"We are nowhere near best-in-class, but we are making
progress," says Steve Rogers, UK managing director ofSAPto an audience of
his customers at the German applications firm's annual user
gathering at the end of last year. It's not the kind of comment
that you expect from a senior executive at a leading software
firm.
Rogers was talking about the company's relationship with its
users - something which he clearly finds to be wanting in several
respects. "When I joined, I was surprised at how remote SAP felt
from its customers," he admits. "It didn't have the customer at the
centre of its universe.
"A little complacency had crept in to the way we managed
relationships with customers. We have focused hard on overcoming
that in the past 12 months. Customers are seeing more of SAP and
SAP is trying to be more proactive in how we support customers and
helping to leverage the assets. We have seen customer satisfaction
scores trending in the right direction."
Such sentiments are clearly to be applauded especially as market
dynamics over the past few years have placed SAP in an ever more
commanding position in the applications industry and indeed within
the wider software industry. The firm's lead in the applications
market varies according to which research firm's numbers you're
paying to believe, but all agree that SAP is ahead of the pack.
It was 1972 when five former IBM employees set up Systems,
Applications and Processing in Data Management - thankfully
shortened to SAP - in Mannheim, Germany. Their intention was to
"develop standard application software for real-time business
processing. The first fruit of this ambition was R/1, followed by
R/2.
It was the 1990s when the firm introduced what is probably still
its best known product,
R/3, on the back of the client-server revolution complete with
three-tier architecture of database, application and user
interface. It was during this period that SAP really rose to
prominence among enterprise users through a series of alliances
with the leading systems integrators, most notably
Accenture. Recommendations by the major consultancy firms took
the German company into the boardrooms of corporate America which
had traditionally had its doors firmly closed to European software
suppliers.
This was also the period when a number of popular perceptions
about SAP were firmed up. SAP was arrogant. It was difficult to do
business with. R/3 was horrendously complicated. It was a nightmare
to install. You would end up paying up to $20 to Accenture for
consultancy for every $1 you spent with SAP on the actual software.
But none of this halted the firm's relentless domination of the
enterprise resource planning (ERP) back office market and provided
it with an installed base from which it would expand into other
areas, such as customer relationship management (CRM).
So to today when SAP is the third largest independent software
supplier in the world with more than 12 million users, 121,000
installations worldwide, more than 1,500 SAP partners, over 25
industry-specific business solutions, and more than 41,200
customers in 120 countries. The firm is now committed to moving
towards a full service oriented architecture (SOA) with underlying
Netweaver integration platform and is aiming to move down into the
mid-market user base with its long-awaited software as a
service (SaaS) push through its recent Business Bydesign
announcement.
But there are issues to be addressed. Most notable has been the
firm's inability to get its users up onto the latest releases of
its products. Customers have been loathe to run at SAP's pace and
the firm is having to make concessions and pitch its wares more
effectively. "SAP has a delicate balancing act between old and
new," says Bruce Richardson of analyst firm AMR Research. "More
than 99% of its 44,000 customers run on one of its three core
systems. Life was much simpler when SAP launched R/3."
The good news for SAP is that users do seem more open to
upgrades this year. According to a December 2007 survey by
Gamma Enterprise
Technologies of 175 SAP customers from 23 countries, 37% plan
to upgrade in 2008 while a further 17% have similar intentions for
2009.
"A year ago we had a planning horizon of 12 weeks and falling,"
concedes Rogers. "We are strategic suppliers and we were trying to
convince customers to spend money that was not necessarily linked
to business benefits with 12 or six week's notice. If there really
is no business value from an upgrade, let's have a conversation. If
you are not leveraging the Business Process Platform or Netweaver
as a starting point, I feel you are missing something."
There are certainly those that are open to such a message and
such conversations. In 2004,
Harrods began its mission to replace legacy back-end silos with
one SAP system. With the migration completed in late 2006, the
retailer has been running a master data system where invalid
entries on stock are down to 0.01 per cent on 1.4 million stock
keeping units (SKUs).
As a result, shrinkage - lost, missing or damaged stock - has
been kept at 0.7%.
"We are a SAP house when it comes to ERP and back office and
plan to extend our SAP portfolio," says David Llamas, CIO at
Harrods. "At the moment SAP provides our ERP system and within that
environment everything that we buy is from SAP. We now have a
single SAP backbone as opposed to having legacy systems for
particular retail areas like food and beverage or home shopping.
Before upgrading to any new version of SAP, we wanted to migrate
all legacy systems onto that."
