SAP on Spar project failure: Digital transformation is complex

Johannesburg, 01 Dec 2023
Spar Group encountered multiple obstacles during the SAP rollout, particularly at its KZN distribution centre.
Spar Group encountered multiple obstacles during the SAP rollout, particularly at its KZN distribution centre.

German enterprise software company SAP has responded to news that the Spar retail group lost R1.6 billion because of a failed SAP enterprise resource planning (ERP) system launch.

Last week, ITWeb reported on the issue and cited a trading statement for the year ended 30 September, in which Spar said: “The unsuccessful launch of Spar’s new ERP IT system (SAP) at the KwaZulu-Natal (KZN) distribution centre impacted the KZN trading performance severely, causing a loss of group turnover estimated at R1.6 billion.”

According to the retailer, the operational impact amounted to an estimated R720 million in loss of profits for this region.

“As a result of the change in approach towards the SAP implementation rollout for the foreign regions, a write-off of R94 million in respect of the SAP ‘asset under construction’ has been recognised,” the group said.

In a related development, Business Day reported that three directors from Spar Group had ignored concerns raised by a whistleblower about the project.

According to Spar, in or around October 2021, a member of the company’s board received a whistleblower’s letter containing allegations in relation to the SAP implementation project.

Spar’s financial statements published yesterday show the three directors who allegedly ignored the whistleblower have since left.

“The company has created a register of all whistleblowing complaints, which are individually tracked and considered by those charged with governance,” says the retailer.

“Management believe they have identified the key issues that resulted in the shortcomings of the KZN distribution centre SAP rollout and that they now have the right team and resources in place to appropriately plan for future implementations in Southern African regions.”

Tjaart Malan, cloud success services director at SAP Africa, says according to McKinsey research, only 14% of companies that have begun digital transformation projects have seen sustained performance enhancements as a result.

“The reasons for this can vary, but typically digital transformation projects fail because of a lack of clear goals, poor leadership support, ineffective change management which may lead to internal resistance, lack of suitable skills, and poor understanding of the current state of the business and how the digital transformation is meant to enable new capabilities,” says Malan.

He adds that customers must be vigilant and look out for potential pitfalls, including poor change management, data and testing, lack of clear vision, lack of skills and continuous value generation.

“Any true digital transformation effort is likely to be large in scale. And digital transformation is complex and can be challenging, as it requires companies to completely rethink how they approach core business processes,” Malan adds.

“Purchasing new technology tools does not in itself constitute digital transformation. Instead, true digital transformation requires that companies adopt new processes that leverage their powerful new digital capabilities.

“Often, the true sign of effective digital transformation is the adoption of best practices through standardised back-office processes that deliver efficiency and productivity gains throughout the organisation.”

SAP says despite the challenges with large-scale digital transformation initiatives, companies will continue to seek the efficiency, innovation and productivity gains that are typically unlocked with such projects.

Global digital transformation spend is expected to reach $3.4 trillion by 2026, up from $1.6 trillion in 2022. By 2024, it is expected that direct digital transformation investments will account for 55% of all ICT investment.

Malan adds: “In light of the growing complexity inherent in the modern business landscape, companies need the top-line impact of improved customer experience, revenue growth and the ability to develop new products and services, as well as the higher levels of operational efficiency, greater productivity and improved employee engagement.

“[Given] the broad drive toward greater sustainability, companies will also continue to deploy and leverage new technology capabilities to drive sustainability gains across their operations.”