SAP Takes Compliance Partner In-House

Most companies view regulatory compliance as a burden. SAP wishes companies would see it as an opportunity.

The ERP  giant acquired its compliance software partner Virsa for an undisclosed sum and is taking some of its budding product plans for compliance in-house.

The idea is to help customers improve compliance with Sarbanes-Oxley (SOX), the Health Insurance Portability and Accountability Act (HIPAA), and other regulatory requirements. Even more, SAP sees an opportunity to help them improve their business processes and even trim costs.

Business leaders “should use this as a leverage point to run their organizations more effectively,” said Doug Merritt, executive vice president and general manager of suite optimization at SAP.

Compliance software providers are feeling their customers’ pain. Their outcry over the cost of SOX compliance has grown loud enough that the Securities and Exchange Commission has created an advisory committee to explore whether certain types of companies can be exempted from all or part of those requirements.

For many companies, their argument with SOX is that the cost of compliance far outweighs the benefits of improved reporting capabilities.

“If you see it as a burden, you don’t get much out of it,” Jasvir Gil, Virsa’s CEO, told “But those who like controls see this as a potential competitive advantage.”

Gil said that companies can make startling discoveries thanks to improved internal controls. Take the example with one of Virsa’s customers, which wanted to remain nameless. Gil said it was able to stop internal fraud at one of its warehouses–to the tune of six percent of revenues.

“That’s a margin point or at least a quarter of a point,” noted Merritt.

Merritt’s take on compliance issues is that companies should welcome the opportunity to have more accurate information about themselves; it can make them more nimble.

“Better visibility means they can take advantage of dislocations and react more quickly, before they become an issue,” he said.

Amit Chatterjee, vice president of strategy product and technology group at SAP, noted that companies can generate substantial savings rather than simply improving internal processes. “There is a tremendous opportunity cost associated with thinking about processes,” he added.

Public companies are subject to a myriad of regulations, and Merritt cautioned that solutions dedicated to just one aspect of compliance are hugely inefficient.

“You need to have a coherent strategy around compliance,” he said. “A point solution offers no benefit.”

Merritt said that a platform such as the one offered by SAP and Virsa can eliminate redundancies in various compliance processes and provide a more holistic view of the enterprise.

This holistic approach also extends to how SAP evaluates its partnerships.

Indeed, given that SAP and Freemont, Calif.-based Virsa were already working together successfully–a reseller agreement signed in early 2005 generated “unbelievable momentum with customers,” according to Merritt–it would be fair to ask why an acquisition was even considered.

The answer is that SAP decided that it could move more quickly and develop better products by acquiring the compliance solutions provider than by simply continuing to partner with it.

Merritt said that the company sees the opportunity to market an enterprise-level compliance solution that cuts across all its vertical markets.

“Our visions were already closely aligned,” he said. “By combining the two companies, we feel we’ll be able to build out solutions more swiftly in this new category.”

SAP, based in Walldorf, Germany, would not disclose the terms of the deal, other than to say it was an all-cash transaction.

Merritt said that SAP would have more to say about new programs generated by the acquisition of Virsa at its Sapphire user conference, to be held in Orlando, Fla., May 16-18.

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