By Charles Homs, Oracle Vice President, Competitive Intelligence
In its 2018 fourth-quarter earnings announcement, SAP told investors that the company would take a $1 billion restructuring charge in 2019, shedding about 4,400 jobs worldwide. According to Reuters, “key indicators showed signs of weakness in the fourth quarter, with growth in new cloud bookings slowing to 23 percent from 37 percent in the third quarter.”
This comes as no surprise to longtime SAP watchers like me. Recent news coverage has not been flattering. The German magazine AutomotiveIT published a list of recent project failures among SAP customers:
“Elwis,” an SAP project carried out by the German discounter Lidl, is the most recent example of a large-scale installation that failed spectacularly. Before halting the project in August, Lidl had been trying to introduce a new inventory management system using SAP for seven years. Experts estimate that more than 500 million euros were sunk into the project. Lidl had wanted the SAP system to support its growth initiatives, especially in the US. But it abruptly pulled the plug. In an internal letter to its employees, Lidl said: “The strategic goals that were originally defined for the project can no longer be achieved at an acceptable expense.”
The Deutsche Post, Germany’s national postal service, has also had to write off expenditures in the half-billion-euro range in recent years. It wanted to optimize its business processes and supply chains [in its existing SAP environment]. The SAP project was ultimately canceled.
An indemnity payment to US energy company National Grid came to about $70 million after a fruitless attempt to replace an existing legacy application with SAP.
Source: AutomotiveIT, Jan. 2, 2019
And SAP’s issues don’t end there. The media coverage of failed or troubled SAP projects reads like a “who’s who” of the business world: Under Armour, the BBC, Target, Aurizon, DuPont, MillerCoors, and many more. The US Army, an existing SAP customer, wrote in a recent RFI: “The Government will entertain options to incrementally reduce its dependence on SAP as well as non-SAP options in order to avoid a costly upgrade to the SAP S4/HANA platform.”
The message is clear: SAP has become too costly, too complex, and too big a security risk.
What SAP is Selling
There is much confusion in the market over what, exactly, SAP is selling, and why customers should invest in it. Launched in 2015, S/4HANA is SAP’s new flagship ERP. It comes in two flavors:
1. S/4HANA Public Cloud. This is available only for professional services firms and component manufacturers. It appears to have a limited subset of functionality compared to the private cloud version.
2. S/4HANA Private Cloud. Available for all other industries, this is the full-featured version. It is essentially an SAP product hosted in SAP data centers, instead of on the customer’s premises. As a result, the delivery model of the software—including customizations and lengthy upgrades—is practically the same as what most customers currently face with their SAP legacy products. S/4HANA Private Cloud lacks the regular updates that come with a public cloud; upgrades remain lengthy, painful and expensive, and require significant downtime.
Custom ERP code, in particular, was called out in the AutomotiveIT story:
On average, each SAP system is thought to contain about 2 million lines of individualized code. Only the customer ultimately takes responsibility for it, not SAP. An analysis of more than 370 customer systems showed that there is one security gap per 1,000 lines of code within their programming. In other words, the average SAP system has about 2,000 security gaps, each of which is capable of compromising the system.
And upgrading to a new ERP—as anyone who’s ever done it can tell you—is a long, painful and expensive project.Since this is custom code, written by the customer or a paid consultant, SAP takes no responsibility for patching or maintaining it. The customer must bear this burden, which is one of the main reasons that a “lift and shift” option is not significantly cheaper than hosting ERP on premises.
To add to the complexity, an upgrade to S/4HANA entails moving to the HANA database. Many SAP customers complain that the move to a new database is not only disruptive and without business merits, but the HANA license alone is excessively pricey.
Many SAP customers currently run Oracle Database and are happy with it. They see no compelling reason to move. Credit Suisse wrote: “People running massive SAP applications on Oracle are staying with Oracle—after looking at SAP HANA. Not seeing migration to any non-Oracle database.” (Source: Credit Suisse, “Overnight Success 40 Years in the Making”, Oct. 6, 2017)
Get All the ERP You Need in the Cloud
If you, like many SAP customers, see a database migration as expensive and unnecessary, it’s time to look at the Oracle Cloud suite. Oracle ERP Cloud, Oracle EPM Cloud, and Oracle SCM Cloud offer a comprehensive set of applications to run your finances and supply chain; you can even add HR and customer experience. All of these cloud applications run on Oracle Database using a single data model, reducing complexity and giving you a clearer view of the data that matters to your business.
Unlike SAP’s public cloud, the Oracle Cloud offers a complete suite with full functionality across industries. Since it’s a public cloud, there is no custom code, significantly reducing the risk of security breaches. It also costs much less to maintain, since Oracle takes care of all the patching and updates. And it offers continuous innovation, with Oracle rolling out new capabilities in its cloud applications once a quarter. No more waiting years between upgrades.
Machine Learning Made Simple with Oracle
One of the most significant innovations available in Oracle Cloud is machine learning. Many software vendors make machine learning complicated, selling a development platform (such as SAP’s Leonardo) that the customer must use to build their own ML apps, or deploy an ML toolkit, which only data scientists and IT would know how to use. Oracle takes a different approach, embedding ML directly into its cloud applications. For example, the machine learning capabilities in Oracle ERP Cloud can recommend potential discount rates to offer suppliers:
In this example, Oracle ERP Cloud recommends three different options, letting the user decide the best one for the situation. Machine learning in Oracle Cloud:
- Helps users make the right decisions
- Provides context to users to make the information more understandable
- Uncovers patterns and shows exceptions
- Uses company and third-party data (price of commodity, return on equity, credit scores, etc.) to make recommendations
Oracle is also embedding digital assistants, the Internet of Things (IoT) and blockchain into its cloud applications for even more uses—such as helping employees file expense reports, tracking and tracing goods and services, and monitoring the condition of goods across the supply chain.
These new technologies are not just for data scientists. Every user and business can benefit from them. AutomotiveIT quotes Oracle Chairman and Chief Technology Officer Larry Ellison: “Machine learning permits the automatic creation of business transactions, the triggering of ordering processes, or the automatic payment of supplier invoices—all without human error.” Ellison continued: “No ERP system is as high-performing as our [ERP Cloud] suite.”
Best Practices Evolve with Constant Innovation
Additionally, Oracle Cloud applications are built on best practices, which continue to evolve using machine learning. A typical business process, such as closing the books at the end of every month, might involve eight distinct steps. In the near future, as ML automates more tasks and learns from previous interactions, the number of steps might be compressed to three. Such an evolution in best practices is simply not possible with a static, hosted ERP system.
AutomotiveIT concludes, “Oracle clearly has the edge with its wide-ranging cloud initiative in the area of ERP.”
With a true cloud suite, updated regularly, infused with the latest technologies and built on evolving best practices, Oracle offers a cloud ERP that can help you future-proof your business. It just might be the last ERP upgrade you’ll ever do.
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