Vendor Summary
Founded
by five former IBM employees in 1972 and based in Walldorf, Germany, SAP AG
is the No. 1 vendor in the Enterprise Resource Planning (ERP) software arena,
(19,000 employees, 31% of worldwide ERP market), and one of the largest independent
software companies in the world, currently present in 107 countries. The Company's
revenues increased from DM2.6 billion in 1995 to DM8.4 (US$5.1) billion in 1998
(see SAP AG Annual Results Chart). The Company posted a $631 million net profit
in 1998, while the majority of its main competitors encountered major financial
difficulties. SAP's first generation of software was introduced in 1973 and
consisted of a modest financial accounting operation. In 1981, the Company introduced
its second generation of application software, the R/2 System, that had the
capacity to be installed enterprise-wide on mainframe computers. SAP's primary
product is the R/3 System for client/server (distributed) architectures, that
was brought to market in the early 1990s. Today, SAP is in the process of completing
one of its most aggressive new product launches in its history by introducing
its "New Dimension" products line, which initially includes independent
business applications for Supply Chain Management (SCM) - ("SAP APO"),
Client Relationship Management (CRM) - ("SAP Sales", "SAP Service",
"SAP Marketing"), Business Intelligence (BI) - ("SAP BW",
"SAP SEM", "SAP KM"), and e-Commerce ("SAP B2B").
In addition to dividing the system into components, SAP has begun development
of a series of pre-configured R/3 templates ("AcceleratedSAP") for
use within specific industries. By the end of 1998, the Company had licensed
more than 19,000 system installations to more than 10,700 customers worldwide,
with approx. 60% of SAP customers greater than $200 million in revenue. SAP
went public in 1984 (1998 on NYSE) and its shares trade on the New York, Frankfurt,
and Stuttgart stock exchanges.
Fig. 1
Vendor Strengths
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Commanding
market position and brand recognition, very sound financial situation, sustained
investment in R&D (13% of revenue, 25% of workforce), very strong direct
sales force (18% of employees), excellent informal corporate culture that
nurtures creativity of employees.
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Strong
technology, very broad and deep core ERP solution (R/3), together with an
excellent reputation for innovation (very healthy new product flow) and
formidable support & maintenance infrastructure.
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The
entire product suite has been developed in-house, thereby eliminating integration
problems, experienced by competitors in their acquisitions' aftermath.
Fig. 2
Vendor Challenges
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Bad
reputation for protracted (very often over 18 months) and costly implementations
(often 7-10 times software license costs), as well as a complex, rigid product
that often imposes radical change on customers' business practices. This
could be a possible impediments for SAP's ability to penetrate the much
coveted Small-to-Medium Enterprises (SME) market.
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Increasingly
competitive market; SAP revenue is recently driven by service and maintenance,
with steep deceleration in license revenue (only 13% total revenue growth
in the last 2 quarters with only 1% growth in license revenue and 7% drop
in net profit compared to the same period last year - see SAP AG Quarterly
Results Chart); Steady growth from previous years will be very difficult
to maintain, simply by virtue of Company size.
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Some
"New Dimension" products have been either late-to-market ("SAP
B2B") or have poor functionality ("SAP APO"), or both (CRM
product suite), compared to equivalent niche players' products (Ariba, i2,
Siebel, respectively).
Fig. 3
Vendor Predictions
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Slower
annual growth (10%-20%) in 1999 (see ERP Vendors Annual Growth Chart), however
higher than those of most competitors, market share expected to grow to
35% by year 2003 (70% probability).
-
"New
Dimension" and "Industry-Specific" products (particularly
"SAP BW" and "SAP HR") will be significant contributors
to SAP sales revenue (up to 30% within next 3 years).
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Acquisitions
very unlikely, the focus will be on strategic alliances with renowned VAR
and ASP companies in order to penetrate SME market via outsourcing offerings,
especially for "SAP HR" and "AcceleratedSAP" vertical
industry solutions.
Fig. 4
Vendor Recommendations
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Penetrate
Small-to-Medium Enterprises (SME) market segment with the entire product
portfolio of component applications, mainly through indirect channels and
outsourcing arrangements.
-
Use
direct sales force to expand the business in existing large customer base,
both by increasing number of seats and offering New Dimension and Industry-Specific
products, as well as by helping existing customers improve the economic
value of their R/3 installations (ValueSAP initiative).
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Remain
committed to speedy and fully-functional new product introductions (complete
CRM and BI product suites) and to reduction of product complexity and implementation
price (TeamSAP, EnjoySAP, and ValueSAP initiatives), by increasing R&D
budget for 1999 at least 10% over the 1998 level ($640 million).
-
Exercise
moderate sales, marketing and administrative cost cutting in order to keep
total operating expenses for 1999 under 10% increase compared to 1998 ($4.1
billion).
Fig. 5
User Recommendations
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One
would be hard pressed to find a case where SAP should not, with a good reason,
be included on at least an initial long list of vendors in a global ERP
selection.
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SAP
should be on a short list in any enterprise application selection process
within the following industries: chemical, oil and gas, pharmaceuticals,
engineering and construction, aerospace and defense, high-tech, fast-moving
consumer goods and retail, utilities, service providers, financial institutions,
and public sector.
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SAP
might not be a strong contender in a case of time- and/or budget- constrained
ERP implementation with a narrow functionality scope (e.g. HR or financial
module only).
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If
SAP is the final choice, future SAP clients should consider the following:
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Negotiate
the license fee per module if the entire R/3 breadth is not needed.
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Provide
for future incorporation of "New Dimension" components by
bundling them into contract now at negotiated license fees.
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Stay
away from consulting partners who don't follow SAP's ASAP implementation
methodology, the best scenario would be to use SAP Company's consultants
or partners belonging to TeamSAP initiative.
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Prerequisites
for successful SAP implementation: commitment of top-level management,
proper end-user training, close monitoring of project progress, and
molding R/3 in order to accommodate business processes (not the other
way around).