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What SAP Is and Why SAP Exists Just Because of IBM

Whale under the water from above.

SAP exists just because of IBM: Five former IBM employees founded SAP because they and IBM could not agree about who will work with whom in a project. Therefore, they quit IBM and started SAP.

SAP (Systems, Applications, and Products in Data Processing) started as a small software startup in Germany with one pilot customer and without any product yet – now SAP is the market leader in the ERP applications market and after Microsoft, the market leader in enterprise application software in 2018 with over 340 products.

SAP came from 1 customer to now 437,000 customers and from 5 employees to now 98,600 employees. Today, 77% of the world’s transaction revenue comes in contact with an SAP system.

Sketch of the SAP logo.
The full form of SAP is Systems, Applications, and Products in Data Processing or original in German Systeme, Applikationen und Produkte in der Datenverarbeitung.

From One Customer to a Billion Dollar Enterprise

In 1972, five former employees from the IBM (International Business Machines) department for artificial intelligence in Mannheim, Germany set out to build a new company focused on business standard software.

The five men’s names are:

  1. Hans-Werner Hector
  2. Dietmar Hopp
  3. Hasso Plattner
  4. Claus Wellenreuther
  5. Klaus Tschira

They called their new company SAP and have watched it grow to be the 2nd largest enterprise software company in the world.

The SAP world is full of abbreviations, such as its company name itself. To get a quick start into SAP, there are the 9 most important SAP full forms.

And if you need help with the SAP abbreviations then is there a full-fledged SAP acronyms list to your aid.

SAP is number 1 in the ERP software market in 2018, the 2nd largest business software supplier in terms of sales in 2018, and the 7th largest independent software supplier worldwide in terms of sales in 2017.

SAP’s revenue was $26.7 billion, and SAP’s market capitalization was $129.4 billion in 2017:

Sales RankMarket Cap RankCompany NameSales (Billion $)Market Cap (Billion $)Origin Country
1.2.Alphabet110.86766.84USA
2.1.Microsoft110.36826.94USA
3.7.IBM79.9112.53USA
4.9.Accenture41.1100.13Ireland
5.3.Facebook40.65431.18USA
6.5.Oracle39.83176.83USA
7.6.SAP26.7129.4Germany
8.4.Tencent22.8277.1China
9.8.TCS19.08102.6India
10.10.Baidu10.659.9China
The top 10 companies in the 2017 Forbes list for Software and Programming.

SAP’s Founding

The original plan of IBM for the five former IBM employees was to create a standard software that used an electronic database for a comprehensive range of applications that any given company could use.

This plan used unheard of in its day: Employees would be using an electronic database and receiving data in return live in real-time across all business areas. Plus, standard software.

At those days it was still common to use punch cards for data storage. And there was no standard software for business processes in the market. Remember, it was 1972.

Standard software means software that is not developed from the ground up explicit for one customer; it is not tailored but can be reused for different customers.

The five founders of SAP left IBM and started SAP after IBM and they could not agree about who would be in the project team for the standard software for business processes with an electronic database – what turned out to be not the worst move.

SAP’s first customer was a German subsidiary of the ICI (Imperial Chemical Industries) Group in Östringen, Germany. SAP set their first system in 9 months productive for the ICI Group. The system was for finance and called RF (Real-Time Finance).

The system was standard software. Therefore, it was in its core not tailored for one specific company but could be used from other companies as well. That system was the first business standard software worldwide.

That system for the ICI Group evolved into SAP’s first commercial product. SAP released it 1973 and called it R. The R stands for real-time because R used an electronic database instead of punch cards which were common in 1973: Punch cards were processed overnight, whereas the database stored data right away in real-time.

Therefore, two aspects are the cornerstone of SAP’s founding and success to come:

  1. standard software
  2. newest technology
A punch card to store data.
In 1972 it was still common to use punch cards to store data instead of electronic databases as today.

SAP’s Success

SAP’s core product was and still is what is known as an ERP (Enterprise Resource Planning) system. ERP systems aim to map all business processes of a company into information technology under one umbrella – one rin…, ehm system to rule them all.

SAP offers ERP systems for small-, medium-, and large-sized organizations across all industries and sectors. SAP even targets explicitly very small businesses since its introduction of cloud computing products.

