SAP the giant: feet planted firmly, but facing existing clients and looking for services

Even the great SAP is feeling the pinch. At the company’s massive Sapphire user event in Lisbon, Portugal last week, normally upbeat joint CEO Hasso Plattner told 7,000 delegates that the firm, while enjoying considerable success, was not immune to its global customers’ caution, and that would be reflected in its financial results. The numbers are still big, but after 30 years in business the latest show SAP’s license sales down 23%, partly offset by increased service revenues – as users the world over turn to incremental ERP and supply chain additions – but leading to a 4% fall in revenues to eur 1.78 billion (£1.12 billion). In a sense, nothing changes. SAP is marching on with its immense R&D programme (13% of revenues), the results of which were on view if not trumpeted. And the firm took the opportunity to present some very big and impressive wins among big time manufacturing organisations – including VW, Siemens, Ford, Caterpillar and DaimlerChrysler. Indeed, Siemens was very big news at the event – rolling out SAP’s Enterprise Portal to 440,000 employees for running communication and information sharing internally and right across its customers, partners and suppliers. It’s a big project (sources value it around the eur 20 million mark) and shows big commitment from the earlier pilot and initial roll out – all the more interesting given the other Siemens systems implicated, which include IBM, Baan, CommerceOne, i2 and PeopleSoft. Similarly VW’s stated intention to roll out mySAP CRM globally, following its initial implementations at the Phaeton luxury car project linking into the new Dresden plant and Audi’s customer centre for campaign management, is also an immense fillip. It adds to existing SAP systems and we gather will be implemented by VW with SAP’s own consulting service – and shows that problems back in 1999 with R/3 implementation in the spares division are now forgiven if not forgotten. And the story is similar at Hershey Foods in the US, where evidently everything is now going swimmingly despite serious problems three years ago that led to public blame and admonition. But these and the others aside, the fact is SAP’s vast cost base and its operations could conceivably fall prey to ‘shareholder value’ if the looked-for improvement in manufacturing IT uptake fails to materialise fast enough and puts additional pressure on SAPs’ bottom line. Plattner made it clear that margins would not be allowed to fall, so growth nearer 5% than it’s hoped for 15% would mean surgery – and the ensuing consequences. For SAP, as all the established ISVs, that means helpfully focusing back on its existing client base – despite SAP’s vigorous claim that 30% of revenues will come from new business. Indeed, the firm was saying everything currently ‘in’ and sensible about looking after its huge client base – currently some 20,000 – for which it’s record is not bad, and focusing on “tangible results”. Joint CEO Henning Kagermann’s key message was today’s rather amusing one of helping users to spend less on their SAP investments, and then also particularly to build on their existing systems and get faster ROI, efficiency and so on. Proof of intent comes well from Kagermann’s introduction at the event of SAP Solution Management, both product and strategy, aimed at managing systems from inception through upgrades, with the focus on holistic infrastructure cost control. The classic cited was work with IBM to cut the number of SAP instances from 25 to six. It also comes from renewed emphasis on growing SAP development and implementation services. Kagermann launched the firm’s Global Custom Development Services organisation, expanding on its Strategic Development Projects group formed in 1998 and SAP Global Solution Centre last year. That led analyst AMR and others to speculate that the firm will be playing to today’s reality of mostly service-driven revenues and becoming “more aggressive about pursuing custom projects”. The company already has some 120 custom and/or joint development projects to its credit in a range of industry sectors, including pharmaceutical and automotive. Which is fine, but there may be issues for the future as to where it draws the real line with its many global SAP practice partners and their territories. Time will tell. Back to the products, and some were announced while others were fleshed out somewhat. Notables included SAP R/3 Enterprise for SMEs with little manufacturing complexity (from its TopManage Financial Solutions acquisition), the xApps (component-based cross applications spanning existing suites to deliver additional services), mySAP CRM and mySAP PLM, as well as SAP Web Application Server and Web services announcements. Cross apps include SAP’s recently announced Employee Productivity Suite and its Resource and Program Management, the latter due out still in December. And while it seems confusing there is logic in the approach – along the lines of building on what you’ve got with notional umbrella applications on top rather than replication and/or traditional ‘horizontal’ suite additions. There were also more baseline initiatives – like getting to grips with that old cookie, cleaning up master data, the proposal being use of SAP’s Master DataManagement. That alone will strike quite a chord on the customer data side. And other similar product/services offerings include ‘value assessment’ software and consulting services, the SAP Business Case Builder ROI decision support tool, and SAP Solution Composer which taps into templates and best practice.