SAP Africa's GM for cross-industry solutions Simon Carpenter has strongly criticised a controversial new report by Nucleus Research that raises serious questions about the return SAP's software delivers to companies that have it installed.

The report, released last week, says 57% of SAP customers surveyed haven't seen a return on their investment (ROI) after using the software for an average 2,8 years. It found companies that achieved a positive ROI limited the scope of their implementation, kept customisation to a minimum, and ensured broad user adoption. The research is based on interviews with 21 of SAP's flagship customers.

SAP's software - designed to manage a wide range of companies' business activities, such as human resources, finance and customer management - has been implemented by many of SA's largest companies. They include Standard Bank, SA Breweries, Eskom, Sasol, Telkom, Spoornet, Anglo Platinum, Sanlam, Absa, Barloworld, DaimlerChrysler and Vodacom. The projects often run into hundreds of millions of rand.

The Nucleus report also found that:

• High personnel costs associated with the implementation of SAP hinder companies' ability to achieve positive ROI quickly. Several companies surveyed said the extraction of internal resources from their daily activities for an extended period caused business disruption and cost them dearly.

• Consulting costs are also "very high". The ongoing risk with enterprise resource planning (ERP) and other monolithic deployments is that companies either spend more on customisation than they expected to or have to undertake a business process re-engineering project they hadn't anticipated.

Carpenter counters this, pointing to SA research - by BMI-TechKnowledge - which shows that 90,5% of ERP implementations here are done within budget and 76,2% are completed on time.

SAP dismisses Nucleus's ROI findings as unscientific and unreliable. "We can't vouch for the veracity of their research methodologies," says Carpenter. "They sampled a very small portion of our customer base, so statistically one has to question the outcome."

Typically, implementing SAP's ERP software leads to an ROI in 31-36 months, he says, adding that once an ERP system is in place, value-added software, such as customer relationship management tools, can be installed more easily, leading to a quicker ROI than would otherwise be possible.

Where a return from an ERP project is not achieved, Carpenter says, it's often because of poor project management and inadequate training. Also, though the business case for a project is usually signed off at the highest levels, top management then often withdraws, leaving the implementation to the IT department. "When that happens, organisations often go into a kind of stasis."

The Y2K and dot-com phenomena compounded the scepticism about the value of ERP. "Companies banged in the software, often without doing a business case," Carpenter says.

Other researchers are less critical than Nucleus. A recent research report, published in the Journal of Management Information Systems, found companies that have installed ERP systems, including SAP, consistently perform better across a wide variety of measures than those that haven't. "Most of the gains occur during the relatively long implementation period, though there is some evidence of a reduction in business performance and productivity shortly after the implementation is complete. However, the financial markets consistently reward the adopters with higher market valuations both during and after the adoption, consistent with the presence of both short-term and long-term benefits."

That doesn't mean there aren't sceptics. Sasol is one of SAP Africa's biggest clients - it spent at least R220m upfront on software alone for its SAP project - but it's not convinced the ROI case is clear cut. "You will find it damned difficult to get an ROI from SAP if you are a big organisation," says Johan Smith, who heads the SAP Knowledge Centre at the petrochemicals giant.

Sasol is particularly upset about the high annual maintenance fees charged by SAP. Smith says what the company gets for these fees, which are mandatory, does not justify the expense. The fees are 17%/year of the initial software cost. Conservatively, that's nearly R40m/year (FM's estimate). Smith says SAP still expects Sasol to pay for upgrades to the software, a situation, he says, the company finds unacceptable. It's hurting Sasol's ROI model for the project, he says. "The maintenance fees should cover the cost of the upgrades."

Given the benefit of hindsight, Smith says Sasol would probably still implement SAP but would first more closely align business divisions and standardise business processes.

Financial Mail

-- Anonymous, April 19, 2003