How Germany’s SAP Managed to Secure Classified U.S. Government Business

Don Tennant
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How Cloud-Based ERP Can Help With Financial Pain Points

If you’ve spent any time in the vicinity of Dulles International Airport outside of Washington, you’ve almost certainly noticed that just about every major U.S. software vendor you can name has set up shop there. The idea, of course, is to be close to where the action is in securing lucrative U.S. government contracts. What’s not so readily noticeable is that one of those vendors has a particularly interesting backstory: SAP NS2.

You no doubt recognize SAP as the giant German software vendor, but SAP NS2 (that’s National Security Services) is every bit as American as Microsoft or Oracle. SAP NS2, formed in 2011, is a completely independent U.S. subsidiary of SAP, with 100 percent U.S.-based facilities and employees. It’s been led since its inception by Mark Testoni, the company’s president and CEO, who had previously led SAP Public Services following a nine-year stint at Oracle and a 20-year career in the U.S. Air Force.

I had the opportunity to speak at length with Testoni last week, and I opened the conversation by asking him if he has had to overcome any obstacles in building the SAP NS2 business that he didn’t have to overcome when he was working for Oracle, just by virtue of the parent being a German company, and Oracle being a U.S. company. He said it’s still a factor, but the foreign connection isn’t as big a deal as it used to be:

Probably 30-plus years ago, when we started seeing in the federal space the need for foreign suppliers, they came up with a model to try to mitigate this. There has always been a level of that, and I think when we first started [SAP NS2] five years ago, there was still some of that sentiment. You got the ‘buy American’ thing, you got, ‘Can we trust these foreign-owned entities?’ But over the course of 30 years since they set up this model, where you basically spin off a company to do the work, and it is independent, under a separate board and operating structure, most of the government agencies in this space get it.

They’ve also begun to figure out software and hardware are developed all over the world, even by American companies. Do we occasionally still hear it? Occasionally, but it’s a lesser factor. Probably the bigger factor or challenge we have is in some cases we’re a relatively new entrant into this space. There are companies like my previous company, Oracle, and others that have been here for a long time. [The prospect of] change is probably a bigger threat than the perception that we may be controlled by some foreign entity.

SAP Public Services, the unit that Testoni led before NS2 was formed to tap highly sensitive U.S. government business, still exists, Testoni said:

When SAP acquired Sybase in 2010, we had to create a more formal structure in the form of a ‘proxy company,’ which is what we are. But we left the unclassified work, and a lot of the routine work in the sales arena, inside SAP Public Services. So that organization still exists today, and we collaborate with them. Although they still sell the software, we do a lot of the other work for accounts that they do, like the implementation and support work. NS2’s sales organization is focused in the classified and national security market, but otherwise the public sector sales are still on the Public Services side.

Prior to joining SAP Public Services, Testoni spent nine years at Oracle, where, according to his bio, “he was responsible for building the company's application business within the Department of Defense.” His bio also states, “He was an architect of some of Oracle's most significant business systems wins, including the largest ERP project in company history, supporting the U.S. Air Force.”

Funny thing about that project. That was the infamous Expeditionary Combat Support System (ECSS) project, which was begun in 2005, and which the Air Force finally scrapped in 2012 after spending over $1 billion on it. That colossal failure led to an investigation by the Senate Armed Services Committee, which was none too happy about it.

Testoni had left Oracle for SAP in 2006, so it was pretty clear to me that everything kind of went to hell in a handbasket after he left. Testoni said he wouldn’t put it that way.

We did win that business; we also won what has become a very successful financial implementation that did continue. But we did win the ECSS program. I’m not going to comment on the whys and wherefores [of scrapping it], other than to say that the implementation of ERP is a difficult challenge that has lots of factors, to include the customer, the platforms, the people who do the implementation, and how they approach it. I take it they looked back on how that all went, and there were probably some breakdowns in a number of different areas.

Oracle’s [ERP] software, just like SAP’s, has been implemented by thousands of customers. I’m not going to say it was the right and perfect fit, but on the other hand, why things don’t work is often very complicated and beyond just the software platform. It was still an extraordinary win for Oracle at the time. It’s a tough business, and when there’s a perceived failure like that, it casts a pall on all of us, not just that company. So we always want to see success, even for our competitors, in that sense.

So why did he leave Oracle? “It’s interesting,” Testoni said:

When we won that big piece of business, I thought there was an opportunity for us, because of the size of the Air Force supply chain, to penetrate the aerospace and defense provider [sector], where Oracle had not done very well. I needed a new challenge, and I couldn’t get the company convinced that we should go after that. Frankly, SAP came along — I don’t know exactly why, but offered me a little bit broader opportunity to run their federal business. It was a new challenge and a new chance, and I thought it was the right thing to do. And I’m glad I did.

Testoni explained how the SAP opportunity arose this way:

When we won that Air Force business, it caused some career changes for people over at SAP [which had also bid on the project], and they were looking for new talent to bring in. I guess they figured, ‘Why don’t we go look at some of the people we’ve been losing business to? That might be a good place to start.’ So that’s what it came down to — the opportunity was better. We know each other in the industry — it’s a small community in a lot of ways.

I asked Testoni if he had any qualms about working for a foreign company, given that he had spent his entire career safeguarding the United States from foreign threats. His response:

There was a little bit of that, but the reality is, even back then, these were global companies. Rhetoric aside, I always respected what SAP had done in the business — it’s an impressive customer base in the ERP space. The government business was still evolving — there was still more opportunity there. So I didn’t view it has a negative, although maybe five to seven years earlier, I might have. But I’ve never been asked to do anything, at SAP or Oracle, that wasn’t in the best interest of the customer. And that, to me, is probably as important as anything.

Testoni also provided a fascinating look behind the scenes at what SAP NS2 is doing today in the realms of cybersecurity and “information fusion,” and shared a bit about the remarkable work SAP NS2 is doing to train and employ veterans through its non-profit, NS2 Serves. I’ll cover those topics in a forthcoming post.

A contributing writer on IT management and career topics with IT Business Edge since 2009, Don Tennant began his technology journalism career in 1990 in Hong Kong, where he served as editor of the Hong Kong edition of Computerworld. After returning to the U.S. in 2000, he became Editor in Chief of the U.S. edition of Computerworld, and later assumed the editorial directorship of Computerworld and InfoWorld. Don was presented with the 2007 Timothy White Award for Editorial Integrity by American Business Media, and he is a recipient of the Jesse H. Neal National Business Journalism Award for editorial excellence in news coverage. Follow him on Twitter @dontennant.

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