But the SAP focus might more and more shift from ERP to CRM (Customer Relationship Management) or at least include more and more CRM. The CRM market replaced the ERP market as the biggest software market in 2017.

SAP recently invested heavily in CRM by the acquisition of software companies in this branch and developing and integrating new CRM products in its portfolio.

SAP has more than 437,000 customers in over 180 countries. Fully 80% of these customers are SMB (Small- to Medium-Sized Businesses). That is quite the departure from SAP’s original market of only securing large companies as their main focus.

As an estimate, 77% of all global business transactions come in contact with an SAP system.

While SAP’s cloud computing might be the future of SAP’s growth, they continue to offer on-premise products and on top hybrid options of on-premise and cloud computing.

1972 to Now – the SAP Software Evolution

SAP has come a long way since 1972: SAP’s first pilot customer was the ICI group (Imperial Chemical Industries). SAP developed for them its first standard business application and set it productive in 9 months in 1972 – 1973. The application was for payroll and accounting.

The application evolved into SAP’s first commercial product in 1973. The product was called RF (Real-Time Finance) and later renamed to R/1 (Real-Time 1 Tier). R/1 was an application for finance and was running with a 1-tier-architecture on the DOS operating system.

R/1 was and is the cornerstone for all SAP ERP systems to come: R/2, R/3, ECC, and the most recent S/4.

Now SAP offers not only multiple versions of ERP systems which are running with a 3-tier-architecture on-premise, in the cloud or as a hybrid version of on-premise and cloud computing but also a variety of other products besides ERP such as CRM.

ERP was and still is SAP’s core product – but that maybe changes: The CRM market replaced the ERP markets as the biggest software market in 2017. And SAP recently invested and invests a lot in CRM software in particular for cloud computing.

SAP was working on CRM software since the 90s. SAP’s first steps in CRM was a module for the SAP ERP R/3. The module is called SD (Sales and Distribution).

In 2000 SAP released its first CRM stand-alone software. It was called SAP CRM 2.0. SAP CRM evolved into SAP CRM 5.0, 6.0, and 7.0.

Now SAP CRM 7.0 will evolve back into a plug-in for SAP’s newest ERP S/4. SAP cloud products for CRM exist since 2007, besides that evolutionary process of the SD module to SAP CRM. But presumably will be the core product in SAP’s CRM portfolio.

The SAP software evolution timeline:

1973 – RF & R/1

RF (Real Time Financial) and later renamed to R/1 (Real Time 1 Tier) was SAP’s first commercial product and released in 1973. R/1 was a financial accounting application and ran on the DOS operating system on-site of the customers.

R/1 was the first business standard software worldwide. That means that it was not tailored explicitly for one particular company but could be used for other companies as well.

Imagine non-standard software like a tailor-made suit. A tailor-made suit is made to fit exactly one person. And it takes a lot of effort and a long time to make a tailor-made suit because it is made from the ground up.

On the other hand, standard software is like a pre-made suit. A pre-made suit is made to fit as many people as possible. Therefore, it takes not a lot of effort nor time to make a pre-made suite because it is made in bulk in just some pre-defined sizes – copy-paste style.

A custom-made suit is pretty expensive in comparison to a pre-made suite. And the pre-made suit can be customized to fit exactly the needs of its wearer.

The same goes for software: To develop an application just for one specific customer from the ground up is more expensive than using already existing software and customize it.

Besides the standard software novelty, used R/1 an electronic database what was quite new in 1972. In 1972 companies still used to save their data on punch cards that were mostly processed overnight. On the contrary, R/1 saved data in real time in an electronic database.

Therefore, SAP had with R/1 two edges in the software market:

  1. standard software
  2. electronic database

R/1 had a 1-tier architecture which included presentation, application, and the data layer together at the same level.

1979 – R/2

SAP released R/2 (Real Time 2 Tier) in 1979 in response to customer demands to have a mainframe computer solution available on the market. R/2 uses a 2-tier architecture with the presentation layer on one platform and the application and data layer on another platform.

The R/2 release created large growth for SAP, expanding its customer base to just over 200 companies.

SAP’s R/2 has been such a popular system that to this day, SAP still offers support for it. But the support is expected to decline soon. R/2 is still in use to some extent on the market – yes, some companies still use mainframe computers.

