On November 26, SAP (NYSE: SAP), the leading provider of business software
solutions that has nonetheless long been regarded too unwieldy and costly
for small or midsize enterprises, announced plans to deepen its commitment
to small and medium businesses (SMBs) by expanding its channel partner
sales program to cover businesses with up to $500 million (U.S.) in annual
expansion of its indirect sales channel is intended to augment the company's
direct sales efforts and give it more complete sales coverage of the entire
U.S. market, ranging from businesses with less than $200 million in revenue
to the largest global corporations. On December 7, however, SAP undercut
the power of its November 26 announcement by deciding to axe approximately
7% staff from its over 4,500-strong U.S. workforce as a part of an overall
restructuring program requiring all divisions to curb fourth quarter costs.
The cuts are part of SAP's restructuring program in the US to transform
its 21 industry groups into 12 vertical industry "clusters" that will
focus on the three core e-business software areas -- SCM, CRM and ERP.
the SMB program, SAP will certify new and existing channel sales partners
to offer its e-business solutions to companies with up to $500 million
in annual revenue in specific vertical industries and geographic areas
across the United States. The expanded program will build on the success
of SAP's current Certified Business Solutions (CBS) program, which was
established in 1997 to simplify the process of evaluating and purchasing
software, equipment and implementation services for businesses with annual
revenues of less than $200 million. Through its current network of seven
CBS providers, SAP delivers prepackaged solutions incorporating industry-specific
functionality and best practices for faster and more cost-effective deployments.
with less than $500 million in annual revenue reportedly constitute 58%
of SAP's worldwide customer installations and represent an area of increasing
focus for solution development and sales efforts, as well as a key market
opportunity for SAP. In addition to the enhanced sales and delivery efforts
to midsize companies, SAP plans to further expand the depth of its solution
offerings for small and medium businesses by partnering with industry-experienced
third parties that will bring a series of prepackaged solutions for specific
vertical industries to market.
channel announcement should be regarded as a prudent and positive move
for SAP, although much belated. Nonetheless, the move should confirm the
company's commitment to SMB customers. Given that now almost two-thirds
of all SAP customers would fall within this category (less than $500 million
in revenues), the market perception of SAP being overkill for smaller
enterprises might change too.
is interesting to note that SAP has been plagued by this myth particularly
in the US. The fact is that a high percentage of SAP's customers elsewhere
in the world are mid-market companies. One can wonder why that is still
not much of the case in the US. Smaller enterprises, employing an unbiased
software selection facilitator, still regard as frivolous the suggestion
to include SAP in the bidding process. One reason is very likely that
SAP's US-based competitors have done a masterful job of instilling FUD
(fear, uncertainty, and doubt) mainly by exploiting some well-publicized
SAP implementations' flops in the US; this must have most likely not been
that effective in Europe, where SAP is considered a poster child of a
successful company and the pride of European corporate world. For example,
to not invite SAP to participate in a selection for a German mid-market
enterprise, would be equal to blasphemy.
major reason is still nascent indirect channel - only seven certified
partners for the entire US market sounds rather pathetic compared to thousands
that, e.g., Microsoft Great Plains cite. While SAP has increasingly
been bidding in smaller deals, it has also been doing mainly through its
direct sales force. So far this approach has often proven inappropriate
for the market segment. Although its swanky-dressed and haughty mannered
pre-sales consultants impress with their knowledge and the professional
posture, they repeat the 'spiel' they would play before the users of some
corporate giants. As a result, the SMB prospects often get overawed and
bamboozled by the perceived complexity of the software and impeding implementation
is a completely different case when SAP is presented by a local partner,
well versed with the issues and fears of the customer (and who can even
strike a cultural rapport with them, being a native of the region), particularly
if the partner specializes in the customer's industry. Therefore, increasing
indirect channels bundled with vertical industry and geographic coverage
specialization is a necessary step for positioning SAP as a relevant provider
of solutions to this increasingly important market segment. By seemingly
giving more away now, SAP might benefit more in the long run. Also, the
reliance on partners in the US should give SAP a breathing space in light
of its recent internal job cuts that came as no surprise given SAP's protracted
dismal performance in the US (see Soft
Economy Dents SAP's Armored Shield As Well).
move might boost the depth of solutions and the level of support for SMB
customers, bundled with the program of strengthening SAP's partners network.
