SAP to Become Leaner, Meaner and More Organized

SAP to Become Leaner, Meaner and More Organized
P.J. Jakovljevic - July 10, 2000

Event Summary

As reported in a number of industry reports at the beginning of June, German ERP software vendor SAP AG is to reorganizing its software division into three separate units. It is planning a radical revamp of its software development operations in an effort to regain dominance of the North American business software market.

"This will make our research and development department more customer oriented," said the SAP spokesman, who asked not to be named. According to the spokesman, the software division will be divided into three business units - new development, maintenance, and product enhancement - and will not affect any jobs.

The spokesman denied that the restructuring had anything to do with comments made by SAP's Chief Executive Officer Hasso Plattner at the company's customer conference in Berlin in May. At the conference, Plattner acknowledged that SAP would be working with partner companies to add depth to its suite.

"A move like this is quite normal. We are a very large company," the spokesman said.

The rumors, nonetheless, emerged that SAP's new head of American operations, Wolfgang Kemna, is planning some internal changes of his own. The new SAP Americas CEO plans to cut several layers of management in order to streamline operations and bring SAP closer to customers.

Market Impact

SAP is pragmatically moving in the right direction, although somewhat belatedly and with a heavy heart. The company has recognized its US image problem of not being flexible enough, partly due to a large, unwieldy organization. The internal restructuring and the external image renovation may indicate that SAP is getting an idea of how the new economy works - the company that responds the most swiftly to customers' demands and anticipates vacillating market conditions will be the winner.

While SAP has so far failed in its attempt to transition quickly to new CRM and e-commerce technologies, it has recently been making moves in the right direction to remain competitive in the new economy. We endorse SAP's recent humility and willingness to partner with other vendors for software components it cannot develop efficiently in-house. However, this is a notable departure from its previous strategy and will require a significant mindset change.

Incidentally, the new anticipated SAP units correspond with the strategic areas of Customer Relationship Management (CRM), supply chain management (SCM), and product lifecycle management (PLM). Ironically, these are also the product functionality areas where SAP has stumbled, particularly in the United States, where competition from more nimble point solutions vendors like i2 Technologies, in the SCM market, and Siebel Systems in the CRM market has taken its toll. SAP has also been feeling additional pressure from direct US ERP competitors Oracle and PeopleSoft, who have been more aggressively marketing their Internet-extended ERP products.

Breaking down a large organization into smaller, more manageable and responsible units should give SAP a better chance to be more flexible and focused. So far, SAP has been trying to simultaneously move in too many directions, without getting very far in most of them.

User Recommendations

Notwithstanding, SAP should be included on almost any initial long list for global extended-ERP selections. However, existing and potential users currently evaluating SAP products, particularly its extended-ERP product components, may benefit from considering already available and fully functional components from other vendors on the merits of individual components, instead of blindly following their brand loyalty. Each component should be put through its paces using a well-documented set of requirements, scripted scenarios demonstrations and rigorous reference checking.

Future clients are also advised to request SAP's written commitment to promised functionality, general availability date, price, length of implementation, and seamless future upgrades, particularly for recently announced partnered offerings. SAP has traditionally been honest and forthright in addressing these questions. Therefore, it should not be difficult to make SAP grant a single contract and help desk for all the disparate components of its product offerings.

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