What is SAP? And why the hell is it worth $163 billion?
Each year, companies spend $41 billion on software for enterprise resource planning, known by the acronym ERP. Today, almost every large business has implemented one or another ERP system. But most small companies don't usually buy ERP systems, and most developers probably haven't seen them in action. So for those of us who haven't used ERP, the question is... what's the catch? How does a company like SAP manage to sell $25 billion worth of ERP a year?
And how did it happen that , including 78% of food supplies, goes through the SAP program?
ERP is where companies store key operational data. We're talking about sales forecasts, purchase orders, inventory, and the processes that are triggered based on this data (for example, payments to suppliers at checkout). In a sense, ERP is the "brain" of the company - it stores all the important data and all the actions that are initiated by this data in workflows.
But before completely taking over the modern business world, how did this software even come about? The history of ERP begins with serious work on office automation in the 1960s. Back in the 40s and 50s, it was mostly blue-collar mechanical work that was being automated—think of General Motors, which created its automation division in 1947. But the automation of the work of "white collars" (often with the help of computers!) began in the 60s.
Automation in the 60s: the advent of computers
The first business processes to be automated using computers were payroll and invoicing. In the past, armies of office workers would manually count employee hours in the ledgers, multiply by the hourly rate, then manually subtract taxes, benefit deductions, and so on… all just to add up one month's pay! This time-consuming, repetitive process has been prone to human error and is ideal for computer automation.
By the 60s, many companies were using IBM computers to automate payroll and billing. Data processing is an obsolete term, from which only the company remains . Instead, today we say "IT". At that time, the software development industry had not yet formed, so analysts were often taken to IT departments and taught them to program on the spot. The first Computer Science department in the United States opened at Purdue University in 1962, and the first graduation in the specialty took place a few years later.
Writing automation/data processing programs in the 60s was a difficult task due to memory limitations. There were no high-level languages, no standardized operating systems, no personal computers, just big, expensive mainframes with little memory, running programs on reels of magnetic tape! Programmers often worked on the computer at night when it was free. It was common for companies like General Motors to write their own operating systems to get the most out of their mainframes.
Today we run application software on several standard operating systems, but this was not the case until the 1990s. IN 90% of all software was written to order, and only 10% was sold off-the-shelf.
This situation profoundly affected how companies developed their technology. Some have assumed that the future lies with standardized hardware with the same operating system and programming language like for the aviation industry (which is still used today!) Most companies continued to create their own completely isolated software, often reinventing the wheel.
Birth of standard software: SAP extensible program
In 1972, five engineers left IBM to take on a software contract with a large chemical firm called ICI. They founded a new company called SAP (Systemanalyse und Programmentwicklung or "system analysis and program development"). Like most software developers at the time, they were mainly engaged in consulting. SAP employees would come to customer offices and develop software on their computers, mainly for logistics management.
Business was going well: SAP finished its first year with revenue of 620 marks, just over $1 million in today's dollars. They soon began selling their software to other clients, porting it to various operating systems as needed. Over the next four years, they gained over 40 clients, increased revenue sixfold, and increased the number of employees from 9 to 25. Maybe that's a long way off. , but the future of SAP looked optimistic.
SAP software was special for several reasons. At that time, most programs ran at night and printed the result on paper tapes that you checked the next morning. Instead, SAP programs worked in real time, and the result was displayed not on paper, but on monitors (which cost about $30 at the time).
Most importantly, SAP software was built from the ground up to be extensible. In the original contract with ICI, SAP did not build software from scratch, as was customary at the time, but coded on top of a previous project. When SAP released its financial accounting software in 1974, it originally planned to write additional software modules on top of it and sell them in the future. This extensibility has become a defining feature of SAP. At the time, interaction between client contexts was considered a radical innovation. Programs were written from scratch for each client.
The Importance of Integration
When SAP introduced its second manufacturing software module, in addition to the first finance module, the two modules were able to easily communicate with each other because they shared a common database. This integration has made the combination of modules much more valuable than the two programs alone.
Since software automated certain business processes, its impact depended heavily on access to data. Purchase order data is stored in the sales module, inventory data is stored in the warehouse module, etc. And since these systems do not interact, they need to be synchronized regularly, that is, the employee manually copied the data from one database to another.
Integrated software solves this problem by facilitating communication between company systems and enabling new types of automation. This kind of integration—between different business processes as well as data sources—is a key feature of ERP systems. This became especially important as hardware evolved, opening up new possibilities for automation—and ERP systems flourished.
The speed of access to information in integrated software allows companies to . Compaq, with the help of ERP, has introduced a new "make-to-order" model (that is, assembling a computer only after explicitly receiving an order). This model saves money by reducing inventory by relying on fast turnaround, which is exactly what good ERP does. When IBM followed suit, it reduced the delivery time for parts from 22 to three days.
