When SAP sprawl is cool: Could cutting back your ERP be more pain than it's worth?

When SAP sprawl is cool: Could cutting back your ERP be more pain than it's worth?

Summary: Although many big companies are running several instances of SAP's ERP software, a number of issues stand in the way of the cost savings that rationalisation could bring.

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Global businesses are spending millions running multiple instances of software from ERP giant SAP, but face real difficulties consolidating the systems to save money.

On average, big companies worldwide are running five SAP instances, while almost four in 10 have more than six, according to a study from IT services firm HCL Technologies. The cost of running SAP averages out at $1,518 per user per year, which could be cut by up to 25 percent by moving to a single instance.

The report's authors also suggest large businesses could collectively save almost $30bn through consolidation.

However, making those reductions is far from straightforward, according to Steve Cardell, president of enterprise application services at HCL.

"There are clearly very substantial political and operational hurdles that can stand in the way of companies achieving a single instance," he said.

"So we are now seeing large companies either making top-down decisions to drive through such changes or deciding it is the wrong battle to fight so instead are looking to improve integration between systems."

ERP cost reductions

Ovum principal analyst Roy Illsley said that when it came to cost reduction, looking at the reasons why an organisation had several instances could reveal far more than just the numbers alone.

"A lot of people run multiple instances because of geographic reasons, regulations, or business-sector reasons," Illsley said.

"If you've got part of your business that is outsourced, for example, you'd probably want to run an instance that your outsourcing provider could use and that would be different to the one you would want to keep inside, so that it's easier to do things like that.

"Trying to come up with the business case for merging instances is tricky. To a lot of people, it might be too tricky."

Illsley found the number of SAP instances big firms were running, as revealed by the HCL poll of 225 CIOs, consistent with his experience.

"With the modern dynamic of how firms are set up and operating, I'm not surprised that you've got that number," he said. "Can you save money by reducing them? Well, yes, you obviously can, but does it make sense — is it right for that business?

"Because just reducing it down to one or two instances might put you at risk to opening up your data and access to people you don't want to have access."

Illsley pointed out that an organisation's mergers and acquisitions could also leave it with many instances.

"In that case, if they can consolidate down, it would make fantastic savings. But if you've acquired a number of companies and they all run SAP but you've all got different instances with slightly different tweaks and modifications, merging them all to one is quite a difficult thing to do," he said.

Consolidating SAP instances

That consolidation could also run counter to business strategy, if an organisation is deliberately structured with a number of subsidiaries each operating independently but reporting into a parent company with separate instances and only a few shared services.

"If you have an organisation that operates in that manner, if they integrated SAP across all the companies, then if they wanted to divest themselves of something it's very difficult," he said.

"For security and strategic reasons for being flexible with what you buy and sell, it's not always best to have everything more central. If your business is very distributed, then the nature of running that business is you want to keep it like that, so you can move out of a business area if it's not looking profitable and buy into another that's more profitable and just slot it into the way you operate."

The HCL study found that the latest version of SAP — ERP Central Component 6 — was used by just over a third of organisations, while slightly more than half used ECC 5, with 44 percent on SAP 4.7.

Some 73 percent of respondents had implemented cloud services and 74 percent said SAP technology would play a significant role in their cloud plans.

Eight out of 10 of the CIOs said SAP HANA in-memory technology would play an important role in their plans. Three-quarters said they had already used in-memory computing in some form, or planned to do so. More than half said SAP would be key to their mobile strategy, which 93 percent either had already implemented or planned to.

Topics: Enterprise Software, SAP

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2 comments
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  • SAP

    As a general rule of thumb, those who understand SAP don't implement it; those who implement SAP don't understand it.
    attila2
  • Strategic decision or constrained by the system?

    ‘SAP sprawl’ is often a symptom of the fact enterprises have spent too long re-engineering their businesses to fit their legacy ERP. The challenge with systems like SAP is that they do not support business change well and so as soon as the organization changes you need significant, complex and expensive programming at code level.

    That makes it hard to share systems across businesses, and prohibitively expensive to consolidate instances.

    You’re right that diverse organizations often make the decision to run separate ERP instances, to allow for potential divestment for example. However too many ERP users are forced to do so because of the limitations of a system not designed to cope with diverse business structures or on-going change.

    At UNIT4 we’ve designed next-generation ERP that easily accommodates diverse organizations within a single instance and can cope with on-going changes in regulations, structures or business strategy. Crucially, because the costs of change are much lower than ‘traditional ERP’ then organizations are free to make choices based on strategic direction, not because of the restrictions of a monolithic ERP.
    DavidTurner1