Though R/3 replaced R/2, R/2 uses a process called Application Link Enabled technology to be able to share data with R/3 or ECC systems.

SAP R/3 user interface start screen.
SAP R/2 logon screen screenshot from 1997.

1992 – R/3

SAP’s R/3 (Real Time 3 Tier) arrived on the market in 1992. That was a significant change in architecture in compare to R/2 as it represented a shift from mainframe computing to the more and more popular client-server model, which is a 3-tier architecture.

The 3-tier architecture separates an application in a presentation, application, and data layer. Each layer is usually hosted separately.

R/3 was the software that launched SAP as a global contender on the world stage and finally resulted in the leadership in the ERP software market.

Now functioning as a 3-tier architecture and therefore with the power of an application server, SAP’s R/3 provided the ability to store, retrieve, analyze and process data in a variety of ways related to financial analysis, operations and production, HR management and many other business processes.

R/3 was also the first business application of its kind that uses access through the internet via web browsers.

For example, a salesperson would initiate the workflow for a sales order on their laptop at a client’s site. The salesperson’s data of the form on the laptop would then be transferred to the R/3 application server and from the application server to the database. Whereby, that would be more of a CRM instead of an ERP process.

At this time, Lotus Notes was added as an interface as well. Later on, efficiencies in the R/3 versions allowed SAP to for management of a supply chain application to be put on the market.

By 1997, after working with Microsoft to port an updated version of R/3 onto Windows NT, SAP was employing 13,000 people globally.

MySAP

In 1999, SAP launched mySAP.

MySap was a new focus for SAP as they were now aiming for the eCommerce software application market which would also integrate with their R/3 bundle.

By the way, the domain mysap.com is still registered but is not mapped to any content.

ECC

ECC stands for ERP Central Component. SAP developed ECC to act as a central component used to integrate with other areas of the business in real-time. Simply put, if there is an update in one area, let’s say sales, it will trigger other relevant areas to update automatically (inventory for example). This unified real-time view of enterprise resources allows managers to make data-driven decisions in a way that optimizes a core business process(s).

SAP ECC is generally implemented in medium to large-sized companies. It is the foundation of the SAP Business Suite which includes modules (a.k.a. components) like SAP Customer Relationship Management (SAP CRM) and supply chain management. The benefit here is that SAP ECC modules can easily be integrated to work together.

SAP ECC is composed of ten functional core modules and two technical components.

ECC Functional Modules (components)

ECC can be found mainly in pharma, chemical, steel, and fast-moving goods industries. For the most part, Functional Accounting, Controlling, Materials Management, and Sales and Distribution are the more popular applications integrated.

While all applications would be best installed to take advantage of the SAP ECC ecosystem as a whole, most companies will choose some, most or all applications as their customized solution. Let’s take a look at the ten most popular implemented functional modules.

Financial Accounting (FI)

This records all financial transactions for a company. This includes transactions of its customers and vendors alike. FI will handle sales, payables for procurement and cash management as well as bank payments and reconciliation processes.

Controlling (CO)

This manages cost center accounting, profit center accounting, and internal orders. CO also offers financial planning. CO includes product costing, comparing simulated costs and actual costs with a primary intention to assist manufacturing companies.

It should be noted that both the above modules are referred to as FICO, FI-CO or FI/CO as if they are one component. It is simply a reflection of the popularity of the two most commonly used modules within the ECC environment.

Sales and Distribution (SD)

This module manages the sales and distribution process, to include selling of products and services, nationally or internationally through direct sales to customers (B2C) or to partner companies through distribution networks (B2B). Customer returns, billing and credit issuance are also handled with SD.

Materials Management (MM)

Procurement and Inventory are handled using MM. Materials and services procurement can be from hyper-local vendors to international suppliers. With respect to inventory management, MM manages all goods issuance, receipts, and transfers of a material item from its origin (a plant for example) to the destination (storage location or to another plant). MM also manages to count and reconciling the materials of physical inventory.

Production Planning (PP)

The PP module assists the business to create demand and manufacturing capacity alignment in order to coordinate product manufacturing, sales, and distribution. PP plays a critical role here in the manufacturer’s supply chain. It can be used for discrete, process or repetitive manufacturing or a combination of any of these.

