Global Ethics: SAP ERP

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Global Ethics SAP ERP

• MIS 261 Fall 2009
• Group Members Amanda Esquivias, Krystal Nunes,
  Russ Espinosa

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Business Ethics?

• What is it?
• Business ethics is a form of applied ethics
  (matters of moral judgment) that examines ethical
  principles and moral or ethical problems that
  arise in a business environment. It applies to
  all aspects of business conduct and is relevant
  to the conduct of individuals and business
  organizations as a whole.

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Dow Jones Sustainability Index

• What is it?
• The DJSI follow a best-in-class approach through
  analysis of corporate economic, environmental
  and social performance
• Assesses issues such as corporate governance,
  risk management, branding, climate change
  mitigation, supply chain standards and labor
  practices.

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FTSE4Good Index

• What is it?
• Was designed to measure the performance of
  companies that meet globally recognized corporate
  responsibility standards, and to facilitate
  investment in those companies.

Global Challenges Index

• What is it?
• Recognizes companies for transparency and
  anti-corruption .

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Why is this relevant?

• Dow Jones Sustainability Index
• SAP is named the leader in the software industry
  for upholding ethical, environmental, social, and
  governance values in its products and services.
• FTSE4Good Index
• Sap is recognized for its sustainable business
  practices by the Global 100 list of the most
  sustainable corporations in the world.
• Global Challenges Index
• SAP has been named to recognize transparency and
  anti-corruption.

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Governance, Risk, and Compliance

• SAP strives to conduct business ethically and to
  pursue sustainability assertively, all under the
  umbrella of sound corporate governance.
• Solid governance and responsible business
  practices contribute to SAPs success and
  sustainable economic development at the macro
  level.

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Corporate Governance

• What is it?
• Set of processes, customs, policies, laws, and
  institutions affecting the way a corporation (or
  company) is directed, administered or controlled.
  
• Corporate governance also includes the
  relationships among the many stakeholders
  involved and the goals for which the corporation
  is governed.

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German Corporate Governance

• Rules and principles of the German Corporate
  Governance Code.
• Management and supervisory functions are
  segregated into two distinct bodies
• Executive Board
• Supervisory Board
• The Supervisory Board is led by the chairperson
  and approves the members of the Executive Board,
  who in turn lead the company. Members of one body
  are not allowed to be part of the other.
• Germanys unique corporate laws of
  co-determination provide for employee
  participation on the Supervisory Board.

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Ensuring Ethical Business Practices

• SAP conducts business dealings with integrity.
  All employees sign a Code of Business Conduct
  when they join the company.
• The code covers
• Conduct with customers, suppliers, competitors,
  and partners
• Fair competition
• Conflicts of interest
• Anti-corruption
• Insider trading
• Confidentiality

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SAP Corporate Governance
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Code of Business Conduct

• A statement of the company's commitment to
  safeguarding investors and customers against
  unfair competitive practices, corruption, or
  misleading statements.
• Sets the standard for all dealings with
  customers, partners, competitors, and vendors.
• International differences in culture, language,
  and legal and social systems make the adoption of
  a uniform code of business conduct across the
  entire SAP Group somewhat difficult.
• http//www.sap.com/about/governance/pdf/Framework_
  SAP_Code_of_Business_Conduct_2006-03-1.3a_Final.pd
  f

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FTSE4Good

• SAP increased anti-corruption standards to
  include
• A binding obligation upon partner sales agents
• A prohibition against facilitation payments
• SAP is a founding member of the UN Global
  Compact. SAP participates in the anti-corruption
  working group and endorses the UN Global Compact
  Caring for Climate initiative to advance
  practical solutions and help shape public policy
  and public attitudes on climate change.

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Enron

• Enron was once one of the worlds leading
  electricity, natural gas, pulp and paper, and
  communications companies until 2001 when Enron
  filed for bankruptcy.
• In 2000 Enron claimed nearly 101 billion in
  revenues with approximately 22,000 employees.
• Enron was touted as the seventh largest company
  in the U.S.
• Fortune magazine named Enron "America's Most
  Innovative Company" for six consecutive years.
• Enron shares traded at 90.75 at its height in
  August of 2000.

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Enron Collapse

• Enron claimed to generate profits and revenue
  from deals with special purpose entities that
  were actually limited partnerships which Enron
  controlled.
• Enron was claiming billions in profits while it
  was actually losing money.
• Enron was using these partnerships to sell
  contracts back and forth to itself and booking
  revenue each time and to hide debts and losses
  that it suffered by not reporting them on its
  financial statements.
• By the late 1990s, Enron had begun shuffling much
  of its debt obligations into offshore
  partnerships. Chief Financial Officer Andrew
  Fastow created many of these offshore
  partnerships.

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Enron Collapse (cont.)

• On October 16, 2001 Enron posted a 638 million
  loss for the third quarter and take a 1.2
  billion reduction in shareholder equity due in
  part to Fastows partnerships
• On November 8, 2001 Enron revised its financial
  statements for the previous five years,
  acknowledging that instead of taking profits, it
  actually had posted 586 million in losses.
• Its stock value fell below 1 per share by the
  end of November and was de-listed on Jan. 16,
  2002
• Enron filed for bankruptcy on December 2, 2001
• The scandal caused the dissolution of one of the
  worlds top accounting firms Arthur Andersen. In
  2002 the firm was found guilty of obstruction of
  justice for destroying documents related to
  Enrons audit.

