What Everyone Should Know About SAP: An Introductory Guide

SAP is Germany’s largest software manufacturer and one of the world’s leading providers of business process management solutions. But how did SAP become so successful? And what advantages does SAP software offer? Learn more in this glossary entry.

SAP software products are internationally leading solutions for managing business processes and efficiently administering information within companies. They are developed by SAP AG, a global software company headquartered in Walldorf, Germany. The name SAP stands for “System Analysis and Program Development.” Since its founding in the 1970s, SAP AG has established a global standard for ERP (Enterprise Resource Planning) software. In 2015, the next generation of the system, SAP S/4HANA, was introduced. It is based on high-performance in-memory technology, enabling the real-time processing of massive amounts of data.

SAP AG was founded in 1972 by former IBM employees Dietmar Hopp, Hasso Plattner, Claus Wellenreuther, Klaus Tschira, and Hans-Werner Hector. Their goal was to develop standard software for businesses that would integrate all operational processes and enable real-time data processing. In the 1970s, “in real time” meant—unlike today—processing data directly at the computer terminal rather than using traditionally cumbersome workflows that involved multiple media. To reflect this in the product name, SAP’s first enterprise solutions began with an “R,” standing for “real-time.”

In the early 1970s, the company developed programs for financial accounting, auditing, and materials management under the product name SAP R/1 and launched the second generation of software, SAP/R2, in 1979. SAP R/2 features a two-tier architecture in which the individual software components are separated into two layers: the presentation layer and the database and logic layer.

The third generation, SAP R/3, was developed as multiplatform client-server software consisting of three layers, each running on its own server: the presentation layer, the application layer, and the data storage layer.  Since 2010, SAP has offered the in-memory database SAP HANA, which was largely driven by SAP founder Hasso Plattner and developed at the Hasso Plattner Institute for Digital Engineering in Potsdam, which he founded in 1998. With SAP HANA, data can be processed in seconds instead of days or weeks. This is a milestone for data-driven companies and for making fast, successful business decisions. In 2015, SAP introduced its latest generation of enterprise software, which runs entirely on SAP HANA and is also available as a cloud solution: SAP S/4HANA.

According to its own figures, SAP now has more than 269 million cloud users and offers more than 100 solutions, including industry-specific solutions for all business sectors. More than 400,000 companies worldwide use SAP software.

SAP software helps manage business processes within companies, process data effectively, and facilitate the flow of information across departments. The software covers all core areas of a company—from procurement, marketing, and sales to production, finance, and human resources—and helps manage and optimize the entire value chain.

This is made possible by centralized data management, which provides a unified view of all company information. Employees in line-of-business departments can easily access all data relevant to their tasks in real time. This largely prevents or eliminates information silos, where one part of the company is unaware of what another is doing. As a result, workflows can be accelerated, operational efficiency and productivity can be increased, and—through fast response times and customized solutions—the customer experience and customer service can be improved. SAP software is used by many global corporations and large enterprises, as well as by numerous medium-sized and smaller companies.

Working with SAP software requires specific knowledge and experience. SAP and its partners therefore offer user training and continuing education tailored to specific tasks, roles, and functions within the company. SAP certifications are also available and serve as proof that users or developers have received qualified training and possess the corresponding technical expertise.

The SAP Business Technology Platform (SAP BTP) is SAP’s Platform-as-a-Service (PaaS) and combines integration, application development, automation, artificial intelligence, data, and analytics in a unified environment. It provides the appropriate services, tools, and pre-built business content for all digital transformation tasks. This enables companies to quickly implement new business scenarios and business models. With SAP BTP, development teams have everything they need to quickly connect, extend, and enhance business-critical processes. Business users can automate tasks, create fast, flexible workflows, and design personalized user interfaces—using low-code approaches and solutions. Access to business-context-related information from SAP and third-party systems simplifies cross-organizational collaboration in planning, application integration, and the exchange of insights.

SAP HANA is the name of the in-memory database developed by SAP, on which the SAP S/4HANA ERP platform is based. The acronym HANA stands for High-Performance Analytic Appliance. SAP HANA stores data in main memory rather than on a hard drive. Data access to a computer’s RAM is incredibly fast and typically takes on the order of nanoseconds. In comparison, accessing data and records stored on hard drives typically takes a few milliseconds. Random Access Memory (RAM) processes and analyzes data about a million times faster than conventional hard drive storage.

