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Special Report: the future's bright, the future's SAP?

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11th Dec 2007
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2007 has seen SAP on top of the market, turning in good financial reports and finally entering the software as a service game. What can possibly go wrong?

By Stuart Lauchlan, news and analysis editor

"I'm not really concerned," said Henning Kagermann, CEO of business-software maker SAP at the firm's Influencer Summit in Boston earlier this month. "Even if growth in IT spending slows, it's always a question of where people are going to put their money.”

It's the kind of confident statement that you can make if you are in the comfortable position of being at the forefront of the applications software market – and more so, at the forefront of the applications software market by a country mile! And despite the best efforts of Oracle's Larry Ellison and his ever open acquisitions wallet, that's not likely to change any time soon.

That's not to say that SAP is a position where it can afford to be comfortable. The leader of any market sector can do one of two things: it can take a leadership position whereby it sets an agenda and moves its industry sector onwards or it can sit complacently and reap the spoils of leadership without shouldering any of the responsibilities. If we map that argument onto the database market, the latter approach results in Cullinet and failure; the former (arguably) results in Oracle.

 

Bob Stutz, senior vice president, CRM global strategy & product development, SAP"What we have today is much more competitive with Salesforce.com, as well as anything else that's out there." Bob Stutz, senior vice president, CRM global strategy & product development, SAP

Kagermann is open in his appreciation of the need for change and innovation, arguing that the pace of software development lags the exponential speed of progress in other areas of computing. This, he posits, is not an acceptable state of affairs if software is to be a driver of business innovation.

"If you look to the efficiency in software development, we are still far behind Moore's Law, where productivity increases every 12 to 18 months, depending on the measure of the cycle,” he said. “Someone gave the estimation that it takes six to seven years in software to double our productivity. That's not very good."

What is needed is what he calls the “industrialisation of software”, something similar to the introduction of standard platforms in the automation of the automotive industry which in turn enabled the development of easier custom design and innovation. For SAP that means a combination of SAP's own NetWeaver and the wider software oriented architecture (SOA) movement to create what it argues is an open platform based on generic technologies such as components and business objects and processes such as billing.

The 2008-2010 roadmap

During the Summit, the company executives shared the 2008-2010 roadmap which includes bringing more functionality to industries through the enterprise Business Suite, with a particular focus on giving its CRM offering a Web 2.0 facelift with a user interface that's "radically different" from older versions.

"The next generation of CRM applications will be designed to appeal to sales, marketing and customer service professionals," Ed Thompson, vice president and distinguished analyst at research firm Gartner, said in a statement. "But they will also be able to support multiple different user interfaces with a clear emphasis on usability and ease of configuration for all types of users... [and will also be able to] integrate more easily to form end-to-end processes to appeal to both business users and IT."

 

"Even if growth in IT spending slows, it's always a question of where people are going to put their money." Henning Kagermann, CEO, SAP

SAP said the SAP CRM 2007 CRM user interface is "radically different" from earlier versions of the product and he described it as being similar to iGoogle, Google's customisable homepage. But the new look and feel was not the only change to CRM 2007 with other features including:

Pipeline Performance Management: an interactive solution includes "what-if" modeling, real-time examination and manipulation of data, and improved resource management.

• Business Communications Management: a complete internet-protocol-based contact centre solution, with multichannel inbound and outbound capabilities, able to serve multiple locations including home-based agents.

• Real-Time Offer Management: a guidance system that aids with recommendations; cross-sell, upsell, retention and marketing messages, based on session information, agent skills, and offer value.

• Trade Promotion Management and Market Development Funds: centralised management of all trade fund budgeting, allocation, utilisation and expensing, with finance system integration.

• Service Parts Management: provides oversight for supply, inventory, and deployment of service parts, whether in a warehouse, a service truck, or back-ordered.

SAP CRM 2007 will be offered in both on-premise and on-demand versions. In addition when it ships it will initially be available on the Apple iPhone before other mobile devices such as the Blackberry. "The iPhone has become such a popular thing," said Bob Stutz, SAP senior vice president for CRM. "Everybody wants the ease of use of the iPhone."

A likely buyer?

But while the company still claims CRM market leadership, it is unable to quantify how many of its 'users' do not actually deploy the CRM functionality which comes bundled with other elements of the SAP portfolio. That said, it's clear that SAP's positioning of the new offering is critical as the competition toughens with Microsoft and Salesforce.com coming into play in the mid-market and the on-demand sectors.