What ERP Really Looks Like
The word "enterprise software" has nothing to do with a trendy and user-friendly interface, and SAP is no exception. A basic SAP installation contains 20 database tables, 000 of which are configuration tables. These tables contain about 3000 configuration decisions that need to be made before the program starts. That's why is a real profession!
Despite the complexity of customization, SAP ERP software provides a key value - the wide integration between several business processes. This integration results in thousands of use cases across the organization. SAP organizes these use cases into "transactions", which are business activities. Some examples of transactions include "order creation" and "customer display". These transactions are organized in a nested directory format. So to find the Create Sales Order transaction, you go to the Logistics directory, then Sales, then Order, and you'll find the actual transaction there.
Calling ERP a "transaction browser" would be a surprisingly accurate description. It's very browser-like, with a back button, zoom buttons, and a "TCodes" text field, the browser's equivalent of the address bar. SAP supports , so navigating the transaction tree can be tricky without these codes.
Despite the dizzying number of configurations and transactions available, companies still have unique use cases and need to fine-tune their actions. To handle these unique workflows, SAP has a built-in programming environment. Here's how each part works:
Data
In the SAP interface, developers can create their own database tables. These are relational tables like normal SQL databases: columns of various types, foreign keys, value constraints, and read/write permissions.
Logic
SAP developed a language called ABAP (Advanced Business Application Programming, originally Allgemeiner Berichts-Aufbereitungs-Prozessor, German for General Reporting Processor). It allows developers to run custom business logic in response to specific events or on a schedule. ABAP is a rich syntax language with about three times as many keywords as JavaScript (see below). ). When you have written your program (SAP has a built-in editor for programming), you publish it as your own transaction, along with an individual TCode. You can customize existing behavior with an extensive system of hooks called "add-ins" where a program is configured to run when a particular transaction is executed - similar to SQL triggers.
UI
SAP also comes with a UI builder. It supports drag and drop and comes with handy features like generated forms based on a DB table. Despite this, it is quite difficult to use. My favorite part of the constructor is drawing the table columns:
Difficulties in implementing ERP
ERP is not cheap. A large multinational corporation can spend from $100 million to $500 million on implementation, including $30 million in license fees, $200 million for consulting services, and the rest for hardware, training of managers and employees. Full implementation takes four to six years. said: "The competitive advantage in the industry will be given to the firm that can better and cheaper to carry out work on the implementation of SAP."
And it's not just about money. Implementing ERP is a risky venture, and the results vary greatly. One of the successful cases is the implementation of ERP at Cisco, which took 9 months and $15 million. For comparison, the implementation at Dow Chemical Corporation cost $1 billion and took 8 years. . Already believe that the introduction of ERP-systems carries a "moderate chance of hurting the business." You don't hear that often when evaluating software!
The integrated nature of ERP means that it requires the entire company to implement it. And since companies benefit only after ubiquitous implementation, it is especially risky! Implementing ERP is more than just a buying decision: it's a commitment to change your operations management practices. Installing software is easy, reconfiguring the entire company's workflow is where the bulk of the work is.
Clients often hire a consulting firm such as Accenture to implement their ERP system and pay them millions of dollars to work with individual business units. Analysts determine how to integrate ERP into company processes. And as soon as the integration starts, the company should start training all employees how to use the system. Gartner reserve 17% of the budget for education only!
Despite the odds, most Fortune 500 companies had adopted ERP systems by 1998, accelerated by the fear of Y2K. The ERP market continues to grow today . This is one of the largest segments in the global software industry.
The Modern ERP Industry
The biggest players are Oracle and SAP. While both are market leaders, their ERP products are surprisingly different. SAP's product was largely built in-house, while Oracle aggressively bought up competitors such as PeopleSoft and NetSuite.
Oracle and SAP are so dominant that even instead of its own Microsoft Dynamics ERP product.
Because most industries have fairly specific ERP needs, Oracle and SAP have preconfigured configurations for many industries such as food, automotive, and chemicals, as well as vertical configurations such as sales processes. However, there is always room for niche players who tend to focus on a specific vertical:
- for universities
- and McKesson offer ERP for healthcare organizations
- for production and logistics
Vertical ERPs specialize in integrations and workflows specific to the target market: for example, in healthcare ERP .
However, specialization is not the only way to find your niche in the market. Some startups are trying to bring more modern software platforms to market. An example would be : it offers the possibility of integration (with different ERPs!) by subscription. Startups like Anaplan and Zoho are doing the same.
ERP on the rise?
SAP is doing great in 2019, with €24,7 billion in revenue last year and a market capitalization . But the world of software is not what it used to be. When SAP first came out, data was isolated and difficult to integrate, so keeping it all in SAP seemed like the obvious answer.
But now the situation is rapidly changing. Most modern enterprise software (like Salesforce, Jira, etc.) has a backend with good APIs for exporting data. Data lakes are formed: for example, facilitates the interconnection of databases, which was impossible just a few years ago.
Source: habr.com