IT Nightmare Comes True

More than 2,500 companies bought SAP's R/2 system, only to learn the vendor will abandon it.

It's called betting on the wrong pony, and it's every CIO's -- and by extension, CEO's -- fear. No one in corporate America wants to spend millions of dollars on a technology horse only to find that -- a few years down the track -- not only does it fail to win, place, or show, it's disqualified from the race altogether. To be sure, plenty of companies in recent years have purchased software to run their business only to have the company that sold it to them be acquired or go out of business. Manufacturers that bought software from Ask Group, Avalon Software, or Dun & Bradstreet Software, to name a few, suddenly found themselves with systems whose vendors no longer existed. But who would have imagined that software from SAP AG, the $3.4 billion Walldorf, Germany-based enterprise-applications giant, would be the wrong bet? More than 2,500 companies around the world have pumped hundreds of millions of dollars into SAP's former flagship software package, called R/2, only to find the vendor planning to pull the plug on the software. As of Dec. 31, 2004, SAP will no longer maintain R/2, leaving the estimated 1,400 companies still using the system -- including Dow Chemical Co., General Mills Inc., Imperial Oil Ltd., and Eastman Chemical Co. -- high and dry. "After that date, we will discontinue development for R/2," says Christopher Black, R/2 basis manager at SAP America Inc.'s Wayne, Pa., headquarters. That's bad for companies like Dow, which sank more than $100 million into R/2 and its installation and invested several years to get the software up and running worldwide. Similarly, hundreds of other large manufacturing companies spent years installing the German software firm's mainframe business applications, only to learn that those systems ultimately are doomed by a successor version for client-server-based networks called R/3. "I think R/2 users have no choice but to go over to R/3," says Bruce Richardson, vice president of research at Advanced Manufacturing Research Inc., Boston. In SAP's world, R/3 is the thoroughbred, R/2 the aging draft horse that must be put out to pasture. The software giant says only about 55 companies in North America still use R/2. "By 2004, the R/2 system will be 25 years old and will be retired," Black adds. Analysts say the software firm wants to shed the cost of having to maintain two different systems. The impending demise of R/2 was hardly a secret: Since 1992, when R/3 was introduced, SAP has concentrated most of its research-and-development efforts on expanding and improving R/3, to the obvious neglect of R/2. In a sales pitch to a group of R/2 customers at SAP's annual customer conference in Orlando last August, Michael Schaefer, worldwide manager of R/2 marketing, said, "We definitely would like you to recognize that our major offer today is in the R/3 system." For some companies, the problem is compounded by the fact that they have yet to finish implementing R/2, which typically takes a large firm two to five years or more to get up and running. "We're not even going to finish implementing R/2 until some time in 1998," says Kevin Slattery, director of core-systems implementation at BASF Corp., Mt. Olive, N.J. "We can't go to the CEO and say we need a new system in 2004 after only five years." Although not totally ignoring R/2 customers, SAP has effectively shunted them onto a siding where they continue to be fed occasional upgrades or patches to their software. Such is the lot of otherwise profitable, healthy companies that purchased technology destined to become obsolescent in a few years. Even so, these companies are determined to make the best of their situation by adopting a number of strategies for the future. Extending R/2's Life Many are looking for ways to get the most life out of their investment in the mainframe software before either business or technological reasons force them to make the shift to R/3. One such business problem is electronic commerce and the Internet. Here R/2 users can turn to Signal Internet Technologies Inc. This maker of systems for electronic commerce is offering software that will enable R/2 users to perform Web-based electronic-commerce transactions using real-time data from R/2. "The Gateway R/2 Adapter . . . enables real-time Web connectivity for more than 1,500 R/2 users and their trading partners," says Joseph A. Profeta III, vice president of engineering for Pittsburgh-based Signal. The company bills the software as a means for R/2 users to "extend and transform the R/2 data and business processes to the Web without having to upgrade to R/3." SAP in June began offering an