What’s SAP? And why is it worth $163B?


Every year companies spend $41B on enterprise resource planning software, commonly known as ERP. Today, almost every large business has some sort of ERP system implemented. But most smaller businesses generally don’t purchase any ERP system off the shelf, and most engineers probably haven’t seen them in the wild. So for those of us who haven’t used an ERP system ourselves… what’s the big deal? How does a company like SAP sell $25B worth of ERP software every year? And how does 77% of the world’s transaction revenue, and 78% of the world’s food all flow through SAP?

ERP is where companies store their core operational data. We’re talking about sales projections, purchase orders, and inventory, as well as the processes that act upon that data (e.g. paying out vendors when a purchase order is issued). In a sense, ERP is the “brain” of a company — it stores all important pieces of data and all of the actions possible in data-driven workflows.

But before taking over the modern business world, how did ERP software get started? The story of ERP begins with major automation efforts of the 1960s: while the 1940s and 50s were focused on mechanical automation of blue collar work — think General Motors establishing their automation department in 1947 — the automation of white collar work (often via the computer!) began in the 1960s.

Midcentury automation: Computers enter industry

Payroll and billing were among the first business processes that computers automated. Employers needed armies of white-collar labor to manually tally employee hours in ledgers, manually multiple hours with hourly rates, and manually subtract taxes and benefit deductions… all just to run a single month of payroll! This time-consuming, repetitive process was error-prone for humans, and was a natural fit for computerized automation.

By the 1960s, many companies used IBM computers to automate payroll and billing tasks. Data processing – an outdated term whose lasting legacy is

Automatic Data Processing, Inc’s name – is what we’d call IT today. Software engineering wasn’t yet a discipline, so these departments often took employees from analytical backgrounds taught them to program on the job. Purdue had just formed the first Computer Science department in the U.S. in 1962, and the first CS grads started appearing a few years later.