"I can categorically state that we have an extremely healthy
relationship with SAP. It's a strong collaborative relationship.
SAP places a strong emphasis on having a strategic relationship
with CIOs. We have very senior level discussions with the firm
about their roadmaps. We contribute very definitely in
communicating the issues that we have to face. To date,it has been
a good exchange of information."
Facing the enemy
As SAP has grown, its relationship with Oracle has become ever
more problematic. The first releases of R/3 were built around the
Oracle database, a commitment the US firm rewarded by launching its
own rival range of applications. Since then the two firms have been
on a remorseless collision course, exacerbated in recent years by
Oracle's decision to buy its way to second place in the
applications market through the takeover of firms such as Siebel
and Peoplesoft.
This has led to some
direct conflicts between the two vendors, most notably when the
two went head to head to snap up retail applications specialist
Retek (Oracle won). But on the whole SAP has prided itself on
increasing market share through organic growth rather than buying
it - until recently when it launched its surprise bid for business
intelligence firm Business Objects.
"SAP's direction has always been clear delivering innovative and
market-leading products to our customers and profitable growth to
our shareholders," says SAP CEO Henning Kagermann. "In the end, our
ambitions will be reached primarily through organic growth. SAP has
shown that we can outperform the market with significant organic
growth, and we will continue to do so.
"While the offer for Business Objects is for much larger
acquisitions than we have done in the past, the concept behind this
acquisition remains the same, enabling our customers to benefit
from an even richer portfolio of innovative products and solutions.
It's not about acquiring customers, market share or
maintenance."
Maintenance is another area of conflict with Oracle. When Oracle
bought
PeopleSoft,
SAP hoped to lure away sceptical users by snapping up third party
maintenance and support firm TomorrowNow to ease migration fears of
those who wanted to move over to SAP. This has backfired
spectacularly: firstly because the reality was that very few
Peoplesoft customers ended up making the leap and secondly because
Tomorrownow is at the centre of horribly embarrassing intellectual
property theft allegations relating to "inappropriate downloads" of
Oracle material.
Barring some last minute developments it will end up in court -
and the public spotlight - in February. In the meantime SAP, which
has been distancing itself from its subsidiary, might well try to
offload it once and for all. Whether that solves the longer term
bad publicity and the impact on SAP's reputation, remains to be
seen.
"Ultimately I think SAP Is going to sell it off," says David
Bradshaw, principal analyst at research firm Ovum's software group.
"Tomorrownow was all based on a misreading of what was going to
happen. There was a sense that lots of people would be so annoyed
with Oracle that they'd dump Peoplesoft and go elsewhere. But
people realised that it would be more difficult than that and also
Oracle has done rather well in bringing Peoplesoft customers
around, even if there are a lot of people who would prefer that
Oracle hadn't bought Peoplesoft in the first place."
Bradshaw argues that there are pros and cons associated with
Oracle and SAP's increasing domination of the market. "From a CIO
point of view, it makes choices easier as you basically have two
sets of people you turn to," he notes. "It makes life easier as you
have a smaller range of vendors with a larger group of applications
to buy from.
"There will also have to be more accommodation between SAP and
Oracle. Obviously SAP thinks you should buy everything from SAP,
but outside a few places that isn't likely. In the long run, there
might be a third choice that comes out of the blue. Microsoft might
be considered a third party or someone like Infor. There are
potential third choices, although none of them yet has the presence
of SAP and Oracle."
Making SaaSy moves
The rise of
software as a service (SaaS) start-ups like Salesforce.com has
not gone unnoticed by SAP, even if its initial strategy was to rise
above it. But the mid-market is critical to SAP meeting its growth
targets and SaaS is now seen in SAP circles as a way of cracking a
sector that has long remained elusive for a vendor associated with
"big ticket" implementations.
The result was the announcement of Business Bydesign, SAP's long
delayed on-demand offering which was finally formally announced
late last year. "Announced" is the operative word as to date it's
available by invitation-only and only in certain geographies. But
expect to see a significant ramp-up of SaaS activity in 2008.
After its slow start in the SaaS game, SAP is brash in its
claims for the eventual offering. "What we have today is much more
competitive with salesforce.com, as well as anything else that's
out there," claims Bob Stutz, SAP senior vice president for CRM."We
have an advantage because we own the back end."
But others are less convinced. "SAP has talked a lot about
improving its CRM offerings, but it has yet to show that it
understands the on-demand CRM market," says Rebecca Wettemann, vice
president of Nucleus Research. "It has also yet to prove that it
understands the needs of the mid-market."