In addition, an in-memory database enables the parallel execution of advanced analyses and high-speed transaction processing on a single system. This allows companies to process massive amounts of data—in the range of gigabytes and terabytes—in near real time, evaluate data immediately, and take data-driven action.

SAP HANA is both a database server that stores and retrieves data requested by applications and an application server that supports companies in developing intelligent, analytics-driven applications. In addition, SAP HANA offers advanced search, analysis, and data integration capabilities for both structured and unstructured data. These capabilities are available in both the cloud and on-premises versions. By combining various data management functions and providing immediate access to all types of data in a central system, SAP HANA simplifies IT operations, helps companies make innovative, data-driven decisions, and facilitates the digital transformation of their business.

The core software product is SAP ERP (Enterprise Resource Planning), which is used to plan and manage personnel, assets, resources, capital, and materials in line with corporate objectives and based on actual needs. SAP CRM (Customer Relationship Management) is a standalone package for customer service that, like the supply chain management solutions SAP SCM (Supply Chain Management) and SAP PLM (Product Lifecycle Management), complements the core system across all industries. Industry solutions, also known as Industry Solutions, offer additional functionality that extends the core ERP system through supplementary modules.

Over the past few years and decades, SAP has expanded and enhanced its portfolio of solutions through strategic acquisitions. Naturally, it is difficult to narrow down the selection. Among the best-known are the SuccessFactors human resources management solution—which has become the de facto standard in HR—the Concur travel expense reporting solution, and the Signavio Business Process Management Suite, which enables companies to map, document, optimize, and redesign their process landscapes.

Thanks to the wealth of experience they have gained through projects and their in-depth industry knowledge, SAP consulting partners serve as valuable advisors to companies during the implementation of SAP solutions. This begins during project preparation with the selection of the right strategy, the appropriate approach, and the best solutions for optimal end-to-end processes. During project implementation, SAP consulting firms then provide the necessary additional resources and expertise. Consulting firms also support or manage often-overlooked areas such as change management, which can be critical to successful project implementation. This is because a new software solution not only changes IT system landscapes but also, as a rule, alters work processes, affecting roles and functions.

SAP generates revenue by selling usage rights to its software solutions to corporate customers. The cloud delivery model is becoming increasingly important in this context.  SAP is therefore increasingly moving away from traditional software licensing and pricing its solutions on a subscription basis based on the number of users, the required solution modules, and the roles and permissions users need to perform their tasks within the company. It is advisable to conduct a thorough assessment in advance to avoid the pitfalls of over-licensing and under-licensing. In the case of over-licensing, companies pay for features that users do not even need, thereby literally throwing money out the window. In the case of under-licensing, users utilize SAP functions they haven’t paid for, which—in the worst-case scenario—can result in substantial contractual penalties.

The SAP licensing manual spans several hundred pages. It is generally recommended to seek the assistance of a licensing consultant.

SAP consultants are highly sought-after specialists who have acquired their knowledge through practical experience and continuing education and can demonstrate it with relevant certifications. SAP will discontinue active support for its legacy ERP product, SAP ECC, in 2027. By then, client companies must have migrated to the new SAP S/4HANA platform or managed support with in-house specialists.

Consequently, in addition to implementation and optimization consulting, migration consulting plays a major role in SAP consulting. Depending on the company, industry, and age of the SAP system in use, a greenfield migration, a brownfield approach, or an extended brownfield migration methodology may prove to be more advantageous.

A Greenfield approach rebuilds the SAP system from scratch and is recommended for older SAP installations that can no longer adequately meet current business requirements. The entire system is not only migrated to SAP S/4HANA but also optimized from the ground up. In this process, all business processes are reevaluated and then implemented as closely as possible to the standard based on best practices.

The brownfield approach is initially limited to a technical migration; optimization projects are tackled afterward. With valantic’s Extended Brownfield migration methodology, meaningful optimization and standardization measures are identified even before and during the system conversion; these can then be successively designed, planned, and implemented at the client’s own pace.