SAP's Top Four Challenges In 2008

SAP's acquisition of third-party application support company TomorrowNow in January 2005 certainly seemed to make sense at the time. Coming on the heels of Oracle's $10.3 billion PeopleSoft acquisition, owning a company that provided support services for PeopleSoft and JD Edwards software could help bring disaffected owners of those applications into the SAP orbit "- or so the thinking went.

But TomorrowNow has become more of a liability than an asset. Earlier this year Oracle sued SAP claiming TomorrowNow employees posed as Oracle customers to illegally acquire Oracle software and support materials. SAP has acknowledged that "some inappropriate downloads of [Oracle] fixes and support documents" occurred at TomorrowNow, but denies SAP had access to the intellectual property. The suit is ongoing and Oracle and SAP are due to meet in court in February.

Last month SAP announced that top TomorrowNow executives, including CEO Andrew Nelson, had resigned and that SAP was considering its options, including selling off the company.

It's hard to envision any business engaging with TomorrowNow for its services when the legality of its business practices have been called into question. TomorrowNow has become a liability for SAP and the software giant must take steps to remove the distraction. That means either selling the subsidiary or even shutting it down and in some way resolving the Oracle lawsuit.

4. Convince ERP Application Customers To Upgrade To ERP 6.0

While it's been more than 18 months since SAP debuted SAP ERP 6.0 (previously known as MySAP 2005), only about 6,000 of the company's 33,000 or so ERP software customers have upgraded to the latest version of the company's flagship product. The majority remain on the aging R/3 generation of applications or MySAP ERP 2004.

SAP's strategy is to maintain ERP 6.0 as the core of its application set until 2010, delivering new functionality and improvements through enhancement packages that customers implement as needed instead of requiring total system upgrades. But those enhancement packages only work if customers have the ERP 6.0 foundation.

Upgrading from an older version of SAP's applications to the new release isn't trivial, especially for businesses with large-scale deployments. Analysts say some customers have weighed the costs and hassle of upgrading against the gains in new functionality and are opting to sit tight for the moment.

There's no easy answer here, but SAP must find a way to convince its customer base that it's time to move up. It must do a better job of stating the value proposition of upgrading to ERP 6.0, somehow helping to defray upgrade costs and working with systems integrators and other channel partners to reduce the pain of upgrading are all possible steps.