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7 Myths About Outsourcing Your SAP Applications

by Gary Fromer | SAPinsider

October 1, 2005

When it comes to entrusting your SAP systems to an external outsourcing service provider, what are the associated risk and costs? SAP America’s Gary Fromer and Mark Gaydos expel common myths about outsourcing and explain the benefits of SAP’s own strategic sourcing offerings -- SAP Managed Services.

"SAP services offers flexibility to meet its customers' needs… For instance, SAP hosting and application management services allow companies to hand over their SAP instances for hosting and/or management. Typically, current customers of the services are either new SAP shops that don't want to invest in growing significant in-house expertise, or are established customers looking for support of transitory environments to test new functionality. With these services, SAP is also able to present a single view of total cost of ownership (TCO) to new clients, encompassing licenses, implementation, hosting, and support."

— Lance Travis, "SAP Services: A Strengthening Alternative," AMR Research, May 2005

Your enterprise chose SAP because it doesn't want to be in the software development business; it wants to leverage the applications, expertise, and best practices of a reliable, world-class enterprise software company so its employees can focus on core business.

Taking this a step further, to maintain your systems at current service levels while freeing IT resources to focus on core competencies and reduce costs, your IT organization, and IT organizations worldwide, inevitably explore the possibility of outsourcing. In the past few years, the market has seen a dramatic increase in demand for outsourcing services, leading to a variety of providers entering the market — ranging from large systems integrators to hardware vendors and third-party application service providers. As the number and variety of outsourcing service providers has increased, so has confusion in the market about different providers' offerings, strengths, and weaknesses. What follows are seven myths you may encounter as you consider outsourcing your SAP systems.

Myth #1: SAP Does Not Provide Application Outsourcing Services

For some, outsourcing mission-critical systems can be a source of anxiety or dread. Should an outsourced system fail, or if performance falls below expectations, you can see an immediate negative impact on revenue and the operations of your business. Outsourcing these mission-critical systems becomes not only a question of the value outsourcing can provide, but of confidence that the partner you choose will be as committed to the health and success of your company's systems as you are.

This is why SAP developed SAP Managed Services: so that customers who have the need to outsource can do so with great confidence, leaving the management of their investment in SAP to the most qualified SAP personnel — members of an organization that has over 30 years of experience designing, developing, deploying, and managing SAP applications and services. SAP Managed Services supplies the means to empower your IT personnel to focus their time and energy on providing value to your enterprise's lines of business — to increase revenue, reduce operating costs, and increase market share — rather than maintaining IT systems. And with SAP Managed Services, you obtain specific service level agreements (SLAs) that your company would have to manage very diligently to cost-effectively achieve on its own.

Myth #2: Outsourcing to SAP Is Too Expensive

No matter what level of IT resources your company has, SAP can provide a managed services solution that meets your needs within your budget. Utilizing SAP best practices and ITIL tools, methods, and processes with established service levels, SAP Managed Services can deliver a package of specific services — at defined monthly rates — tailored to meet your enterprise's individual requirements within the timeframe and resources promised. Not only can this significantly reduce your costs, but it also creates predictability in the expenses associated with running and managing your SAP solutions.

Myth #3: SAP Is Not Flexible Enough to Meet Our Needs

Depth of service coupled with tremendous flexibility is what distinguishes SAP Managed Services in the industry. SAP Managed Services' delivery models cater to a variety of technology strategies and to any of the stages of an SAP solution (evaluation, implementation, production, enhancement, and upgrade).

With SAP Managed Services, you can transfer some or all of the tasks required to manage your SAP systems. Not only does this allow your internal staff to focus more on directly supporting their lines of business, but this enables you to leverage the expertise SAP has accrued from supporting thousands of SAP production systems.

SAP Managed Services is made up of two main service areas: application hosting services and application management services (AMS). These two service areas can be used separately or in tandem to manage some or all of your IT organization's application outsourcing needs (see Figure 1).

Figure 1
SAP Managed Services Portfolio

Application Hosting Services

SAP Managed Services provides global application hosting services that enable your company to strategically source your entire application infrastructure to SAP. This includes data center facility, power, hardware, telecommunications, database, operating system, and basis administration, all with guaranteed service levels.

With application hosting services, your enterprise's IT organization no longer needs to be concerned with security, operations, backup/restore, media provision, and technical management of your SAP infrastructure. SAP takes care of these issues to ensure that the systems that run your SAP applications operate consistently, smoothly, and efficiently.

Application Management Services

Application management services can be used separately or in conjunction with application hosting services. AMS represents a long-term custodial relationship delivering post-implementation application support, application enhancement, and application innovation for some or all of your SAP solutions.

Myth #4: We Can't Outsource Because We Have Too Much Invested in Our Data Center

You don't have to give up your data center. SAP Managed Services offers an extremely flexible set of service offerings that can be customized to your organization's needs. If your enterprise wishes to continue to utilize its own hardware infrastructure, you can still use remote application management services to outsource the management of your applications to SAP. This enables your company to maintain its own hardware while leaving the management of the application layer to SAP. In addition, SAP offers implementation and upgrade hosting services that allow you, on a temporary basis, to leverage SAP's data centers during these transitional phases of your applications.

