Event
Summary
At the end of April, SAP AG (NYSE: SAP), the leading provider of business
software solutions, announced growing momentum for mySAP Customer Relationship
Management (mySAP CRM) among companies seeking to leverage SAP's understanding
of global business, industry-specific business solutions, and CRM functionality
for the chemical industry. SAP claims that because mySAP CRM provides
a flexible foundation well suited to a changing business environment,
chemical companies have adopted it to integrate their entire business,
global supply chains, and partner networks.
Supporting
this claim, chemical companies that have selected mySAP CRM include The
BOC Group, Dunn-Edwards Corporation, Marsulex Inc., Millennium Chemicals,
and Rohm and Haas Company. These leading companies join the ranks
of other global customers from other sectors who have chosen mySAP CRM
to deliver improved customer service and value, and they may be providing
further proof of SAP's gaining market momentum.
Earlier
in the year, SAP announced that, since the introduction of mySAP CRM to
the market at the end of 1999, more than 1,500 companies around the globe
have selected the CRM solution. In 2001 SAP reportedly generated revenues
in CRM totaling EUR 445 million, making the software company the No. 2
CRM vendor and the No. 1 in its installed customer base. Other well-known
companies that have decided to implement mySAP CRM, include the pharmaceutical
vendors AstraZeneca Germany and ratiopharm, plus COOP Norway,
IDS Scheer CEE (Central and Eastern Europe), Nestl Nordic, Norsk Hydro
Gas & Chemicals, Osram, and Siemens ICM (Information and Communication
Mobile).
The
most recent endorsement to its CRM offering happened on May 15, when Deloitte
Consulting, one of world-leading consulting firms, announced an expansion
to its strategic alliance with SAP to jointly deliver mySAP CRM solutions
for Fortune 1000 and enterprise organizations. Since SAP has established
a rapidly growing presence in the global CRM marketplace with its mySAP
CRM solution, this software will be the focus of the joint effort. Deloitte
Consulting is reportedly committed to growing its global mySAP CRM practice
to more than 1000 consultants in the next year. The firm claims to be
is a leader in SAP implementations globally, with a dedicated SAP practice
of more than 5,000 professionals, and more than 1,000 current projects
serving many top-tier global clients.
Customers
are reportedly praising the ability of mySAP CRM to integrate with existing
applications, such as ERP, as well as the transparency of processes, its
scalability, and analytical functionality. The software solution mySAP
CRM provides for the management of integrated business processes in the
core areas of customer relationship management, such as marketing and
sales automation, services, and analytical CRM as well as multi-channel
management, including Internet, customer interaction centers (CICs), and
personal contact. The current version of mySAP CRM also tends to provide
for fast implementation through more than 100 pre-defined business processes
with operational, analytical, and enterprise-wide CRM functions.
SAP
believes mySAP CRM offers chemical companies a strategic advantage since
its operational, analytic, and collaborative features empower employees
to respond more quickly because they have a consistent view of their customers.
mySAP CRM enables collaboration by distributing relevant information to
internal and external communities of interest, informing customers and
partners about new products, special offers, updates on new site features,
and upcoming events. This improves marketing efficiency and speeds communication.
Additionally, mySAP CRM helps chemical companies to grow top-line revenues
by enabling more effective up-selling, cross-selling, and identification
of new sales and delivery channels. Capabilities such as predefined buyer
profiles, commonly sold product terms, up-to-the-minute information about
pricing and availability, customer-initiated tracking, and automatically
updated financial and inventory data should reduce purchasing cycle time
and, therefore, the cost of transactions.
Renewing
its pledge to open its products, on April 18, SAP announced it would accelerate
the delivery of open, collaborative application solutions, which use open
integration technology and enable customers to maximize the return on
their existing IT investments, even in heterogeneous environments. The
company announced it has created a new business area to focus on the next
generation of collaborative solutions and that Shai Agassi, in his new
role as a member of the SAP Executive Board, will be responsible for this
business area.
By
extending the SAP Executive Board to focus on the next generation of collaborative
solutions SAP intends to demonstrate their strategic significance to the
company. The business area will include development, market strategy,
professional services, and business development personnel of the formerly
independent SAP subsidiaries, SAP Markets and SAP Portals,
as well as strategically built field initiatives and solution centers.
It will focus on providing an open integration platform that unifies people,
information, and business processes. On top of this platform, which combines
portal, business intelligence (BI), knowledge management (KM), and exchange
technology, the new business area will supposedly deliver collaborative,
analytical, and commerce solutions that should run within and across business
boundaries.
This
is Part One of a two-part analysis of recent SAP announcements. Part Two
will further discuss the Market Impact of these announcements and make
User Recommendations.
