“IT doesn’t matter.” Nicholas Carr made this rather negative assessment last spring, setting ERP applecart temporarily on its side. Anyone who agrees with this outlook can stop reading now. This article has nothing to offer you.
But for those in the small and midsize business (SMB) arena who have had success with SAP ERP solutions over the years might beg to differ. Not only have many of them experienced lower TCO and increased competitive advantage, but at this point in their cycle they may well be considering an upgrade.
Some might find the thought a little scary. But that fact is, the SAP upgrade path has been smoothed in recent years. It’s still not always a walk in the park, but if a company is clear in its goals and needs, there are few reasons for stumbles – or, more important in these lean times, few reasons for looking at an upgrade as a necessary evil.
The reasons and mechanisms for upgrading a SAP ERP system came clear in a webinar, “Upgrade Strategies for Small and Midsize Businesses,” presented by Pat Hickey, director of SMB solutions for SAP America, on November 12. Pat was backed by Michael Labriola, vice president of IT of TriVirix International, who gave listeners a run-through of his company’s successful upgrade from SAP R/3 version 4.6c to 4.7.
More than an IT fillip
Typically, Hickey noted, upper management is excited and on board for the initial implementation of an IT system, but they take a more jaundiced view of an upgrade, seeing it as providing small additional at extra cost, promoted by the software vendor. But there’s a lot more at stake than just becoming technologically current, said Hickey. An upgrade also serves as an excellent chance to reevaluate ERP business values and discover new areas of benefit within solutions. But for this to prove true, it’s necessary to be on top of the process – to carefully outline what can realistically expected from an upgrade.
What reasons do companies give for choosing an upgrade? In a 2002 AMR Research study quoted by Hickey, 57 percent of 150 customers – those using both SAP and competitors’ systems – cited current and future needs for additional functionality as the primary reason. Another 40 percent pointed to technical issues of various kinds. When asked what key functionality they were adding, 41 percent cited portals; over 30 percent noted either Internet procurement, human resources (HR), or business intelligence (BI); and 24 percent mentioned customer relationship management (CRM).
When it comes to ERP, Hickey said, beyond beefing up functionality, an SAP upgrade can lead to reduced costs for interfaces to legacy systems. Non-standard interfaces are costly to maintain, and the latest SAP releases include functionality which can replace some legacy solutions or provide out-of-the-box interfaces with others. Specifically, SAP Netweaver, included in most SAP ERP upgrades, offers a cost-effective and easy way to integrate disparate systems from multiple sources.
In the technical area, he noted that older SAP R/3 versions have performance and bandwidth limitations. Upgrading clears up many of these problems and leads to a lower total cost of ownership.
Finally, and perhaps most important, SAP is phasing out mainstream maintenance for pre-4.6c releases of SAP R/3, effective December 31, 2003. For 2004, SAP will provide an extended maintenance option for pre-4.6c releases; however, it will come with an incremental 2 percent maintenance charge. At the end of 2004, only customer-specific maintenance will remain for 4.6b and earlier – there will be limited support for adding functionality or support packages.
Stepping up to…where?
Once a company has made the decision to upgrade, Hickey went on, it needs to consider several non-IT implications that will influence the road it takes. The upgrade team needs to include the right people from all affected departments, and it needs to include those with experience in the specific upgrade process: A broad range of SAP Business Partners are available to help in upgrading any SAP ERP system.
Once the upgrade team is assembled, it must identify the company’s business needs and the affected processes, establish a realistic budget, and be clear on the time and complexity associated with any modification of the implementation. Testing and change management are crucial. SAP has streamlined the upgrade process significantly, Hickey noted, but it never pays to skimp on testing. And end-user training is the cornerstone of change management.
Once a company is ready to take the plunge and upgrade its SAP ERP system, which is the best route to take?
- If the company currently uses SAP R/3 4.6c, it can move in a fairly straight line to R/3 Enterprise, which includes an upgrade to version 4.7 (and which won’t hinder moving on to mySAP ERP in the future). Sizing and system configuration remain much the same, with little increase in hardware requirements. Installed base customers can keep their basic R/3 license with R/3 Enterprise, which also adds some SAP Netweaver functions.
- Alternately, they can purchase mySAP ERP (which does require a license change), which includes R/3 Enterprise, the full SAP Netweaver, complete financials, and human capital management (HCM).
- Those who want what Hickey calls the “full meal” can choose mySAP Business Suite, which adds such capabilities as CRM, supply change management (SCM), and supplier relationship management (SRM).
- Finally, there’s the pick-and-choose “a la carte” route.
Choice, he said, should be determined by business needs as well as budget. Many companies want to add a portal to improve user experience. Others, in the wake of the Sarbanes-Oxley act and other regulation-tightening that requires additional reporting, as most concerned with BI.
For many SMBs, their growth orientation has them looking for ways to tie together (or replace) legacy systems in acquired companies to increase efficiency and reduce costs. Though mySAP Business Suite may be too big a jump to take immediately, mySAP ERP opens the door to portals and BI and may provide the right cost-benefit balance.
So far, the 170 companies of all sizes that have upgraded to R/3 Enterprise have experienced an average upgrade time of four and a half months. For SMBs, Hickey pointed out, the process is usually less complex, so the time involved is generally less.
In his relatively brief presentation, Hickey could provide only an overview of the upgrade process for SMBs. Each company’s needs and approach are unique, he cautioned. For a detailed analysis of costs, project duration, and choice of upgrade path, he encouraged his listeners to contact their local SAP Business Partner.
The successful upgrade
TriVirix is a small but rapidly expanding outfit primarily involved in manufacturing medical devices. Mike Labriola characterized TriVirix as “the smallest SAP customer ever” – just the two founders in 1998. Today, some 200 employees work at plants in Ireland, Minneapolis, and Durham, North Carolina, to manufacture and service 40 types of medical equipment for 25 customers.
TriVirix has always thought big, becoming one of the first customers for mySAP Business Suite and quickly adopting portals to share manufacturing data with customers. They required no new functionality and chose a basic upgrade from SAP R/3 4.6c to 4.7 to prepare for a FI/CO improvement project to meet FDA manufacturing guidelines for manufacturing medical devices. TriVirix managed the upgrade almost entirely with in-house resources, Labriola being responsible for all IT matters, assisted by one or two people at each remote site.
The company set up testing in April 2003 and performed the upgrade over the July 4 weekend, a process that took nine hours. Their Early Watch session in August identified a few problems which were resolved before the end of the moth. Labriola noted that there was no noticeable change in the interface, and that the increase load on the server was “insignificant.” Among the lesions learned, he cited “don’t deviate from you test environment” – SAP had incorporated some changes after the original release which went unnoticed and which held up the project for a few days until SAP support helped straighten them out.
Once the FI/CO improvements are in place, TriVirix plans to move on to incorporating BI and CRM.
To view the posted presentation from the webinar, visit www.sap.com/fm/pdf/upgrade_smb.pdf.
To listen to the full webinar, go to sap.webex.com/sap/playback.php?FileName=http%3A//www.sap.com/fm/webex/SMB_UPGRADE_111203.wrf&Rnd=0.911350536109292.
For more about the TriVirix-SAP story, visit www.sap.com/solutions/smb/allinone/customersuccess/