to the data storage and manipulation like addition, retrieval and updating. All server to server transactions are encrypted by a SAP cryptographic library. In its core, SAP R/3 had about 10,000 tables which controlled the process execution.
The major difference between SAP R/3 and ERP (Enterprise Resource Planning) is that ERP is based on SAP NetWeaver where core components can be implemented in JAVA and ABAP and each new component is developed independently in a self-contained manner. The first release of mySAP ERP launched in 2003 bundled separate products like the SAP R/3 Enterprise and SAP SEM etc. and was an important move in embracing the internet. Application Server was wrapped into NetWeaver, introduced in 2003. SAP ERP was later renamed as ECC (ERP Central Component) in its further releases accompanied by architectural changes like merging of SAP SEM and SAP Internet Transaction Server into ECC. Every SAP system communicates with other clients using SAP specific and http/https protocols. Along with ECC, SAP Business Suite comprises of 4 other applications:
1. Customer Relationship Management (CRM)
2. Product Lifecycle Management (PLM)
3. Supply Chain Management (SCM)
4. Supplier Relationship Management (SRM)
SAP provides its solutions in the form of modules where the customer has the flexibility to buy only the relevant modules. The most prominent modules offered are:
1. Controlling
1. Controlling
2. Financial Accounting
3. Financial Supply Chain Management
4. Human Resources
5. Logistics Execution
6. Materials Management
7. Plant Maintenance
8. Project System
9. Production Planning
10. Quality Management
11. Sales and Distribution
SAP is generally a large scale project that can span months and sometimes years depending on the complexity of the organization. The implementation was called Accelerated SAP (ASAP) but later migrated to Solutions Manager. SOLMAN tool is used for various functions like project management, system support, defect tracking etc. which are essential for successful SAP implementation. The entire implementation is divided into phases with set goals. In the end, the users should be able to start performing their daily business on the new SAP system.
SAP implementations can be pretty expensive. The product is sold on a price per user basis and the actual cost may depend on a variety of factors like number of users, modules etc. There are risks involved and a thorough cost-benefit analysis is necessary before any decision on migration is made. The implementation cost depends on three major factors:
1. Timeframe: SAP may be implemented over a few days and may even take 5 to 10 years for total migration and cost varies accordingly.
2. People: The implementation can be done with totally in house workforce or may require dozens of external consultants, project managers and technical people.
3. Hardware: SAP implementation may be done on merely 3 machines as Production system, Test System and Development system, or it might span up to more than 100 instances.
Advantages of SAP:
1. Global integration without linguistic or currency barriers.
2. Single update applicable companywide, one time affair.
3. Real Time information, reduced redundancy errors.
4. Increased efficiency.
Disadvantages of SAP:
1. Bound into a legal contract with the vendor.
2. Could be a cause of inflexibility.
3. ROI may take too long, which is a huge risk.
4. Risks involved like project failure.
But despite of it all, SAP is known to have provided excellent services to its customers, to which the ever increasing customer base stands witness.
The speed of businesses has not just increased, but skyrocketed in terms of innovation, competition, finance and regulations. On the other hand, the ability of ERP solutions to handle such changes is rather slow. To find a way around this SAP has started to focus on In-memory computing. In the SAPPHIRE conference held recently, the company highlighted its efforts in the fields like in-memory computing, analytics and mobile devices impinging on consistency and success models based on Best Practices and Rapid Deployment Solutions. In-memory computing involves parsing, sorting and totalling of billions of records by use of sensors like RFID through which every person of the firm can dynamically access and update the repository. With focus on mobile computing, users now can use their mobile devices to access and update the system. With more than 20 RDS since first shipment in September 2010, the company has showed a very aggressive attitude and commitment.
In modern times when time is premium, packaged services offer pay-as-you-go consultancy solutions allowing companies to deliver services faster and maximized control on infrastructures. In contrast to open-ended arrangements which are often prone to problems like scope creep, packaged solutions have the ability to deliver rapid returns on technology investments. It has been the history of SAP solutions that they are flexible enough to adapt to user requirements. With such aggressive policies in taming the market and commitment to utilize its vast knowledge base, SAP is expected to stay strong in many years to come.
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