add-on "Internet solution" called Component 48 that allows users to adapt information in the R/2 system for use in electronic-commerce applications over the Internet. Another key issue confronting companies using R/2 is the Year 2000 date change. SAP's mainframe system isn't Y2K-compliant. "The R/2 system does need patches for Year 2000," confirms SAP's Black. Adds Gary Heinze, SAP manager at Hoechst Marion Roussel Inc., Kansas City. "Today, when you enter the year 2005, the whole entry just disappears from the screen, and then later you see a 1905." Users will have to adapt the software with a "patch" provided by the software firm. A similar patch will be offered to handle the shift to the forthcoming euro currency in Europe. But even the patches may come too late for some. Says Heinze, "The availability is potentially too late to help us with our Year 2000 problems." Dow Chemical, for one, is seeking ways to preserve its investment in R/2. "We see R/2-R/3 coexistence as a way of preserving and extending our R/2 investment," says Joe Kerbleski, SAP manager at the Midland, Mich.-based chemicals giant. Dow uses all of the R/2 modules to run its $20 billion global business, which includes 115 plants in 37 countries. It would be especially difficult for Dow to migrate all its systems to R/3 because the company heavily modified R/2 to meet its business needs, according to a consultant familiar with the project. Coexistence Strategy Many firms using R/2 have adopted a strategy of gradually moving some systems to R/3, with the intent of someday converting everything. Robert Dorsey, an SAP project manager at Eastman Chemical, Kingsport, Tenn., says R/2 user companies are working to develop a plan for the two software systems to coexist with an ultimate goal of migration to R/3. "Of course," says Dorsey, "SAP doesn't want to talk about long-term coexistence." The software firm wants all its customers to move to R/3, the sooner the better. However, SAP, which offers a set of migration tools to help companies make the shift, did sponsor a recent study by a group of R/2 users to examine plans for at least short-term coexistence of R/2 and R/3. "SAP is working on a feasibility study over the next two or three years to develop a coexistence product to make R/2 and R/3 communicative," Schaefer says. One stumbling block is that the mainframe system uses different data structures from R/3. The result is that even SAP's own "glue" for connecting different systems, called ALE, "cannot connect the two," Schaefer adds. SAP's Black says one of the findings of the study was that "coexistence will be done on a project basis according to each company's individual requirements." In other words, he adds, "the economics and complexity outweigh a generic coexistence path." The difficulty of total migration to the R/3 client/server-based system for some companies is that they are used to running most of their mission-critical systems on the mainframe and aren't ready to give up the kind of reliability that big iron offers. In addition, there's the problem of converting the data from one system to another very different one. Finally, there is the additional stress on the organization, which already has gone through one massive systems overhaul that most likely required thousands of people to change the way they do their work. At Dow Chemical, for instance, 4,500 employees use the R/2 system. "We're starting to get a fairly good return on our investment for R/2," says Kerbleski. "We want a few more years before we have to replace it with another technology. We're comfortable with R/2." Adds Eastman Chemical's Dorsey, "We're used to putting in a mainframe that lasts 20 years." Pressuring SAP R/2 user companies, including some that are far bigger than SAP, aren't taking the software firm's decision to yank R/2's cord lying down. Some are aggressively lobbying SAP to extend the life of R/2 beyond the deadline and to provide them with still more features and expanded upgrades. They don't call it pressure, of course, because they don't want to anger the German software giant, but in fact it is. "We're pushing SAP to keep R/2 active at least to 2004," says BASF's Slattery. Says Kerbleski, "We want to continue to work with SAP in the interest of Dow to make sure we both succeed long-term." Dow plans to hold onto R/2 as long as possible, if only because it sees little incentive to make another massive and organizationally wrenching technology shift. "We use R/2 for common global business systems, and we found there was little value in replacing it with R/3," Kerbleski says. "Around 2003 we will begin looking at replacing our existing R/2 systems."

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