Quality Management (QM)

This module integrates deeply with procurement, production, sales, and equipment maintenance processes. QM makes use of advanced features including managing complete internal or external audits business processes. This is done to isolate the root cause of a product’s failure and ensuring the ongoing quality improvements to a company’s processes remain in place.

Plant Maintenance (PM)

Monitoring machines and functional locations (think chiller or boiler room) is the primary purpose for this module. Integration includes alerts when issues are detected to prevent machine failure or disruptions to production. Preventative maintenance, corrective maintenance, and refurbishment maintenance are all sub-components under the PM module.

Customer Service (CS)

The CS module handles the business process(s) related to customers’ equipment. The ability to bill customers for maintenance services can be completed with this module.

Project System (PS)

The PS is ideally suited for large complex projects. Setting up a new manufacturing plant, monitoring a major plant maintenance turn-around are a couple of examples. This module ensures project-specific procurement or production through PS is able to correctly allocate project costs in order to remain within the project budget.

Human Capital Management (HCM)

HCM manages payroll, time management activities (attendance and leaves), career development, travel, and workplace safety.

ECC Technical Modules (components)

The two technical modules (ABAP and NetWeaver) are mandatory. ABAP is a component in SAP ECC that supports all types of custom development that may be uniquely configured for a particular company. This is mainly used for customized reports or specific reporting formats required by financial or legal verticals.

NetWeaver is used to ensure effective administration of the SAP ECC itself. It basically enables companies to assign specific roles to individuals or groups. This includes authorization and authentication.

SAP HANA

Developed in 2006, SAP HANA processes high volumes of data in real-time through its in-memory database and application development platform. It has become SAP’s highest-profile product on the market to date.

HANA also enables data analysts to query large volumes of data in real-time. This is done without analysts having to load or write back data.

HANA stores data in a column type format. By doing this, the product can deliver real-time or near real-time transactions and analytics quickly. This was a significant improvement to previous database design and brought industry attention as it set a new bar in real-time data processes.

Of course, the offset to this speed was an increase in hardware needs. More server memory was needed. This is seen though as a zero-sum advantage as the database themselves are considerably smaller than the competitors on the market and SAP’s data compression was greater than the industry standard as well.

SAP Business Suite

This is a bundle of end-to-end enterprise software applications integrating data, processes, and functions, all for important areas in finance, sales and human resources. SAP Business Suite was meant to help companies run business operations smoother by keeping costs low and in turn revealing new market opportunities.

This suite is used primarily for medium to large enterprises. While it remains popular with SAP customers, SAP does plan to have their customers switch to S/4HANA, hence why new customers do not see the SAP Business Suite any longer as an option to purchase.

S/4 HANA

Based on SAP HANA, this is the SAP business suite used to perform transactions and analysis in real-time.

Released in 2015, it has become what SAP considers to be its flagship product. S/4HANA is considered to be easier to use and administer while helping to solve more complex problems. It can handle vastly larger amounts of data than any predecessor. S4/HANA is available as an ‘on-prem’ (on premises) application or as a cloud provided solution or as a hybrid of both.

S/4HANA though is not a direct descendant of HANA. HANA’s application programming code was written originally as a front end to the SAP ERP business application running the HANA back-end memory database. S4/HANA was actually written in HANA rather than running on top of it. This required a re-write of about 400 million lines of code.

SAP envisions S/4HANA as an opportunity for businesses to take advantage of the Internet of Things (IoT) and Big Data by connecting people, places, and devices to business networks and making use of its real-time application. The intent is for business to use this to breakout new market revenue options or create new business models, ultimately creating new revenue models as well.

S/4 HANA and SAP Fiori UX

S/4HANA uses the SAP Fiori UI rather than a traditional SAP GUI. Using this design allows for the commonly used S/4HANA functions to be displayed in a simple design that allows for quicker access across multiple devices including desktops, tablets, and mobile devices.

S/4HANA Modules

SAP Finance – The key sub-module is SAP Finance. This release was an upgrade to the former Simply Finance module. There are current Business Suite users deploying SAP Finance as their first step toward migrating to S/4HANA.

S/4HANA 1511 – Released in 2015, this introduced a logistics module called Materials Management and Operations (MMO)

S/4HANA 1610 – Released in October 2016, this introduced modules for supply chain management, which included Advanced Available-to-Promise (aATP), Inventory Management (IM), Material Requirements planning (MRP), Extended Wharehouse Management (EWM) and Environment, Health and Safety (EHS).