Although the program had started some time ago and had resulted with some
success (see SAP
Claims Big Gains In The Low-End Battleground), it had not taken off
the big time, partly owing to some dot-com partners going out of business
in the meantime, and owing to SAP's painstaking approach of certifying
industry solutions that has so far produced only a handful of CBSs. Nevertheless,
SAP has been engaged in its channel partners' activities to ensure that
they understand the needs of the SMBs. SAP has been providing the help
in co-developing Certified Business Solutions (CBS) software add-ons that
are vertical specific, down to the SIC-code, a concept believed to have
an appeal to SMBs. While, the partnership has implemented its first several
U.S.-based, mid-market deals, which can now represent compelling references,
much more is needed in order for SAP to become a full-fledged mid-market
contender in the US.
battle for the lower-end of the market, while it had started a few years
ago, has begun in earnest during the last 12 months with a number of vendors
displaying their arsenals. In its quest to sustain growth despite global
blue chips' constipation with business applications, almost the entire
ERP industry opted to pursue both lateral expansion into adjacent functional
areas, which has led to the current convergence of ERP with SCM, CRM,
PLM, trade exchanges, and portals, as well as to move down market.
that end, fast path/track implementation methods, fixed cost implementations,
remote/virtual consulting, web-based and/or computer-based training (CBT),
vertical industry templates, are some from the bag of tricks many vendors
announced with great fanfare and designed, at least in part, to make a
large enterprise application more bite-size and palatable to the mid-market.
To that end, Oracle and PeopleSoft have unequivocally shown
their interest in smaller customers (see SupplyChain.Oracle.com
And The 20-Day Implementation,Oracle
Claims The Worst Is Over And Turns To KISS For A Boost, PeopleSoft
Supply Chain Is Music To Mid Market Ears and PeopleSoft
Joins The Hunt For SMEs, with PeopleSoft citing more than 1,000 mid-market
customers as one of the reasons for its unimpeded success (see PeopleSoft
Remains Rock-Hard And Economy Proof ).
and J.D. Edwards, on the other hand, have more or less vocally
relegated themselves to the lower-end of the market, while the $500 million
game has long been the sweet spot of QAD, Frontstep, interBiz,
Epicor, SCT, Lawson, IFS, SSA, or Intentia.
Given that the likes of MAPICS, Navision, Ross Systems
and Microsoft Great Plains, to name but a few, have
improved their product scalability lately to go up market, the inevitable
mid-market carnage might not be for the faint-hearted.
Interested US companies with less than $500 million in revenue and in
particular industries of SAP's focus should certainly consider SAP's SMB
offering and carefully determine their needs and implementation time framework,
bearing in mind problems typical with new product releases and new partnerships'
arrangements. Organizations seeking a Web-based solution and out-of-box
functionality with little or no customization may benefit from evaluating
the relevant ASP offering.
strongly recommend identifying your clear e-business strategy and conducting
thorough comparison-shopping, at least for the sake of information leverage.
Consider all options. Most importantly identify what needs are "must have"
requirements and a timeline for additional components. Once identified,
comparison-shop and use the related information to negotiate the best
price for the solution. Most vendors offer their own version of SMB solutions
with programs for rapid, lower-cost implementations. While vendors' endeavors
in that regard are highly commendable, the "caveat emptor" approach is
still applicable. Although some smaller companies would be well off with
scaled-down versions of rapidly implemented, Tier 1 software applications,
for many companies this may not necessarily be the best solution (see
Implementations - Are They Good or Bad?).
mid-market companies today's dynamic business environment means the survival
of the most agile and flexible. When evaluating a software application,
companies often fall for a snazzy user interface or raw number-crunching
power. However, a flexible system should also offer features like tools
and templates, cross-reference checks, and many other parameterization
utilities that provide significant system changes without changing source
code. Make sure that what you select now will keep abreast of the technology
changes in the future. In any case, give SAP a chance to prove that its
partners may represent it as nimble and local enough while the company
remains huge and global. Still, the nature of the partnership in case
(commitment, vertical specialization, client references) should be thoroughly
comprehensive recommendations for both current and potential SAP users
can be found in SAP
- A Humble Giant From The Reality Land? Part 5: Challenges and User Recommendations
and in 'Collaborative
Commerce': ERP, CRM, e-Proc, and SCM Unite! A Series Study: SAP AG.