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Sarbanes-Oxley Act

• Is the reaction to a number of major corporate
  and accounting scandals including Enron, Tyco
  International, Adelphi, Peregrine Systems and
  WorldCom.
• Was enacted on July 30th, 2002.
• Approved by the House by a vote of 423-3 and by
  the Senate 99-0.
• Sec. 302 contains the rules for corporate
  responsibility for financial reports and
  disclosure
• Sec. 404 requires management and the external
  auditor to report on the adequacy of the
  company's internal control over financial
  reporting.

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Sarbanes-Oxley Act

• Not only affects the financial side of
  corporations, it also affects the IT departments
  whose job it is to store a corporation's
  electronic records.
• Sec. 802(a) deals with destruction, alteration,
  or falsification of records.
• Sec. 802(a)(1) defines the retention period for
  records storage.
• Sec. 802(a)(2) refers to the type of business
  records that need to be stored, including all
  business records and communications, including
  electronic communications.

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Sarbanes-Oxley Act

• The Sarbanes-Oxley Act requires companies listed
  in the United States to declare whether they have
  a code of ethics that, at minimum, applies to
  certain levels of management.
• SAP's Code of Business Conduct for Employees
  meets the standards set by the Sarbanes-Oxley Act
  and the regulations pursuant to the act.

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Sarbanes Oxley and SAP
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Enterprise Resource Planning

• The First Boom
• In the late 1990s, enterprise resource planning
  system vendors saw sales skyrocket as
  organizations raced against the pressures of Y2K.
  
• The systems at the time were of unique value-
  organizations could be the first in their
  industry to take advantage of the values of an
  enterprise resource system.
• After Y2K, vendors found themselves at a bottom
  of a peak and without the unique value hook

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Enterprise Resource Planning

• The First Boom (continued)
• Organizations questioned the real value of the
  highly expensive new systems.
• ROI increases would not be evident for years
• Original factor behind purchasing the software
  was due to Y2K compliance. As a result, many
  organizations were never fully trained to
  effectively use the software in their
  organizations

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Enterprise Resource Planning

• The Second Boom
• Sarbanes-Oxley brought a new light to ERP vendors
  as organizations sought out upgrades to their
  systems since original systems were not designed
  for compliance with the new standards
• Vendors stressed to unsatisfied customers that
  they could receive benefits from the previously
  purchased software
• Organizations must be willing to implement the
  system into their business processes

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Best Practices

• One way software vendors market their systems is
  by offering best practices pre-configured in
  software.
• Best practices the most efficient methods that
  businesses should be following
• In order to use the software, businesses must
  alter or redesign their current practices and
  business structure to incorporate these best
  practices.

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Customization

• Vendors do offer customization allowing
  organizations the ability to create enterprise
  resource planning software to fit their current
  processes
• Costs are exceedingly high
• Majority of the costs come from the
  customizations not from the cost of the ERP
  system
• Upgrading systems more difficult
• Additional money to re-customize or un-customize
  to change their processes

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Customization (cont.)

• ERP designers contest customization was the
  biggest mistake in the Y2K boom and recommend
  integrating the best practices into the business
  models and not customization.

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Additional Reasons for ERP

• ERP upgrades and new modules were needed by
  companies in growth stages.
• For example, companies who had implemented
  separate systems in countries where they operated
  needed to integrate a centrally managed global
  system for better efficiency and management of
  the companys productions.
• Installations done for Y2K were no longer
  adequate for their current needs
• 2003-2004, companies tightened their IT budgets
  to invest in e-commerce and security, and now
  were returning back to their budgets and
  technological improvements.

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Software Upgrades

• Software vendors continue to make improvements
  and upgraded models of ERP systems
• To receive the greatest value of their systems,
  organizations must continue to purchase the
  upgrades
• Critics of the ERP system, question the power of
  software vendors that this creates
• EXAMPLE
• Dow Chemical Co. was one of the first companies
  to adopt SAP into their business processes by
  purchasing an extensive customized system.

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Software Upgrades (cont.)

• EXAMPLE
• Dow Chemical Co. was one of the first companies
  to adopt SAP into their business processes by
  purchasing an extensive customized system.
• They continued to use the system even as newer
  SAP upgrades were released
• SAP discontinued support for this older version
• Dow Chemical CO. was faced with the decision of
  either keeping their customized system and
  relying on their own knowledge and support or
  redesigning their system again in order to
  incorporate newer versions

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In General Six Dirty Vender Tricks

• The magic Demo
• Underbid, then overcharge
• The customer headlock
• The billing mistake
• The forced upgrade march
• The clueless customer

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The Magic Demo

• A software vender comes into your business,
  provides you with selling software that has all
  the answers to your companies needs and that
  their enterprise software package will deliver
  the tools to prove it

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Underbid, then Overcharge

• Venders will come into a business and offer an
  lower price to initiate the sale of the product
• Make up the difference in added charges after the
  contract has been signed in possible service
  contracts and implementation fees

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The Customer Headlock

• Once a vender has completed a sales contract with
  a company, they do everything in their power to
  keep them as clients
• High implementation costs
• Use of the venders own engineers to implement the
  software
• Upgrades and maintenance fees

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The Billing Mistake

• Vendors charging for services, fees, upgrades, or
  software not contracted
• Fewer than one in ten customer notice that the
  error has taken place

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The Forced Upgrade March

• Coercing companies to upgrade their software
  even when it is relatively new or a newer version
  will soon be out.
• Example A vendor sold Awake in America upgrades
  and updates. Three weeks later, a newer version
  of the program came out. When confronted, the
  company explained they couldnt divulge such
  information about the upgrade at the time.

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The Clueless Customer

• Customers put too much trust in systems
  integrators and vendors and fail to do their own
  due diligence .
• Most projects fail because of conflicting agendas
  between customers, system integrators, and
  vendors.

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Any Questions?