At the same time, many companies who have invested in their own data centers are starting to get out of the "data center business" to reduce the associated maintenance, capital infrastructure, and personnel costs and risks. As you perform new implementations of SAP applications, acquire new companies, or start obsolescing hardware, you can turn to SAP Managed Services for data center services that reduce the number of systems that need to be maintained.

Myth #5: SAP Only Assists Companies with Long-Term Outsourcing Needs

Although application hosting is most often associated with production systems, the reality is that often enterprises choose to use these services on a temporary basis during transitional phases. Some enterprises may decide to use application hosting during implementation and then take the solution in-house when implementation is complete. Other enterprises may prefer to use hosting when performing upgrades or when moving a new division over to SAP. SAP Managed Services can augment your own IT teams for whatever timeframe and services meet your specific needs.

Myth #6: We Will Lose the Ability to Make Changes to Our System in a Timely Fashion

Many customers choose SAP Managed Services specifically because it will enable them to perform implementations and make changes to their systems faster than if they were to do it themselves (see sidebar below). SAP Managed Services provides the rapid response of a state-of-the-art application outsourcing organization combined with deep expertise in SAP applications and an inside perspective on new product releases and implementation strategies.

Not only can SAP respond rapidly to simple changes to your system, but our unique experience enables us to react quickly to highly complex changes or modifications. For any type of changes or enhancements, SAP can tap into and leverage its deep system and application knowledge to identify best practices and potential pitfalls. By partnering with SAP for both the implementation and ongoing support of your systems, your organization benefits from our experience with thousands of SAP implementations, which in turn enables us to respond faster to the changes your enterprise needs.

Customer Example: Sauer-Danfoss

Sauer-Danfoss is a $1.4 billion manufacturer of hydraulics and hydraulic-related systems. Based in Illinois, the company has 8,000 employees in 26 factories around the world. The company recently upgraded from SAP R/3 4.6 to mySAP ERP, and in the process, chose to host its SAP R/3, SAP Business Information Warehouse (SAP BW), SAP NetWeaver Exchange Infrastructure (SAP XI), Internet Sales, Supplier Workplace, and Electronic Data Interchange (EDI) systems with SAP Managed Services.

Why did Sauer-Danfoss select SAP Managed Services? Because of speed of implementation and enhanced service levels. "If you are thinking about rapid implementation, you just cannot afford to waste your very valuable time in implementing the system in-house," says Krish Kumar, Vice President of Information Technology at Sauer-Danfoss. "We chose to host our global instance at SAP with SAP Managed Services. All of our systems, a single large global instance, are hosted at SAP. That also brings us a significant advantage to linking the applications side to the new components and new applications that we will be launching in the future."

Sauer-Danfoss linked 22 plants and 52 locations with the SAP Managed Services facility. "We don't have to worry about the operating system. We don't have to worry about the hardware. We let SAP do that function," says Kumar. "They have very good, dedicated professionals who can manage that side and participate actively as members of our project teams."

Myth #7: We Will Lose Our IT Expertise in SAP

Some companies fear that if they outsource the management of their SAP applications, they will lose their expertise in working with SAP. The truth is that rather than lose your in-house SAP expertise, you will gain a partner with the most in-depth knowledge of SAP systems and best practices in the world.

When SAP Managed Services handles the operational execution of your SAP applications, your in-house IT resources and deep knowledge of your own business become even more valuable. Rather than concentrating on application maintenance, these resources can now operate at a more strategic level, within the lines of business, to facilitate increased business efficiency and innovation.


Whether choosing SAP hosting and application management services to support the initial implementation, production, or transitional phases of their SAP solution life cycle, enterprises have learned that SAP Managed Services provides a great deal more than just outside assistance with the management of their SAP solutions.

SAP Managed Services provides a partner that is fully committed to and accountable for the success of your SAP systems — no myths about it. In partnering with SAP Managed Services, your enterprise is ensuring that you receive the highest quality of service possible, at a low, predictable cost, coupled with the knowledge that your SAP solutions are being run by personnel with the most experience using SAP systems in the world.

For more information on SAP Managed Services, please visit

As Senior Vice President of SAP Managed Services at SAP America, Inc., Gary Fromer is responsible for overseeing SAP's Application Management and Hosting Services businesses in North America. Prior to assuming this position, Fromer served as Senior Vice President, SMB and Hosting, responsible for overseeing SAP America's SMB reseller channel sales and operations, the mySAP All-In-One and SAP Business One solution portfolios, and sales of SAP Hosting services. He also previously served as Chief Strategy Officer for SAP Markets, Inc., and as Vice President, New Business and Partner Solutions for SAP America, Inc.
Mark Gaydos has over 20 years of experience in developing, marketing, and implementing high-tech solutions. He currently is director of sales development for SAP Managed Services. Prior to working at SAP, he was responsible for marketing at Comergent Technologies. Mark has also worked as director of product management for BackWeb Technologies and Oracle Corporation. In addition to his current responsibilities, Mark teaches software product management and product marketing at the University of California, Berkeley Extension.

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