S/4HANA HCM – Released in 2018, this included an on-premise human capital management (HCM) application alternative to the existing SAP SuccessFactors. SAP does note though that this is actually a ‘side’ application running with S/4HANA and not as part of the S/4HANA line of applications until an official release date of 2023.

SAP Cloud Platform (SCP)

The SAP Cloud Platform is a platform-as-a-service (PaaS) product, providing both a development and runtime environment for cloud applications. This platform is based on the SAP HANA in-memory database technology. SAP HANA also uses open source and open standards. This is a great asset for independent software vendors, startups and developers to create and test HANA based cloud applications.

SCP is primarily intended to allow companies an opportunity to extend their existing on-prem or cloud-based ERP applications with next-gen technology such as advanced analytics, blockchain or machine learning.

As one example, SCP can facilitate the integration of SAP S/4HANA Finance with cloud applications like SAP Ariba or SAP SuccessFactors. The advantage is that it can also integrate these applications with non-SAP systems and data sources. This would include social media sites and other vendors’ enterprise applications.

Since SCP is based on open standards, it offers flexibility and control over which clouds, frameworks, and applications to deploy.

SCP is available as both a subscription and consumption based commercial service models. Companies would have flexible options to measure and match services needed from SAP.

SAP HANA Enterprise Cloud (SAP HEC)

This is SAP’s solution for a private manages cloud hosting service for SAP Hana and its related applications.

Having its origins in 2013, the intention was to drive the adoption of SAP HANA among its new and current customers.

SAP HEC hosts the SAP Business Suite software, which includes SAP HANA for both custom and out-of-the-box applications and SAP NetWeaver Business Warehouse software on a single instance of SAP HANA in-memory platform. It was designed to give customers an easier way to deploy SAP HANA compared to on-prem deployments.

It is available for data-centers globally that are either owned by SAP or collocated with another provider. Generally, when a new customer deploys SAP HEC, SAP will first conduct a technology assessment of the client’s current ecosystem and then migrate applications and extensions into the SAP HEC infrastructure.

Form this point on, SAP will undertake application support and management (ongoing) up to and including, upgrades, backups, patches, restoration, and recovery. SAP will also include infrastructure monitoring and event detection.

There are benefits to using SAP HEC. The most obvious benefit is the reduction in cost, time and hassle of deploying and running SAP HANA and its integrated applications. It is a more flexible way to run HANA as organizations do not need to worry about upgrading infrastructure to meet increased demand and performance issues.

SAP User Interface for HTML5 (SAPUI5)

This is basically a collection of libraries that developers use to build desktop and mobile applications that will run in a browser. Using SAPUI5’s JavaScript toolkit, web applications can be built using HTML5 web development standards.

SAP’s company line of web-based apps, known as SAP Fiori, have a diagnostic user interface (UI) all built using SAPUI5. Additionally, there is an open source version of SAPUI5 called OpenUI5, which is available on Github.com.

SAP Fiori

SAP Fiori is SAP’s answer to a design language and user experience approach to be used in SAP for its customers and business partners in business applications. The SAP Fiori is used in S/4HANA and C/4HANA suites, SAP Analytics Cloud, SAP Data Hub, SAP Ariba, and others to name a few.

Any applications using the Fiori design language are often called Fiori applications or Fiori user interfaces (UIs). Fiori designs can be implemented in almost all technologies, though SAP does provide the Fiori compliant UI libraries in its SAPUI5 JavaScript library and its SAP Cloud Platform software development kit (SDK).

SAP Leonardo

This is SAP’s collection of software and services that organizations can use when developing digital transformation projects. SAP Leonardo uses microservices that allows developers to take advantage of next-generation technologies. These would include Internet of Things (IoT), Machine Learning, Artificial Intelligence, Big Data, advanced analytics, 3D printing and blockchain, all within the SAP Cloud Platform.

SAP sees this as a digital innovation system. It is the design thinking behind the process used to help uncover all needs of a digital transformation project and allowing developers to build applications that deliver business insights using higher-valued, more advanced analytics.


All used acronyms and their full forms are in this ultimate SAP acronyms list alphabetically ordered.

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