Financials
On
the same day, SAP also announced its preliminary results for the first
quarter ended March 31, 2002. In Q1 2002, revenues increased 9% from EUR
1.52 billion in the same period last year to EUR 1.66 billion (See Figure
1). While product revenues in the quarter rose 6% to EUR 999 million from
EUR 943 million in Q1 2001, license revenues notably dropped 12% to EUR
402 million from EUR 458 million a year ago. More notably, net income
for Q1 2002, adjusted for the TopTier acquisition costs and the
Commerce One impact, was EUR 65 million, a 40% drop compared to
EUR 109 million in Q1 2001. In the quarter, revenues in the Europe, Middle
East and Africa (EMEA) region increased 11% to EUR 886 million and in
the Asia-Pacific region (APA) revenues were up 4% to EUR 185 million.
Figure
1.
Even
revenues in the Americas region rose 7% to EUR 587 million, and, at constant
currency rates, revenues in the Americas would have risen 5%. Still, the
continued tightening of IT budgets, especially in the US and Japan, have
given raise to disappointment, particularly as license revenue in the
US was down 28% (down 30% in Americas) and in Japan was down 56% (down
32% in APA). Also interesting is the fact that while the license revenue
in the EMEA market was up 1%, it dropped 4% in its domestic German market.
SAP
continues to take market share in sales of specific software solutions,
and it also increased its personnel 3% in the quarter, mostly in Europe.
In Q1 2002, software revenues related to mySAP CRM reached approximately
EUR 74 million, representing a 10% growth and accounting 18% of total
software license sales. Even recently considered unexciting products,
mySAP Financials and Human Resources, grew at a steady 6% rate
to EUR 172 million, representing 35% of license sales.
On
a less positive note, the steepest revenue declines come from other newer
mySAP initiatives, including mySAP SCM (with a decline of 23% to
EUR 79 million), mySAP PLM (with a decline of 28% to EUR 33 million),
and mySAP Portals and Exchanges (with a decline of 45% to EUR 44
million). Although the conditions for software purchases are challenging,
the company still expects a much stronger second half of the year, and
still anticipates revenue for the full year to grow by around 15%. SAP
anticipates that the improvement will become more evident in the second
half of the year as software license performance improves and the company
benefits from ongoing cost curtailment measures.
Management
Changes
Finally,
as to bolster its performance in North America and to get itself in a
better shape for impending intensifying bloodbath in the CRM market, on
May 23, on the eve of its forthcoming SAPPHIRE user conference at the
beginning of June, SAP announced that it has appointed Lo Apotheker as
president of Global Field Operations. In this newly created position,
Apotheker and his management team will realign SAP's worldwide sales force
around the needs of global customers for consistent processes and seamless
operations across geographies. The realignment will also decouple some
of SAP's regional organizations to create more homogenous market segments
to enable the field organization to better meet customer needs regardless
of the size of their businesses. Formerly president of Europe, the Middle
East and Africa (EMEA), Apotheker will oversee all SAP field operations
worldwide, reporting directly to SAP Co-chairman and CEO Henning Kagermann.
Apotheker joined SAP 14 years ago and launched SAP France, serving first
as managing director and eventually assuming responsibility for SAP's
southwest Europe region. In 2000, he was appointed to SAP's Extended Board
and named president of EMEA.
Apotheker
will serve as acting head of the North American region of SAP, gaining
hands-on experience in SAP's largest potential market, since Wolfgang
Kemna, current president and CEO of SAP America, Inc. is assuming the
role of executive vice president, Global Initiatives reporting directly
to Henning Kagermann. Kemna will build on the success of SAP's global
strategic initiatives in CRM and Supply Chain Management (SCM), leading
a new organization dedicated to these and other future strategic initiatives.
Market
Impact
While SAP might not resemble a furiously fast sport sedan, it remains
a sturdy sport utility vehicle (SUV) whose at least two wheels' traction
should be able to pull it through a muddy terrain. Most recently, the
traction has been on the CRM and, somewhat surprisingly, on the venerable
ERP wheel, with likelihood that the other wheels will get needed traction
in the future.
With
its ever-growing large footprint and scale of on-going product development,
SAP is set to keep on rolling. Make no mistake - SAP is Europe's largest
software vendor and the third largest software vendor in the world, with
subsidiaries in over 50 countries, and with over 17,000 companies in over
120 countries that run nearly 45,000 installations of its software. The
company is also well entrenched as the world's largest provider of enterprise
e-business applications covering almost all the bases of extended-ERP
such as supply chain management (SCM), product lifecycle management (PLM),
CRM, supplier relationship management (SRM), e-procurement (for both direct
and indirect (MRO) materials) and many other collaborative commerce components
through its mySAP.com suite, that can be regarded as both portal
application and e-business platform at the same time.