"What we have today is much more competitive with Salesforce.com, as well as anything else that's out there," Stutz said of the new release. He added that SAP has an advantage over Salesforce because SAP also sells back office ERP and financial software that work with its CRM applications. "We have an advantage because we own the back end," he said, although he was compelled to admit that there had been an increase in the number of SAP CRM customers using Oracle back office applications.

 

"The next generation of CRM applications will be designed to appeal to sales, marketing and customer service professionals." Ed Thompson, vice president and distinguished analyst, Gartner

There are other challenges facing the firm as 2007 draws to a close. The company recently diverted from its practice of only engaging in small acquisitions to make a significant purchase in the form of Business Objects at a cool price of $6.8 billion. This will pose certain issues in 2008 as SAP integrates the Business Objects software into its own platform without compromising the best of breed independence that has characterised the independent BI tools vendors.

Kagermann hinted at a different vision when he talked of BI being tightly integrated with transaction processing systems that generate the data that BI software analyses. Selling that to the market will be an interesting challenge.

There's also the need to extricate the firm from the mess that surrounds the TomorrowNow debacle with the third party support firm now looking more like a liability than the seeming asset it was when SAP snapped it up in January 2005. Getting out of the intellectual property theft allegations that TomorrowNow is involved with is not likely to be easy.

Oracle's Ellison has a nice big stick with which to beat his German rivals – it's difficult to see why it would be in his interests to settle out of court when he can prolong the agony. It's likely that the easiest way out of this is to cut losses and sell off TomorrowNow as soon as possible... with Oracle as a likely buyer?

Elephant in the room

Then there's the elephant in the room. For all the emphasis on the new look CRM offering, SAP's core ERP product also carries certain issues. 18 months ago the firm lifted the wraps on SAP ERP 6.0. But since then, only 6,000 of the firm's 33,000 have elected to upgrade onto it.

The pace of upgrades needs to speed up if SAP's strategy of maintaining ERP 6.0 as the core of its application set until 2010 is to work. This is based on delivering new functionality and improvements through enhancement packages that customers implement as needed instead of requiring total system upgrades. This is a good move as it removes the criticism that has long hounded SAP that implementation is a huge exercise, but the problem is that the enhancement packages only work if customers have the ERP 6.0 to build on.

 

"SAP has a delicate balancing act between old and new." Bruce Richardson, AMR Research

“SAP has a delicate balancing act between old and new,” noted Bruce Richardson of analyst firm AMR Research. “More than 99 percent of its 44,000 customers run on one of its three core systems. The company continues to invest a large part of its $2 billion annual R&D budget into delivering new functionality for the core SAP Business Suite base through Enhancement Packs (EHp) and continued investment in the NetWeaver platform.

“The initial idea behind EhP was to deliver continuous innovation to customers without forcing them to undertake costly and time-consuming upgrades. When the concept was first unveiled, SAP pledged that there would be no new ERP release until 2010. The EhPs are delivered through a “switch framework” that’s analogous to the lights in your office. Customers have the option of turning the new features on or keeping them off. While this might suggest somewhat “light” functionality, Dr. Kagermann surprised most of the audience by stating that the average EhP required more than “100,000 man-days.” That’s a lot of coding and testing.”

So does this mean that the future is getting more rather than less complicated? Maybe. “Life was much simpler when SAP launched R/3 at SAPPHIRE in 1991,” said Richardson. “While R/3 replaced R/2, that was not the original positioning. The new client/server was slotted as software for smaller companies or for remote divisions of larger enterprises that needed a new ERP system. Over time, nearly all R/2 users replaced their mainframes with R/3. Of course, there were at least five years and three major releases before R/3 was close to functional parity with R/2."

So 2007 ends with SAP on top of the market, turning in good financial reports and (finally) with some skin in the software as a service (SaaS) game. So nothing can go wrong? In this day and age and with the software market as volatile as it is, it would be foolish to say that nothing can go wrong, but it's pretty damned unlikely as well.

Still, even SAP is subject to rumour and speculation and in SAP's case it's that old favourite about being bought by Microsoft which raised its ugly head again during the Influencer Summit. Has SAP been talking to Microsoft about a merger? On this point Kagermann is adamant.

“No!”

 

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