The BASIS of SAP

Most companies that use SAP do so because they have bought into the idea of deploying a broad, single vendor business suite. For large organizations, this is typically a multiyear, multimillion-dollar effort to transform the business. It can be a career maker or breaker, and most certainly it can make or break the company itself, but often we find the executives involved don’t pay much attention what SAP is doing after the contract is signed

One issue is that their ‘event horizon’ is just not big enough. Afterall, the blogosphere is full of article on Ruby and salesforce, and there’s new stuff to learn every day. Additionally, the SAP ecosystem is massive. For example, in 2007, Satyam alone had nearly 5,000 consultants and developers working for its SAP practice, and it had plans to grow its ERP practices by 50 percent during the next few years. At that time, the average deal size of a SAP implementation at Satyam was about $1.6 million, just on professional services.

Five SAP Strategies to Know

1. Product Release Strategy.Traditionally, SAP released products and made major changes to the underlying functionality on a (roughly) five-year schedule. So twice a decade, SAP’s customer base faced a tough decision. They could ignore the product improvements that their maintenance fees had helped to fund, or they could invest a significant amount of time and money in an upgrade project, which was usually disruptive, expensive and introduced a large amount of change for the user base. It was quite common for companies to delay or defer releases. However, the risks associated with lack of support meant that most organizations wouldn’t go longer than eight to 10 years between upgrades.” (For more on SAP’s maintenance fees, see “SAP Raises Software Maintenance Fees for New Customers” and “The Man Behind ‘Half Off’ Third-Party Software Maintenance.”)

In late 2005, SAP finally started to fix this release gap with the shipment of the Netweaver Products, including ERP 6.0. Instead of having to implement five years of enhancements and improvements in one massive project, SAP now allows you to implement a continuous innovation strategy. The major applications in SAP ERP and the SAP Business Suite are now upgraded through enhancement packages issued every six to 12 months. These enhancement packages are provided at no cost to customers on maintenance, and deployment is optional. Each enhancement package includes new and improved functionality across a variety of product and industry applications.

What this means for SAP customers is that they can upgrade their systems gradually without the kind of massively expensive and disruptive projects that have traditionally characterized SAP upgrades. For example, ERP 6.0 has shipped three enhancement packages already. SAP executives have realized that organisations with global deployments, multi-terabyte databases, and tens of thousands of users simply cannot afford to do monolithic upgrades anymore.

2. Growth Strategy.SAP has a business strategy that is fundamentally focused on organic revenue growth. As an organisation, they have always been confident about their ability to develop new products and improve existing ones. More recently, though, the company has moved to both expand its product offerings to its customers with acquisitions and mergers, as well as move into new markets with products like Duet. (See “SAP Pays Partners, Goes with Gusto for SMB Customers” for more on SAP’s SMB strategy.)

However, SAP derives most of its revenue from its installed customer base. In short, their objective is to ensure that customers never stop buying licenses, maintenance, and services. This means SAP is constantly working to upsell existing ERP customers into the full Business Suite, and it has invested heavily in products aimed at information workers who don’t necessarily use transactional applications.” (For more on software licensing, see “Software Licensing and Pricing Is Still Too Complex and Costly.”)

Therefore, customers should expect their SAP sales reps to be pitching: self-service applications, financial and business performance management, Microsoft Office integration, and much of the ‘Business Objects’ portfolio of reporting, business intelligence, and analytics.

SAP believes its customers are inclined toward a single vendor strategy, and will work hard to capitalize on this tendency.

3. Platform Strategy. The current SAP platform strategy was originated in 2003, when SAP packaged up its technology components and unveiled the earliest version of the NetWeaver product set.

The idea was that the underlying technology and architecture would be seperate from the business applications. SAP had to build the platform anyway in order to develop its service-oriented architecture (SOA)-based product line. They believed that making it publicly available would enhance SAP’s reputation as a technology leader, and it could potentially become an additional source of product revenue.

SAP has continues to refine and market the idea of a “business process platform,” which is made up of SAP’s Business Suite applications, a repository of enterprise services, and the NetWeaver technology platform. What’s important to understand is that SAP customers have to use NetWeaver because their applications won’t run without it. That means that the optional components, such as SAP’s business intelligence, portal, and integration, become an easier choice than other competing products, just because they are already available and installed, waiting to be used.

4. Industry Strategy. A major SAP attribute over the years has been offering products to key vertical industries that had unique needs in their applications. Based on a combination of internal and customer sponsored development, SAP now has more than 25 separate industry solutions across a range of industries from mining and manufacturing to higher education and financial services. These are supported by collaboration between product management teams, dedicated developers, and industry value networks (IVNs) of customers and partners that define the requirements for these extensions. This has enabled SAP to corner market share in the high-value oil and gas, chemicals, and life science industries.

More recently, SAP is useing the same “blueprint” to go after other industries, such as retail, insurance, education, banking and public sector. It’s likely that SAP will use acquisitions, investments, and partnerships to address these industry requirements (essentially, buying industry expertise).

The downside of this is that Customers in areas where SAP is very well established may find that their enhancement requests have a somewhat lower priority than industries that SAP has designated as strategic. Customers or prospects in the new areas that SAP is addressing may find SAP willing to commit resources and sponsor joint development projects in order to fill holes in industry applications. Furthermore, Companies in these industries that are willing to be referral accounts will have lots of negotiating leverage if they are willing to tolerate immature applications.

5. Product Strategy. Ten years ago, SAP was known as a one-product company, with a much less confusing naming convention for its products and releases (R/1, R/2, R/3).

Since then, SAP has accumulated dozens of products with a massivce number of options, variants and names. In some cases, this was the result of miguided marketing (SAP R/3, MySAP.com and EnjoySAP were essentially the same thing). A more dominant reason was the industry consolidation that resulted in large ERP vendors like SAP competing in many adjacent software categories, such as CRM, supply chain management, and product lifecycle management. These products are complementary products to existing ERP systems. They aren’t aimed at the CIO and IT but at the business users, in areas like performance management, regulatory compliance and analytics.

Large enterprises, especially, must take a very long view of their application strategy. One of the important issues for is knowing what happens after 2013. The SAP Business Suite maintenance windows are stable until then, apart from the regular enhancement package releases. However, they must consider the risk, how slight it is, that they may be faced with another product transition like the one from R/3 to Netweaver

The current Business Suite should remain SAP’s flagship product line well beyond the 2013 maintenance window. While the earliest forms of Netweaver were officially launched in 1999, development has recently completed on a fully SOA-based suite, and there are still a significant percentage of customers that haven’t upgraded from R/3. Launching another new product would alienate these groups, and (currently) SAP is under no pressure from its customers or its competitors to move to a new technology and it is unlikely to be in the next few years.