Furthermore,
SAP products are used in virtually every industrial sector and, as of
late, within companies of all sizes. While large enterprises are handled
via direct sales force and the big five (soon to be four) and other renowned
consultancies, the mid market is tackled through resellers, with specific
industry templates and as hosted applications if required. Lately, SAP
has increasingly been targeting companies of all sizes, with different
solutions from its mySAP.com stable (see SAP
Tries Another, Bifurcated Tack At A Small Guy).
Its
focus in the future is likely going to be on the lower-end of the market,
currently still being a lesser part of SAP's total revenues. With its
over 20 industry-focused solutions (including, e.g., aerospace and defense,
automotive, chemicals, financial institutions, consumer packaged goods
(CPG), high-tech, mill products, mining, oil and gas, pharmaceuticals,
etc.) and its sheer size, SAP is able to claim almost total industry coverage
and all the manufacturing styles from simple to complex discrete and from
batch to continuous process manufacturing. Still, 2002 is slated to see
a more vertical industry approach with specific effort being put into
small to medium enterprises (SMEs), primarily through the VAR organizations.
Consequently,
SAP will remain an absolute applications leader for a long time to come,
as it has performed by and large well throughout the gloomy economic times.
SAP was also fortunate to a degree, in addition to its good execution
(since 'fortune favors bold'). Indeed, SAP's initial tardiness in addressing
the needs of the Internet revolution may now prove to have been a blessing
in disguise. While the company has taken heat for looking hopelessly remiss
during 1999/2000's 'dotcom' frenzy and for delivering a muddled initial
mySAP.com Internet-enabled product strategy, it has come back with a vengeance
with the crash of the Internet hype.
Rather
than investing much of its own resources to deliver applications for the
Internet marketplaces gold rush that never took place, SAP maintained
its focus on solving 'down-to-earth' business problems and on positioning
itself as a strategic partner to its customers. Particularly during these
times of risk-averse customers, SAP's aura of a stalwart vendor and its
prudent approaches to solving customers' business problems have become
even more attractive and assuring both to its huge customer base and to
new prospects. SAP's current posture is also the result of several years
of a painstaking effort to radically change its business philosophy, to
reinvent itself into a more nimble setup, and to reverse bad market perception.
The company has by and large made the right strategic decisions - it has
embarked on making its proverbially unwieldy R/3 product more granular
and open, and it has delivered attractive ERP-adjacent components.
SAP
has also been pursuing the right avenues to technologically keep its product
abreast of the latest market trends. Its recently unveiled Internet-based
product architecture roadmap that includes Web services, portals, exchanges
and Web Application Server (WAS) (see SAP
Opens The 'Miss Congeniality' Contest), bundled with its knowledge
of business processes bode well from promoting it into one of a few vendors
that will be able to provide applications infrastructure foundation (an
enterprise equivalent of operational systems upon which other applications
would be able to be grafted). As for technology, all of the above-cited
SAP's decoupled applications now run on mySAP.com technology platform
(meaning web-based and XML, SOAP, J2EE, Microsoft BizTalk and .NET compliant),
and there are laid out upgrade paths for the user base from old instances
of R/3 product. At the same time, OS platforms can be a plethora of Windows
NT, Unix and IBM iSeries (AS/400), up to mainframe systems; the similar
holds for database platforms. The company plans to deliver later in the
year an integration broker embedded into its J2EE-based application server,
which is also in development.
Also,
to diffuse customers' anxiety and possible discomfort of time-compressed
migrations, SAP is wisely extending maintenance on R/3 release 4.6c for
another year -- to the end of March 2006. SAP is also extending maintenance
on many even older releases of R/3 (e.g., 3.1i, 4.0b, 4.5b, and
4.6b), at no extra charge, by four months to the end of December 2003,
and thereafter with a 2% extra charge to December 2004. The reason for
the above is the fact that the forthcoming release of SAP R/3 Enterprise,
its future architectural foundation that should transition many old R/3
releases to mySAP, is scheduled to start shipping en mass in January 2003.
Given that, based on past user experiences, it would sometimes take them
nearly a year to upgrade to R/3 4.6.c release from 3.x releases, one should
expect same effort for the upgrade to R/3 Enterprise. Without the above
maintenance extension provision, users would then be forced to either
start their migration to R/3 Enterprise prior to its general availability
or to upgrade to 4.6c release, which would defeat the purpose for both
them and SAP, since R/3 Enterprise represents SAP's future architecture.
Therefore, repeating similar moves of its foes, Oracle and PeopleSoft,
SAP is wisely taking care of its users and, at the same time, is gaining
itself a popular image in the public's eye.
This
concludes Part One of a two-part analysis of recent news from SAP. Part
Two will continue to discuss the Market Impact and make User Recommendations.