SAP: Delaware Win a Breakthrough

By Steve LeSueur, Staff WriterSAP America Public Sector has won its first statewide contract to install an integrated information management system, garnering a $1.2 million award from the state of Delaware.Officials with the new subsidiary of software giant SAP AG view their selection as a breakthrough in the highly competitive public sector market. "One of our objectives this year was to get a statewide implementation going," said Bob Salvucci, president of the Washington-based company. "It's a significant win ? proof for other public agencies that SAP is for real."The contract is not especially large by industry standards, but analysts say the dollar amount is less significant than the win itself. "SAP is coming from behind in the public sector and needs reference accounts," said Brian Skiba, vice president and senior research analyst with Lehman Brothers. "They're very aggressive in pricing and are often willing to give their first customers a break."SAP was selected Dec. 23 over PeopleSoft, Pleasanton, Calif.; KPMG, New York; and Public Systems Inc., a New Castle, Del., firm that bid on an Oracle software suite, said James Courtney, information systems manager in Delaware's Department of Finance. Work is slated to begin at the end of this month, when SAP and Delaware officials will establish the schedule and milestones for the project, said Courtney, project director. A target date for completion has not yet been established.SAP's S/3 software will integrate the state's business processes across more than 20 departments and school systems. Delaware will implement SAP's enterprise resource planning modules in both financial management and resource management, which includes procurement, materials and maintenance. The state is implementing a PeopleSoft system for its payroll system.Delaware already has a statewide accounting and general ledger system, but most of the state's other financial and procurement systems are paper-based, Courtney said. SAP's automated system will not only streamline operations, but also will enable the state to take advantage of electronic commerce for transactions such as purchase orders, invoices and payments. Delaware officials are confident they can implement successfully SAP's integrated software, which has had a reputation for being difficult to install, Courtney said. After studying other ERP projects, Delaware officials concluded it was the complexity of the organizations, rather than of the software itself, which created the challenge. "If you want to have an integrated system, then it's going to be complex," he said.The fixed-price contract with SAP makes the state and company risk-sharing partners in the project, Courtney said. Therefore, it's in the interest of both parties that the implementation goes as smoothly as possible, he said. SAP officials point to recent projects as evidence that they have successfully adapted their S/3 software for the public sector. An ERP system for the Port Authority of New York and New Jersey ?which included all the modules except human resources ? was implemented on time and under budget, Salvucci said.Other SAP public sector clients include the city of Phoenix, California's Sacramento County, the Houston School District, UNICEF and the states of Florida and Louisiana, which both purchased human resources modules.SAP America Public Sector has tripled its customer base since it was created in December 1997 as a unit of SAP America. And the company intends to continue expanding its presence, Salvucci said.The public sector unit has active business prospects in about 20 to 25 states. Some of the projects are narrow in focus, and others involve integrated ERP, Salvucci said.Like Delaware, many state governments are looking for ERP solutions as they move to replace older information management systems, state officials said. But because ERP is still relatively new in the public sector, officials are waiting to see how the installations go in Delaware and in other states."As far as ERP goes, the states are not looking at who's winning [the contracts], but at who's having success" installing systems, said Thomas Davies, senior vice president with Federal Sources Inc., McLean, Va. "So with each win, SAP has the challenge to implement successfully."Salvucci said he is well aware of the expectations faced by SAP and by all systems integrators that work in the public sector. "In this industry, your reputation is everything," he said.SAP America Public Sector is still putting together a financial report for 1998, but parent company SAP AG, Waldorf, Germany, late last month announced 1998 sales of $5 billion, an increase of 41 percent over the previous year. The company expects sales to double in three years. The parent company's pre-tax profits increased just 15 percent to $1.14 billion in 1998, largely because of a decline in business from Japan.